Political Betting – DUP cost more than £2bn – It’s Blown Apart Tories Economic case

By David Heardsen – Political Betting: Austerity is dead – but what can replace it?

YouGov published the results of an innovative survey on Thursday, where it found that the British public seemed more willing to pay a Brexit bill of £25bn (where 29% said they would find that acceptable), than one of £10bn (backed by 18%).

Good news for Monsieur Barnier? Not exactly. The survey was designed to assess the effect of the options presented on the answers elicited, with the sample split into two groups. The first was asked whether they would find a Brexit bill of £5bn, £10bn and £20bn acceptable (note that these were independent questions, not options to one question); the second group had the same questions but with £25bn, £50bn and £75bn.

The most striking feature of the answers was the similarity in profile: the larger numbers did depress the scores a little but the respondents still clustered to the lowest amount in not too dissimilar numbers – and as mentioned above, the lowest amount for the second group received a good deal more support than the middle amount in the first, despite being considerably more.

The conclusions to take from this are firstly, that large parts of the public don’t really understand big numbers and what they mean in real terms; and secondly, and consequently, that what is an acceptable amount to pay will be determined by the political argument, not the financial or legal one.

That matters for Brexit but the lessons from the survey are more widely applicable and the government this week has opened up a whole new field on which they can be applied.

Public sector pay restraint could never last indefinitely. Seven years of mostly below-inflation pay rises / freezes has not only had a negative impact on morale but has tested the limits of the employment markets in terms of retention and recruitment. At some point, that limit was going to be reached (though not yet – there are more teachers and nurses in Britain today than in 2010, for example; to the extent that there’s a recruitment problem, it’s one about the rate of expansion, not the fact of it).

However, by breaching its own dam and offering the police and prison staff increases of more than 1%, the government has entirely predictably and understandably set off a chain reaction of other public sector staff demanding their own above-cap rises. The NHS unions were first off the mark, demanding a 3.9% rise, plus an additional £800 on top.

This leaves the government with several considerable problems. The first and most obvious is to explain why some jobs deserve bigger increases than others, when those others include perennially popular services such as nurses, where an Ashcroft poll found that the public would back nurses striking over pay. Again, the public are probably not actually answering the question asked (as to do so properly, people would need to know how much the various roles pay, and I suspect most don’t), but as far as the politics are concerned, that doesn’t really matter.

There’s also the matter of the money. Opening the door to higher pay settlements will undoubtedly bring a bigger bill. In theory, the police and prison service are supposed to find the extra pay from their existing budgets but in reality this could very well prove impossible without running the kind of risks that governments shouldn’t. The overall public sector wage bill is about £180bn a year so to settle at 3%, in line with CPI would jack up the pay bill by about £3.6bn a year. If the demands of the health unions were applied across the board, it’d add close to £10bn in one go – and all this at a time when the deficit is widening again. (Some of the pay would come back in direct or indirect taxes and through stimulated economic activity, but by no means all of it).

 

Unfortunately for Theresa May, as YouGov proved, the public does arguments, not numbers. And the argument for austerity died the day that she magically found £2bn to seal a deal with the DUP (£1bn a year for two years). No matter that in the context of the government finances, £1bn is close to loose change, to most people it sounds like A Lot Of Money (which, in reality, it is). More importantly though, the £25bn or whatever for Brexit and a £60bn deficit are also A Lot Of Money; there is practically no difference in the immediate political impact of agreeing deals with these sums.

Instead, the public will buy into a plausible narrative. Austerity was justified for so long in the public mind because of the Liam Byrne letter: there was no money left, and even Labour admitted it. That, however, no longer stands. There must be money around because the Tories found some for the DUP, and have found more for the police, mustn’t there? Besides, seven years should long enough to sort it out, shouldn’t it? Well, ‘not really’ and ‘only if you work harder than the UK did’, in reality. But in the short term, perception trumps reality.

For the Tories, this is more than a short term problem of restless unions. Theresa May’s whole election messaging was based on the government being strong and stable. For reasons best known to herself, the economy – which has been strong and stable and which continues to generate record employment – barely featured. All the same, the strategy was justified by the results. But having now undermined the strategy without giving a good explanation for the chance in policy, will the public continue to give the credit for the results?

 

There will be many repercussions down the line that arise from May’s decision to do a deal with the DUP – or, more specifically, to do the deal she did. For all the focus on Brexit right now, losing control of the economic narrative will matter more.

---