Political maths 101
Political economy and public opinion
It’s an obvious thing to say, but a good and politically effective Chancellor of the Exchequer must be good at maths.
Conservative Philip Hammond was known as “spreadsheet Phil” for his love of crunching numbers while the current post-holder — Labour’s Rachel Reeves — took A-Levels in maths and further maths before becoming an economist.
More specifically, Chancellors must be competent at the four basic arithmetic operations — addition, subtraction, multiplication and division. Over-reliance on any one of these risks economic and political trouble; the equivalent of being a “one-club golfer”, a criticism levelled at Chancellor Nigel Lawson by Ted Heath in the 1980s.
Addition
At her Budget in October, a third of the extra spending released by Rachel Reeves was committed to improving infrastructure, something two-thirds of the public see as necessary for boosting the economy. And, according to Ipsos, the public were strongly supportive of her announcements about increasing spending on public services, particularly on fixing roads and potholes, increasing NHS funding, raising the National Living Wage, and increasing funding for education.
This reflects a pessimistic backdrop. Seven in ten Britons believe public services are failing to meet expectations, six in ten think that services need increased funding as well as significant reform. For years, I’d run focus groups and find people yearning for an injection of something, perturbed by fading high streets and struggling services.
Subtraction
The desire for addition comes after a period of subtraction. In the middle of the last decade, there were signs that the Coalition Government’s arguments about the need for austerity had taken a firm hold. According to the British Social Attitudes Survey (BSAS), support for increased tax and spending had fallen from 63% in 1998 to 31% in 2010.
It was only later that the public started to notice a significant direct impact on services and the scarring effect of deficit reduction and cuts led Reeves to pledge “no return to austerity” under Labour.
While the public began to dislike cuts in services, in the period following the pandemic they were increasingly comfortable, at least in principle, with the idea of reductions to disposable income via rises in tax. And between 2019 and 2022, BSAS found an increase from 39% to 49% in the proportion of people who agreed that government should take away from the better off and redistribute to those less well off.
Multiplication
Economies need multiplier effects, a change in one part of the economy stimulating impacts in the rest of the economy. But despite the £70bn-a-year rise in spending in Reeves’ Budget, the OBR forecast only a short-term lift to economic output, leaving the average rate of growth unchanged over the next five years.
This will be disappointing to a government whose aim is to “kickstart” economic growth the primus inter pares mission among five. But the OBR’s forecast will not have factored in other reforms such as overhauling the planning system, something the Chancellor has identified as crucially important — “our plans for growth hinge on it.”
Changing the rate of building in Britain might create some division, an outcome recognised by Sir Keir Starmer in the ‘trade-offs’ section of his conference speech in the Autumn. And anyway, this is not simply about growth and a figure in a spreadsheet, it is about tangible improvements to lives and opportunities.
Another multiplying factor is a cultural one. The Japanese people are the most open to AI among 32 countries’ populations according to an Ipsos survey this year, but adoption is much lower among firms and institutions than it is elsewhere in Asia.
This works the other way too — with ‘doom loops’ creating downward spirals. The Government was criticised for its bleak messaging about the economy before the Budget, and this was blamed for weak growth during Quarter 3.
Division
Public concern about the economy continues to rise and the issue displaced immigration as the top issue facing the country in November’s Ipsos’ Issues Index. While immigration is a more divisive issue — worry is very high among some groups but far lower among others — a government’s macroeconomic policy can create instant winners and losers.
Every decision about the two-child limit, fuel duty and stamp duty, for example, risks significant opposition. Ipsos found the public were split on Budget policies to raise the rate at which employers pay NI contributions (34% supported this, 36% opposed it), and the rate of capital gains tax (34% against 30%). New inheritance tax rules sparked protests by farmers across Britain.
Calculus
Labour has a large majority on its side, but a ‘Ming vase strategy’ has resulted in an apparently fragile mandate. An expansive budget has likely charted a political and economic course for the remainder of this Parliament.
Getting the maths right will take time, and a considerable degree of skill.
