Socialist Economic Bulletin

Panic on world markets

By Michael Burke

International business news and other TV channels are offering a Babel-like interpretation of the current slump in world financial markets. European (including British) stations are reporting the Wall Street-led declines as a response to the continued debt crisis in Europe. But this makes no sense. An EU crisis would have been felt first in EU markets and perhaps not at all in the US – US stocks had been rising over a prolonged period while Europe has been in turmoil. (And, despite what we may think, Greece or Ireland might fall into the sea while causing barely a ripple in the Hang Seng and the other plummeting Asian stock indices).

US channels have no explanation at all for the crisis- and analysis is limited to individual stocks, the scale of losses for investors and a generalised antipathy to Washington.

The Asian networks come closest to identifying the source of the current crisis- which isn’t in Europe at all. Their consensus is that markets are plunging because of the slowdown in the US economy.

But, why now? We are repeatedly told that financial markets react instantaneously to new information. The US GDP data for the 2nd quarter of 2011 were truly awful, up just 0.7%. As the BEA annualises quarterly data (multiplies by 4) this means that the US economy grew by under 0.2% from the 1st quarter.

On closer inspection the data were even worse. Large downward revisions to both the prior quarter and further back mean that economy fell by 5% in the recession, and has not recovered that prior peak in activity yet, as had been previously thought. This is the weakest US recovery from recession in the post-WWII period. Yet these data were published last Friday. If they were the immediate cause of the panic, it is a slow motion reaction.

No, the new news is the compromise agreement in Congress on Tuesday to raise the Federal debt ceiling in return for large scale cuts in Federal spending. This can only have one consequence- slower growth. Since the anticipated profits derived from growth drive stock prices, it is natural for stocks to fall when growth prospects are lowered. As Wall Streeters say, the US has just suffered a derating.

The crisis is driven by ‘austerity’- US austerity.

EU financial markets are caught in the backwash of this, as slower US growth certainly harms global growth prospects. This is felt most keenly in their weakest link, the sovereign debt markets, since these have assumed all the stresses of the EU economies and financial systems. But we should not expect stock and other markets in Europe to remain unscathed, especially bank stocks.

In particular, as reaction to the latest bailout of Greece’s creditors shows, bond markets do not reflect any confidence in these repeated prescriptions. Instead a first bailout of the economy is required, in Greece, Ireland and elsewhere.

There was a fondness before for asserting that Ireland was closer to Boston than Berlin. With the German economy recovering far more robustly than the US, we will hear less of that in the years ahead.

It might be wise instead to focus on the German and other answers to the crisis. This was not just short-term economic stimulus, but long-term productive investment.

For too long this economy has been a weigh-station for US companies counting their profits. Instead of listening to their self-serving advice on economic policy (while following German strictures on fiscal policy) policymakers in Ireland should emulate what works, in Germany, Sweden and most of Asia, investment-led growth initiated and guided by the State.

Not only debt ceiling deal but worsening trade deficit negative for US growthBy John Ross

Numerous commentators have analysed the negative implications for US growth of the debt deal between President Obama and Republican leaders in the US Congress – this is considered below. But an aspect which should be integrated into analysis is that the drag on growth represented by the cuts in government spending in a debt deal will interact with another negative trend – the widening US trade deficit.

The primary causes of slow growth of the US economy are domestic – above all failure to overcome the severe fall in fixed investment which occurred during the ‘Great Recession’. However a secondary lowering of US growth is being created by its trade position – despite hopes that the decline in the exchange rate of the dollar would boost US net exports.

Instead of assisting US growth the US trade deficit has been widening – i.e. net exports are falling. The US trade balance, having reached a low of $25.5bn in May 2011, increased to $50.2bn in May 2011 – the latest month for which data is available. This is shown in Figure 1. Figure 2 shows the same data expressed as a three month moving average in order to remove the effect of shorter term fluctuations.

As a percentage of GDP, the deficit on US net exports has increased from a low of 3.4 per cent of GDP in the 4th quarter of 2010 to 3.9 per cent of GDP in the 2^nd quarter of 2011 – as shown in Figure 3. Over that period this represents a 0.5 per cent of GDP downward pressure on US growth. It is clear from Figure 3 that the gap is increasing.

Given these trends, at the best US net trade is therefore unlikely to increase US GDP growth and is more likely to reduce it. Any sources of US growth will therefore necessarily have to be domestically generated.

This evidently interacts with a debt ceiling deal. The reduction in projected US government spending in an agreement, others things being equal, will primarily reduce the increase in government and household consumption – the latter through cuts in social spending programmes. With this consequent downward pressure on the growth of consumption, and no boost coming from net exports, significantly higher US economic growth would require a large boost in the only remaining source of demand – investment. But no substantial measures are being taken by the US government to increase either government or private investment.

No boost from net exports, constrained consumption, and no measures to boost investment is simply to break down into components the constraints which now exist on US growth. Given both domestic and international trends, the long term slowing of the US economy previously analysed in greater detail by this blog will continue.

Figure 1

Figure 2

Figure 3

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Weakness of the current US economic recovery compared to previous US business cyles

By John Ross

It has been pointed out that the present US economic recovery is the slowest since World War II. However the precise parameters of this are frequently not analysed nor are they placed in a longer term context. Both are significant as they show not only the cyclical situation but the continuation of a prolonged slowing of the US economy.

As regards the immediate weakness of the present recovery this is shown in Figure 1, which charts the course of US business cycles since 1973. The starting date in each case is the peak of the previous cycle and the numbers along the horizontal axis show the quarters since that peak. Also shown are a 2.6% growth trend line and a 1.6% trend line – these representing, as analysed below, 20 and 10 year moving averages for US GDP growth.

As may be seen not only was the downturn in US GDP in this recession deeper than in any previous one since World War II but recovery is far slower. The previous deepest decline in GDP in any US post-war recession was 3.2% following 1973 and by eight quarters after the previous peak in that cycle US GDP had regained its previous peak level. In the present cycle the maximum fall in GDP was 5.1% and 14 quarters into the cycle US GDP has still not regained its peak level. For comparison in the slowest previous US recovery, that following 1980, by 14 quarters after the peak of the previous business cycle GDP was already 4.9% above its previous peak level, whereas in this recession it is still 0.4% below it. In short this is both the deepest recession and slowest recovery in US post-World War II history by a considerable margin.

Even more significant strategically is the long term slowing of the US economy. This is illustrated in Figure 2, which shows a 20 year moving average for US growth with the latest data being for the 2nd quarter of 2011 – utilising such a long time frame removes the effect of purely cyclical fluctuations. The downward trend of US long term growth is clear. The annual average US GDP growth rate has declined from 4.3% in 1969, to 3.0% in 1990, to 2.6% by the 2nd quarter of 2011.

Figure 2

The current growth rate of the US economy is even lower if a 10 year moving average is considered. This is shown in Figure 3. By the 2nd quarter of 2011 the 10 year moving average of US GDP growth had fallen to 1.6%.

Figure 3

As noted, the 1.6% and 2.6% trend lines in Figure 1 therefore represent average 10 and 20 year growth rates for US GDP. As may be seen the recovery in the present recession is far lower even than these long term averages – which are themselves falls from previous levels.

In short the US economy is progressively slowing not only in cyclical terms but from a long term point of view. The present slow recovery is therefore not at aberration but a part of a long term trend.

Such a deep rooted slowing of the US economy clearly has major implications not only for the United States itself but for the pattern of development of the world economy.

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US GDP figures even worse than they look

By John Ross

The 2nd quarter 2011 US GDP figures, showing annualised growth of 1.3% in that quarter and a newly revised downwards annualised 0.4% in the 1st quarter of 2011, were interpreted as bad. But they are far worse even than they look at first sight.

First, the downward revision to the depth of the recession, to a trough of 5.1% in the 2nd quarter of 2009, means that instead of having already recovered its pre-recession GDP level the US economy remains 0.4% below its peak in the 4th quarter of 2007. This is shown in Figure 1.

Figure 1

Second, as shown in Figures 1, 2 and 3, it is misleading to draw attention to personal consumption expenditure, and its weak annualised 0.1 per cent increase in the 2nd quarter of 2011, as the key feature of the downturn. The really fundamental cause of the US recession is the collapse in fixed investment.

As may be seen from Figure 2, in the 2nd quarter of 2011 US GDP, in 2005 constant prices, was $56 billion below its peak level in the 4th quarter of 2007. However all major components of GDP except for fixed investment were already above their 4th quarter of 2007 levels – private inventories $37 billion above, government consumption $51 billion above, personal consumption $66 billion above, and net exports $159 billion above. However private fixed investment was $342 billion below its 4th quarter 2007 level – i.e. the entire decline in US GDP was due to the fall in fixed investment.

Nor was this decline in fixed investment entirely accounted for by the residential sector – see Figure 3. The overall fixed investment fall was divided essentially half and half between residential and non-residential fixed investment – the decline in residential fixed investment being $199 billion and the decline in non-residential fixed investment being $192 billion.

Figure 3

In short, as this blog has continuously pointed out, the core of the ‘Great Recession’ in the US, as in other countries, is not a decline in consumption but a huge fall in fixed investment. The ‘Great Recession’ is actually ‘The Great Investment Collapse’. Until this reality is grasped, and the policy consequences drawn, US GDP figures are likely to continue to surprise on the downside.

Meanwhile the latest US GDP data is shockingly bad – worse even than the features the official press release and initial press commentary concentrates on.

* * *

This article originally appeared on the blog Key Trends in Globalisation.

John Rosshttps://www.blogger.com/profile/08908982031768337864noreply@blogger.com0

Boris Johnson economic proposals should have put Londoners before bankersKen Livingstone has a new article taking apart Boris Johnson’s economic proposals, including the Tory Mayor’s call to get rid of the 50% top rate of income tax, on the Guardian’s Comment is Free here.

It analyses ‘Boris Johnson’s economic proposals, made following weak UK GDP figures this week and centring on cutting the top rate of income tax from 50%, are part of his campaign to be the next Conservative party leader. He is courting the Tory base, including its right wing. Proposing to cut income tax on those earning over £150,000 a year plays well with them…

‘Johnson’s proposals… constitute part of his continuing policy of hitting Londoners in their pockets in pursuit of his political ambitions and record of backing bankers – the two coming together in Tory party politics. These proposals, however, are economically incoherent and uncosted…. Johnson’s positions, both on tax and on fares, aid the best off. They do not help ordinary Londoners. The mayor should be putting Londoners first – not bankers or his political ambitions.’

yesKen Livingstone has a new article up on the Guardian’s Comment is Free here http://www.blogger.com/img/blank.gifJohn Rosshttps://www.blogger.com/profile/08908982031768337864noreply@blogger.com0

BRICS say Greek bailout too soft on the banks

By Michael Burke

The rapid growth of the so-called BRIC economies (Brazil, Russia, India and China) is providing a global benefit in terms of economic growth. But their increasing weight in the world economy will also provide a growing benefit specifically to all the European economies, and most especially the majority of citizens in the most crisis-hit countries.

The latest example of this arises in relation to the Greek crisis. Because of their more rapid growth the BRIC economies subscription of the funds for the IMF are growing. Their weight in the IMF is growing as a result, where previously the interests of the US have always held sway. It is clear from a report in the Financial Times on July27th that representatives of the BRICs are unhappy with the term of the latest bailout involving Greece. The complaint is twofold – that the austerity measures imposed on Greece are too harsh and the level of losses imposed on the banks is too small.

According to the FT, ‘Paulo Nogueira Batista, who represents Brazil and eight other countries on the IMF’s executive board, said the Greek government’s austerity plan was too tough and the restructuring of Greek debt held by European banks was too small.

“Greece is not having an easy time,” he told the FT. “The mostly European private creditors of Greece have had an easy time.”’

Mr Batista also went on to argue that, while there were suspicions about bias towards European bondholders (EU banks), Christine Lagarde the new IMF MD and former French Finance Minister had the perfect opportunity to dispel such suspicions (by taking a tougher line on bank losses).

Further, the FT reports, ‘Arvind Virmani, the Indian executive director on the board, said the plan dealt with short-term cashflows but left Greece with a large and precarious sovereign debt stock, threatening further defaults.

“I am not convinced [the plan] addresses the basic problem of liquidity versus solvency,” he said, adding the fund had dodged the question for more than a year.’ The clear implication is that Greece requires further debt write-offs if it is to become solvent.

Both men also argued that the size of the IMF loan would be unacceptably large and would not have been made available to a developing country. The obvious implication is that either European taxpayers or bondholders should make a greater contribution- and it was clear that their preference is for the banks to take greater losses.

According to the latest official documents, the debt-reduction for Greece will be €26.1bn, less than 12% of total debt outstanding of €350bn. Clearly, this is a welcome first step but wholly insufficient to bring about solvency. Once all forms of ‘credit enhancement’ (very expensive insurance) on the debt being restructured are paid for, the total estimated debt reduction is actually smaller than the €28bn projected level of Greek privatisation receipts.

As the BRIC representatives say, the cuts are too harsh and the losses for bondholders too small. Politically, as well as economically, the rise of the BRICs is a major benefit. Progressive forces in Europe (including Britain) and elsewhere should increasingly look to them. Not only is it possible to learn from their rapid growth, but it is also very valuable to have them as allies in the interests of the overwhelming majority of the population of Europe, and against the interests of the bankers.

The stats show the Tories make you worse off and less safe

By Michael Burke

A small but growing number of commentators have analysed the way Tory policies make the average person worse off. New data released on police numbers and crime also show the way Tory cuts are making you less safe.

Even the Tories admit that the recession, which their cuts policies are deepening, will raise the threat of crime. In particular crime is increased by the cuts in welfare benefits – which is what the Tories are concentrating on.

The Times reported (£) on June 29th on the opinion of senior police officers on this coming increase in crime:

“It won’t be an even, upward progress, there will be a ragged line with different patterns in different areas and some crime types shooting up, while others remain level,” one said.

Chief constables and criminologists say that there is usually a gap between the worst of the financial crisis and the impact of austerity on the public before the effects are reflected in crime patterns.

They believe that crime will rise more dramatically as sections of the public feel the impact of public spending cuts, unemployment and, perhaps most significantly, cuts in benefit payments.

As The Times reported (£), some crimes are already going up:

Kenneth Clarke, the justice secretary, told the Commons last week that burglary was one of the crimes that is “rising at the moment”, adding: “It is going up rather alarmingly compared with a year ago.”

Ministers are nervous that rises in property crime herald the long awaited recession crime wave that will worsen if unemployment increases substantially and people have less cash in their pockets…

“There are indications that crime is about to turn. The reason it has not gone up yet is because unemployment has not risen that much,” one minister admitted.

Yet confronted with this rising threat of crime the Tories are actually cutting police numbers. The report (pdf) published by Her Majesty’s Inspectorate of Constabulary (HMIC) on July 21st confirmed there will be 16,200 fewer police officers in the UK as a result of the Tory led government’s cuts.

London – the Tory Mayor makes you less well-off and less safe

This increase in various types of crime is already feeding through into London. After the Tory Mayor of London has made Londoners worse off through his unnecessarily large above-inflation fare increases, the Conservative-led government and the Tory Mayor are additionally making Londoners less safe.

As The Times reported (£):

Burglaries, robberies and muggings are on the rise for the first time in years as fears grow among ministers that the economic downturn is driving up crime.

Figures from Britain’s biggest police force provide the first indication that years of falling crime are coming to an end. The Metropolitan Police has reported big increases in robbery, burglary and motor vehicle crime in the past 12 months…

Robbery, including muggings, pick-pocketing, burglary, shoplifting, theft of bicycles and interfering with motor vehicles increased, the Metropolitan Police report says. Figures show that there were more than one thousand more burglaries last month compared with May last year.

Robberies in the capital jumped by 15 per cent from 3,257 in May last year to 3,749 this May; house burglaries rose by 18.5 per cent from 4,410 to 5,228; and thefts of and from vehicles by 6 per cent to 9,299.

Yet despite this trend the Tory Mayor is pressing ahead with cuts in in police numbers. In the last year police numbers in London were already cut by 926. By 2014 there will be 3,111 fewer Metropolitan Police staff including 1,907 fewer officers, 820 less PCSOs, and 324 less police staff.

Tories – talk and not action on crime

These trends show clearly the picture which always exists: the Tories, whether as the UK government or as the Mayor of London talk a great deal about crime but take actions which increase it – both by deepening the recession and by cutting police numbers.

As Ken Livingstone said about the situation in London:

“Boris Johnson’s cuts mean on average every London borough will lose over 50 police officers. These cuts risk undermining the work which the police and local communities are doing to make our streets safer.

“The Conservative Mayor’s cuts will mean some of the most experienced and able officers losing their jobs, including 300 of the 600 sergeants who manage local police teams.”

The story is the same across Britain and in London: the Tory-led government and the Tory Mayor make you less well-off and less safe.

* * *

This article originally appeared on Left Foot Forward.

British Economic StagnationBy Michael Burke

The British economy continues to stagnate. Just over one year after the Tory-led Coalition announced its first Budget the British economy is virtually still in the water. In the preliminary estimate of GDP in the 2^nd quarter growth was just 0.2%. In the three quarters since the Comprehensive Spending Review (CSR) this figure constitutes the sum total of economic growth, i.e. just 0.2% – with the previous 6 months having registered no growth at all.

Tory supporters are sufficiently concerned to have begun he discuss the need for a growth strategy, although the remedies offered are likely to exacerbate the situation, as will be discussed below.

As SEB has previously shown , before the Tory-led government’s policies began to take effect there had been an economic recovery. For comparison, in the three quarters preceding the CSR the economy had grown at a moderate rate of 2.1%. This is in sharp contrast to current performance which now reflects the effects of cuts to public spending and their wider impact on the economy.

In the three quarters since the CSR, the economy has expanded by just £660mn, compared to £26.7bn in the preceding 9 months. No wonder most households and businesses feel poorer and gloomier.

It is possible that the situation may get worse. Economies only respond to policy changes after a certain time lag. In both the phases of recovery and in the subsequent stagnation the economy as whole responded two quarters after significant changes in government spending. Although there was an ‘emergency budget’ in June 2010 and VAT was increased in January 2011, most of the cuts did not take place until the beginning of the Financial Year in April 2011. The depressing effect of those cuts is therefore only beginning to be felt and is likely to increase throughout the rest of this year.

Despite the fact that the recovery began at the end of 2009 GDP output is still 3.9% below its peak level. Other European economies such as Germany and Sweden have already recovered all the output lost in the recession, by taking precisely the opposite course. Growth was stimulated via a series of measures – most effectively by increased government spending. The consequence is their public sector deficits are falling, while in Britain the official forecasts for the deficit are being revised upwards. The reason for this is simply that tax revenues in Britain continue to disappoint as growth remains elusive.

In the Great Depression of the 1930s it took exactly 4 years for the previous level of output to be restored. The 2nd quarter of this year was the beginning of the 4^th year since the recession. It seems extremely unlikely that the economy will grow by close to 4% by the 1^st quarter of 2012. This depression will not be as severe as the Great Depression, but it seems likely to be even longer.

The stagnation of the economy and the damage this is doing to Tory popularity has sparked a debate about the need for growth. Predictably, it ignores that fact that the recovery was fostered by increased government spending, including investment and is being throttled by government spending cuts. Instead, the focus is on tax cuts for corporations and the rich, an end to all carbon reduction policies, a reduction in the minimum wage, abolishing employment laws, privatisation and so on.

This is a recipe for more of the same and, as in other countries, the effect of this huge transfer of incomes from poor to rich would be to depress economic activity even further as well increasing the public sector deficit.

Few of these ideas are likely to find much support outside Tory circles. But one which has is the idea of a corporate tax cut to boost investment. This call ignores two important facts. First, the government is already cutting corporate tax rates from 28% to 23%, yet the private sector’s investment strike continues and accounts for 80% of total lost output. Secondly, the non-financial corporate sector is already sitting on a cash mountain, which is simply financing dividend payments, enormous executive pay and takeovers- that is, everything but investment.

The call for lower corporate taxes obscures a central truth about the current crisis. In any normally functioning market economy the household sector is a net saver, that is it retains a portion of its income and does not consume it immediately. The savings are mainly held in banks. The corporate sector is a normally a net borrower for investment, and borrows from the banks. The government can either be a saver (budget surplus) or borrower (budget deficit). This depends on its own tax and spending policies, but also on what happens in the rest of the economy.

In the chart below, the level of lending or borrowing for these 3 main sectors is shown. Borrowing is a negative number and lending positive. Other important sectors (especially financial corporations and the rest of the world) have been disregarded for the sake of clarity.

Figure 1

What the chart shows is the British non-financial corporate sector has not been performing its designated role over a prolonged period. It has been a net saver. Disregarding the sectors not shown, in general the sum of these three sectors must balance to zero. Saving by one sector must have another sector its borrowing counterpart.

The saving of the corporate sector had two effects. In the first instance corporate savings (achieved through lack of investment and low wages) obliged the household sector to become a net borrower to finance consumption. It also obliged the government to increase its borrowing as the lack of investment depressed taxation revenues. When, at the beginning of 1998, the household sector took fright and returned rapidly to its traditional role of net saver, the government was obliged to sharply increase its own borrowing and the public sector deficit ballooned.

The primary cause of both the unsustainable nature of the prior business expansion and the subsequent recession was the failure of the corporate sector to borrow to invest. Rather than cut their taxes and increase this saving, the whole thrust of policy should be designed to oblige the corporate sector to borrow for investment.

A progressive government policy would be to encourage business investment by increasing the government’s own investment. If necessary, a radical government would simply seize these corporate savings and use them for investment purposes on its own account. But in no case should there be a reduction in the incomes of the household sector via wage cuts and public spending cuts. This only diminishes its ability either to spend or save, and does not create business investment.

The electoral myths of ‘blue Labour’

By John Ross

Recent reports are that the current ‘blue Labour’ is coming apart – with former leading supporters stating they no longer wish to be associated with the project following Maurice Glasman’s widely criticised interview with the Daily Telegraph on immigration. But it is also important to understand that the entire basis of the factual claims by blue Labour were inaccurate.

The name ‘blue Labour’ summarises its analysis. It claims that the politics represented by the colour ‘blue’, that is the Conservative Party, are deeply attractive to those who can or did support Labour. As one analysis by a blue Labour leader put it: ‘Appealing to Lib Dems is all well and good. But we have to start to reach out to the millions of working class former Labour voters who left us for the Tories.’

Unfortunately there is no factual basis for a claim that the fundamental reason for Labour’s decline in support is the attractiveness of the Conservative Party and values it represents. Indeed the facts show the reverse.

There are naturally short term swings at elections, but Labour’s entire strategic net loss of votes over the period since it last came close to enjoying majority support in the electorate, a decline from 47.9% in 1966 to 29.9% in 2010, has been to the Liberal Democrats and other parties – chiefly Scottish and Welsh nationalists. None of this net loss of votes was to the Conservative Party.

Labour

To show clearly the factual trends of Labour support Figure 1 charts the Labour percentage of the vote at all general elections up to 2010.

As can be seen the trend is clear. There are, naturally, many short term fluctuations, but Labour’s support rose until the early 1950s, the absolute peak being reached at 48.8% in 1951. Support remained at a high level until the mid-1960s – with 47.9% of the vote being secured in 1966. After 1966, again of course with short term fluctuations, Labour’s vote fell from its previous level.

Figure 1

It therefore may be accurately said that from 1966 the social/political coalition which had made Labour a force commanding the support of almost half the total electorate progressively came apart. The key strategic issue therefore is where did Labour’s votes go?

To show what happened to Labour’s former support Figure 2 shows the change in the party’s share of the vote after 1966. As may be seen in that period:

• Labour’s vote fell by 18.9% .
• Liberal/Liberal Democrat votes rose by 14.6%.
• Support for parties other than the three major ones rose by 10.2% – this being chiefly the SNP and Plaid Cymru.
• The Tory vote, far from rising as it would have if it had attracted electors from Labour, fell by 5.9%

Therefore none of Labour’s net decline in support went to the Conservatives. The facts show, in short, that far from being attractive to Labour votes, the Conservative Party and Conservative values were deeply unattractive. The whole of the loss of Labour votes was to the Liberals/Liberal Democrats and ‘other’ parties – chiefly Scottish and Welsh nationalists.

Figure 2

The Conservative vote

Taking as a starting point for comparison 1966, a peak of Labour’s popularity, furthermore understates the decline of Tory support. Strategically the Conservative vote, naturally with short term fluctuations, has been declining for a prolonged period – as is clear from Figure 3. The post-war Conservative peak was in 1955, at 49.6% and Tory overall support, again inevitably with short term fluctuations, has been declining since.

Figure 3

The Tories failure to win an overall majority at the last general election was therefore not a ‘surprise’. Every Conservative victory since 1955 has seen the Tory vote fall to a lower percentage of the vote than the previous one.

The Conservative Party secured 49.6% of the vote in 1955, 49.4% in 1959, 46.4% in 1970, 43.9% in 1979, 42.4% in 1983, 42.2% in 1987, 41.9% in 1992, and 36.0% in 2010. The average decline of the Tory vote per year between victories is 0.3%.

The Liberal Democrats

Given Tory support was not rising but falling throughout this period the main parties receiving rising support were the Liberal Democrats – as shown in Figure 4, and ‘others’ – chiefly Scottish and Welsh nationalists, as shown in Figure 5

Between 1966 and 2010 support for the Liberals/Liberal Democrats rose by 14.6%. Support for other parties rose by 10.2%

Figure 4

Conclusion

The facts on the erosion of Labour’s former support are therefore clear.

• Strategically the Tory party has not shown itself attractive to Labour voters. None of the strategic net loss of support of Labour has gone to the Tories. On the contrary the Tory it is a party whose vote is in long term decline.

• The strategic loss of Labour support has been to the Liberal Democrats and Scottish and Welsh nationalists.

Posed in terms of values the conclusion of this is equally clear. Conservative values have not shown themselves attractive to former Labour supporters at all – on the contrary they have shown themselves unattractive. It is Liberal, Democrat and Scottish and Welsh nationalist values that have shown themselves attractive to Labour voters. Therefore, far from moving closer to Tory values, what Labour has to do is to be more attractive to those who have shared the values of Liberal Democrats and Scottish and Welsh nationalists.

Appendix – Percentage of the Vote at General Elections 1931-2010

The vote at general elections is set out in Table 1 below.

Table 1

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