Afternoon all,

Well that all happened rather fast…our thoughts are with any journalists who had holidays planned for the next few weeks, civil servants thinking August would be a nice quiet month, and retiring MPs counting on five more pay cheques. Democracy in Britain doesn’t lend itself to umbrellas well-laid plans. And that includes book publication dates… so given the election means there’s a premium right now on understanding why things have been going so wrong economics-wise and what we might do about it, we’re bringing forward the publication of Great Britain? How We Get Our Future Back to 13 June.

I thought we’d kick off the election campaign with six charts setting out the economic arguments that will dominate the next six weeks – three each explaining the basis of the arguments that Rishi and Keir will be making. You, and the other voters, can then decide which you think is more convincing. TOTC is on half term next week so enjoy the first few weeks of the campaign and we’ll see you in June.

Torsten

Chief Executive
Resolution Foundation

Rishi’s case

1. The economy is going gangbusters

The Prime Minister had dried off in time to be on the Today Programme yesterday, making the case that he had called the election now because the economy had turned the corner and was “going gangbusters” – on which he told Nick Robinson “the facts are the facts”. What did he mean? That in the first quarter of 2024 the UK had the fastest GDP growth in the G7 – which it did. He was less keen to be drawn on any other quarters/time periods, despite prodding from Nick Robinson (for reasons we shall see), but he rightly noted that the forecasts for a deep recession last year (expected given the scale of the energy cost shock) never came to pass.

2. Inflation has been vanquished

The latest inflation figures this week are the real centre of Rishi’s ‘corner turning’ argument, because it confirmed that CPI inflation fell to 2.3 per cent in April, within touching distance of the Bank of England’s 2 per cent target and way down from the double-digit inflation of Autumn 2022. The UK now looks much better internationally, with inflation below that in the US and euro area for the first time in over two years. This offers the PM the chance to deploy multiple metaphors: we’ve not only turned the corner, we’re winning the global disinflation race.

Energy prices are doing a lot of the work here and will have affected his decision to go now and avoid an Autumn election. The inflation fall in April owed much to the big fall in the energy price cap (from £1,928 to £1,690 in April), while today Ofgem confirmed a further fall in July to £1,568. But what do Cornwall Insight predict the October has in store? A 12 per cent energy price hike… Many expect inflation to bounce back up slightly as the weather turns.

3. Wages are rising!

Elections are impacted by what is happening to household living standards – how far our wages are stretching. It’s the economy, stupid. Politicians know this, including Prime Ministers, who get to decide when elections happen. It’s no surprise that since World War II, the average annual increase in pay during election years is three per cent, and the average in non-election years a bit under two per cent.

Right now, with inflation falling and nominal wage growth at historically high levels, real wage growth is around three per cent. That is the kind of wage rises we haven’t sustained since the early 2000s. If you’re a Conservative wanting some grounds for optimism, note this is stronger than the wage growth that emerged in the run up to the 2015 election, and was certainly a contributing factor in David Cameron securing a majority to the surprise of most pundits. And it’s far better than the real wages falls that contributed to Theresa May’s 2017 election disaster.

So “we’ve turned the corner, with inflation down, growth and wages up” is the economic case for five more years of the Tories. What about the Labour leader?

Keir’s case

1. You what? Prices are up and the economy’s flatlining

If you want the short version of the Labour Party’s response, it’s “are you kidding?”. The longer version? “What matters isn’t what’s been happening to growth over just the last few quarters, or to prices just over the past year, but what’s happened on Rishi Sunak’s watch as a whole”. Every time a Tory says “inflation is down”, Labour will shout “prices are up”, noting that the UK has seen bigger price rises since the start of the cost of living crisis than any other G7 country.  Whenever the PM says that the economy is going gangbusters in early 2024, they’ll note that one quarter’s data is irrelevant, and that Britain has grown at about a quarter of the US rate in recent years (they probably won’t point out that the UK has suffered broadly the same fate as other large Northern European countries – the energy shock was a European energy shock). The more savvy among them will add that even the growth the UK has had is largely driven by having more people via high migration. If we look at GDP per capita, which is what matters for living standards, the economy has shrunk by 1.2 per cent between the end of 2019 and start of 2024 – a growth catastrophe.

2. We’re being gaslit

The Labour Party obviously aren’t that worried about being labelled as woke warriors, because they keep using the word ‘gaslit’, which I’m really not sure most people use/understand. However, the argument is simple enough: “the Tories keep telling you they’ve sorted things out and cut taxes, when you know the truth is your taxes and mortgages are up – how rude is that”.

They’ll point to the fact that this will be the greatest tax-raising Parliament since the Second World War, with tax relative to GDP rising from 33.1 per cent in 2019-20 to 36.5 per cent in 2024-25 (neither party looks set to mention the highly unusual £19 billion of already announced tax rises due to come into effect after the election). Labour will then turn to what’s really got the middle classes fuming – mortgages – hoping to pin the blame for huge rises for some families on the government rather than global price pressures or the Bank of England. The interest rate on a new five-year fixed, 75 per cent LTV, mortgage is up from 1.52 per cent in November 2021, when rates started to rise, to 4.52 per cent today. That would cost someone buying/remortgaging an average UK house (worth £280,000), with a 25 per cent deposit, £4,000 a year more.

3. You’ve never had it so bad

How do Labour put all these moving parts together? They focus on real disposable income. And on that measure they will say this isn’t complicated: this is the worst parliament on record, with incomes actually falling between the end of 2019 and the end of 2023, the latest we have data for. Here’s a date for your diary that’ll be a busy day in this campaign: we’ll find out at 7am on Friday 28 June, not far off polling day, whether the ONS has family incomes in early 2024 still lower than when Boris Johnson stormed to power. Whether they are or not will matter politically, but the substance won’t change: our incomes have stagnated over five long years.

The punters’ choice

The above arguments are of course about the past. Both leaders will say this tells you about what’s at stake in terms of our futures. But what there seems to be far less of in this election is explicit debate about the path we should be taking in that future. Fiscally that is certainly true, with neither party setting out much about how they would handle the fact that the public finances outlook is likely worse than the OBR set out back in March. When it comes to growth, both have something to say, with Keir Starmer focusing on green investment and planning reform, while Rishi Sunak has a lot of eggs in the tax cuts basket. Both will be reminding you that they aren’t Liz Truss, although that is probably easier to do for the Party for whom she isn’t a candidate. How much difference will those things make? You get to decide. There’s six weeks to go people. Make your choice wisely.