Honeymoon is over for the coalition
IT is time for the markets and investors to start paying attention to Westminster once again. Ever since the election, and especially since the Budget, sentiment towards the UK has improved markedly. Gilt yields have fallen and sterling has soared; the pound even reached a four-month high against the dollar yesterday, with asset allocators now convinced that the deficit will be brought under control and that Britain is firmly back on the road to economic sanity. Better than expected GDP figures last week and the widespread view that consumer price inflation is slowing have also done wonders for UK Plc’s reputation, especially given the continued question marks over the Eurozone’s stability in the wake of the stress tests and America’s uneven recovery.
As so often, however, the consensus view in the City is faulty – or at least subject to much greater risks than most people understand. Everything is predicated on the coalition staying on course and delivering all of the budgetary cleansing it has promised. Yet even though almost none of the cuts have actually happened yet – as opposed to being trailed and debated ad nauseam – the coalition’s popularity is already in free fall. The honeymoon period is coming to a premature end, the strains at the heart of the coalition are building and the Labour party is bouncing back in the opinion polls. Of course, none of this may matter in the end; all governments go through wobbles, even though usually not so soon after a general election.
But the polls are undoubtedly starting to look dire for the coalition. The last three suggest that the Liberal Democrats have lost much of their support, Labour is gaining ground – even in the absence of a leader and proper opposition team – and the Tories are insufficiently ahead for comfort. Ipsos MORI puts the Conservatives on 40 per cent, Labour just two points behind on 38 per cent and the Liberal Democrats on just 14 per cent. An ICM/ Guardian puts the Conservatives on 38 per cent, Labour on 34 per cent and the Liberal Democrats on 19 per cent; and a YouGov/ Sun poll has the Conservatives on 42 per cent, Labour on 35 per cent and the Liberal Democrats on 15 per cent. The ICM poll asked voters to grade the coalition for its performance so far: the average score was a mere 5.1 out of 10. The highest (but still paltry) score, 6.6, comes from Tory voters, followed by LibDems on just 5.5 and Labour voters on 4.2. YouGov shows that a peak net approval rating for the coalition of +21 per cent has tumbled to just +3 per cent yesterday. Not great for the government’s prospects. If the electorate is already so tetchy, how will it feel after three or four years of austerity?
David Cameron is more of a non-executive chairman than a hands on CEO, unlike his recent predecessors, delegating massive powers to ministers who have been left to push through reforms in their departments with limited resources. In some cases, civil servants are dragging their heels and even trying to sabotage reform efforts. Cameron’s lack of attention to detail is one reason why the coalition appears to be all over the place, why it has allowed its opponents to exaggerate the scale of the looming cuts, why its message is often confused and why there is more and more evidence of disagreements. Unless Downing Street begins a proper fightback, the pressure on the coalition from right and left could soon become unbearable.
allister.heath@cityam.com