Don’t underestimate Theresa May – but the Lib Dems will play a critical role in this election

Today Theresa May announced her intention to hold a General Election in Britain on 8 June. She is certain to get her way, notwithstanding the Fixed Term Parliament Act. Personally I’m not happy – this is an unwelcome distraction from other things I need to do – and my post on mental health has been swamped. Unable to concentrate on much else, I’m going to post again.

The first thing that strikes me is that British politics is littered with people that have underestimated our Prime Minister. This election was an almost total surprise. Rumours had circulated earlier in the year of a a General Election, but faded when it was clear it would not be on the first Thursday in May, which has now become the traditional date for elections in Britain. (A practice established by John Major in 1992, and only broken in 2001 because of an outbreak of foot and mouth disease. But before that Margaret Thatcher preferred June elections, a parallel that will no doubt please Mrs May). This surprise shows how tight a ship she runs compared to her ill-fated Labour predecessor Gordon Brown, whose career had otherwise had some striking parallels. Mr Brown’s reputation was destroyed because he let speculation about an early election get out of hand, and then lost his nerve.

The second striking thing is how unusual it is for us to have a snap election in the UK. Until now Prime Ministers have waited until the fourth or fifth year of parliament’s term. The date has been widely known well in advance (though in the case of the four year terms favoured by Tony Blair and Mrs Thatcher, not for certain), allowing for a lot of pre planning. We have to go back to 1974 for one like this one, unless you count 1979, when the Callaghan government was brought down by a vote of no confidence less than six months before its term had run. And even the 1974 parallels aren’t that strong. This is uncharted territory. The parties will be fighting with much less pre-planning. The campaign could be much more chaotic than the carefully choreographed ones we have been used to.

Politically the election is dominated by the weakness of the Labour Party. Already demolished by the SNP in Scotland, it shows no signs of recovery there, and looks very vulnerable everywhere else. Its opinion poll ratings are very low – about half the Conservative vote. I have not seen any analysis of what this means in terms of the party’s vulnerability in particular seats. It has a large number of very safe seats, so it might well hang on in lots of places, while doing catastrophically in Middle England.  The party has two huge problems. The first is that the political agenda is clearly on Brexit, where its message is weak – it will not be rewarded for reflecting the confusion that much of the voting public has on the topic. Much as it would like to move the debate on to austerity, where cuts are now looking quite alarming in places, this looks like a doomed enterprise. And that is because of their second major problem: a spectacularly inept leader in Jeremy Corbyn. By itself this ineptitude is not fatal – after all he has done well in Labour’s internal elections – but the public don’t see him as a prime minister in waiting. Time an again that has proved a fatal handicap at election time. Without that credibility Labour can’t change the agenda.

So the Conservatives are looking confident. It seems that their key electoral message is that Britain needs a strong government right now, regardless off what that government actually plans to do. But the messaging will not have been exhaustively tested, so we don’t know how this will actually play. It seems clear that they will be able to beat off any threat from Ukip, but they may find it harder to manage the Lib Dems.

The Lib Dems are in a very interesting position. Most people considered them wiped out after the last general election in 2015, when they were punished for having been in coalition with the Conservatives. But the Brexit referendum result has energised the party. It has now reliably retrieved third place in the opinion polls (though still only half of even Labour’s disastrous score), and its membership is booming. It has a clear position on Brexit. The Tory strategy in 2015 was mainly to destroy their coalition allies – on the principle that you should always go for the weakest opponent first. That meant they won many more seats from them than they did from Labour. But holding those seats could be tricky, since the messages that worked so well in 2015, which relied on a strong Labour threat, lack punch now -and the Tories are unlikely to have the same organisational strength, since this is a snap election.

So the Lib Dems could make a big comeback. Big enough to stop the Conservatives from getting a majority? Almost nobody would suggest that. The closer the party gets to achieving that aim, the more powerful the Conservative message about strong government will become. But after the last year we have started to expect the unexpected. The Tories will make little headway in Scotland (even though they now outpoll Labour there). They may find that taking many seats from Labour means going deep into their strongholds. Their high poll rating could simply mean piling up votes in seats they have already won.

So, much as I find this election personally unwelcome, it will be an interesting one to watch. My hunch is that the Conservatives will end the election in much the same place that they started it – but with fewer Labour seats and more Lib Dem ones on the opposition benches. But am I making the fatal sin of underestimating Theresa May?

7 thoughts on “Don’t underestimate Theresa May – but the Lib Dems will play a critical role in this election”

  1. Another possibility, which I haven’t seen publicly discussed, is that TM knows or has been advised that we’re likely to see another crash any time soon. If I read the sectoral balance graph correctly the private sector debt situation is much worse in the UK now than it was in 2008. But it was probably much worse then in the USA and it was that which brought about the GFC.

    When it happens it will certainly be blamed on Brexit. But it would have happened anyway even if we’d stayed in. It’s the build up of private sector debt which has been responsible. Classic debt deflation as first described by Fisher and picked up on inrecent times by Steve Keen. The fall in the value of the pound, caused by Brexit, may have even given the UK economy a slight respite.

    Even if there isn’t a crash I would expect the economy to stumble along in a quasi-recessed state. And what will the Government do to stimulate it now they can’t lower interest rates any further?

    Much better to get the election done and dusted now before the you-know-what hits the fan!

    1. Good point. Personally I don’t rate the risk of a financial crash highly, though some sort of economic slowdown is another matter. I’m not quite sure how to read the sectoral balances. To me they look pretty similar now to 2008. Overall the private sector is slightly negative, against slightly positive then – but the difference seems to because the non-financial corporate sector is a bit less in surplus, which is not particularly unhealthy. I don’t think the sectoral balances are picking up quite what made 2008 so unhealthy – which was an explosion of off-balance sheet lending within the financial sector, which will net out I these figures. There seems to be much less of that kind of thing going on in in Europe and the US than in 2008, and banks are better capitalised. China is another matter though, and some people (like the FT’s Martin Wolf) worry that China is going to hit a financial crash. But we don’t understand how connected China’s financial infrastructure is to that of the rest of the world. Officially not so much, but that is the sort of thing people were saying in 2008 about the US sub-prime…

  2. I think you’d need to look at the USA sectoral balances to see why we had the 2008 crash. They don’t look too bad now. So its is possible we won’t see the same thing repeated. But on the other hand we had a recession in the UK in the early 90’s ( the Lawson boom of the late 80’s followed by Black Wednesday) but the USA was doing OK at the time. That could be the pattern again this time.

  3. I don’t think the sectoral balances are picking up quite what made 2008 so unhealthy – which was an explosion of off-balance sheet lending within the financial sector

    I’ve been thinking about this comment. The sectoral balances don’t pick up lending per se. If I borrow money from you, you acquire an asset of the loan to me on your balance sheet. This is offset by the loss of the monetary asset in your bank account.

    I acquire the asset of the cash. But I have a liability to you to repay the loan. So immediately after the loan, we’re both still in the same net position as previously. But the only reason for me to borrow money would be if I want to spend it.

    I could spend it on buying a villa in Spain. In which case that would reduce the domestic balance. Assuming that whoever acquired those pounds didn’t want to spend them in the UK. Or if they did want to spend them in the UK, or I wanted to spend them in the UK myself, the government would take its cut on transactions as the cash was spent and respent. That would increase the government’s balance. It is the spending facilitated by the borrowing which causes a change in the sectoral balances. Not by the borrowing itself.

    That you are a company and don’t have a formal balance sheet doesn’t change anything. It also doesn’t change anything even if you do have a formal balance sheet and use some clever accounting technique to avoid including the loan.

    1. Agreed that it isn’t the borrowing as such that shifts the macro-economy – it’s the spending that they borrowing facilitates. My point is that what borrowing can do is create vulnerabilities in the financial system – and this is what happened in the years up to 2008. The banks built up huge loan books and then sold them off, making them “disappear”. The authorities where quite relaxed on the basis that it all netted out – indeed many thought that all that was going on was risk-sharing (even I accepted this until the interbank freeze in 2007 showed this was not the case). The problem was that when defaults started to occur, nobody knew who was vulnerable, but it transpired that in effect, the banks had sold most of the loans to themselves, and not to the private individuals, pension funds and insurance companies that they had suggested. That shook confidence in the viability of banks, which stopped lending, which caused private spending to crash. Nowadays the people with huge balance sheets are the central banks after QE. That is altogether safer.

  4. Yes I think that’s right. There has to be private lending in the economy. To buy houses. To finance businesses etc. But it does create vulnerabilities,

    My complaint against all recent governments is that they have excessively relied on encouraging private lending as a way of regulating the economy. They’ve lowered interest rates to encourage us all to borrow more to stimulate the economy. And it needs stimulating because we all borrowed too much previously!

    The so-called New Keynesians, who aren’t really Keynesians at all, have a lot to answer for!

    1. I’d have to agree with you there Peter. The whole conventional wisdom about monetary policy that evolved from the 1980s looks like a big blind alley.

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