Core vote or protest vote: what does Witney mean for the Lib Dems?

I seem to be one of the few Lib Dem activists in south England that did not go to the Witney by-election – though I was one of the earliest donors to the campaign fighting fund. The party stormed forwards from fourth place to a respectable second, with 30% of the vote, with the Conservative vote being cut to 45% and Labour holding on to 15% (they had been second). This result has predictably been spun a number of different ways. But what does it really mean?

Let me start with a couple of disappointments. First the swing of 19% to the Lib Dems was dramatic, but not good enough to secure the party much publicity. The coverage vanished quickly, and hardly registered at all in some channels. The Lib Dems badly need some eye-catching event to give them momentum, so that the public will start returning to voting for the party. My impression locally is that people are starting to move the party’s way again, but aren’t ready yet. This result will not do it. Only a win would have given the party real momentum, and that turned out to be too far for the party to reach. The result boosted morale internally, but I don’t see it having much more impact than that.

The second disappointment is that the result illustrates just how low the party has sunk in popularity. The party put out a widely quoted release that if the swing were repeated at a general election the party would win 26 seats from the Conservatives. My reaction: is that all? I wanted to insert a “just” in front of the number 26. It doesn’t seem that long ago when a swing like that would have taken the party into an absolute majority in parliament, with hundreds of new seats. Now it barely recovers half of what the party lost last year. And that was a by-election, where swings of that magnitude are hard to repeat more widely. That feels a distinct let-down.

Moving on, though, I have found two distinct narratives. First consider this from John Rentoul in the Independent, and this from Political Betting’s David Herdson. Both take the view that the Lib Dems are reverting to type as an inchoate protest party, that will say anything to pick up votes in a by-election, or anywhere else. This lack of coherence, they say, would be disastrous for the party if returned to a position of national influence, as whatever they did, they would annoy a large part of their electorate. The other narrative is totally different, and comes from The Economist’s Bagehot. He suggests that the party stuck to a core vote strategy, promoting the party’s open, and pro-European, credentials. Witney, near the university city of Oxford, is promising territory for such a core vote strategy – but it remains a minority strategy. In that light 30% is about the sort of result the party should have been looking for, considering the entrenched Conservative hold on the area.

So which version is nearer the truth? As I didn’t go there, I am at a disadvantage. From where I was sitting I could see evidence of both. There was much talk of squeezing voters (especially Labour ones) and using bar charts to persuade people to vote tactically. The campaign led off with a complaint about cuts to the local NHS, which hardly looked like a core vote thing. But the party also made something of its contentious stand on Brexit – where it is still firmly part of the resistance, compared to the Conservatives’ enthusiastic embrace of Brexit, and Labour’s reluctant one.  And the result, with the Labour vote holding up quite well, points to a core vote proposition.

In fact the party still faces a choice between the two strategies.  It might leap into the euphoria of protest politics, which was such a striking part of the party’s rise in the 1990s and early 2000s. Or it could stick with a more patient but in the long term more fulfilling core vote strategy – where the party builds up a loyal following based on its values, before chasing after floating voters.

Right now the two converge. The party’s core voters are angry and up for a bit of protest voting. But on the showing of Witney, people not in agreement with the party’s open values remain reluctant to vote for it. The party leadership needs to hold its nerve and stick with the core vote strategy.


Fiscal activism makes a comeback. But it won’t help savers

Even the Prime Minister Theresa May is saying it. Low interest rates are not lifting the economy in the right way. So time for government spending and tax cuts to take over? Or, as economists call it, active fiscal policy. She joins a chorus of academic economists and newspaper commentators.

The story goes back to the 1930s when the Depression was rampant. This hit government tax revenues and the conventional wisdom was that government spending had to be cut to balance the budget. Enter the great economist Maynard Keynes.

Keynes pointed out that the problem with the economy was a shortage of demand – not enough people buying things to pay for the people in jobs. Or to put it another way, there was excess saving. If people are saving, they are spending less than they earn. That means that there isn’t enough spending across the economy to pay everybody’s wages, so the economy sinks. Or it will sink if the savings are not spent on investment, which is another type of spending. Stuffing cash into mattresses is not investment. Neither is putting the money into a bank account unless the bank lends it to somebody who in their turn pays somebody to do something. In a depression people are unwilling to invest, and so saving tends to be higher than investment. And so the economy enters a doom-loop. Before the 1930s economies were marked by severe boom and bust cycles.

Keynes pointed to a way through. If government increased its spending or cut taxes, they would put money in people’s pockets, which would be spent, neutralise the excess saving and bring the economy back to life again. Slowly governments followed his advice, most famously US President Franklin Roosevelt with his New Deal.  The most spectacular success came in Hitler’s Germany, which spent freely on infrastructure (think of the autobahns) and armaments. Keynes pointed out that it did not matter what the spending was on provided it was spent at home, or at any rate it didn’t matter at first. As the economy approaches capacity wasteful government spending is a problem, but not before then. The rapid expansion of the US economy as it was placed onto a war footing in the 1940s proved Keynes right beyond doubt. Thus was born fiscal policy as an instrument of economic management, and economics as a discipline entered a golden age. The swings from boom to bust were notably reduced in the 1950s and 1960s.

Then it came off the rails. In the 1970s things changed. The first shock was the breakdown of the Bretton Woods system of managed exchange rates – it could not handle the excess of US spending on the Vietnam war. This destabilised the international financial system. Then came the oil shock in 1973, as OPEC ramped up oil prices massively. The governments that tried to spend their way out of the subsequent recession merely created inflation and not jobs. The governments that applied stricter fiscal policy, West Germany and Japan in particular, suffered much lower inflation. Enter another economist: Milton Freidman.

Freidman suggested that Keynes had it all wrong. The issue was not managing government spending and taxes, it was managing the money supply. The Depression was severe because the banking system collapsed, and people couldn’t borrow money. A lot of what Freidman said turned out to be nonsense, but what evolved was the neo-Keynesian consensus. This relegated fiscal policy to a relatively minor role. In the conventional wisdom of the time (often referred to nowadays as “neoliberalism”), government spending could easily get out of hand, destroy inventives and make economies less efficient. Instead the main responsibility for managing the business cycle came to something referred to as “monetary policy”, run by  central banks.

Monetary policy is a bit of misnomer, a hangover from Freidman’s emphasis on money supply. To this day people often explain monetary policy as if people paid for things in banknotes, which are printed at will by the central bank. In fact money has moved almost entirely to accounting systems of debtors and creditors, with banknotes relegated to a very minor role. The economic implications of a bank account are utterly different from those of a pile of banknotes. The idea of money supply is nearly meaningless. Instead of that, as regular commenter to my blog Peter Martin put it in a post to Lib Dem Voice, what we have is interest rate policy. Money supply in the economic models taught to students has become a completely theoretical concept that cannot actually be measured . If demand is falling in an economy, this is corrected by reducing interest rates, which should encourage people to spend more. If things look like getting out of hand, then interest rates are raised.

Through the 1990s and early 2000s this system seemed to be working, but it came under increasing criticism. Central banks used inflation targets to judge whether the level of demand was too high or too low. But this measure excluded asset prices, which were directly influenced by interest rates. Asset bubbles were allowed to develop. Then they popped in 2007 to 2009, in the financial crash and the big recession that ensued, which interest rate policy proved unable to correct.

Fiscal policy made a return. But it was tentative. As soon as the worst of the recession was over, governments cut back (widely referred to as “austerity”). Critics argued that this was stalling any recovery. Then the victims of low interest rates, those saving for pensions in particular, started to get agitated. This is most evident in Germany – but Mrs May was voicing concerns amongst her constituents in the UK.

So can fiscal policy help lift economic growth, in place of low interest rates? There is a strong case for this, but caution is warranted. Most economic commentators hedge their bets by recommending that extra spending is on infrastructure projects, that will yield economic returns in their own right.

This hints at the first of three reasons for caution. What if the reasons for slow growth are structural and not to do with low aggregate demand? Are we making the same mistake as the mid 1970s, when economists saw high unemployment and low growth and assumed that this meant lots of spare capacity? In fact economies then had suffered a major dislocation from the oil shock, and were slow to adapt because of excessively unionised and corporatist economic management. That was then, but there are plenty of suggestions as to what the capacity restraints might be now, starting with demographics. Investing in infrastructure should help overcome these constraints, killing two birds with one stone.

The second reason for caution is that economies have internationalised. A lot of the benefit of fiscal stimulus can leak abroad, especially if other countries have a deficiency of demand too. Fiscal stimulus might simply drag in imports from countries eager for export-led growth. Globally coordinated fiscal policy works much better. This was achieved in 2009, but consensus has broken down since. The risk of stimulating other people’s economies can be reduced if the stimulus programme is carefully designed. But it can be quite hard to tell where best to direct spending or tax cuts.

And the third reason for caution is the difficulty in understanding when to turn the tap off and tighten policy. Politicians are prone to fiddling the figures to put the evil day off. British Chancellor Gordon Brown was notorious for this in the mid-2000s, contributing, in my view anyway, to the severity of the financial crash in 2007-09. Anti-austerity has become a political totem on the left – and yet there must come a point in any business cycle when austerity is required. This is also a problem with using infrastructure investment as the prime instrument of fiscal policy – it is not so easy to manage according to the business cycle. Lead times can be long and if an investment project is worth doing, it is probably worth doing at all points in the cycle.

And a final point. looser fiscal policy is unlikely to help savers with raising interest rates. Interest rate policy and fiscal policy should not be working against each other. To raise interest rates we need to see a healthier British and world economy. That looks some way off.



Does the fall in the pound presage a financial meltdown?

The British pound is now at its lowest effective (i.e. trade-weighted) level ever, according the Bank of England’s 168 year index. There was a sharp initial fall after the referendum to leave the EU, and then a further fall over the last week after the prime minister’s conference speeches pointed toward a quicker and harder exit than expected. Is this just a routine fluctuation that can be shrugged off, as bigger falls have been in the past, or does it portend something nasty? It is, of course, too early to tell.

The pound’s fall has been seized on by supporters of Remain as the sole piece of substantive evidence to support their prediction that exit would make Britain worse off. Leavers are predictably unimpressed. Of course both sides seek to gather every scrap of evidence to justify the stand they took in the campaign, and this argument leaves us none the wiser. This blogger is not beyond such things, of course, but I do try to set a higher standard.

The first question posed by the depreciation is what was the pound doing so high before the referendum anyway. The country has a large current account deficit. In other words, as a nation we are spending more foreign currency in imports than we are getting in exports and investment income (or persuading foreigners to accept more sterling than they want to spend on British imports – it boils down to the same thing). In theory this suggests that the currency’s real exchange rate is too high. This has been a persistent and to me perplexing phenomenon since the late 1990s. Demand for sterling has remained high, notwithstanding the deficit. Investment by foreigners in property and business assets (or Britons selling off overseas assets and repatriating the proceeds) has kept the pound afloat for 20 years – though at a much higher level before the financial crisis of 2007-09.

This is, literally, a confidence trick. Investors have had sufficient confidence in the British economy to think that their assets will grow in value in terms of their home currency, rather than ours. It is hard to pin down why for sure. Britain is an easy place for foreigners to do business – we don’t have a xenophobic attitude to foreign investment, sometimes seen in countries as close as France. That encourages footloose capital in our direction. We have seen many takeovers of great British businesses (notably this year the chip designer ARM). Buoyant high-end property values have no doubt encouraged investors too, though it is hard to quantify.

Britain’s membership of the EU is doubtless part of the charm of Britain, for business investors at least. They can set up operations here with ready access to European markets, free of tariff and non-tariff barriers. Leaving the EU, and its single market, must surely dent the country’s attraction. But we don’t know by how much. It won’t change the ease with which foreigners can buy assets here. By itself it should not affect high-end property either.

There is, therefore, a clear case to keep calm. As sterling takes a fall, it makes British assets cheaper. This should be a compensation enough for British exit to the EU, though you might be wise to stay clear of some businesses, like motor manufacturing. A lower exchange rate should help rebalance the economy, reducing the current account deficit, and the country’s dependence on foreign investment flows. This is all self-correcting. And if you are a true Brexiteer you will be confident that a more efficient, better balanced economy will eventually emerge from any transitional wobbles. That may be right – I always thought that the hair-shirt case for Brexit, as I called it, was intellectually their most persuasive argument (referencing a post I made in March which stands the test of time). Could EU membership have caused that current account gap, or allowed it to persist, leaving us with an unbalanced economy?

There is a problem, though. Capital markets are not rational. Nobody really understands how they work, and they are at least as influenced by a complex game of second-guessing short-term movements as they are by cool, calm assessment of long-term prospects. They are prone to bubbles: excessive periods of confidence followed by excessive pessimism.

You can see this by the way market observers talk about movements in prices being persistent trends, rather than asking what the right price is. This is at its most striking in the property market, where price movements are talked as “performance” rather than finding an appropriate level. A long view investor might say that the pound has simply found a new and more appropriate level. A short view investor might suggest that the pound has been performing badly, so that further falls are to be expected. In the former case you have would expect the fall to be limited, in the latter the fall becomes a self-reinforcing trend. And the difference comes down to a not entirely rational quality: confidence.

Confidence is not a nice, mathematically well-behaved quantity. It is prone to behaving in a very non-linear way. It can disappear suddenly. Confidence in Greek government bonds used to be nearly as rock-solid as German ones. And then it disappeared. Could confidence in the pound, and then other British financial investments, like government and corporate bonds, disappear just as quickly? Could the 20 year bubble burst? It doesn’t have to be rational. If it does the wider consequences would be severe. Inflation could take off as the monetary floodgates are opened (by the government funding itself directly through the Bank of England); bank lending could simultaneously dry up causing a recession. Back to the 1970s in other words when, amongst other things, a massive rise in oil prices caused a rapid rebalancing. Is Brexit a similar shock? (even accepting, as with high oil prices in the 1970s, we end up in a better place).

It is hard to believe that things will turn out like this. There are some signs of vulnerability: property prices are high; the budget deficit remains high by historic standards, and so is the level of the national debt. There is little scope to restore financial markets by cutting interest rates. Gilt yields have been rising recently – suggesting that confidence in government finances is starting to fade. And yet the overall statistics do not suggest alarm – foreign exchange reserves, for example, look plentiful. But ultimately if the country has a current account deficit, and if foreign investors don’t want to finance it, there will be defaults or inflation or both.

As the FT’s Martin Wolf points out, a financial meltdown is not likely, but the risk of it has risen in the last week. The capital markets have given Britain an easy ride through its recent troubles, but that could change quickly. The government needs to be very careful about how it handles Brexit. Sovereignty in an interconnected world is always incomplete.


Can Brexit be reversed?

First was the shock. It seemed as if Britain had driven off the edge of a cliff. Then denial. The dust settled and nothing much seemed to have changed. But now, among those that follow politics and business, there is a slow, creeping realisation of just how big a mess Brexit is. This isn’t so much that the country has ruined itself in the long run (many believe that to be true, but a cogent case can be made otherwise); it is the sheer extent of short-term disruption.  So we might ask: can it all be made to go away?

What has woken people up to the depth of problem is the government’s proposal to trigger Article 50 of the EU treaty in the first quarter of 2017, which leads to the country’s departure two years after that. That is not near enough time to put in place new trade treaties, and handle a host of other issues (who pays for British nationals’ medical bills in Spain? How do we manage the Irish border? And on, and on) all at once, given that this is all a matter of negotiation, and negotiations always go to the wire. That means that many businesses with an international dimension (not just exporters – anybody using imported parts or services from anywhere outside the UK) could hit a wall of confusion in 2019.

What makes this worse is the realisation that the split is going to be more “hard” than “soft”, for the reasons I explained in my recent blog. Remain supporters desperately argue for some sort of middle way that protects trading relationships – but no compromise deal looks anything like as good as the real thing, membership with the layers of concessions that Britain had accumulated for itself over the decades. So can we call the whole thing off?

The problem is that as soon as Article 50 is triggered (which astonishingly the government claims does not require a parliamentary vote), then it becomes very hard to come back. The government would have to negotiate re-entry from a very weak position. Such concessions as Britain’s contribution rebate would become an obvious target. So something needs to happen before that. Any hopes must largely rest on a court case challenging the government’s right to invoke the article under royal prerogative. If the government loses, then parliament has the opportunity to throw a spanner in the works.

Could the government fail to find a majority to push through Article 50, if it was forced to? Its majority is small, though some of the Irish parties would support it on Brexit. A rebellion from its backbenchers, or even ministers, is certainly feasible. But would Labour turn up with enough numbers to back them up? In the old days that would have been quite a safe bet. The party in opposition loved nothing more than to make mischief for the government, regardless of the rights and wrongs of the case at hand. But the current party leadership seems little interested in such games. There would need to be strong political reasons to galvanise both Labour and any Tory rebels.

What might those political reasons be?   Remainers are trying to build a case around the idea that the Brexit vote did not amount to a mandate for the “destination”, or what replaces EU membership. This is weak. It suggests consultation just on the question of what type of Brexit we want – a choice between a miserable compromise or a highly disruptive major break. But the best alternative to hard Brexit is to overturn the referendum result itself. For that, something needs to happen to shake confidence in the referendum mandate.

Alas there is little sign of that. The lies peddled by the Leave campaign (most notoriously the idea that £350M would be available to spend on the NHS if we left) are being shrugged off, and set against some of the Remain campaign’s claims, such as that a Leave vote would lead to a draconian emergency budget. But something might blow up in the next six months and catch the public imagination. Or it could be financial instability, which is surely a possibility given the huge uncertainties and the country’s dependence of foreign finance. The wobbling pound is so far the only real sign of trouble – what if it keeps wobbling?

But these are thin pickings for people who support UK membership of the EU. It seems that the slim majority for Leave in the referendum, now routinely described as “overwhelming” by its supporters, has been the basis of a coup, which disenfranchises people like us. The people were consulted, and now the political elite has reasserted full control. The irony, of course, is that the Leave campaign was based on the slogan “take back control”, and appealed to voters who felt disenfranchised by political elites. No student of political history will be surprised that it is being used to consolidate elite power, albeit with some change in personnel.

There seems to be little that Remain supporters like me can do. It will take a feeling of betrayal from within the Leave camp, and a split, in order to give the idea of reversing the referendum result any traction. Unfortunately, if this ever happens it is likely to be too late.

So we must channel our anger into rebuilding the forces of liberalism for the long term. And we need to focus on two problems in particular. How can we give people a greater sense of political control over their lives, while enjoying the opportunities that global connections provide? And how should European institutions be reshaped so that they better serve European people, and so that one day, we may persuade the British people to rejoin? Meanwhile we must watch helplessly as a slow-motion disaster unfolds. “Told you so,” are the most unsatisfactory words in life, but I fear that it is all we are left with.


The Tories take possession of Brexit; the Lib Dems will benefit

Theresa May, Britain’s prime minister, closed the Conservative Party conference yesterday with a striking vision of her political direction, which was consistent with speeches made by other members of her government. This is a marked change of tone from her predecessor, the rather liberal David Cameron, and his Chancellor, George Osborne. Brexit is at the heart of it.

Earlier this week, FT columnist Janan Ganesh suggested that the stream of social policies coming out of the Conservatives were an attempt to deflect the politicians’ obsession with Brexit. But this is to misunderstand what these policies are about – they are an attempt by the Conservatives to tell people that voted for Brexit that they “get it”. The vote to leave the EU is the starting point of the whole thing.

What Mrs May is trying to do is to adopt what I will call the “Brexit coalition” as a political base. This starts with her hinterland: the non-metropolitan middle classes – most especially their older members, as their children are going to university and becoming more metropolitan in outlook. This group has a nostalgic view of the past, and feel threatened by the cultural aspects of globalisation. All the talk of patriotism, the hard line on immigration and the attacks on liberal elites (Oh how sick I am of being told that I am part of a ruling elite when all I am is a school governor!). Other nostalgic policies, like promoting grammar schools are in the mix too.These are bedrock Conservatives, largely taken for granted by Mr Cameron.

What is more interesting is that Mrs May wants to add the disaffected working classes, who voted in droves for Brexit, notwithstanding the advice of the Labour Party. They share the cultural biases of the non-metropolitan middle classes, but add to this resentment about economic insecurity. Mrs May is making a particular pitch for this group: emphasising the struggles of people at the margins, though failing to observe how much austerity policies, such as changes to tax credits, have added to their hardship. For these people she made a strong pitch for “fairness”, and indicated that she would act on a series of economic problems, like housing costs and poor infrastructure. She also rounded on unscrupulous businesses. In parts she sounded not unlike Ed Miliband, Labour’s previous leader, allowing her to claim the “centre ground”. Strikingly she also included a pitch for ethnic minorities, acknowledging discrimination. Ethnic minorities make up large sections of the working class, after all – though the Brexit voters tend to be “I’m not racist but…” types who think it is them who are the victims of discrimination.

But one part of the Brexit coalition is being left behind by all this: the businessmen who called for a bonfire of regulations to make businesses more competitive. On the one hand Mrs May’s tough line on sovereignty, immigration and foreigners points to a hard Brexit, and so little need to heed EU regulations. On the other the threatened policies to limit immigration would add a very hefty layer of extra bureaucracy on businesses, and the appeals to “fairness” suggest a strong role for regulation and government intervention too. Regulation and democracy go together like a horse and carriage. They may be jumping from the frying pan into the fire. But this part of the Brexit coalition always mattered more for its money than its voter appeal.

It is possible to admire the political cleverness of this. Ukip, who had been harrying the Tories on their nativist flank, are struggling at the moment, and this sort of thing should see them off, in Conservative constituencies at least. One might ask what the point of Ukip is. It also takes advantage of Labour’s disarray. At their own conference Labour failed to discuss Brexit. Their leader, Jeremy Corbyn, seemed to embrace it – but (admirably) failed to bang the drum on immigration. Other Labour big hitters want it the other way round: oppose or soften Brexit, but wave the flag on immigration. This leaves muddle at the core of Labour’s message on the top issues of the day. The party will no doubt maintain its iron grip on public sector workers, and those vulnerable to government reforms (students, benefit claimants, etc.). I would also be very surprised if their grip on ethnic minority communities was seriously dented. But this falls way short of an election-winning combination. It is not clear what is their appeal to grumpy working class voters, to say nothing of the non-metropolitan middle classes that former Labour leader Tony Blair made inroads on the last time Labour won an election.

But speaking as an ordinary decent liberal and proud citizen of the world (subject to a sneering jibe in Mrs May’s speech), I am aghast at the direction the Tory Party has taken. The are stigmatising foreigners and implying that I am unpatriotic. Many of us are friends, neighbours and work colleagues with people who are not British citizens, and we look on them as equal human beings who have earned our respect and a place in our society. I find that impossible to reconcile with some of the rhetoric coming out of the Conservative Party. And it gets worse. The EU referendum unleashed a wave of hate crime and anti-social behaviour aimed at people who are seen as not belonging here (not just foreigners of course). Much as the leaders of the Brexit campaign claim that this is nothing to do with them, Conservatives run the risk of allowing these attitudes to take root, even as they claim that it is not their intention. In the same way Mr Corbyn will not call off the misogynistic hard left thugs that are part his own coalition, contenting himself with mild disclaimers.

This is now becoming a real political opportunity for the Liberal Democrats. The party is now the best home for open-minded people who do not have a nativist outlook – or those of them appalled by developments in the Labour Party anyway. It becomes easier for the party to take credit for the better bits of the coalition years – which had accrued to Messrs Cameron and Osborne – rather than just the blame for the bad bits.

That opportunity for the Lib Dems will grow if the Conservatives fail to deliver on their new promises, as seems almost certain. As soft Brexit turns into a mirage, and hard Brexit turns out to be highly disruptive, and as the Tories fail to deliver economic gains, such as lower rents and better paid jobs, to working class and other struggling communities, and as the party’s small parliamentary majority bogs it down, then the appeal of Mrs May’s government will diminish. With Labour looking like an empty bubble of hope (or a pyramid scheme as suggested by the Economist’s Bagehot column), there is reason for the Lib Dems to gain.

Of course, the Lib Dems themselves have many serious questions to answer. But it may be easier than people think for it to double its vote share to 15-20% before coming under more serious scrutiny. As the keener Lib Dem activists travel to the latest by-election in Mr Cameron’s old seat in Witney, Oxfordshire, it is impossible not to notice the spring in their step. The bookies are already giving them second place (from fourth in 2015).

But this is a small shaft of light in a very gloomy British political landscape, as the wonton act of self-harm committed by its electorate in the referendum pushes events on a seemingly inevitable course.


The housing crisis is an opportunity for the left.

“A Britain that works for everyone.” This is what Britain’s Conservatives say they want to achieve under the new prime minister, Theresa May. Partly, of course, this talk is meant as an attempt to divert attention from the difficult choices implied by Brexit.  But there is an issue that is slowly coming to dominate the life-chances of “everyone”, and could be even more important than Brexit: housing.  Or to give this a bit more precision: the high cost of buying or renting residential property. In order to fulfil their slogan, the Tories will have to make progress on this. Will they?

What brought this home to me last week was a report that people born in the 1990s (the so-called millennials) are worse off than those born in the 1980s at the same time in their lives. This is startling for a society that has, generally speaking, benefited from economic growth over the last 30 years, and where educational standards are rising. And the reason is easy to see: compared to people born even ten years earlier, many fewer millennials can afford to buy their own homes. They are unable to benefit from a general rise in property prices that has proceeded apace over that 30 years. Meanwhile rental costs have gone up too, which only makes the gap wider. This phenomenon does not just apply to Britain’s overheated southeast – it afflicts most major urban centres, to say nothing of popular university cities like Oxford and Cambridge.

Why is this such a big issue? The millennials themselves are not particularly important electorally, especially as so many of them show little interest in the political process. But their troubles worry their parents. And the trend is evident from before the millennial generation. More importantly, the generations following the millennials will be equally deprived. The numbers of property have-nots are growing, and property wealth is being concentrated into a smaller number of hands. High rents is a cause of hardship for ever increasing numbers of people – and a cause of rising homelessness, with all the other problems that brings in its wake.

Politicians are increasingly aware of this. Conservative leaders are talking the talk. Mrs May has appointed a new cabinet level minister of housing, Sajid Javid, who talks of a moral crisis. All leading politicians talk grandly of building many more houses. But there are two political problems, which are linked. The first is that the crisis arises from a profound failure of market incentives. And the second is that any policy that actually works is going to hurt a lot of politically influential people. This combination presents a test for Mrs May that she is unlikely to pass. It is one of the few decent opening in British politics for the left.

First consider market forces. Read The Economist and you might think that the housing problem is quite simple at heart. It is a failure of supply to meet the increased demand for housing from a rising population and changes to lifestyle that mean more people want to live alone. And there is a ready culprit for this: restrictive planning laws and NIMBYs who resist new housing developments, which between them surround our cities with over-protected green belts. This glib explanation contains some truth, but it misses two awkward points: much land where development is permitted is not being developed because owners would rather wait – “land banking”; and loose monetary policy has pushed up the cost of housing regardless of supply and demand.

Consider the first point. Property developers profit massively from increasing property prices. Indeed, it is central to their business model. They like to build cheap houses to maximise their profits from land trading, fighting furiously any regulations that might make homes more thermally efficient, for example. It is not in their interests to increase supply to levels where the value of property starts to come down. For all their moaning, they are quite happy with the situation as it is – though they would love to get their hands on green belt land with permission to build, and bank that too. A similar logic applies to rental values, since so many new properties are bought to let. The economic incentives do not point to the private sector solving this problem by themselves. In fact many private sector actors are likely to oppose any policy that actually bites, since that means cutting rental and sale values.

The effects of monetary policy are less understood: by this I mean the way governments and their central bankers have had no real qualms about rising levels of debt used to finance private house purchases. This has been happening since monetary policy was let off the leash by the collapse of the Bretton Woods system of fixed exchange rates in 1970. The extra monetary demand for housing set off by this increased availability of finance has not been matched by an increased supply of housing. Indeed it is about this time housebuilding slowed down. Easy money has simply led to the inflation of land prices.

To illustrate this, look at this graph of the ratio of house prices to earnings from Wikipedia (By D Wells – Own work):


We should expect to see house prices rising in line with earnings, given its relatively limited supply. We can see that the ratio of prices is tied closely to monetary conditions. Monetary conditions were loose in the late 1980s (the Lawson boom), but had to be tightened as inflation started to get out of hand. That caused a crash that is seared into the memory of older Tory politicians – the years of negative equity. Then things eased, with the mid to late 1990s and early 2000s being years of easy money. The financial crash of 2008 tightened things up, but now conditions are loose again.

Of course easy money and land-banking are self-reinforcing. If property prices dip, property developers can be confident that monetary conditions will ease and come to their rescue.

If I am right about these two problems lying behind Britain’s housing crisis, the solution is quite easy to see. First there needs to be a massive public-sector house building programme, including a large proportion of good-quality social housing, available at rents well below the current market level. This is best done by local and regional authorities, and financed by allowing them to borrow much more. This would put downward pressure on rents, which is perhaps the most urgent aspect of the housing crisis. It would also make it much easier to tackle homelessness.

The second thing that needs to be done is to tighten monetary policy. This may be by using some form of quantitative control on housing debt, but it may also mean raising interest rates. The main idea would be to encourage banks to finance local authority housebuilding, rather than private mortgages. This will require political courage, as it means, for a time at least, property prices falling without making property more affordable (since it will be harder to get finance) – as happened briefly after the crash of 2008/09.

The good news is that the first of these two groups of policy is fast becoming consensus on the left – sweeping in Labour, the Greens and the Liberal Democrats. And yet it will be very hard for the Conservatives to stomach. They associate social housing with left-wing voters. It may also upset NIMBYs where the estates are to be built, to say nothing of hordes of people who have invested in property to let – all natural Tories. Tory politicians talk freely of raising large sums of money to push house construction forward. But I have not heard any talk of giving a serious boost to social or public sector housing, or giving local authorities more freedom. It sounds horribly like subsidies for the private sector that will end up by inflating prices and developers’ wallets further.

On the second issue – reducing the volume of private housing finance – I see little sign from anywhere in the political spectrum of this being taken up. This is unsurprising. It would mark a profound change in economic management, which is heavily based on monetary policy. And change would cause outrage in Middle England, attached to its property values. And yet the current way speaks danger. It is increasingly dependent on ever increasing property prices, as these lose touch with incomes. It is a bubble that will surely burst at some point. Even so, I am sure that the left is closer to this policy change than the right. One implication is that more of the load of economic management will be taken by fiscal rather than monetary policy. The left is much more comfortable with that, though I suspect few have taken on that it means supporting austerity at the top of the economic cycle.

Mrs May talks much of making life better for the hard-pressed in our society. Lower rents are surely by far the best way to achieve that. Does she and her party have the stomach for it? If not, the left will have its chance.




Soft Brexit is a mirage

Centrist politicians are hard-wired to look for a middle way when confronted with difficult problems. So after absorbing the shock of Britain’s vote to leave the EU last June, it is only natural that so many have sought one on this most perplexing issue. It goes by the name of “soft Brexit”, to contrast with “hard Brexit”, which refers to an uncompromising break. But is such a solution viable?

This question revolves around one issue above all: membership of Europe’s Single Market. The Single Market allows for the free movement of goods, and some services, across Europe’s borders. This came into being in 1990 as intra-European trade was stagnating, and restored momentum. The problem was that Europe’s free trading arrangements at that time did not go far enough. There were no tariffs, but plenty of scope for non-tariff barriers. There were many such barriers – I remember a particular story about all French imports of one particular type having to be sent to Poitiers to be inspected.

The Europeans had a clear model in front of them: the United States of America. This towering economic power was so successful  in large part because of its huge domestic market, which gave businesses time to develop products before having to tackle export markets. But here we bump into a famous trilemma, first articulated by US economist Dani Rodrick in his book The Globalization Paradox. People must choose between democracy, national self-determination and the benefits of global integration. You can have two of these, but not three. To achieve global integration means setting global rules. If nation states choose to participate in globalisation, they will sacrifice their voters’ rights to change the rules. The only way to make it democratic is to make it so at the global level, which means losing national autonomy.

And so forming the Single Market meant that the members of the European Union sacrificed significant sovereignty – albeit with the creation of some democratic structures at European level: the European Council of heads of state, and the directly elected European Parliament. Critics of the EU say that it is undemocratic – but the only ways to address this are either to dissolve it and lose the Single Market, or strengthen its union-level democratic structures, undermining the nation-state further. The problem with soft Brexit is that it attempts have all three elements of the trilemma at once.

Brexit means British withdrawal from the European Council and Parliament, to say nothing of its influence in the European Commission, the EU’s executive arm. But taking part in the Single Market, or even aspects of it, means leaving the rule-making to these European institutions. This cannot be acceptable. Norway, and to some extent Switzerland, suffer this indignity already. It is hard to see it working for such a big country as Britain. Voters would rightly ask what the point was in leaving the EU. “EU rules”  would still be the bureaucrats’ excuse of choice for badly implemented regulation, alongside that British favourite “health and safety”. Political suicide, surely?

Neither will it be easy to pick apart the structure of EU regulations so that the country opts out of bits of it. British politicians often assume that there is a deal to be done to limit EU migration into the UK. Businesses want to tackle EU labour regulation and various other things, like regulation of poisonous chemicals. The trouble is that the other EU countries will see this as trying to get an unfair competitive advantage – which could undermine the entire edifice.

And furthermore, Britain’s bargaining position is weak. One of the key arguments made by the Brexiteers was that because Britain imports so much from the rest of the EU, the EU (German car makers, and French cheese makers in particular)  will be desperate to give us an advantageous deal. That looks optimistic. Take the motor industry. This has significant economies of scale, and a single national market, even the size of Britain or Germany, is not enough to sustain a domestic industry. Before the Single Market, Britain’s motor industry was dying. After it Japanese and other carmakers invested in factories in Britain as an export base for the whole of Europe. Britain’s car industry revived, though it is still in deficit. If Britain withdraws from the Single Market, this industry comes under threat. If it withers, then surely other EU countries will gain. Why should Volkswagen press for an easy trade deal that would save their Japanese competitors? Britain can’t sustain its own motor industry, so it will have no alternative but to keep importing cars from its nearest neighbours in the EU – and perhaps in even greater quantities as Nissan and others are forced to divest.

I am tempted to suggest that angling for soft Brexit is just the bargaining phase of the five stages of grief from Remain supporters, coming after denial and anger. Depression comes next.

Of course the real situation is not as black and white as I am painting it.  But if Britain has to be outside the EU, its best bet is to start with hard Brexit, and then negotiate arrangements sector by sector – much as Switzerland does. Except that we would not go anything like as far as Switzerland. But we have to acknowledge that the UK will lose its comparative advantage in industries that benefit from the Single Market – like the motor industry. That will mean quite a bit of dislocation.

But it won’t be the end of the world. Basic economics teaches us that where comparative advantage diminishes in one sector, it emerges somewhere else. The country may be poorer as a result, but it need not be a disaster. Where will this new comparative advantage lie? We cannot do a Singapore, a favourite of some Brexiteers  – which exploits its strategic position on key Asian trading routes. But industries that are not subject to Single Market rules will be at a relative advantage. This may help Britain’s successful service industries – though making headway in this highly protected arena will be hard. The county’s geographical position should help wind and tidal energy – though not solar energy, presumably. We also need to look for areas where EU regulations look badly implemented.

But just how big any short-term disruption will be is unclear. It is also not clear that the British public actually intended to sign up to it. If they didn’t the only way back is to reverse the Brexit decision itself. That is the true alternative to hard Brexit. But that is another matter.


Corbyn’s victory shows that Westminster politicians are losing their grip

As expected, Jeremy Corbyn was re-elected as leader of Britain’s Labour Party over the weekend. Thus ended the attempt by the bulk of Labour’s parliamentary party to remove him. There is much comment in the usual places that this will be a disaster for the party, and by and large I agree. But we are missing the wider significance. Mainstream Westminster politicians are losing their grip on politics. Wise politicians will need to change tactics.

Ironically enough, the heart of the MPs’ challenge on Mr Corbyn was that he was incompetent. That may be true, but the MPs’ attempt to unseat him failed to show any serious political competence itself. It is interesting to speculate as to why professional politicians should be so comprehensively outmanoeuvred by the amateurs. Britain’s electoral system does not in fact encourage serious electoral competition by its leading politicians. Most MPs are elected to safe parliamentary seats – so the main political skill is getting selected in the highly competitive, but internal, process of choosing candidates. Advance after that comes through ministerial or shadow ministerial promotion, which is even more about schmoozing that cut-and-thrust. When faced with a serious electoral challenge amongst a mass audience, MPs are often ill-equipped. This was demonstrated dramatically by Labour in Scotland, rich in formerly safe Labour seats, when they proved quite incapable of handling the SNP surge in 2015. It is also why there is little prospect of the MPs breaking away to form their own party – they don’t have the nous.

This is not so true of the Lib Dems, whose seats are much more competitive, with an important exception. In 2005 many Lib Dem seats really were safe, and were successfully passed over to politicians with little experience of hand-to-hand politics. These included Nick Clegg, David Laws and Chris Huhne, who then proceeded to take over the party’s leadership in parliament. The former, at least, proved ill-equipped for serious political competition.

But it hasn’t just been the MPs who have been routed. Their professional advisers (who like to style themselves as “strategists”) have been proved wanting, for all their clever talk. The Lib Dems are sore about the coterie of advisers that Mr Clegg surrounded himself with. Labour Leader Ed Miliband’s fared little better in 2015. The Conservatives’ David Cameron clearly felt they had cracked it. Relentless negative campaigning had seemed to win the day in the Scottish referendum in 2014, and for the Tories in 2015. But it fell apart in the Remain campaign in the EU referendum, against a Leave campaign that was sparky but distinctly amateur. Meanwhile the rout of the professionals is being perpetrated by Donald Trump in the US, to say nothing of Mr Corbyn’s  impressive victories in 2015 and 2016.

What accounts for this? Mainstream politics has lost its appeal. Perhaps it is too defensive. By and large the easy way to win elections is to undermine your opponent – but this has the long-term effect of undermining all politicians. Then there are the inevitable compromises of office, as the complex problems of the modern world will not yield to quick solutions. And the checks and balances of democratic politics mean that politicians have to cooperate with people they disagree with in order to get anything done, be that within parties or between them.

And then there is the fact that economic development does not seem to be going so well in the developed economies. Globalisation and technological advance helped roll back poverty in the developing world, and raise living standards for many in the rich countries too, but there were significant losers, who feel let down by their leaders. Then there was the economic crash of 2008/09, which showed that much of the economic growth in the previous decade was a mirage. Since then the developed world has been stuck in a period of low growth that mystifies economists – though many explanations are offered (poor macroeconomic management; inequality; the wrong sort of technology; demographic changes; reversing gains from trade; too much regulation; too much greenery – each has its fans). Confidence that mainstream politicians know what they are doing drains away.

And people are getting fed up. Exploiting this fed-up-ness lies behind the success of the amateurs, like Mr Trump, Mr Corbyn and the Brexit campaign. This has a very dark side. These campaigners may be sparky, but their main weapons are destructive memes, which bear little relationship to the truth. Indeed it is often referred to as post-truth politics. It doesn’t seem to matter what Mr Trump or Mr Corbyn says, his followers lap it up. Many of them know that a lot of it is untrue, but they love to give the other side a beating. That may be a bit harsh on Mr Corbyn, who is nowhere near the Trump or Brexit league of untruth, but his supporters seem unable to engage with adverse evidence, especially about the electoral appeal of their policies. The rise of modern media makes it very easy to live in a bubble of like-minded people who avoid checking their beliefs with reality. It is ironic that these same people accuse professional politicians of being in a bubble of their own. Actually polling, focus groups and various other techniques of politics make modern politicians more informed about popular feelings than most. It doesn’t help.

What to do? All this brings to mind Visconti’s film of Lampedusa’s novel The Leopard about the struggles of the Sicilian aristocracy during the Risorgimento (and perhaps my favourite film ever): “Everything must change so that everything can stay the same” says the leading character.

Some, like the FT’s Janan Ganesh, urge staying true to old-fashioned, pragmatic politics that the Conservatives have made their own. That is unappealing for those on the liberal left and centre. It means giving ground to the narrow-minded.

Instead I have to draw deep on my liberal optimism. Deep down people understand the truth, and will put up with lies only for so long. That is how Soviet Communism was destroyed. It is why the BBC brand remains so strong – look at the hoo-ha over Bake Off. Liberal politicians must stick with it: don’t play the dark forces at their own game.

But they must do more. They must be exciting again. They must discover new ways of tackling the modern world’s problems, and sell them to the public. To be fair to Mr Corbyn, this is part of his appeal, though he harnesses the dark, post-truth side too, and a lot of his ideas look like 1970s nostalgia. But some of his supporters seem willing to search for new ideas. Never has  this been so important.

Slowly the liberal left is finding these ideas. A new constitutional settlement for more inclusive and devolved politics. An economy less dependent on big corporations. Environmental sustainability being at the centre of the way we think, rather than endless attempts to expand consumption. Education for all that promotes modern skills and wellbeing. Public services that solve human problems rather than applying inappropriate big-industry models. Celebrating cosmopolitanism rather than give in to inward-looking nostalgia.

This thinking has to be finished and turned into an exciting synthesis that people from across political parties can take up, and which will appeal to the sceptical. Bridges must be built between the more open of the Corbynistas, the Labour centrists, the Lib Dems and the Greens – and not forgetting liberal Tories and Nationalists too. Surely that is our best hope.


TIm Farron aspires to lead the political left. This is optimistic

Tim Farron, the Lib Dem leader saved the best until last. His speech to close the party conference in Brighton yesterday was a barnstormer. He was interrupted by standing ovations several times. It was up to the standard set in Bournemouth last year. How much substance lies behind the expansive rhetoric?

The speech was ambitious. Tim set out make the Lib Dems the main opposition to the Conservative government, accusing Jeremy Corbyn’s Labour Party of abdicating the role. This is another example of the supreme, irrational optimism that, as former MP David Howarth pointed out in a fringe meeting, is the Lib Dems greatest strength and weakness.

Tim continues to use his big speeches to stake out the political ground for the party, on which we might hope for more substantial things to be built. The party’s policy motions at the conference failed to build anything much though. The many new members were no doubt delighted to meet up with so many like-minded people, and learn  about how politics works – but would have struggled to understand what the policy debates were for.

Tim places the party is the unambiguously on the left (or among the “progressives” in the favoured, rather misleading word), by defining it in opposition to the Tories. With the Conservatives hitched to Brexit, this is safer than it has been – but not as safe as trying to get the party to define its own, distinctive place in politics. Interestingly he made an appeal for the Lib Dems to be the party of business and free enterprise, and urged businesses to switch allegiance – and this went down quite well amongst the members. This is not the first time he has planted such hints, but I’m still unclear of what it will mean. Where I want it to go is a model of regional economic development not dependent of central state largesse. We shall see.

But the main policy fields sketched out were on Europe, health and social care, and education. The party is unambiguously pro EU, wishing to draw in Remain supporters. Tim advocates a referendum on whatever alternative to the EU the government eventually reaches. This may be cunning positioning, but I struggle with the idea as serious policy. The “destination” as he calls it probably will not be clear until Article 50 has been invoked and the bridges burnt. Hopes for some sort of middle way between hard Brexit (being outside the single market or a customs union) and full membership are fading. Still this is changing terrain and a more coherent pro-EU position may emerge. Nothing came out of the conference on the party’s vision for the EU itself, even though the institution is clearly in crisis. Where Tim was much stronger was in acknowledging the concerns of working class Brexit voters, referring to his own Lancashire working class roots. He is not trying to blame the voters, but to build bridges. This must be right, if not entirely consistent with some ideas of a “core vote” strategy.

He is much braver on health and social care. Tim, and his former leadership rival Norman Lamb, have identified that health and social care are in crisis. Norman, who remains highly respected in the party, is putting together a commission of experts to develop new vision – and one that will probably involve higher taxes. This is promising – it entails some thought leadership on an issue the public really cares about. With Labour bogged down in union vested interests, and the Tories lacking convincing policy, this development starts to answer the question “why the Liberal Democrats?”.

Alas there was much less thought leadership on education. The party’s instincts are sound enough, but I don’t think Tim, or many in the party, have quite caught up with where schools really are, rather than some rather lurid caricatures. But with the Conservatives veering off to the blind alley of school selection, the political opportunity remains for the party. Yet it would be good if it could develop more ambition. There is a policy working group on education (I applied but was not included) – but these groups tend to square off the party’s internal pressure groups, rather than try to develop a wider public debate – which the health initiative is clearly intended to do.

Tim also developed a general direction of travel for economic policy. He wants more for the regions outside London and the southeast – led by infrastructure investment. He said that these areas had been let down by both the Thatcher and Brown/Blair governments, who were seduced by the bankers, and under-invested in infrastructure and skills. There is something in this. And he did not walk into the leftist trap of employing abstract villains, such as neoliberalism or austerity. This is all sound, but not very distinctive. He could have been much stronger on green investment, but I think the party has sound instincts on that.

But what of my question of last week, about how the party is developing a narrative on coalition? It still wants to play both sides on this, and Tim talks about it as little as possible. He neither sells the coalition’s achievements, nor condemns it as a mistake. I attended a very interesting fringe with former ministers David Laws and Chris Huhne on the coalition years. They acknowledged errors – on tuition fees, benefit reform and NHS reform in particualr, but still enthused on what the coalition had achieved. Fine, but the party still has to explain how it can be of the left and at the same time prop up a government of the right. “That was then, and this is now” is about as good as it gets. The truth is that it very hard for the party. Some members expressed frustration that it does not make more of its achievements – others find many of the things the coalition did (notably on benefits and legal aid) a betrayal of the party’s principles. Expect the muddle to continue for a while. Personally I want the party to rethink its exclusive identification with the left, while seeking to identify areas of agreement with it. The party will help the left by becoming semi-detached – but in the right circumstances it will work with the right too.

And that takes us to a further question. How will the party work with other parties to get things done? It is all very well for Tim Farron to condemn Mr Corbyn’s leadership of Labour as an abdication, but what if Labour, under Mr Corbyn or otherwise, gets its act together? Tim did not rule out working with other parties, and there was plenty of talk at the conference of working with Labour and the Greens. I have bought a book, The Alternative, which tries to develop this – and I will report back when I have read it. For now it is far too easy for us Lib Dems to simply rule out working with Labour and dream to replace them, rather than wake up to the cold, hard realities of how little party is trusted. Working with Labour is about the only way  the party is going to achieve anything practical if it rules out working with the Conservatives again. It is fanciful to suggest that Labour will collapse and leave the field clear for the resurgence of the Lib Dems. But the party can still pick off Tory seats beyond Labour’s reach. Surely we are better off trying to get some form of constructive engagement?

What is clear to me is that the left needs to develop a new policy agenda which is capable of capturing the imagination of a sceptical public. The Lib Dems are engaging in this process. But, to put it at its kindest, it is far to early for the party to imagine that it can lead it.


To progress the Lib Dems must confront the coalition years

This weekend the British Liberal Democrats go to their main annual conference, in Brighton. They expect little media coverage, but buoyant membership should ensure a lively event. These members face a troubling question: how to rebuild the party’s electoral base. To do this they will have overcome its ambiguous feelings about its recent past.

Notwithstanding increases in membership following the 2015 General Election and this year’s EU referendum, there can be no doubting the party’s dire straits. It lost the overwhelming majority of its elected representatives at all levels over the period 2010 to 2015, when it was in coalition with the Conservatives. It has just 8 MPs (down from 57). The party’s poll ratings bump along at about 8%, ahead of the Greens, but usually behind Ukip, and nowhere with sight of Labour, notwithstanding that party’s troubles, never mind the Tories. There have been gratifying local by election successes over the summer, but only where the party has sufficient ground strength to fight an intensive campaign; elsewhere the party’s vote is as like to shrink to 2-3% as to advance to the giddy heights of 10% or so. There is no sign of a substantive breakout.

To do this, as I have written before, the party is going to have to do two things, which are in tension. The first is to build up a loyal, core vote of people with open and liberal attitudes, that will stick with the party no matter what. The coalition years exposed the lack of such a core mercilessly. Even the 8% that party managed in 2015 can’t be classed as a core vote. And yet there are plenty of  people out there who are potential core supporters, if the party can build trust. This is the pitch made by election expert Mark Pack and former Cambridge MP David Howarth. I broadly support this, but the second thing the party needs to do is win over floating voters at elections – people who don’t quite get the party’s core values, but who can be persuaded to support the party temporarily on, usually, quite narrow grounds.

This tension haunts all political parties, but Lib Dems need to understand it better. The problem is this: Mark and David have shown persuasively that potential core voters are left-leaning. But the most promising pool of floating voters are right-leaning. No other party is going after soft conservatives – and these could be decisive. The Lib Dems need to be a left-leaning party that can appeal to right-leaning voters.

There’s another dimension to the problem though. It is the general disengagement of the public from the ins and outs of politics. A friend, Douglas Oliver, made this point to me recently. He made the same point to columnist Matthew Parris in 2012. Mr Parris coined two laws; Oliver’s first law: “Memories dilute each other” and Oliver’s second law: “In the study of politics, close attention distorts judgement.” What Douglas is suggesting is that we who follow politics closely lose the wood for the trees. We are concerned with events and details that never receive the attention of the wider public. This has two consequences. The public will base their judgements on a much narrower range of facts and ideas than experts. And they have much longer political memories than experts, because events do not crowd out memories in the same way. It took over 20 years for Labour to exorcise the memories of their disastrous rule of the 1970s – and only then after their leader, Tony Blair, made that exorcism his prime focus – putting it ahead of party unity. Equally, Labour leader Ed Miliband’s failure to be clear about Mr Blair’s legacy fatally undermined the party at the 2015 election, leading to one of its worst results ever. The public weren’t impressed by lots of fancy new policies and warm words, and Miliband’s idea that the party should focus on the future, not the past. But the past is the main thing ordinary voters know about political parties.

That’s tough for the Lib Dems, because about the only thing the public really knows about the party is its record in coalition.  All conversations by the party with ordinary voters will start with the coalition. The party might want to start somewhere else – Europe perhaps – but they are as unlikely to succeed as Mr Miliband was with energy prices, austerity or inequality. Which means that the party must decide what it thinks about its recent past.

There are two ways this can go. The first is to attempt what Tony Blair did with Labour. To exorcise the coalition years as a terrible mistake which the party will never repeat. This will need more than words. It will mean rebranding the party, perhaps even changing its name (though unfortunately there is another “Liberal Party” already registered – perhaps “the New Liberals”?), as well as relegating those closest to the coalition, such as former leader Nick Clegg, to the outer edges of darkness. If people leave the party, that only shows that it is serious. Confronting the past is more important than party unity, Tim Farron, the party’s leader, is sufficiently distant from the coalition to pull this off – though he would have to eat some words.

But it is risky. Because if you throw away the coalition, what are you left with? You have to build an alternative vision of what the party is about, and then then sell it to a public with a short attention-span. The vision needs to be different enough from the Green Party and Jeremy Corbyn’s Labour for ordinary people to care – and abstract dissertations about the nature of “liberalism” won’t do; there must be concrete contrasts on topics that matter.  I hear quite a bit of use of the word “radical” from people of this general inclination, but very little about what they want to be radical about – apart from opposing any attempt to reform public services that does not involve a lot of extra taxpayers’ money. Which the Labour left already do. I’m being unfair, perhaps, but politics is a brutal business – and that’s how it looks.

Which leaves us with the second route: embracing the coalition years and claiming that time has vindicated them. At first blush this is just as hopeless. After all, if the public agreed with that idea, they would not have deserted it in droves. And there are aspects of the coalition years, especially the breach of the pledge on student tuition fees, that have taken on a high symbolic importance. Do the Lib Dems acknowledge mistakes, diluting the message, or brazen it out?

But there are advantages to embracing the coalition. It is a good starting point for a conversation with centre-right floating voters. Look at what happened when the Tories governed without a coalition: Brexit, grammar schools, tax breaks for the rich, etc. It is more challenging for the left-inclined potential core voters – but at least it drives a hard line between the party and the Greens and  Labour. It shows that the party stands beyond tribalism for a new sort of politics; when needs must the party will deal with the Tories, provided that certain red lines aren’t crossed. That’s a tough message, but a distinctive one.

I am not a fan of internal party “democracy” (self-selecting groups like political parties are fundamentally undemocratic), but this is something that is best decided by party members. The most interesting thing about Brighton will be to see how that group of more motivated party supporters thinks about the coalition years. I doubt that they are yet ready to confront the party’s past in the way they need to, but there should be signs of which way the wind is blowing.


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