It’s the double-dip, stupid

3 May

You can tell a government is doing very badly indeed, when news that the country is experiencing its first double-dip recession since 1975 fails to qualify as the lead story in most of the next day’s papers. The ongoing phone hacking saga, combined with uncertainty over Jeremy Hunt’s future and continuing aftershocks from the ‘omni-shambles’ Budget, meant that last Wednesday’s official confirmation that the UK was back in recession was overshadowed in the press. This however belies the fact that the double-dip, in contrast to Westminster media fluff about ‘pasty’ and ‘granny taxes’, could be a political game changer with serious consequences for the Conservatives and Labour at the next general election.

The double-dip is potentially of game-changing political significance for two reasons. Firstly, it calls into question more seriously than ever before the economic competence of the government. The extent to which George Osborne’s programme of spending cuts is responsible for the return to recession (two consecutive quarters of negative growth) is, and will remain a matter of fierce debate between economists. Only the most churlish of commentators would claim that the contraction of the economy had nothing to do with continuing instability in the eurozone. The problem is that the grace period during which the public readily accepts that poor economic performance is primarily the result of external factors is short, as Gordon Brown and heads of government throughout history have found to their cost. It is far easier for a public who are inherently sceptical of politicians to comprehend economic woes in terms of the mismanagement of this or that group of men and women, rather than as the result of rather more complex and amorphous phenomena, like a ‘subprime mortgage default’ or ‘eurozone debt crisis’. For this government, it looks like the period when the public will accept these explanations has just about passed: over the weekend a Sunday Times YouGov poll found that 32% blame the double dip on UK government policies and 29% on the eurozone.

The second reason why the double-dip could be a game-changer is because of its implications for the Labour Party. Labour obviously benefit if the economic competence of the Conservatives is challenged by events, but the double-dip has significance beyond this zero sum calculation. By attacking deficit reduction as “too far and too fast” Ed Miliband and Ed Balls made a political gamble. If the economy had bumped along the bottom for several years without entering technical recession, before moving into a stronger phase of growth in the run up to a 2015 election, the Conservatives would have been able to claim vindication for “Plan A”, and could have accused Labour of erroneous doom-mongering and “talking down the economy”. A double-dip recession is symbolic and memorable: in the short-term Miliband and Balls can claim that their warnings were well founded, and if the economy improves by 2015 they will now not be so politically exposed. They will also still be able to plausibly argue that the government wilfully and needlessly damaged the British economy.

Three years is a very long time in politics, but there are precedents for symbolic and memorable economic events reverberating through the years to Election Day. On Black Wednesday in 1992 the Conservatives lost their reputation for economic competence, and were punished at the polls in 1997. The outcome of the next election is of course still to be determined, and Cameron isn’t beset by problems which confronted John Major, like public fatigue with a long period of Conservative rule or a highly charismatic Opposition leader (Miliband is still yet to win over the electorate). But while the double-dip slunk under the media radar as just another bad news story for a beleaguered government, it is an altogether different animal to pasty and granny taxes: it might just be a game changer.

An updated version of this post appeared on the Prospect magazine blog on 04/10/2012.

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