John Rentoul: Shh... we've never had it so good

Our PM can't say it out loud, for some of us are suffering – but as things get cheaper, most of us get richer

Let us be frank about it, most of our people have never had it so good. It was true when Harold Macmillan said it in 1957, and it is true again now. Gordon Brown cannot say it, though, because there are some electorally sensitive groups of "our people" that are not among the "most". Unemployment is rising, and old people dependent on income from savings are losing out.

Yet the long election campaign – assuming that this year is a pre-election year, an assumption to which we will return in a moment – will be fought for the loyalties of voters who do not know whether they are coming or going. On the one hand, Alistair Darling, the Chancellor, has told us that the economic times are the "worst for 60 years". On the other, for the overwhelming majority of voters who are in work, their personal economic situation is the best that it has ever been.

Of course, that is often the case, and has been so continuously for the past 15 years – when the green shoots of recovery, foretold by Norman Lamont, appeared after the 1990-92 recession. But the improvement in the personal finances of "most of our people" since Freddie Mac, Fannie Mae and Lehman Brothers went bust in September has been dramatic.

Since then, the Bank of England has cut its interest rate from 5 to 1.5 per cent. For a family with an average mortgage of £105,000, that could be saving them £220 a month. I know that half of all mortgages are fixed-rate, and not all lenders will have passed on the full benefit of the cut. But over the next 18 months, most fixed-rate terms will expire and, provided the holders are in reasonably secure employment, they will be replaced by better deals. And people who have interest-only mortgages benefit even more.

The scale of the bonanza is huge. On the back of my envelope it comes to about £20bn in a year – about the same as the boost to spending power in the mini-Budget that cut VAT before Christmas. Ignore the easy cynicism of the typical Brit about the incentive effect, lack of, of knocking a couple of per cent off the price of a flat-screen television. For some reason plasma screen televisions are at the vortex of our contradictory feelings about what Tony Blair last week called "the whole free-enterprise system". (The master of cheek was explaining how his friend Nicolas Sarkozy's condemnation of "an immoral system where the logic of the markets excuses everything" meant avoiding burdensome regulation and defending the values of globalised liberal economics.)

Ignore, too, Peer Steinbrück, the German finance minister, who sneered last month at 80p off a £39.90 DVD player. Above all, ignore the patronising attitude of some conservatives (with or without a capital C) who say that it will simply encourage people to go out and buy stuff they didn't need.

The point is that it makes things cheaper and therefore makes us richer, just as the falling prices of oil and other commodities do. A minister to whom I spoke last week actually rubbed his hands as he recited the price of a litre of petrol. We know that the annual rate of inflation is falling steeply; what is less well known is that, since September, the general level of prices has not been rising more slowly but has gone down – by 0.4 per cent.

Meanwhile, the state pension will be uprated in April by 5 per cent, reflecting last year's peak of inflation, with the Jobseeker's Allowance and Housing Benefit up by 6.3 per cent.

The cut in the VAT rate may seem trivial, but when added to the effect of falling mortgage payments, falling prices and rising state pensions and benefits, it represents a sharp and substantial increase in purchasing power for the vast majority of the population. No consolation if you have lost or may be about to lose your job. Or if you are stuck on a three-year fixed-rate mortgage taken out last year. Or if you are dependent on income from savings, with interest rates as close as makes no difference to zero. But, to be brutal, you are in a minority.

Although Brown cannot say that most of us have never had it so good, he knows it. Publicly, he tries to reassure people fearful of losing their jobs by sending Peter Mandelson back to the Seventies to rescue car companies; and to reassure people fearful of losing their homes by telling Andrew Marr, last weekend: "We're not going to do what happened in previous recessions and allow people to go under." Privately, though, Macmillan's words are the unspoken script of a pre-election campaign that stepped up another notch with last week's Cabinet sightseeing trip to Liverpool.

Why, therefore, should Brown not go for a general election on 4 June – two months after the pensions and benefits rises kick in – or in September or October? Would that not maximise Labour's advantage and David Cameron's difficulty? Brown could claim, with some credibility in the short run, to care more about workers worrying about P45s than Cameron, while knowing that times are the opposite of tough for an electoral majority.

Surely, it is being said among Brownites, the longer the Prime Minister lets the parliament run, the more forbidding the tax rises to pay for it all will seem. Even if the VAT cut is not restored as planned in a year's time, the National Insurance rise pencilled in for 2011 will start to look like the thick end of an even thicker wedge.

True, but not enough to outweigh the opposing consideration. Martin Kettle in The Guardian last week reported the view of an anonymous adviser to James Callaghan, the last prime minister to face such an acute dilemma of election timing. The adviser thought that Callaghan felt, "deep down", that "Prime Minister 1976-79" would look better than "Prime Minister 1976-78" in the history books. An apparently simple arithmetical point, but a profound psychological one. For Brown, 2007-10 looks better than 2007-09.

It has been said before, in 2007, and it can be said again: Brown should go for an election this year, but he won't.