Thursday, 8 August 2013

Mondeo Man Trap can win Cameron the next election

The tide has turned on the British economy; after the tsunami of the credit crunch we have been beached on the mudflats of no/low growth of for four years.  There have been moments when it seemed the after-shocks would create move waves, the Euro crisis being the most obvious risk.  There have even been moments when recovery seemed to be ebbing our way only to evaporate into the stinking sands of a flat-lining growth.  In December last year I blogged that we were at the beginning of the end and amazingly I think I called the low water mark correctly and 8 months on the sparkling waters of recovery our flooding in bringing relief to many parts of our economy. 
Low water - but the tide is coming in!
This change in the tide is very welcome but growth is still weak and localised.  Most of the benefits are being felt in London and its hinterland and only in pockets outside the south east of England.  More worrying our neighbours in Europe are still up to their knees in thick mud and going nowhere fast.  With a new governor at the Bank of England and only 20 months of the coalition government to run people in high places can't afford another false start, they need a full spring tide to come flooding in to all parts if our economy. 

As well as restoring our economy the Coalition government and the Tories in particular need to find a way to win the next election in 2015.  To do this the Tory party will need to be able to show that they have delivered a sustainable recovery and the main indicator for the electorate will be improved living standards, which have been so badly hit by the recession.    This should be the sole measure for the Tories as there are very few votes in lowering unemployment even less in austerity and reducing the deficit.  The Labour party have cleverly switched horses from the ‘flat-lining economy’ to the erosion of living standards and Ed Ball’s new mantra is - ‘people are £6,750 worse of today than they were at the last election’.  This is not a statistical con trick, these are real cumulative loses (£1,350 a year), it’s a potent message and voters really feel the pain.  Specifically, the employed middle classes who have lost the children’s allowance, bonus payments, overtime payments and have had to endure below inflation pay increases have lost not just the cream on the cake but most of the cake.  Whilst state pensioners and those on benefit have had inflation linked increases many hard working families have moved from relative prosperity to penury in four long years.  These people need a break. 
The Tories need to look after their own and reward the engine room of our economy for their forbearance and good manners over the last few years, so what’s the plan?  My guess is that there is no plan!  Osborne and Cameron are well known for their aversion to strategy and long term planning, they simple play what’s in front of them.  Both of these toffs have proved capable at get out of tight corners but can they play a winning hand?  There are any number of things they could do that would have a direct effect on our economy and living standards but they are somewhat constrained by their coalition partners and the shortage of time.  So what are the candidates that would be politically acceptable to the LibDems and would have sufficient impact on enough of the electorate.
There are three promising fiscal levers the Tories might pull?
  1. Tax cuts to income or spending
  2. Some use of extended tax credits, but these are likely to favour the poorly paid, who have already one well under the coalition.
  3. Cut unavoidable expenses through reduced duties – lowering the cost of beer might be popular but will it win an election?  
All of these options may be difficult to justify given our deficit, so they would have to be balanced with a claw back elsewhere.  The measures would also need to be inflation neutral as this is still the biggest risk to our long term recovery.  The handout should impact our competitiveness positively and certainly not drag in imports. And of course any of these options would have to be worked into a narrative that supports the story about getting the UK back to work and rewarding those in work.
For my money the stand out option would be to cut fuel duty  from 57.95p a litre to 50p a litre, this would cost about £4.2bn a year and this money would flow directly into motorist pockets.  By cutting fuel duty we would achieve three things: reduce inflation, put money in the pocket of hard working people, reduce our business costs and improve our international competitiveness.  If implemented in the tax year 2014/15 these benefits would be targeted to the right audience at the right time and could be paid for by the accelerated sell off of Lloyds Banking Group and or RBS.
Does this seem a trifle cynical? It is, but it’s what political parties do!  In the last three years before the 2010 election Gordon Brown poured £87bn into tax credits for his core vote and this probably stopped the complete annihilation of Labour at the election – there is no other possible explanation for the result given they had bankrupted the country.  So come on Dave, don’t be shy give Mondeo man what he wants!

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