Around election time, everybody always quotes Jimmy Carville’s dictum: “It’s the economy, stupid.” This is fine insofar as it goes, but it still begs the question of what makes a winning economy.
The answer isn’t as clear-cut as one thinks. Both Prime Minister Rishi Sunak and US President Joe Biden face re-election in 2024 and both can point to certain improvements in their respective economies, with inflation significantly reduced from its peak: nearing five per cent in the UK, and three per cent in the US.
So far so good. But voters can be forgiven for looking at these statistics and refusing to cast automatic votes for the incumbents. That’s because the price rises we experienced along the way are now embedded in the economy. Everything from your weekly shop to your Netflix subscription is more expensive – and ongoingly so.
On a day-to-day level, what the consumer wants isn’t so much lowering inflation as deflation. Only deflation makes an individual cheer as they leave the supermarket, but few economists think it’s the solution: it makes CFOs squint sceptically at their spreadsheets, mulling what to do about the niggling fact they’re now making less money. Their only recourse is to spend less, which lowers growth.
That’s why 2024 is likely to be the year of the jobs elections. If falling inflation is actually the optimal position but doesn’t feel great for consumers, then more will depend on psychological factors in the economy related to people’s experience of the workplace.
For a start, how painful all the price rises really are will depend on whether your employer was kind enough to meet your financial anxieties with a salary rise. To their credit many have, but workers usually attribute salary rises to their own brilliance and in 2023 many regarded these as a necessity: besides, a salary rise is meant to put you in a better economic position – not to be a symptom of treading water.
Secondly, your overall mood will depend on how you feel psychologically about your work and career. Ronald Reagan famously asked during the 1980 Presidential election which he would go on to win handsomely against the then incumbent Jimmy Carter: “Are you better off?” We tend to answer this in the affirmative if we’re fulfilled at work.
When the likely challengers Sir Keir Starmer or Donald Trump ask this question in 2024 what will the response be? In the UK, it’s unlikely that the demons of the Truss interregnum will have been laid to rest.
Between now and election day, homeowners will all the time be coming off fixed rate mortgages into a higher interest rate environment, and they are unlikely to blame their own failure to secure a better paid job for the pain they will be feeling. They’re more likely to blame Truss and her successors.
The Chancellor Jeremy Hunt has done a good job of steadying the ship, but people don’t vote in droves on that score: they might tacitly respect a degree of competence, but they’re unlikely to be in a celebratory mood.
Besides, unless you had a very large salary rise, or secured a better job than the one you had before, it’s unlikely that you’re going to have much spare change out of the rise in the cost of living (including mortgage costs), and the likelihood you will have been caught up in some sort of ‘fiscal drag’ – that’s to say, you’re probably in a higher tax bracket than you feel you should be. If you are, then you’re part of a £45 billion problem, which the government is hoping you won’t notice. What they’re hoping is that you will notice the £15 billion cut from National Insurance.
This is why Sunak and Hunt – and to a lesser extent Biden – are in such an electoral pickle. There simply isn’t enough good news in the economy to offset the bad. Most economists agree that the situation is solveable only with better growth, but both economies are lower on productivity than they should be – in the UK, it is a miserable 0.3 per cent less than what it was during 2022.
Of course, the dip in productivity has its own story to tell about the pandemic and its aftermath. With hybrid working now the norm, many workers are less productive and happy to be so if it leads to a superior work-life balance. As much as this might be very lovely, there remains the deeper question as to whether it’s a financially sustainable happiness.
To look at the slow growth figures is to suppose that it isn’t: it might be that the strain we all feel in relation to prices is intimately related to the sense of relief many feel at not having to commute so often.
There is a sense, then, that something has to give. Liz Truss has shown that we can’t cut taxes in an unfunded way without the bond markets intervening. Sir Keir Starmer and the Shadow Chancellor Rachel Reeves may find that with the tax burden at a historic post-War high they have less wiggle-room than they to raise taxes and increase spending. The bond markets are not in a good mood.
We can already see signs that Reeves understands all this: her much-touted £25 billion Green commitment has now mysteriously vanished, in acknowledgement of the fact that the cost of it injures the very people Labour need in order to win a handsome majority, which is clearly in reach.
That has its own story to tell in terms of sustainability jobs: if even Labour has come to believe that there is no way to afford a Corbynesque injection of money into the renewables sector, then either the green agenda is gone by consensus for the time being, or Labour is more exposed on its left flank that it realises.
Even when it comes to immigration – traditionally considered a separate subject to the economy – the apparent failure of Sunak’s Rwanda policy means that the conversation has moved onto jobs. Specifically, anyone who is trying to tackle the problem at all is now looking at what constitutes viable skilled labour entering the country and what doesn’t. Former prime minister Boris Johnson is already arguing that an annual salary of £40,000 is a sensible threshold at which to secure a visa, though he doesn’t say why he failed to introduce such a policy while he had the chance to do so as prime minister.
This opens up onto broader questions about what jobs UK nationals are prepared to do and what they won’t. This in turn opens up onto the gigantic question of welfare reform, so far left largely alone by Conservative governments since the streamlining exercise of Universal Credit.
Whether we like it or not, this election year is an opportunity to look in the mirror. It is as if the old challenge which JFK uttered in his Inaugural Address 60 years ago is about to be laid down all over again: “Ask not what your country can do for you; ask what you can do for your country.” Perhaps the world is always raising that question, for the simple reason that the global economy is competitive and we can’t afford not to answer it. But in 2024, it is being raised with particular urgency – and especially with regard to our working lives.