United Kingdom Elections: Is the Impact of the Economy Really Clear?

Each election campaign is a unique portrait of the times and is dominated by the most pertinent issues impacting society. Within the realm of United Kingdom politics, key issues often span the National Health Service, taxation, employment, economic growth and social welfare; the general election scheduled for May 7 2015 is no exception. When the Conservative-led coalition wrestled power from the Labour party on May 6 2010, culminating a 13-year rule, one of their principal promises was to drive the country out of the deepest economic recession since the Second World War through a far-reaching budget deficit reduction program. Labour, its primary opponent, proclaimed to target the same outcome through an antithetical approach – an orchestrated package of fiscal stimulus. The divergent approaches between the country’s main political parties provided voters with an incredibly stark choice. A cast of Nobel Prize-winning economists supported the diametrically opposing philosophies, further deepening confusion amongst voters as to the ‘right’ choice.  Given that both political parties trumpeted the significance of future employment, economic growth, inflation and government spending to their economic plan for the country, a vital but not immediately obvious question poses itself: just how crucial are fundamental economic measures to electoral outcomes really? Is the impact of economic and employment prosperity significant, as one might expect, or does it instead have just minimal impact? Whilst the voting process is recognized to be subjective, one may nonetheless expect the broad economic landscape to influence voter’s inclinations to a measurable degree. In order to elucidate our understanding of these issues thirteen consecutive general elections in the United Kingdom since 1959 were examined. During each period of power the evolution of four specific measures – annual gross domestic product (GDP) which measures economic output, retail price index (RPI) which measures the rate of inflation, the unemployment rate and government spending (as a proportion of GDP) – were observed. In order to ascertain any connection with election outcomes, changes to these measures were analyzed in two distinct ways: firstly, changes from their long-term average level and secondly, changes from the immediately preceding period of power.

Over the fifty-year period from October 1959 to May 2010, a period encompassing thirteen consecutive general elections, the United Kingdom underwent six changes of government. Changes to the four economic measures relative to their long-term average level revealed an unexpected result. Political parties were re-elected during periods of typically lower economic growth, higher inflation, a higher unemployment rate and reduced governmental expenditure as a proportion of overall economic output. 

For instance, GDP averaged 0.4 percent above its long-term mean of 2.4 percent whilst political power changed hands whereas it averaged 0.3 percent below its mean during periods of political continuity; this is somewhat surprising.  The Labour party secured re-election in 1974 when the economy contracted annually by 1.4 percent whilst the Conservative party achieved the same in 1983 during an annualized economic growth rate of just 0.9 percent over their period in power. Changes to government were also characterized by a decrease in the retail price index: this measure of inflation averaged 0.4 percent below its long-term level when incumbent governments lost power whereas it averaged 0.3 percent above the mean when governments retained power. Perhaps surprisingly, the unemployment rate averaged 0.8 percent below its long-term average of 5.6 percent during periods of political turnaround whereas it averaged 0.7 percent above during periods of political constancy. This is exemplified best during successive Conservative party re-elections in 1983, 1987 and 1992 when unemployment remained at elevated levels (between 8.3 percent and 11.4 percent) and also Labour’s defeat in 1970 when the unemployment rate was a mere 2.3 percent – the third lowest average over the thirteen cycles of government. Lastly, government spending averaged 0.5 percent above its long-term level of 40.6 percent when governments lost general elections whereas it averaged 0.4 percent below during periods of political continuity.

How has the current political period (May 2010 to present) fared in comparison? Annualized economic growth has averaged 0.5 percent below its long-term mean, inflation plummeted to 3.6 percent below its mean, unemployment has averaged 2.0 percent above its mean and government spending/GDP has exceeded its mean by 4.1 percent. Based solely upon the data considered and not withstanding the fact that the United Kingdom is slowly and painfully re-emerging from an unusually prolonged and severe economic downturn, the below-average economic growth rate and inflation coupled with an above-average unemployment rate and government spending (as a proportion of GDP) would lean towards a continuation of the present government.

However, economic measures were not compared solely to their long-term average but also to the immediately preceding period of power. The purpose of the primary analysis was “large scale”: to ascertain any discernible connection between fluctuations in economic parameters from their long-term historical mean and electoral outcome. The purpose of the secondary analysis is, by contrast, “small scale”: to ascertain any discernible pattern between fluctuations in economic measures from one government cycle to the next and electoral outcome. Under this framework, a change in political party occurred when the economic growth rate, on average, increased by 0.9 percent from the prior period; inflation reduced by 0.1 percent, the unemployment rate increased by 1.0 percent and government spending/GDP increased by 1.7 percent. By contrast, when there was no change in political party the GDP decreased by, on average, 0.9 percent from the prior period, the inflation rate increased by 0.1 percent, the unemployment rate fell by 0.3 percent and government spending/GDP fell by 0.5 percent. 

Unifying both sets of analysis yields a number of interesting observations, some of them counterintuitive. Firstly, the economic growth rate: in contrast to what one would expect, economic growth tends to culminate in a change in government.  Of the six occasions when the governing party was removed from office, five were associated with an increase in GDP from the prior period (the solitary exception being the Labour Party’s defeat in 2010 whilst presiding over an annual GDP decrease of 2.1 percent) whereas of the seven occasions when the governing party secured re-election, five were associated with a decrease in GDP from the prior term. Secondly, the unemployment rate: as one would expect, an increase in the unemployment rate tends to culminate with a change in political party. Each of the six occasions when the governing party was removed from office were associated with an increase in the unemployment rate whereas of the seven occasions when the governing party secured re-election, five were associated with a fall, the two exceptions being the re-election of the Conservative government in 1983 and 1987 when the unemployment rate increased by 3.5 percent and 2.8 percent respectively. Thirdly, the retail price index (inflation rate): there was no discernible correlation between changes to the inflation rate and electoral success. For instance, of the six occasions when a new party came to power, half were associated with an increase in inflation whereas of the seven occasions when the governing party secured re-election five occasions witnessed an increase in the inflation rate. Fourthly, government spending as a fraction of GDP: an increase in government spending/GDP tends to culminate in a change in political power though the results are not significant. For instance, of the six occasions when a new political party came to power four were associated with an increase in spending whilst of the seven occasions when the governing party secured re-election three were contemporaneous with an increase. How has the current political period (May 2010 to present) fared in comparison? Relative to the prior government’s term in office, annualized GDP is 1.1 percent higher, RPI is unchanged, the unemployment rate is 1.6 percent higher and government spending is 3.3 percent higher. Both the increase in GDP and unemployment rate point to a possible change of power.

It is evident that whilst the economy and especially unemployment do impact people’s lives, it transpires that this is not necessarily the strongest factor in determining electoral outcomes. Political inclinations are relatively robust and not easily swayed. It would be rudimentary to suggest that other issues of the day, such as social welfare, do not have a powerful say on elections – they are seldom viewed in black and white. Furthermore, changes to economic growth and unemployment rate impact voters differently. Voters do not necessarily feel changes to the GDP directly as it has to transmit its way, with its own time-delay, through several “layers” before being felt by voters. Unemployment, by contrast, is more binary in impact: one is either in employment or not, whereas the impact of a change in GDP is much harder to describe. In short, the effect of a change in GDP is analogue in comparison to unemployment which is digital in character – this may explain the relatively greater correlation between changes to the unemployment rate and electoral outcome than for economic growth. Additionally, the measures examined are backward looking in that a reported number is an evaluation of the past. Whilst not ignorant of the past, voters do vote with a view on the future and, as such, a less-than-satisfactory economic performance may still yield a positive vote by the electorate if they are optimistic that the incumbent party offers the better choice. The general election in May 2015 has been billed as a contrast between opposing economic ideologies, where the struggles in the “real” economy, unemployment and economic growth are amongst the most pertinent issues of the day. Despite the inevitable rhetoric, the impact of economic and employment prosperity is not quite as clear as the political parties would like their voters to believe.