Saturday, February 21, 2009

A look at C2 voters

In the comments of my previous article, Devon Chap made this observation:

"The "internationalist and Europhile group who are moderate, centrist and mostly middle class" are not those who election specialists who study such things consider the key group. It is the social group C2 (lower middle class/higher end working class) - The Gavin and Staceys of the World. These are the ones who turn elections."

Of course he's right to mention the C2s. Just for you DevonChap, I draw attention to an article in the FT about C2 voters, or white van man as they call him.

The graph above comes from the FT. They compared opinion polls for 2009 to 2008 to see which voters are shifting and came to this conclusion:

"The change is most marked for the lower middle class – known to pollsters as the C1s. This group has swung by three points from Labour to the Conservatives since last spring, and by 10.5 points since 2005 – the biggest movement of any demographic group since the last general election.

But the C2 skilled working class appears to be bucking the pro-Tory trend. These “white van man” voters, who backed Margaret Thatcher in 1979 and Tony Blair in 1997, are seen as bellwethers of big shifts in the prevailing political mood.

Their support for Labour has fallen dramatically since the 1997 and 2001 elections. But Mr Cameron is failing to win them over in big numbers as the recession bites.

The C2s are the only demographic group to show a shift back to Labour since last spring, albeit by just two points, according to the analysis.

If Labour can retain the C2s, and win back the Guardianista group who are "internationalist and europhile", then an election win is still a possibility for Labour. DE's at the moment are splintering to radical groups and Tories, but they too can be won back when labour points out Tory plans to allow employers to opt out of the minimum wage, as well as making deep cuts to the services they rely on. As I keep saying, Labour is a coalition, and we need to keep the whole coalition intact. We can't lose any part of the coalition.

Sunday, February 15, 2009

Back to the early 1980's?

We've now had three opinion polls from ICM, Populus and Comres showing a drop in the Labour vote and a surge for the LibDems, with the Tories either staying the same or dropping a little, but gaining a massive lead by default as the centre-left vote is split. Three polls showing the same thing makes a trend.

I got shouted down a week ago on Labourhome, when I wrote that what was causing the shift to the LibDems was part of the Labour coalition feeling disgusted at the xenophobia displayed by the anti-European wild-cat strikes in Lincoln. Tories rushed onto the thread to say that of course the strikes were popular as "most people" hated Europe - but if that was the case why didn't the europhobic Conservatives gain in the polls? Other people on the old left of the Labour party rushed to say that "everyone" supported strikes - so why the shift away from Labour? Because the elephant in the room was that it was the internationalist europhile LibDems who gained.

To me this seems almost like a re-run of the 1980's. In 1978 we had the unions campaigning against the Callaghan government (which was made up of people on the moderate right of the Labour party), as they tried to force Labour to the left. Result: Margaret Thatcher was elected. Then in the early 80's we saw the right of the Labour party break away and form the SDP, who formed an alliance with the Liberals. And the left of Labour ran amok, with the Miners Strike, Scargill declaring his intention to "bring down the government", something that is the prerogative of the voter alone, and the "longest suicide note in history" declared Labour's intention to take Britain out of the EU. As a result, the centre and centre-left vote peeled off towards the Alliance. Ironically the only thing that saved Labour from being pushed into third place in the 1983 election was the Falklands war. Michael Foot was full-square in favour of the war to get the islands back from the fascist regime in Argentina, while David Owen for the SDP thought the war a waste of time - centrist righties peeled off back to the Tories and patriotic centre-left voters peeled off back to Labour and the Alliance were pushed back into third place.

There exists in Britain a large internationalist and europhile group who are moderate, centrist and mostly middle class, and who have decided every single general election since the 1970's. They don't like xenophobia and they don't like extremism (strikes make them nervous). Forget those on the Tory right or old Labour left who claim that Brits hate Europe. Their opinions don't deliver elections, only those of the europhile middle do.

It was New Labour's genius to court this group, becoming pro-European and centrist in order to do so. Governing as New Labour meant amongst other things facing down the RMT's strike demand for a 40% payrise in the early part of this decade and kicking the RMT out of the Labour party. But governing as New labour also meant the ability to deliver things that helped the poorest of society - the minimum wage, support for parents, Sure Start, improved healthcare, better rights for part-time and temporary workers - something Old Labour signally failed to deliver as they failed to win elections.

Unfortunately the turmoil in the global economy has persuaded some in the unions that it is OK to go back to 1983. They are wrong. The outcome of this turmoil will not be a willingness to tolerate xenophobia or strikes but such things as separating out investment banking from retail banking and increasing banking capitalisation requirements - technical things, not ideological things.

Labour only wins elections when the right of the party (which equals the centre and centre-left of the entire political spectrum) is in the ascendant. Move too far away from the centre and our vote fractures. In the 2001 to 2005 period Blair moved too far away from the centre in the rightwards direction on war and we saw part of our coalition move to the LibDems - it was only because Howard's Tories were even further to the right that we managed to hang on to power. We have now moved back to the centre on war, with the Brown government distinctly unenthusiatic about starting wars anywhere, but the new danger is people wishing to drag us leftwards on economics and Europe. But we can only win from the centre, this has been the case for decades now. Someone needs to have a word with Unite and co to point out the facts of electoral life to them.

Friday, February 13, 2009

Eurozone struggled in Q4 2008

Eurostat released figures today for the GDP of the Eurozone economies in Q4 2008, and Germany's performance in particular was worse than expected. Here's how the major European economies performed in 2008:

Country Q1 Q2 Q3 Q4

UK 0.4% 0.0% -0.6% -1.5%
Germany 1.5% -0.5% -0.5% -2.1%
France 0.4% -0.3% 0.1% -1.2%
Spain 0.4% 0.1% -0.3% -1.0%

When you look back to late last year, and the way the Germans in particular were insisting that this was an "Anglo-Saxon" problem and that the Brown-Darling team was engaged in "crass Keynianism" in the stimulus announced on Nov 24th, one is tempted to say to the Germans, "should have had a VAT cut, love". George Osborne, who loves to pop up quoting the Germans on the British economy (while the Tories still shun Germany in the Council of Europe and in the European Parliament), should pause to eat his words. The simplistic idea that if you don't have a housing boom, you are immune from recession, and if you have a trade surplus you are immune from recession just shows that the Tories have nothing in their heads.

It remains a fact that our government reacted more speedily to the crisis than other governments in the Western world - our stimulus was in time to support Christmas (and without the VAT cut, we would have seen a worse performance than the Germans), and the money hit the economy immediately. Germany didn't move till Jan and their stimulus involved raising income tax thresholds (something panicky Germans will save rather spend despite their economy badly needing domestic consumption to offset the drop in consumption elsewhere).

Osborne similarly complained about sterling dropping, but the fall in sterling helped exports rise in December, despite the massive drop in global demand. He's a total cretin for wanting a strong currency in these times.

I firmly believe that we will weather this recession better than other western economies, because our economy is more flexible than others (the sterling drop for instance) and our government is more agile than others.

Saturday, February 07, 2009

The effects of last thursday's base rate cut

As soon as the cut was announced, we had the usual commentators saying, "this will prompt savers to stop saving and withdraw their money, and then banks won't be able to lend", or words to that effect.

But the rate cut creates a new potential source of capital for the banks, other than savers. Many borrowers on tracker mortgages, standard variable rate mortgages, and those who have just come off fixed rates onto the SVR, have experienced big cuts in their monthly mortgage payment, increasing their disposable income.

HSBC have spotted the potential and have written to all their mortgagees on tracker rates, encouraging them to use their freed up money to overpay their mortgages. It's good advice - this is a unique opportunity for homeowners to shed their debt. Once rates rise again, their disposable income will shrink too, unless they've taken advantage of current circumstances to reduce their loans. Current conditions are highly unusual, low interest rates will last a year to eighteen months at most. And when rates go up, they will go up fast, as the BoE seeks to avoid the mistake Greenspan made in 2001-2004. If people want to permanently increase their disposable income, remembering that you pay tax on what little interest you earn, whereas overpaying the mortgage gives you a gross return, paying off the debt is a no-brainer.

But it would be really good for HSBC too, if their tracker mortgagees overpaid debt. They'd be getting capital, just as surely as if they had received increased savings deposits. And they can then either lend the capital back out to business at rates which are more lucrative than getting base rate plus 0.5% or 1%, or keep some of it back to shrink their loans to capital ratio. Given that on the retail side loans to capital are about 8 times, persuading people on variable and tracker mortgages to overpay is more lucrative than attracting savings.

I'm surprised more banks arn't taking similar action, especially those who were silly enough to offer deals where the tracker was below base rate. Some newspapers such as the Daily Mail and some money forums such as MoneySavingExpert are trying to get people to overpay mortgages, but the industry itself needs to start publicising the benefits.

As an aside, the real excess lending was done on the investment banking side, where loans of about 30 times capital were made. Unfortunately they'll be less able to get their clients to repay, as the hedge funds and buyout firms etc they lent to are broke.

Friday, February 06, 2009

Halifax reports house prices rose in January shock!

The Halifax reported that house prices rose in January by 1.9%, the first rise since Feb 2008. We shouldn't get too excited, as the Nationwide reported a 1.3% fall. But still, it cheered me up no end.

The Halifax and Nationwide have different geographical strongholds as regards where they lend, so all we can glean from this is that the price falls are not uniform across the country. But, it might be a clue that housing may not quite go the way of the USA.

As mentioned in my previous post about American mortgages, the key advantage that the UK has over the USA is that in the UK there is incentive to resist defaulting and to repay debt come hell or high water.

This is crucial to house prices. Prices fall mainly if there is forced selling (supply overwhelms demand). But if people stay put, and try to repay debt instead, then you simply have a stalemate as sellers refuse to put houses on the market and buyers wait for further drops. What usually happens in times of recession is that the sellers blink first, due to unemployment.

However, since the October 2008 meltdown, people have been frantically paying down debt so that they may cope better should they be laid off - the British Bankers Association says that unusually, outstanding unsecured debt fell in December, though it is usually a month it rises. Anecdotally, people are taking advantage of the money freed up by interest rate cuts to overpay their mortgages. In addition, the 1.8 million or so who came off fixed rates at the end of the year also experienced a rate cut as they went on to the SVR (earlier in 2008 there were a lot of stories warning they would face payment rises). The government has also changed the rules so that from 5th Jan 2009, if you are unemployed, you qualify for help with the interest payments on the mortgage for the first £200,000 of debt after 13 weeks of unemployment (the old rules provided help with interest on the first £100,000 of mortgage after 39 weeks of unemployment).

All of the above should mean that forced selling is kept at a minimum, and thus property prices start to stabalise. Fixed rates on offer are also coming down and many would-be buyers are conscious that these are once-in-a-generation offers and are wondering whether to take the plunge.

The behaviour of the mortgagee (rapidly paying off debt), the government in supporting those unemployed and the Bank of England in cutting interest rates sharply, make this quite different from the early 1990's recession when there was also a house price crash. Then, interest rates in particular didn't fall till 1992 when we crashed out of the ERM, a good two years after the recession started, and mortgage holders were also not as savvy about things such as overpaying mortgages. We shall wait to see how this pans out.

Tuesday, February 03, 2009

Buy America madness

The original Buy America act was passed in 1933 and together with the infamous Smoot-Hawley tariff bill caused the rest of the world to enact retaliatory penalties against American goods and companies. The result was that the recession turned into a depression, with Americans suffering worse than countries like the UK, which was able to keep free trade open in the empire.

And, unbelievably, here we are again. The European Union has sent an official warning, that they will take the Americans to the WTO if the clause remains in the bill and Obama signs it into law. The last time the EU took the Americans to the WTO over steel tariffs, the EU won, and proposed retaliatory tariffs so well chosen that Bush caved within a day. It's likely that the EU's retaliatory tariffs will hit the Americans where it hurts - defence contracts that American companies like to bid for, but which are paid for by the European taxpayer. I imagine lots of furious lobbying will now take place by those companies who are fearful of losing out.

Closer to home we have the idiotic wild-cat strikes over IREM refusing to sack it's permanent workforce (that it moves around) in order to hire itinerants. IREM appears to have won the contract in the first place because it delivers projects on time, which probably has something to do with having a permanent workforce (who are being paid Unite rates). They would lose their competitive advantage if they shifted to itinerants. Unite have got this wrong - they should be arguing for British contractors to adopt the same permanent team model that IREM have, which would enable them to do a better job as well as relieving the uncertainty that many itinerant workers suffer under.

Instead the fools at Unite seem to be arguing for discrimination against Italians. Note that there are more Brits living and working in Italy than Italians here (same goes for Spain, Portugal and Germany, with France the numbers net out). And some of them work in construction. I wonder how they are feeling. I sometimes wonder whether these unions have been infiltrated by BNP people. If they have, we should expel them. At least Peter Mandelson has made it clear that we have no plans to alter the existing treaties on freedom of movement. I'm glad he's back in government.

Update 4th Feb 2009: It looks like Obama is already moving in response to the EU complaint. The Times reports that:

Last night Mr Obama gave a strong signal that he would remove the most provocative passages from the Bill.

“I agree that we can’t send a protectionist message,” he said in an interview with Fox TV. “I want to see what kind of language we can work on this issue. I think it would be a mistake, though, at a time when worldwide trade is declining, for us to start sending a message that somehow we’re just looking after ourselves and not concerned with world trade.”

But read some of the 130-odd comments on the Times article, mainly from Americans - they don't believe in free-trade at all, and this will be a political hot potato. The American public in general is less in favour of free-trade than the European one - in part I think because Europe does have a comprehensive welfare safety net that the Americans do not, so European individuals don't experience the downside of globalisation quite as acutely as the Americans (those strikers in Lincoln should take a trip stateside to see how lucky they are). Obama needs to move full-speed with healthcare reform and the like, because he won't be able to hold the free-trade line without offering some kind of safety-net.