11 May 2015

Cameron wins himself a second chance


‘You gotta do what you gotta do,’ a re-elected Bill Clinton told Bob Dole who was complaining about Clinton’s attack ads. David Cameron went one better. Dole was an opponent. Nick Clegg was his deputy. Ruthlessness in a political leader is a virtue. After the disappointment of the 2010 election, David Cameron more than made up with Thursday’s stunning result. The Conservatives had begun 2010 polling 40% but ended up with 36.4% of the UK vote whilst the Liberal Democrats slightly increased their share. On Thursday, the Conservatives increased their share by a half point but squeezed the Liberal Democrats, whose share fell by 15.1 points.

Few politicians get a second chance. David Cameron earned his with an election win for the history books. Thanks to his decision to put Lynton Crosby in charge of his re-election, everything that went wrong in the 2010 campaign was put right in 2015. Whilst a Conservative parliamentary majority seemed beyond reach, there was one guaranteed way of not winning a majority and that would have been not to aim for one. The path to a majority was by shoving the proverbial hose pipe down the throat of his drowning coalition partner. So that’s what the Conservative campaign did.

Whilst his twelve seat majority is nine less than John Major’s after the 1992 election, the prime minister is in a far stronger position. The political landscape is more favourable to Conservatives than for a generation. Labour has paid the price for treating Scotland like a huge pre-1832 Reform Act rotten borough. As for UKIP, in the South, it is wandering off into the political wilderness whining about electoral reform, but could still retain the capacity to draw off Labour votes in the North to the Conservatives’ benefit.

Although Major and Cameron’s political instincts are similar, temperamentally they are quite different. It is hard to believe that Cameron would have inflicted the agony on a divided Conservative party of pushing the Maastricht treaty through the House of Commons after the collapse of the ERM. Indeed, he is the only British prime minister to have vetoed a prospective EU treaty. In this respect, Cameron is more in the mould of Harold Wilson and Jim Callaghan who used renegotiation and a subsequent referendum as a means of party management. There is hardly going to be a backbench revolt on the legislation to authorise one.  Unlike the 1990s when the EU appeared on a march to federalism, today the EU’s energies are absorbed dealing with the dysfunctionalities of European monetary union.

As for the referendum itself, the election and last year’s independence referendum show that voters north and south of the border voters prioritise the economy.  So far, debate about Britain’s membership has revolved around the costs of leaving the EU. Advocates of withdrawal have yet to demonstrate the economic benefits of leaving. Following the Gordon Brown/Ed Balls playbook, doubtless the Treasury will produce an economic assessment to underpin the government’s case for remaining members of the EU. It is likely that the prerequisite for withdrawal is having a government that not only makes the economic case for withdrawal, but has policies showing how Britain would make a success of Brexit.  In this respect, UKIP’s most eye-catching economic policy at the election was abolishing hospital car parking charges, illustrating the yawning credibility gap advocates for withdrawal must close.

Neither is Scotland the headache for the government as might appear from the SNP’s sweep of 56 of Scotland’s 59 seats. There is no objective need for the Cameron government to go an inch farther than the pre-referendum vow in handing more powers to Holyrood. It does not have to solve the insoluble West Lothian question and rectify the imbalance caused by Scottish MPs’ jurisdiction over English matters which in Scotland have been devolved to the Scottish parliament. The Midlothian Question becomes incendiary only if Scottish MPs end up deciding which party governs Britain – as they might have before the bombshell exit poll the moment the polls closed. Otherwise, SNP members constitute just another group sitting on the Opposition members. Boundary reform should reduce the proportion of Scottish seats, but there is a compelling reason for the Conservative government to do as little as possible. The threat of the Tartan Terror galvanising shy Tory voters in future elections means that it is Labour, not the Conservatives, who have the incentive to come up with an answer to the Midlothian Question.

Rather the big threats to the Conservative government are likely to be economic. Last year’s public sector net borrowing of £87.3bn (around five percent of GDP) was forecast by the Office for Budget Responsibility to turn to a small surplus a year before the next election. Since then there have been a raft of spending promises and a pledge to raise the personal allowance, which will further erode the tax base. The good news is that any drift from the projected path of borrowing reduction will have to be rectified exclusively from the spending side of the ledger. As the Major government showed with its mammoth tax raising budgets after the 1992 election, the politics of winning an election on a tax cutting platform and then raising them once back in office are horrendous. Even without legislating against tax increases, the best guarantor of no tax rises is George Osborne’s ambition to win the 2020 election.

But the government’s biggest economic challenge is Britain’s stagnant productivity. Without productivity growth, planned government spending becomes less affordable and living standards stagnate. In the 1940s, Joseph Schumpeter foresaw capitalism exhausting itself. ‘The rate of interest is converging towards zero and the whole economic system is becoming increasingly static,’ Schumpeter wrote in Capitalism, Socialism and Democracy. There is little sign that the Treasury has grasped the productivity nettle. Ultra low interest rates reward low return capital. The government is misallocating billions of pounds in wealth-destroying wind and solar farms and high speed rail projects, reducing the economy’s productive potential. Productivity growth is the key to delivering the government’s economic objectives. On this, it will be judged in five years’ time.

Rupert Darwall is the author of The Age of Global Warming – A History (Quartet, 2013).