U-turn if you want to: Part 2

I wrote a piece yesterday which indicated how the UK government’s position on Brexit is no longer tenable and needs to change. The extent to which this impacted on the election is questionable. But one issue which did appear to resonate during the campaign was that of fiscal austerity. Like Brexit, this is a subject where I believe the government has adopted an ideological rather than a pragmatic approach, and the evidence from the election campaign is that it is wearing a bit thin.

During the election campaign of 2010, the Conservatives portrayed the Labour Party as having bankrupted the country as the public deficit headed above 10% of GDP. Labour were admittedly fiscally profligate in the years prior to the crisis but the crash in public finances was purely the result of the massive collapse in activity in the wake of the recession. Nonetheless, the Conservatives played on the image relentlessly, usurping Labour from government in 2010 and embarking on a fiscally prudent course to eliminate the current deficit by 2016 and reduce overall borrowing to 1% of GDP.  As is well known, for various reasons Chancellor George Osborne continued to fall short of his targets and the fiscal squeeze became ever tighter.

What was deemed to be particularly unfair about Osborne’s approach is that he relentlessly targeted the welfare budget. Access to welfare has been severely restricted as those people previously judged unfit for work are subject to more stringent tests, which are almost impossible to pass unless the individual is virtually dead. Leave to appeal has been strictly curtailed, with a recent Freedom of Information request revealing that the Department for Work and Pensions has a target to reject 80% of benefits appeals. As even The Economist noted recently, welfare spending has fallen “by one percentage point of GDP, with working-age families bearing the brunt. Since 2015, however, the Tories have turned a hard-nosed welfare policy into a punitive one. Osborne used cuts in working-age benefits as a way to balance the books … A four-year cash-terms freeze on most benefits began in April last year. That policy was announced when inflation was close to zero. Now it is nearing 3%, the purchasing power of everything from tax credits (top-ups for low-paid folk) to housing benefit is falling.”

The recent tragic terror attacks on the British mainland threw the issue of public spending cuts into sharp relief. I have noted previously that politicians are quick to praise public services when they are needed but otherwise have no compunction in cutting their budgets. Having survived in government by the skin of their teeth, the Conservatives now realise that a further parliamentary term of fiscal austerity is not going to win them votes. But what exactly might that entail? Does it mean simply not reducing the share of spending relative to GDP any further? Or does it mean holding the deficit constant versus GDP, which allows scope to raise spending so long as it is funded by higher taxes? As it is, spending as a share of GDP is still high by past standards, at just over 39%, but it is 6 percentage points below the 2010 peak. But revenues, at just below 37% of GDP, are only slightly higher than their long-run average. My sense is that taxes will have to rise at some point in order to fund additional spending – and as I have long argued, the policy of cutting corporate taxes to amongst the lowest in the OECD is putting an unnecessary hole in public revenues.

But austerity is not just about making the books balance: It becomes a state of mind, whether you are in government, the private sector or making your household finances stretch further. It is in this wider context that we have to view the horrific fire which engulfed the Grenfell Tower in London yesterday. I am not suggesting for a moment that government neglect had any bearing on what happened. But abstracting from the grim horror of what happened, one of my thoughts was that 30 years ago, as the UK was going through a similar period of government retrenchment, we experienced a similar series of tragedies (the Bradford City fire; the Kings Cross fire; the sinking of the Marchioness and the Clapham rail disaster). David Aaronovitch, writing in The Times today, evidently came to the same conclusion. As he put it, these disasters “arose from the use of old, near-obsolete and dangerous infrastructure … Stuff like this usually comes down to attitude and to money.” Elsewhere in the same newspaper, the point was made that “cost-cutting by private firms brings public danger.”

This is not the voice of the Labour Party: The Times represents the voice of the political centre with a bias towards the Conservatives. This shift in attitudes must act as a wake-up call to politicians of all stripes that government – whether central or local – cannot continue outsourcing functions to the private sector. Citizens pay their not-insubstantial taxes and expect a decent level of services in return. When even the BBC news reporter covering the fire (here at 5:24 if you can play the video) – who as a rule remains impartial at all times – stated “in the 21^st century, in a country with some of the strictest fire regulations in the world, a desperate tragedy like this just should not happen,” you know that something is afoot.

U-turn if you want to: Part 1

The disastrous performance of the Conservative Party in last week's election has prompted a rethink of policy on both Brexit and fiscal austerity. This is recognition of the fact that the government has been spectacularly wrong on both – as I have long pointed out – and the scale of the U-turn reflects a certain degree of chutzpah. In this post I will focus on Brexit-related issues and leave the fiscal issues for my next post.

Whilst hopes have been awakened that we will see a softening of the terms on which the UK seeks to leave the EU, it is just as likely that we will end up instead with a chaotic Brexit which would be the worst of all worlds. I have always maintained that the Brexit referendum was an unjustified gamble with the national interest and it feels even more like that today.  Those politicians who advocated this course of action deserve all the opprobrium that is heaped upon them, and in order to highlight why Theresa May’s government is not fit to negotiate the exit, it is worthwhile recalling the series of miscalculations which has characterised Conservative policy in recent years.

First, the decision to hold the referendum at all was reckless. This was compounded by the failure to specify the terms which would make it easy for David Cameron to achieve his objective of winning. For example, the 1979 Scottish devolution referendum required that a winning margin be obtained from 40% of all eligible voters. In an uncanny echo of the Brexit result, whilst 51.6% of those who turned out voted in favour of devolution, only 32.9% of all eligible voters did so (the corresponding figure in last year’s referendum was 37%). Then there was the failure to set out ahead of the event the terms on which the UK would leave. Had voters known exactly what a hard Brexit entails, some may have thought twice. To cap it all, Theresa May gambled that the electorate would back her view of a hard Brexit. This proved to be a second successive failed gamble by a Conservative prime minister which has made the process of trying to find a Brexit deal far more complicated. Given this litany of errors, you will forgive my scepticism that the government is best placed to resolve the difficulties we now face.

Theresa May, described by George Osborne at the weekend as a dead woman walking, has to find a balance between those MPs in her party who wish to push for hard Brexit and the large number of MPs who wish to see it take place on much softer terms, if at all. I was thus somewhat gratified to see that my idea of a cross-party approach to Brexit now appears to have become a mainstream idea (you heard it here first).

But we simply should not even be having this debate. A hard Brexit is a ruinously stupid economic idea. And to compound the negotiating difficulties by calling an election AFTER the Article 50 process was triggered, thereby eating up valuable preparation time, tells us all we need to know about the Conservatives preoccupation with domestic politics rather than the wider interest. Although the government says it is ready to go ahead with the start of Brexit talks with the EC next week, it's not clear to me that this can credibly happen. Technically we do not yet have a government. Nor is it clear what the UK's negotiating position is, yet they will be facing a European Commission team which has had months to prepare its case. And just to make life even more difficult, two of the four ministers on the UK’s negotiating team have departed just days before talks are due to begin. This raises the chances that the disorganised shambles which passes for government may well crash out of the EU without any deal. The Conservative manifesto might have said no deal is better than a bad deal, but that is a level of economic illiteracy which suggests whoever wrote it has no idea how to conduct international trade negotiations.

Now you may have spotted from the tone of the post that I am a tad annoyed. Damn right! Pretty much every key decision that has been taken on Brexit has been wrong. There is no sense that those responsible for making decisions are capable of thinking strategically about how to get a deal which maximises British interests. We should be in no doubt that failure to do so will make everyone poorer and despite the talk which suggests that immigration is the biggest single issue, in the long run what people care about is their wallet. We are now hearing indications that business is becoming much more vocal about their needs post-Brexit. So it should. And If the government does not know what it wants from Brexit, it should not be entering talks with the EU. Instead it should rescind the Article 50 notice until such times as it does.

This may annoy the Brexit nutters such as Nigel Farage, who has threatened a comeback in the event that the government backslides. I say let him. Farage was a useful dupe for those who wanted something to protest against in 2016 but he would require the powers of Lazarus to restore UKIP to the position they were in last year. I also sense that some of last year’s anger has dissipated somewhat and he would find it difficult to whip up an anti-EU frenzy in the same way. I do not want Brexit to happen and nothing would please me more than if the government were to back down. But in the spirit of accepting the will of the people (even if the referendum is not legally binding) I accept this is unlikely to happen. But if it has to, then let us work out what we want first rather than trying to make it up as we go along.  That is the path to disaster.

Why do pollsters get it wrong?

Whilst the headline writers have spent the last two days poring over the entrails of the UK general election and what it means for the future direction of economic policy, I have been wondering how the pollsters could get it so wrong – again. After all, this is the third successive UK plebiscite since 2015 in which the electoral pundits have failed to call the result – not to mention their failure to call the US presidential result.  If the polls this week had been even slightly more accurate, the result would not have come as such a surprise and we would not have spent the last three days having many of the debates about Theresa May’s future.

First, however, some sense of perspective is in order. The opinion polls did a pretty good job in getting the voting shares right. The analysts at Electoral Calculus, for example, predicted that the Conservative vote share would rise from 37.8% in 2015 to 43.5% this time around whilst the Labour share would increase from 31.2% to 40%. In the event, the final vote shares were 42.4% and 40% respectively, so there was a modest overshoot on the Conservative share but they got Labour spot on. But it is a lot harder to go from there to actually predicting the election result, because the regional vote distribution matters hugely. In the UK’s first-past-the-post system, parties only need to outperform their local rivals by the tiniest of margins to win a seat (indeed, one constituency was decided by a margin of just 2 votes – 0.00478% of the votes cast). Once we start digging below the national level, the issue becomes fraught with sample size problems and the margins of error become much wider.

The opinion polls clearly narrowed over the course of the campaign. But even by the time the final polls were published on Wednesday night, the 15-poll average was still showing a Conservative lead of 6 points – down from 20 in the first half of May – with their polling share only back where it was when the election was called (43%). The central case forecast was thus not suggestive of a hung parliament. But if we apply a 5% margin of error, by adjusting down the Conservative figure and raising Labour’s polling share by this amount, although the trend does not change the extent of the lead does. Rather than a 6% margin the Conservatives went into the election with a 2% lead on this basis (see chart).

Applying this level of statistical inaccuracy in trying to predict the number of seats becomes a whole order of magnitude more difficult. In addition to Electoral Calculus (EC), I have also been tracking the results derived by the Election Forecast group (EF).  EC predicted that the Conservatives would win 358 seats whilst EF’s projection was 366 (though EF’s low case scenario did predict that the Conservatives would win 318 seats –  the right answer as it happens – whilst EC’s low estimate was 314). The central case predictions were thus off by more than 10%. They were even further off in their predictions for Labour with EC predicting 218 seats and EF (where the outturn was even higher than their upper limit) projecting 207. One group which did predict a hung parliament was YouGov whose “big data” model proved to be right, but their final call based on conventional survey methods was for a wider Conservative majority.

One of the reasons for the apparent failure of conventional methods was that most polling organisations discounted the evidence suggesting that younger age groups would vote Labour, and assumed that many of them would stay at home, as happened in 2015. This is an object lesson in the perils of manual adjustment – something which I do all the time when using structural macroeconometric models and more often than not, this turns out to be justified. It is always galling when the model beats your prior view, but ironically, the next time you let the model run without overwriting the results you often find you would have been justified in overriding it.

YouGov provided a non-technical summary of their Multilevel Regression and Post-stratification (MRP) model which seemed to work so well (here). It takes polling data from the preceding seven days to estimate a model relating interview date, constituency, voter demographics, past voting behaviour and other profile variables to their current voting intentions. This is used to estimate the probability that a voter with specified characteristics will vote for a particular party. Obviously, it is not infallible: It is a snapshot of intentions at the time the survey is made. In addition, the models are based on very small sample sizes so they suffer from the usual bias problems. Like all models, they are subject to significant margins of error, and as this blog post highlights they need to be treated cautiously. Indeed, I assign a huge degree of mistrust to regression models for predictive purposes because, as noted in the post, MRP “is a useful tool, but potentially misleading if used carelessly or indiscriminately.”

Ultimately, I suspect that trying to predict the detailed results of elections in the multi-media age is going to become ever harder. As information is thrown at us ever more rapidly, we will have to learn to assimilate it more quickly, and our quantitative models will have to take on board information from sources such as Twitter (already possible in statistical packages such as R). I am sure that in the course of the next week, some bright spark will ask me why I failed to get the election result right. The simple answer is because it’s hard to do, so I leave it to those with the expertise, time and resources to do it. And even they struggle, so what chance have I got?

Reflections

After a slog of a campaign which broke the mould for both the Conservatives and Labour, the election we didn’t need produced the result that the Conservatives didn’t want; it will potentially change the thrust of economic policy and may have far-reaching implications for Brexit negotiations. Without necessarily having any truck for Labour, I must confess to some satisfaction in seeing the Conservatives run aground on the Brexit issue. Almost twelve months after the searing experience on that sunny Friday morning of 24 June 2016, the hard-liners on the right-wing of the Conservative Party who lied their way to victory on Brexit, were chastened by the message handed to them by the electorate, whilst UKIP’s brief spell as a serious political force was effectively terminated.

I have pointed out many times that the efforts by Theresa May and the rest of the Conservative Party to interpret the Brexit vote as a mandate for a hard Brexit were misguided. Their efforts to take ownership of the issue, as if Brexit was a topic only for Conservatives, were way off. The irony is that whilst the election was all about Brexit, it was not even the most important issue of the campaign. Austerity policy was the big story and Conservative efforts to smear Labour’s tax-and-spend policy largely fell on deaf ears.

I have spent the last seven years trying to get people to understand that a fiscal policy based solely on cutting spending is only half a policy. We have witnessed a huge rolling back of the state in recent years, and a withdrawal of the safety net which has genuinely left a lot of people with nowhere to turn. Jeremy Corbyn’s message was that a country which forces its poorest people to get by on charity was failing in its duty to its citizens. You do not have to be a bleeding heart liberal to ask what happens to all the taxes we pay if we have slashed the social welfare safety net so much. People clearly buy into this and I suspect it is the reason why Labour made such gains at the expense of the government.

But before we get too carried away, we should remember that Labour did not win the election. They outperformed expectations, for sure, and in the battle of the leaders came out on top. As in 1974, when Conservative Prime Minister Edward Heath ran on the slogan “who runs Britain,” the electorate has delivered an answer that politicians did not expect. All this raises a question of whether politicians, particularly the government, really are in tune with the public mood. Or are they lost in the bubble of focus groups and Daily Mail headlines which do not paint a sufficiently accurate picture? Past experience suggests that governments which lose touch make mistakes, and they are usually punished at the ballot box.

The Conservatives were punished yesterday but escaped with serious, rather than fatal, injuries – at least for now. They have to learn from those mistakes. I have to confess I did not hear much contrition from Theresa May last night. For an obviously intelligent woman, she needs to get with the programme – for the sake of her career if nothing else. One of the more enlightening interviews I heard overnight was given by former Cabinet Secretary Lord Turnbull on the radio (here 7:48:25 into the recording) who was scathing about the way May has run her government and accused her of running it as a “fiefdom” without the necessary experience to manage the many tasks which modern governments need to take on. In particular he was critical of the lack of economic expertise and directly suggested that she was not up to the job of prime minister.

As a man of great experience at the heart of government, Turnbull’s view should be taken seriously. In his view she is not the right person to lead the country into Brexit negotiations and when asked whether she should stand down, his response was “absolutely” – an extraordinary thing for a man of his stature to say. At the very least, the prime minister will have to compromise on the Brexit strategy. Turnbull pointed out that by entering into a coalition with the DUP, the government should abandon the policy of leaving the EU Customs Union and thereby resolve the Irish border problem, which is high on the list of things the European Commission cares about.

If no such compromises are made, the UK will be driven ever closer to the cliff edge that the prime minister has said she wishes to avoid. And if we are pushed into that position, it will be an act of supreme economic vandalism. I fear that the prime minister will not change course, as she is fearful of the wrath of large swathes of her party if she does. But if she does not, the electorate will also wreak its vengeance. Faced with these twin evils, I would be surprised if the prime minister lasts in office much longer. As the hapless David Moyes found out when he succeeded Alex Ferguson as Manchester United manager, sometimes the better strategy is to avoid taking the top job under the wrong circumstances. Theresa May might have been the least worst candidate for the job as prime minister last summer, but it does not mean she is the best person for the job.

A last word on election economics

I was asked last week by the Sunday Telegraph to rank the economic policies of Labour and the Conservative parties as part of a larger survey group. The story duly appeared under the heading “Economists back the Tories - but remain underwhelmed” in which it was suggested that while Dixon’s “criticism of the Tories centres around their fixation on austerity, he is more scathing about Labour’s plans.” Whilst I am grateful for the press coverage, and my comments were reported accurately, I do believe they were given a spin which was not warranted by the totality of my remarks. In the interests of balance, therefore, I reproduce below the full transcript of my answers to the Telegraph’s survey. 

Tax & spending 

CON 3; LAB 3 (Marks out of 10 where 10 is good and 1 is poor)

There are many good things about the  Labour plans: (i) they are semi-costed so we have some indication of how much they want to spend; (ii) There  is also something to be said for establishing a National Investment Bank even though it will not be able to generate the £250bn in infrastructure spending that Labour plans. Far better to use it as a conduit to fund SME lending as in Germany and the US, where the KfW and SBA operate.  The bad news (and the reason I give the overall plan such low marks) is that too much emphasis is placed on taxing higher earners and corporates. In other words, the tax base is too narrow. For a party which seeks to promote equality, this is merely a “soak the rich strategy” which will change the behaviour of those caught in the tax net. It is thus unlikely to generate as much revenue as planned. In any case a penny on the basic income tax rate yields 4x as much revenue as a penny on higher earners. And whilst the idea of renationalising parts of the infrastructure sounds attractive, this will result in as many problems as it solves. The education pledge is too expensive given the  current numbers going into education. Abolishing university tuition fees is a good thing, but it would have been more affordable 20-30 years ago. However, Labour deserves credit for sparking a debate on the role of the state in the economy.

This is more than can be said of the Conservatives, whose economic manifesto offered nothing new. The commitment to balance the budget only by the mid-2020s does raise a question of whether the austerity of the last 7 years has been worthwhile. The public sector is creaking at the seams and it is not in any position to withstand a further round of austerity. As the Institute for Government has pointed out “the Government is struggling to successfully implement the 2015 Spending review … [with] clear signs of mounting pressures in public services.” A policy of more austerity will be self-defeating and I would like to think that Philip Hammond will take a  less draconian stance than George Osborne (the jury is out but his hands are tied by Brexit). I maintain that the commitment to reducing corporate tax to 17% is a mistake because it robs the Treasury of revenue and it is not as if HMRC is getting the corporate tax receipts it already believes it is owed. 

Immigration 

CON: 3; LAB 5

The idea that we can get net immigration back to the tens of thousands is economically illiterate and ultimately self-defeating although I understand why the Conservatives made the pledge for political reasons. However, targeting net immigration by focusing only on inflows, and continuing to classify students in the numbers makes little sense. It remains to be seen how a policy of “allowing us to attract the skilled workers our economy needs” is compatible with the targets. Labour is vague on immigration although they have sensibly resisted giving a pledge on numbers. The commitment to protecting the rights of EU workers already in the UK will play well in Brussels. 

Jobs & pay 

CON: 2 ;  LAB: 2

In this day and age, governments don’t really deliver jobs – other than by setting overall conditions – and have little influence over pay, except by controlling the minimum wage. Labour’s planned figure of £10/hour is probably not unreasonable although it is a big stretch from where we are today which will squeeze smaller businesses. The Conservative strategy which does not give an outright figure, but plans 60% of the median wage, is probably less of a hostage to fortune. The Conservatives are probably more realistic in the sense that they did not talk about creating jobs but it is difficult to give marks to either side because I am not convinced that they said very much, However, both get credit for recognising worker rights though the Labour plans have a whiff of the 1970s about them (“empower workers and their trade unions”). 

Industrial strategy 

CON: 6; LAB: 4

Both parties sound good on paper but there is little new here. Both sides offer a tinkering at the margin approach – nobody would dispute Labour’s view that we need to improve the economy’s skill levels but this will take years to show any improvement and it was vague on how to achieve it. The Labour manifesto had nothing substantive to say on productivity, which is the UK’s Achilles Heel at present and the Conservatives score a little higher, having already announced their National Productivity Investment Fund. My concern, however, is that neither party will be able to do much in an environment where global forces will play a major role (e.g. automation).

Social care & pensions 

CON: 3; LAB: 5

The Conservatives scored an absolute own goal with their initial plan on old age care provision, which was far less generous than that scheduled to come into operation in 2020. It ignored the Dilnot Commission proposal which advocated a cap on costs, thus mitigating against efforts to create a market for insurance in this area. Although they have backtracked, the damage is done. Sensible to remove the pension triple lock. Labour sound more convincing on this issue but the problem is how to pay for it. They are relying on squeezing higher earners and it is not clear whether they can afford all their commitments given the demands from other areas.

Totting up the marks, that amounts to 17/50 for the Conservatives and 19/50 for Labour (versus average marks of 23/50 for the Conservatives and 18/50 for Labour). Not exactly a ringing endorsement for either party, as the headline suggested, but not enough in my case to suggest a bias towards the Conservatives.

Trump's climate clanger

Although much of the current media attention is focused on Donald Trump’s rather unfortunate comments in the wake of the latest London terror attack, his decision last week to withdraw the US from the Paris Agreement on climate change was a much bigger deal. To recap, the agreement was drawn up in the first place in a bid to limit global greenhouse gas emissions in order to curb the rise in global temperatures and thus prevent some of the worst effects of climate change from causing even more environmental damage. There are 195 signatories to the treaty, with only Syria, Nicaragua and the Vatican not having signed up. However, the US decision to withdraw not only drives a coach and horses through global cooperation efforts on climate change, but it raises question marks against the commitment of the US to a whole range of international agreements.

Turning first to the climate issues, I am not a climate scientist so I am bound by the consensus of expert opinion which has done the work and drawn the conclusions. What everyone agrees on is that the earth is warming rapidly – global temperatures are around 2 degrees higher than when measurement commenced in the late nineteenth century. We also know that the amount of carbon dioxide in the atmosphere is at unprecedented levels (see chart, courtesy of NASA). 

The Intergovernmental Panel on Climate Change (IPCC) reckons that “anthropogenic greenhouse gas emissions … are extremely likely to have been the dominant cause of the observed warming since the mid-20th century.” Note that it does not say with 100% probability that climate change is man-made, but “extremely likely” is the sort of language scientists use when they are fairly sure. It may be that they are wrong, but until such times as the world’s most reputable scientists change their minds I’ll go with what they know, rather than what various interest groups believe to be true. And even if the scientists are wrong, it is a better insurance policy to take offsetting action rather than ignore them and find out they were right.

The science of climate change also suggests that global warming will have significant impacts on weather patterns, crop growing cycles, access to water and has the potential to disrupt the way we live our lives (for an overview of all these issues, see the Stern Review, which reported in 2006). As Stern pointed out, climate change “entails costs that are not paid for by those who create the emissions … Questions of intra- and inter-generational equity are central. Climate change will have serious impacts within the lifetime of most of those alive today. Future generations will be even more strongly affected, yet they lack representation in present-day decisions.”

Trump’s decision is the ultimate in short-term thinking designed to satisfy a tiny proportion of his country’s electorate whilst ignoring the wider consequences for their children (viz the wonderful response by Emmanuel Macron to Trump’s decision). Quite what better deal Trump has in mind for American workers by pulling out of the agreement is hard to fathom. After all, there are fewer people employed in coal mining in the US than in the green tech sector so it is not exactly a rational response to domestic issues. It is also a wider abrogation of duty to the rest of the planet, for as Stern also pointed out, solutions to the climate change problem require a global response.

There is thus general agreement that Trump’s strategy is self-defeating with regard to climate issues. But an equally serious concern is that an America first strategy runs counter to the rules-based system which underpins the world economic architecture and which has served the US so well for the past 70 years. An America which does not adhere to the treaty commitments to which it has signed up cannot expect others to play by the rules which the US flagrantly ignores. It may “only” be climate change, the implications of which will not become fully evident until after Trump is long gone, and in any case the US can always sign up again under a different president. But can the US expect all countries to adhere to the rules on global trade if for some reason it does not suit them? To what extent can the US’s military allies in Asia or Europe rely on its support?

International diplomacy is a game of give and take. Unfortunately, Trump appears to see it as a game of winner takes all. Moreover, he has not yet demonstrated that he understands the notion of cooperation on global issues (not that the British government is in any position to cast aspersions). But if Trump has any pretensions to providing leadership on a global scale, the climate change policy needs to be rethought. Future generations of voters may thank him for it.

Nearly there ...

As the UK election race unfolds, latest evidence continues to point to the Conservatives winning next week’s ballot.  However, the analysts at Electoral Calculus currently reckon that their majority will come in at 74 seats compared to an estimate of 168 three weeks ago (the current margin is 17). One poll released earlier this week even indicated that the Tories might lose their overall majority by winning fewer seats than they have now, although this was generally dismissed as an outlier. But the shift in the polls has rattled the markets, and foreign investors now see a risk that the election will not be the foregone conclusion it seemed a few weeks ago (see chart).

As I noted back in April (was it really that long ago?) this election is being fought purely for tactical reasons – and indeed the prime minister admitted yesterday that the decision to call yet another plebiscite was driven by Brexit-related reasons. In my view, this is nonsense. The rest of the EU does not care how large the PM’s majority is: The UK will still be in a minority of one in the Brexit negotiations. But the size of the majority matters for May herself. A parliamentary majority around 50 (still decent, let’s not forget) would be seen as the equivalent of a draw. Anything less would put the PM in a difficult position as she has to deal with the right-wing of her party, which has a habit of making life difficult for Conservative prime ministers. In effect, she needs a big win to give her a personal mandate.

So why are the polls narrowing? It can simply be boiled down to two factors: personality and policies. As George Parker wrote in the Financial Times today, “Theresa May thought a snap election would empower her, but what started in April as a quest for a “strong mandate” to deliver Brexit is threatening to leave her diminished. Polls suggest the more people see of her, the less popular she becomes.” Her main opponent, Jeremy Corbyn, started out as a no-hoper who couldn’t be trusted to run a bath, let alone the country, yet he is the one who has looked at ease in dealing with the hostile questioning (the odd brain fade during interviews notwithstanding). Corbyn has had to deal with questions about his past support for terrorist organisations and his willingness to press the nuclear trigger in the event it becomes necessary, and all-in-all has come out of it rather better than most people expected. This does not make him prime minister-in-waiting, however. Corbyn has spent the whole of his parliamentary career (34 years) opposing the mainstream of his party on most key issues. He will struggle to find sufficient MPs loyal to him in the unlikely event he becomes PM.

So if the personalities are not very appealing, we must judge them on their policies. Here again, both sides are found wanting. In summary, the Conservatives propose too much austerity and Labour promises too much tax-and-spend. Neither has talked enough about the single biggest issue facing the UK during the next parliamentary term – Brexit. Indeed, the prime minister seems to be asking the electorate merely to trust that she will “deliver the best deal for Britain.” That is not good enough. I would be more inclined to listen to a politician who acknowledges what economists have been saying for the last four years, that Brexit comes with a cost – a big one – and that they have a plan to deal with it. A party which proposes that “no deal is better than a bad deal” does not cut it.

Meanwhile, Labour’s tax-and-spend policy is open to the criticism levied by Conservative politicians that “there isn’t a magic money tree” to fund their plans. This is, of course, spot on although if I were Jeremy Corbyn, I would be pointing out that senior Conservative politicians such as the Foreign Secretary only twelve months ago supported the idea that leaving the EU would immediately mean that the UK could devote an additional £350m per week to the NHS.  The manifesto analysis conducted by the IFS last week provided a pretty damning assessment of the fiscal plans of both sides arguing that “neither sets out an honest set of choices.” Though as an aside, I found this blog piece by John Weeks an interesting insight into the shortcomings of the IFS’s analysis.

As we head towards polling day, I get the sense that many people are unenthused by the choices on offer. I almost have feelings of nostalgia for Screaming Lord Sutch and his Monster Raving Loony Party. Unlike Lord Sutch, the MRLP is still with us, however, and amongst their manifesto (or as they call it, manicfesto) commitments for 2017 are a pledge to “nationalise crime to make sure it doesn’t pay,” “reducing the alphabet to 23 characters. This will start by cutting the letters N. H. and S” and giving atheism charitable status on the grounds that it is a “non-prophet organization.” I’ve heard worse.