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Economic conditions favour the left, so why is Labour not expected to win with ease?

Larry Elliott
Photograph: Chris J Ratcliffe/Getty Images

Even now it is impossible to call the election. Sure, the polls look pretty conclusive but the margin between victory and defeat is slender. The last two elections sprung last-minute surprises and when the Tories say they are taking nothing for granted they are telling the truth.

The reason for that is simple: the Conservatives may have had a clear message on Brexit that has resonated with leave voters but they also know that much of what Labour has been saying during the election campaign resonates with the voters. Boris Johnson has been battling against an ideological headwind.

This is not only a matter of the goodies Labour has been proffering. Who, after all, is not in favour of a four-day week, a third off their rail fare, free broadband and not having to pay for a dental checkup?

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It is more a sense that something has changed at a deeper, more fundamental level since David Cameron won the 2015 election. All the parties have shifted leftwards on the economy: in part because the right-of-centre solutions have been found wanting and in part because Labour has changed the terms of the debate. What the parties are arguing about at this election is not the direction of travel but the speed at which it should occur and who should be managing the process.

The new consensus has the following elements. First and foremost, action needs to be taken to tackle the climate emergency. Every party has a target date for the UK to be carbon neutral and policies designed to bring it about. As expected, the Greens are the most ambitious, followed by Labour, the Liberal Democrats and the Conservatives in that order. Unlike a decade ago, there is no political mileage in being a climate change denier. Instead, the talk is of Green Industrial Revolutions and Green New Deals.

Then there is the acceptance that the age of austerity is over. Again, there are differences between the parties over the extent to which the spending cuts of the past decade will be rolled back but there is a general commitment to spend more not less.

This requires a willingness to borrow more and for fiscal policy – tax and spending – to play a more important role in economic management. This is by no means a UK-only phenomenon. The International Monetary Fund and the European Central Bank – once bastions of economic orthodoxy – are now agreed that there is a limit to what can be achieved by tweaking interest rates and creating money through quantitative easing. Both are telling governments to take advantage of historically low borrowing costs.

One of the more interesting subplots of the election has been the pushback by left-leaning economists against the critical analysis of Labour’s tax and spending plans by the Institute for Fiscal Studies. The IFS, in the past the unquestioned arbiter in these matters, found itself being challenged over its claim that John McDonnell’s plans didn’t stack up. Why? Because, according to the thinktank’s critics, it made questionable assumptions about the impact on private investment of higher corporation tax and failed to take into account the potential for higher growth that would result from the boost to public spending.

The idea is that in the current low interest rate environment there is a multiplier effect from state investment that over time generates enough economic activity to pay back the initial cost – and then some. Labour found it hard in 2010 and 2015 to battle against the balanced-budget orthodoxy. This election takes place against a much more helpful backdrop, with Keynesian ideas back in vogue. John Maynard Keynes believed in the need for active government and in the multiplier effect. So, too, does Sajid Javid, judging by the chancellor’s infrastructure plans. The difference between Javid’s approach and that of McDonnell’s is one of degree. Labour is planning to go much further, that’s all.

The details of the Conservative party’s tax plans are also instructive. Back in the summer, when he was campaigning to succeed Theresa May as prime minister, Johnson proposed two big changes: to raise the level at which people start paying national insurance contributions and to raise the threshold at which the 40% income tax rate kicks in from £50,000 to £80,000. The first pledge made it into the Tory manifesto; the second – which would benefit the better off – did not. Moreover, the Conservatives scrapped plans for a cut in corporation tax on the grounds that the money would be better spent on the NHS. These tax proposals do not suggest a party brimming with ideological self-confidence. Rather, they suggest a party keen to assuage public concerns about poverty pay, rising inequality and the pressure on public services.

There is no immediate sign that the pendulum is going to swing back to the right. Extreme weather events demonstrate how the clock is ticking on the climate emergency; wealth is becoming more concentrated; the pressures on public spending from an ageing population are intensifying; and the risks of another financial crisis are growing. If they win on Thursday it won’t be enough for the Conservatives to get Britain out of the European Union; they will also need to tackle the causes of Brexit – an altogether more difficult task.

All of which raises an obvious question. If the economic conditions are – and will continue to be – so favourable to a party of the progressive left, why is Labour not on course to win the election at a canter? Is there a problem with the message, the way the message has been communicated, the messenger or all three? Perhaps the polls are wrong. If not, some hard lessons need to be learned. And fast.