Economics and politics - comment and analysis
17. May 2015 I Heiner Flassbeck I Countries and Regions, Economic Policy, Europe, General Politics

Why the Conservatives won the elections in the United Kingdom

Ein Gastbeitrag von Will Denayer
Last week, David Cameron did not only win the elections, the Tories also gained the majority (although a small one) in parliament so that they do not need a coalition partner. The conservatives got 331 seats, five more than necessary for a majority. Labour got 232 seats. The UK has a winner takes all system. In a proportional system, UKIP, the anti-Europe party, would have gained many more seats. The Liberal Democrats lost, as was expected. But the big question is why Labour performed so badly.

Many are currently dissecting this question. Many voters obviously did not trust Ed Miliband, the former leader of Labour. His discourse on ‘productive capitalism’ sounded suitable for a lecturing hall but was as such inadequate for an election campaign. A long series of fights and feuds within Labour alienated ever more voters; the unions opposed Miliband’s policies and a large segment of the press sided with the Conservatives. All of this is true, but my explanation is different. In my view, the conservatives won the elections because they succeeded in portraying their economic policy as a success: after all, the state deficit went down by 50 per cent, there are more people at work, the British economy is growing, recovery is on its way. Who can be against that? In fact, conservative economic policy has been an absolute disaster. To speak with Steve Keen, their policies have been nothing less than idiotic and utterly counterproductive (see here, here, here and here). Labour’s problem, however, is that it could not say this. Labour was unable to emphasize the failure of the conservative policies because they agree in principle and lack alternatives.

The same argument was eloquently made this weekend in The London Review of Books by Richard Seymour. Labour did not win because it alienated hundreds of thousands of voters. Just have a look at it: the austerity policies that the Tories implemented led to the longest decline in living standards of the last fifty years, inequality reached a level barely held for possible even ten years ago, the British welfare state is under attack as never before since the end of World War II, the economic outlook is bleak (see below), but what is Labour saying? Labour proclaims that it is not the party that will defend the interests of the unemployed. It is not the party that will stand up for the rights of those on social welfare. In fact, as Owen Jones showed, both parties speak about people on welfare – be they unemployed, sick, old or disabled – with the same contempt, the same basic lack of understanding, the same lack of interest. What is more, there is complete or, at least, near complete agreement on how social welfare recipients should be treated: with an iron fist. The problem, as Seymour writes, is not that Labour does not have sensible ideas – it certainly does. The problem is that Labour does not have a program that is different in nature (and not in degree) from the one of the Tories. Consistency, principles – that is what needed. Labour says that it wants to increase living standards. That sounds good. Labour says that it wants to abolish unemployment for youngsters of less than 25 years old. How is that increasing living standards? Whose living standards? That is exactly how Labour alienates potential voters.

Why did the conservatives win the elections? Let’s talk about economics.

In 2013, GNP of the United Kingdom was £ 2 tr. State revenue was £ 670 (appr. one third of GNP). Where did the revenue come from? £ 248 bn came from taxes on income on labour; £ 193 are taxes on consumption (which are, of course, regressive); £ 56 are property taxes and £ 46 are taxes on businesses. There is almost 4.4 times more income from labour than income from businesses. Between 2010 and 2015, wealth of the 1 % richest Britons doubled. The 100 richest Britons have now as much wealth as the 30 % poorest families. In real figures: total wealth of families is £ 10 tr.  The 10 percent richest own £ 967 bn of it; the poorest 10 % £ 13 bn. It is not a secret that the 10 % poorest have, in reality, not much of anything, an old car perhaps, an old couch. They have no savings. However, percentage wise, the poorest 10 percent pays more income tax than the richest 10 %. ‘When I say that we’re all in this together, this is because we are!’ said George Osborne (Minister of Finance) and he cut the tax rate for earnings over £ 150.000 per year. And why? Because in his budget, it raises ‘next to nothing anyway.’ The threshold at which people start paying tax is £ 9.205. These figures do not show the full impact of inequality and destitution. In fact, inequality is much more extreme. Even the top 10 % richest are not really rich. They are families that own a house, have a double income and are able to save for private pension – nothing that used to be out of the ordinary. But this changed: have a family income of £ 54.000 per year and you are in the top 10 % of income earners. That shows how much inequality has progressed. In reality, only the top 1 % is really rich. The 0.1 % is lavishly rich: these are the people who own stocks, bonds, commercial properties and businesses (that pay extremely little taxes). It is not the top 10 % that is important and not even the top 1 %. According to Oxfam, the five richest Britons have more wealth than the 20 % poorest. According to a study by UNICEF, UK child poverty soared due to government austerity: it is not only this generation that pays the price of the absurd policies of the Tories; the coming generations will also pay. They are already paying. That is the result of Cameron’s policies: a deregulated capitalism leading to an ever increasing polarisation between the poor and the oligarchs, with a shrinking middle class squeezed in the middle. All of this supported by a population who’s comprehension of economics goes no further than that ‘greed is good.’

What was the main goal of the conservatives? It is not different from the policies that are being implemented in most European countries. The (official) goal is to decrease government deficit and to decrease government debt. But why? There is no law in macroeconomics that says that countries that are being hit by an enduring recession have to give priority to decrease the government deficit,  that they have to make abstraction of any other policy goal in the meantime. The theory of austerity has been debunked a long time ago. The theory is wrong and the empirical data that support it is incorrect. But this seems to bother no one. In 2010, the conservatives promised to reduce the government deficit to zero. Five years later, the deficit has been cut in half – according to the government, the figures have been the subject of heated debate. The Tories now say that the government deficit will disappear by 2019. In order to accomplish this, the UK needs growth of 3 percent of GDP for the next four years and even then massive cuts in public sectors and social programs (£ 12 bn, to begin with) will be necessary. This is the expression of a political choice: it doesn’t have to be like this. As said, there is nothing in economic science that says that governments need to give priority to tackling the budget deficit. The contrary is true. The obsession with the state deficit is, to a very large degree, an unreal problem that is being presented to the population as the main, fundamental, problem that has to be solved as a matter of urgency because otherwise the economy will never recover. As long as the deficit is high, the rate of investment will remain low, that is the assertion on which the whole conservative credo is based. But, as many economists have shown, the government deficit is not competing with private investment over loanable funds, in particular not in times of low private investment.

The main reason why the conservatives failed is that the economy did not grow as much – not by far – as they expected. The economy grew by less than half of what the Tories predicted. Unemployment decreased, but wages went down. Between 2008 and 2014 wages fell in the UK more than in any other period since 1862 (when the Bank of England started to keep statistics on income), including the Great Depression of the 1930s. 

Figure 1: evolution of real wage in the UK.


Source: Michael Roberts (here).

This is why income from labour, which is, as said, the most important source of income for the state (by far) is low: income from tax on income from labour increased on average by 1.8 percent per year – far from the 5 percent per year that the Tories predicted. Wages are much too low to realize the growth of income tax that the Tories foresaw. This shows, in a nutshell, the complete insanity of austerity policies. Steve Keen has been saying for years that the budget deficit is much less important than aggregated private debt. It is simple to see why. Families cut back their consumption, so there is less demand. Austerity, which is supposed to be a way to restore demand – stimulating demand is essential for the rate of investment to increase –  takes even more money out of the economy. Yes, unemployment decreased, but the number of working poor increased. People work for wages that are too low to stimulate demand. The conservative policies are not working. Productive growth is lamentable. The reason is, that businesses are unwilling to invest in new technologies or skilled labour at good rates of pay. While investment to GDP has been falling in most major economies, it has been falling particularly strong in the UK. Profitability is still below levels seen in the late 1990s or even 2005. Manufacturing output is still lower than in 2008, despite a huge devaluation of the pound in 2010, as Roberts explains.

Figure 2: Evolution of GDP to investment.


Source: Michael Roberts (here).

The fundamental question is why the conservatives in the UK (and all over Europe) are so obsessed with the state deficit. Isn’t crazy, if it is not even important? Why tackling the budget deficit and not, for example, unemployment? The real purpose is to sell off the public sector. Anything that is potentially making a profit has to be privatized. Who gained from the privatization? The common man in the street? Completely different policies are possible. Economists such as Galbraith, Krugman, Stiglitz, Flassbeck and Keen and many, many others have been saying this for years. No one listens. Both the conservatives and Labour are diametrically opposed to such ideas. According to a study of the Association of German Trade Unions, even a small wealth tax could create between 8 and 11 million new jobs in Europe. Eight to eleven million people at work, people who consume, 8 to 11 million people who create demand. But the 1 % and the 0.1 percent do not care. They have altogether different ways to get even more rich than to invest in the productive economy of their own country.

It is reasonable to assume rationality when talking about policies. A policy is meant to be the  expression of a political choice. Policies are seen as adequate means to reach desirable goals. We have been knowing for a long time that this is not true: most often, there is limited or no rationality whatsoever (see here). The new realism characterizes itself, at least on the surface of it, by managerialism, business-like organization, value for money, cost-benefit analysis and other methods of rational management and policy making. But no comprehensive cost-benefit analysis of the activation policies of the unemployed has seen the light of day.

Some NGOs produced some estimates. According to Equality Trust, increasing inequality between poor and rich costs the British economy £ 39 bn a year. £ 12.5 bn is lost due to the reduction in health and life expectancy. £ 25 bn is lost because of a plethora of psychological problems. The UK spends £ 4 bn more on incarceration than in 2010. £ 687 is lost because of the increase in murders. Granted, it is difficult, if not impossible, to produce a robust causal link between austerity and the increase of murders, but let’s not get too sophisticated and deny what is evident. Poverty and exclusion are drivers of crime and crime leads to more serious crime. The broader economic cost of psychological problems is an estimated £ 105.2 bn per year: there are increased costs for care, therapy, lost productivity, disturbances, victims of criminality, domestic abuse, misery, decreased quality of life. All of this sounds like an impressive and especially an efficient way to cut back the state deficit.

It sounds like real value for money. According to Avnar Offer from Oxford University this is not the intention. Or rather, there are several sorts of intentions. Offer explains that the intention is to construe a wall: us and them, those who matter, those who do not (see here). Those who do not matter are being treated in the most scandalous and humiliating ways imaginable. And why? The wonderful idea is to inflict as much pain as possible. Offer explains this using just world theory. According to just world theory, society is, in essence, just. People get what they deserve. Fail and you prove your individual inferiority. There is no place for weaklings. Such people do not deserve help. Instead, they have to sanctioned. Just world theory is the negation of empathy and understanding. And so excesses happen, but no one cares. Brian McArdle, 57, had been left paralysed down one side, blind in one eye, unable to speak properly and barely able to eat and dress himself after he suffered a stroke in 2012. In spite of this, he was called by the Department of Work and Pensions for a disability assessment and found fit for work. McArdle died of a heart attack the day after his benefit payments were stopped. Ian Duncan (Social Welfare) still defends his welfare ”reforms” as ”fair.” More of his ”fairness” is on its way. How many people his ”reforms” killed is hard to say because causality is difficult to prove and no one keeps track anyway. Is this how we treat people nowadays? And no, McArdle is not an isolated case. Google it. You will find many example of superfluous people that are being harassed, humiliated, forced into marginalisation, made homeless. ‘We’re all together in it,’ says Osborne, but what does he know about bedroom taxes, soup kitchens, food banks, unemployment, exclusion, homelessness, depression, despair, suicides? Osborne knows nothing about it. It’s not his problem. Just world theory tells him so. And greed is good.

It is ago since Thatcher that the anger against the conservatives has been so great. And what did Labour do? Labour promised to act mercilessly against social fraud if it would get elected. Granted, social fraud is not nice. But it is a serious problem? In his book on the demonisation of the working class, Owen Jones cites studies that show that social fraud is many times smaller than social abstinence. People give up their right to social payments (to which they are entitled) out of fear for later consequences, for example immigrants who fear that they will be expelled if they use social welfare (to which they are entitled). But it is social fraud that Labour chooses to tackle. Labour promised to continue the restrictive activation policies of unemployed. And although Labour deplores it, it is will be absolutely necessary to make more cuts into social welfare. Labour does not even oppose the privatisation of the NHS (National Health System) any longer – perhaps not in its totality, but it has to be possible to cut the NHS into pieces and put these up for sale.

Labour is a party of lawyers, doctors, entrepreneurs, people who are not interested in solidarity with a losing out working class stratum, with the unemployed, with low pay workers. This also explains why Labour shows no interest in economic work that is not mainstream. Labour accepted neoliberalism in its totality: the necessity of austerity policies and of cuts in social welfare, the liberalisation of labour market, the sell out of the public sector, pressure on wages in order to defend against global competition, the market as the organiser of society, not democratic policies, not scientific analysis, not intelligence. After five years of truly abominable Tory rule, Labour ended up with one of its worst results in history. In Scotland, the picture is clear: Labour got no votes. In England and Wales, Labour lost hundreds of thousands of votes. There is no doubt that many of these votes went to UKIP. UKIP won only one seat in parliament. In a proportional system, it would have won eighty. Labour also lost out on the Greens and it is also very likely that more Labour voters abstained from voting than Tory voters. And so, there will be a lot more cruelty but no recovery.

Dr. Will Denayer teaches Political Economy at the University of Cork. He is interested in economic theory, social policy and climate change.