Six features of British public opinion on economic growth
The markets got spooked last week, apparently nervous about the mini-budget and vexed by the absence of OBR assurance that the figures add up. In choppy waters, they preferred the safe harbour of the US dollar and there was talk of a “run on the pound”.
The Chancellor sought to calm nerves without commenting on the markets while, this week, the Bank of England and the IMF have intervened. What’s all this turmoil for? In a word, growth.
The budget was designed to prioritise economic growth. Kwasi Kwarteng described it as “a new approach for a new era” and followed Liz Truss’ criticism of Treasury orthodoxy during the Conservative leadership campaign by cutting taxes and increasing expenditure.
But, in terms of public opinion, ‘going for growth’ is easier said than done and not that easy to say either...
1. Growth is not something that comfortably connects with people. According to Ipsos, when listening to news about the economy, Britons are most likely to be influenced by information concerning inflation/increases in prices, levels of (un)employment and interest rates. National income and GDP feature low down in the pecking order and lower than the strength of the pound (this was also the case in 2013). The Chancellor’s reference to “Our aim, over the medium term, is to reach a trend rate of growth of 2.5%”, is unlikely to mean much to many people.
2. Some people don’t support some of the key drivers of growth. In recent years, attitudes towards immigration have softened while support for local house-building has increased, but there remain solidly resistant and nimby tendencies among segments of the population. Public opinion needs leading as well as following and this needs careful management from Westminster and Whitehall but also across town halls. There is also a strange juxtaposition at the heart of Government priorities; for example, it favours fracking over wind energy but public support is higher for the renewable source.
3. People don’t want growth at any cost. The Budget heralded an intention to reform planning and accelerate the delivery of infrastructure (shades of Boris Johnson’s ‘Project Speed’), but Ipsos research finds, on balance, people would rather more considered progress and engagement with local communities. They don’t just want more housing, they want the right type of housing. And in a global survey by Ipsos for EDF last year, 51% of Britons prioritised the environment even if it slowed growth and caused job losses, compared with 31% who preferred growth even if it came at the expense of the environment.
4. People say they are willing to pay more for more. For several years now, people have been saying that they are willing to countenance tax rises or higher borrowing for better outcomes. The British Social Attitudes Survey published last week found a majority of the public remains in favour of government spending and higher taxation and reported “little evidence as yet of the public turning against further government spending”. Ipsos has previously found that people would pay more tax if it improved the NHS. True, these measures came before the cost-of-living crisis and recent events, and the Government is planning to spend more as well as reducing tax, but the public are hardly clamouring for lower taxes and are worried about the future of public services.
5. A sensitivity about fairness is hard-wired into the British psyche. Who is growth for, who will win, who will lose? Unless growth and progress really does “trickle down”, people will doubt the Government’s motives. One of the noticeable features of Rishi Sunak’s final Budget in October 2021, was the increase in people thinking it would be bad for them personally. Ipsos found people twice as likely to have thought that the budget was good for people on high income as it was for people on middle incomes. Almost a year on, the Budget contained large tax cuts for higher incomes and a loosening of restrictions on ‘bankers’ bonuses’. A snap poll by YouGov found 63% of the view that Kwarteng’s plan will mainly benefit the wealthy over the poor.
6. Higher interest rates are not a price worth paying for growth. In August, 64% of people said they were concerned about increasing interest rates. The rise in rates since then, and the expectation of more to come, will have increased anxiety several notches. Neal Hudson (@resi_analyst) has done some superb analysis in recent days to disabuse any complacency; rates will remain much lower than they were than the double-digit rates of the ’70s, ’80s and ’90s but what matters is the burden i.e. how much is being borrowed and how disposable income compares to those payments. Things look grim for the housing market.
The flipside to these challenges is that an energetic, ambitious plan for growth creates an impression of hitting the refresh button. When the Conservative Party changed its leader in 1990 after a long period of rule by Margaret Thatcher, voters believed there had been a change of government, not just a change of Prime Minister. They went on believing this until victory at the 1992 general election.
But soon afterwards, ‘Black Wednesday’ fed a narrative of a government which had lost control and its ability to manage the economy, giving a renewed Labour party an opportunity.
Britain needs a plan for growth. Britons want a plan for growth. But it needs to tick a lot of boxes and, at present, there appear to be more crosses than ticks.