Vote Osborne get Balls?

Elections should be about which political party is offering the best plan for Britain. The truth is more complex and less edifying.

A few years ago a detailed historical analysis of the outcome of close elections between right of centre and left of centre parties offered an explanation of why the right tends to win. Surveying swing voters the researchers focussed not on the party’s policies but the voters’ perception of the risks associated with Governments not delivering their promised plan. The risk of right of centre parties failing to deliver was seen as cuts in public services and greater social division while the risk of left of centre parties not delivering was higher taxes and economic frailty. While many voters worry about the former, more worry personally about the latter. Thus the greater perceived risk of a left of centre party failing in office leads key voters to opt for the lesser  risk of a right of centre party failing.

This analysis (annoyingly, I can’t find the reference) is highly salient to the coming election. For not only is it looking close and not only is there a substantial difference in fiscal policy, but our disenchanted electorate is inclined to believe that whoever wins will renege on their promises. Which takes us to the paradox that may yet determine the outcome in May.

When George Osborne published his eye watering fiscal plan in the autumn statement I was among many who felt it was not only disingenuous but politically misguided. Few serious economists think Mr Osborne can stick to his plan. Unless there is a serious uptick in the European economy such an intensification of the fiscal squeeze would be likely to reduce growth and thus be counter-productive. Also, as outgoing civil service chief Sir Bob Kerslake among others has argued, the proposed level of cuts is probably undeliverable; essential services would start to collapse. Furthermore polling is beginning to suggest that voters are becoming austerity-weary and don’t see tax cuts as realistic. The proposal that we not only have five more years of deep cuts but an extra dollop in order to fund a tax giveaway is surely electorally unwise.

In contrast Labour’s plan, while tough to deliver, looks more realistic. It is true, as the IFS said this week, that only closing the revenue deficit by 2020 is risky giving the possibility of a downswing in the economic cycle, but we are where we are and there is no realistic policy that would survive such a scenario intact.

In reality, both Balls and Osborne are resting their hopes not on their published forecasts and plans but on long awaited signs that economic growth is generating a fiscal dividend (the most important single data point between now and the election will be the Treasury tax take for January). All other things being equal, the Balls plan looks more growth-friendly than the Osborne plan.

On this basis many analysts assume that a Conservative election victory in 2015 will see a continuation of the last five years in which targets are continually missed and the deficit is cut much more slowly than the plan. In other words, if you vote for Osborne’s plan many experts think you will get something closer to Balls’.

Surely this means Labour’s economic and political strategy is stronger? Here lies the paradox. If the historical analysis is borne out, when the election is close and the voters assume no one will deliver their promises the key question is ‘which party’s risk of failure is more worrying?’. The answer to this favours the Conservatives. For while the likely risk of Osborne failing to meet his targets is that we end up with something like the Balls plan (the voters’ favoured option), the risk of Balls failing could be a fiscal crisis which could only be alleviated by substantial tax increases.

So (and I suggest you read this slowly), voters may end up opting for the party with the plan they least like because they think this party is more likely to end up implementing the plan they most like than the party actually promising the plan they most like.

The only answer for Labour is to double up on its promise of fiscal rectitude. Unfortunately for the opposition the kitbag of devices to do this is already pretty much empty.  We have had written pledges, Golden Rules, an independent Bank of England, the OBR and even this week fiscal responsibility legislation, yet still politicians fail to deliver. All Miliband’s team can do is to bang home their commitment day in day out, explicitly saying that if growth goes off track it will be services not taxpayers that will be squeezed. But this would require a conviction and message discipline across the whole Labour frontbench which has thus far been absent.

For a political scientists it is fascinating to see whether the historical tendency for perceived risk to determine outcomes in close contests is borne out. For those of us who wish elections were fought on the basis of rational policies and authentic debate it is all rather depressing.