Could stubborn inflation wipe out Labour’s poll advantage?

Keir Starmer’s party faces a struggle to reassure voters his economic medicine is working, says Sean O’Grady

Every administration in the (genuinely) democratic world to seek re-election in 2024 has failed – the first time this has happened, according to psephologists.

In the great majority of cases, the relevant economic conditions have been the major part of the reason. Such a global accumulation of redundant former ministers and rejected governing party candidates should serve as a reminder, if one were needed, that no government can afford to lose the electorate’s trust that it will make their lives better. The Budget, whatever its merits, has proved controversial. Which brings us to the latest inflation data…

The numbers aren’t that bad, are they?

No, but neither are they encouraging, and there is just a hint that economic conditions could be worse even than anticipated in the coming months. The annual rise in prices of 2.3 per cent in October was above the official 2 per cent target, and a little above the 2.1 per cent that investors were expecting. On the upside the major factor is a rise in global energy costs, which no government can do much about controlling directly. On the downside, it’s becoming increasingly clear to people that the Budget measures are going to push prices higher than otherwise, and depress wages.

So “working people” are affected?

Yes, as was always going to be the case. The rise in employers’ national insurance contributions is going to be passed on in higher prices, according to a consortium of retailers, which adds some realism and immediacy to abstract numbers, suggesting similar, produced by the Office for National Statistics at the time of the Budget. The NICs will also mean lower pay rises. Meanwhile, the otherwise welcome boosts to the minimum wage will also drive up costs and prices, as will higher business rates.

What’s the political upshot?

For the government, the damage is twofold. First, there’s the actual feeling of being squeezed for the very “working people” the government has pledged itself to serve. They will feel poorer, and be poorer than they expected.

Second, is the breach of trust. For consumers, businesses and indeed farmers who were under the impression that Labour was not going to raise taxes and make them worse off, there is a palpable feeling of loss. Or at least a sufficiently large degree of disillusion to push Labour’s poll ratings lower. The government sounds too evasive about what’s happening, almost in denial in the face of grim reality.

Efforts to blame the Conservatives for the “black holes” and the years of chaos and confusion would work better if they’d been made in such lurid terms before the election. The fact is that people were expecting less of a mauling and for things to be more like when that nice Mr Blair took over in 1997 and didn’t change much.

What about mortgages?

Again, there’s some disappointment that interest rates won’t be coming down as dramatically as hoped – keeping up the pressure on household budgets and Labour’s popularity.

Does this mean people want the Conservatives back?

Not yet, but the journey since the election – “choppy” as Starmer puts it – has handed the Tories some unexpectedly easy wins. The broader picture remains that the political right remains fatally divided. Whether Kemi Badenoch can render Reform UK irrelevant looks in doubt for now; and the Farageists, for all their boasts, can’t realistically claim to be challenging to form the next government. The Liberal Democrats, meanwhile, have kept enough distance from Labour to shield themselves from any Tory revival.

What’s next?

Possibly a tricky by-election in Runcorn, where the Labour MP has been suspended and charged with assault. Labour won with a huge majority in July but Reform will be looking to prove that it can make inroads in safe Labour areas as well as Conservative ones. Its predecessor parties have enjoyed success in the North West, while the Tories heavily lost ground in the red wall after the triumphs of 2019. For what it’s worth, Labour stands on 52.9 per cent of the vote, with Reform edging the Tories into distant second place, on 18.1 per cent and 16 per cent, respectively. A winter by-election will mean low turnout and a tougher battle for Labour especially (albeit also a useful excuse for a loss).

Next spring brings a substantial round of local elections across most of England, including the county councils. These will represent an excellent opportunity for Badenoch to prove her leadership style is working; however, the smaller size of the council wards also offers Reform UK the chance to capitalise on its pockets of strength and build bridgeheads. Labour will be lucky to avoid a drubbing – unless interest rate cuts help prove the results are coming through for families.

But it will probably be too soon to demonstrate tangible progress in improving public services, controlling migration or seeing the benefits of any higher investment. Indeed, unemployment may begin to edge up. Starmer, Reeves and their colleagues will need to hold their nerve; but U-turns and reshuffles will be much talked about.