We are now getting opinion polls on the political effects of the current economic crisis in the UK and they make grim reading for the Prime Minister. 

They also show that fears are about the future rather than a reflection of any actual distress - the pain has not yet started. It is like that fear you get before you go to the dentist and you are not sure if you trust him to do the right thing.

Poor Mr. Brown ...

The polls revealed this weekend and today have showed an unprecedented collapse in support for New Labour but most of all for the Prime Minister.

Considering his earlier high ratings for economic competence, the news that (according to a FinancialTimes/Harris poll today) Brown is least trusted by his people amongst Western leaders to steer his country through the economic crisis is a major political blow.

The other finding, which confirms our own anecdotal observations, is that the British are nervous not because they are feeling the pain but because they are not.

There is a major problem out there but the public is seeing the inflation and not the recession in their daily lives – household budgets are under pressure because of rising energy and food costs but still not dramatically so.

There is a feeling that the effects on living standards need not be dramatic if Government manages things well. And therein lies the risks and opportunity for Gordon Brown’s government. If things do get bad, he will get blamed. If they do not, he may well recover.

Plots and Coups

According to another poll, YouGov in the Sunday Times, Brown’s personal support has fallen dramatically [ +48 to -37] since last August. This is worse than the collapse in trust for Neville Chamberlain after Hitler’s invasion of Norway in 1940 [+21 to -27].

The Conservatives have 44%. Labour has only 28%. If, with the Liberal Democrats, the ‘centre-left’ may have around 45% of the vote on paper, it is a split vote. 

Labour is losing vital centre ground on the economy. Only 11% now believe that Labour will win the General Election and the Party is beginning to show signs of panic.

There are widespread rumours of senior figures (including supporters of Brown) preparing leadership challenges in the event that the Prime Minister loses one or more key votes in the House of Commons.

This is all somewhat premature and a sign of the inability of politicians to keep their mouths shut in front of journalists but such panic and reports of loss of authority are very bad for electoral prospects. The people need to believe that there is leadership out there.

Successors-in-Waiting

In order of age, the top tips for succession are Jack Straw (but he is kingmaker rather than king), Harriet Harman (our local Hilary Clinton, who is unlikely to gain enthusiastic public support except amongst metropolitan women d'un certain age), David Miliband (easily the hot favourite) and Ed Balls (the Brownite candidate likely to stake a claim to the Chancellorship at some stage).

There is said to be considerable discontent, at Cabinet level as well as throughout the Party in Parliament and outside, at tax policies adversely affecting the lowest paid.

The libertarian Left are also outraged at the prospect of 42-day detention under new counter-terror laws and there are said to be clashes between Straw and Brown directly over the wisdom of a measure opposed by virtually every police chief in the contry.

Whether a defeat in the House of Commons on either of these or upcoming issues implies a resignation and a leadership contest is a matter far too early to judge. Defeat on policy is unlikely to be turned into a Vote of No Confidence.

As things stand now, if we had to put money on it, we would expect Brown to carry through to the next Election regardless and then eventually be replaced by Miliband as Party Leader, with Balls as his Shadow Chancellor.

The Heart of the Problem - Economic Competence

More important than party panic, 66% of respondents in the Sunday Times YouGov poll said that they did not trust Brown and Darling to lead the country through the financial crisis and 61% blamed Gordon Brown for the crisis.

‘Dithering’ is the main criticism – with 62% accusing Brown of this fault. Over two thirds of the population are not a little angry that they have been made anxious by events over which they have no control and for which they expect Government to have the solutions.

These are quite remarkable figures if only because it shows that Brown is down to a bedrock of traditional Labour support (perhaps 30% of the electorate) on the economy and not all of these will be fans of other Government policies by any means.

The Financial Times poll was worse – a staggering 68% were “not confident at all” in the Brown Government’s ability to handle the economic crisis. Compare this with 51% for Bush and, in Europe, 52% for Merkel and 50% for Sarkozy.

Yes, there is a general crisis of confidence in Western leaders but nothing like that in the UK.

The Resentment in the Party

The Sunday Times has a lovely story about Gordon Brown’s adviser on social mobility. It seems she is former Goldman Sachs Managing Director, married to a hedge fund manager whose creation, Peloton Partners, was heavy into US mortgages.

She has non-domicile status and an offshore mortgage on her £10m Hampstead home taken out in the Isle of Man – so not much tax there then!

The Liberal Democrats are having a field day with this one, although it seems (no surprise to old Labour die-hards) that she used to run CentreForum which is closer to them than to Old Labour.

Of course who better to advise our working classes on social mobility! When you’ve made it, flaunt it!

But there is a serious point arising out of this story. David Pitt-Watson as General Secretary has a not dissimilar social profile and is currently mired in blog gossip about alleged attempts to protect his own fortune from liability arising out of the Party's indebtedness.

What it means is that the Prime Minister appears to be relying on the very class of person who appears (with no reflection by us on the actual persons) to the general public to be the too-clever-by-half and somewhat well-heeled beneficiaries of a system that has failed.  More on this in a moment.

The Perfect Storm

Brown is now facing a perfect storm. The New Labour project offset traditional loyalties against those compromises necessary to win over Middle England.

The trades unions accepted this political model because it enabled them to push through much of their special interest agenda by stealth, but at the cost of mounting dismay and even anger amongst a good percentage of ordinary members.

So long as the economy prospered, the Government could assume sufficient tribal support so that, with the votes of Middle England, it would always be able to win an Election against abstainers, splitters and the indifferent.

But this Middle English vote was very crudely related to prosperity and prosperity should never be taken for granted in a political strategy.

As Chancellor, Brown kept the credit-based bubble floating far beyond what was credible in retrospect, given the cycles embedded within the economy.

When the bubble burst (as it has done), it became logical for the traditional wing of the Party to ask what all the sacrifices of principle and policy were for.

Now imagine their reaction when they find that the Government is now promoting policy initiatives (like public sector pay restraint and the removal of the 10% tax band) that are designed to reassure Middle England but which actually seem to reverse what gains have been made. 

Internal Contradictions

The political aspects of the crisis arise from differing expectations of what is wrong on the traditional and middle class wings of the Party. The Left is, frankly, confused and need not detain us for long. 

Socialism as we knew it once is dead as a policy option for all but a deluded 5% of the official Party and not much more in the country, so left wing economic policy is now little more than redistribution and spending from free market wealth creation - and trades union special interests being met.

But now there is no spare cash to spend. Decisions made to please Middle England in the previous decade - an interventionist foreign policy and low direct taxation above all - threaten to siphon off what little is available.

So much left-wing campaigning has been diverted into civil libertarian and foreign policy issues and such side matters as climate change and grand unsolvable problems like ‘global poverty’ and 'Africa' that the Left has lost the plot entirely on domestic policy.

But if it has not sought to move against the grain of the politics of First-Past-The-Post, it will not tolerate going backwards, so it is ironic that the Left is getting political traction on, of all things, opposition to a tax-raising measure – a rationalisation of the tax base that shifts the single poor from its favourable 10% tax band in order to release funds to help lower income families.

Taxes

If, however, you ask the wider public why they do not trust the Government, then almost immediately ‘excessive taxes’ heads the list.

This is one of those chicken and egg questions – does the public hate taxation because it does not trust the Government to use the money well or does it distrust Government just because it is asks for taxes?

In fact, we think both but more of the former than the latter. Taxes are not good. Taxes are always unpopular. But a self-reinforcing cycle of demand for low taxes has emerged because the public sees no evidence of competent management of those taxes that have been raised.

The Government has managed the economy in order to sustain middle class confidence, but it has paid for that confidence by allowing a build-up of unsustainable credit. Credit and confidence, once operating together, have now spun off in different directions.

Government had hoped to recover ground not so much through direct personal taxation but by stealthily increasing the take on sales and business taxes – and by clawing back funds from tax evasion.

All this was predicated on the public being happy-clappy about increasing prosperity and not asking too many questions outside the grumbling ranks of Tory small business. But once economic prosperity started to wobble, a number of awkward questions were raised.

The Difficult Questions

Above all, what is Government actually doing with the tax?

Apart from ridiculous small wars that seem beyond the budget and managerial competence of Government, the public sees a decaying public infrastructure in which increasing Council taxes seem to have little effect on the state of the streets or on petty disorder. 

They also see a lack of planning for the migration designed to sustain economic growth. They want the cheap labour but not the overcrowded hospitals and schools. 

They want Government to wave a magic wand and make it all OK as the tide of growth recedes, the infrastructure collapses and migrants are left behind who are suddenly future burdens and not current benefits.

If there is a fundamental criticism to be made of New Labour, it is that it is covertly populist without the courage to engage in political education about what is and what is not possible. Like all populist regimes, reality has caught up with it and Brown cannot evade responsibility for his part in the illusion.

To offer vast sums of money to meet problems overseas or to prop up Northern Rock while a hard-pressed middle class fears (though has not yet experienced) job losses and repossession is calculated to turn the population to the right. Fear is always the motor for conservatism.

The Core of Distrust - Betrayal

Stealth taxes that merely caused grumbles in previous years now seem to be seriously damaging to the ‘man in the white van’. The oil price is around $110-$112 but the price at the pump includes a hefty tax element. The Government has already had to defer one planned increase.

Since OPEC shows no sign of being kind to Gordon Brown, the high market prices of basic petrol must eventually feed through to an economy highly dependent on fuel. 

Businesses may be unable to raise prices much more than they have done to cover rising costs if the economy takes a dive. Some will go bust.

Similarly, taxes designed to claw back money from a successful business sector are appearing at just the wrong moment in the cycle – just as many owners are fearful for the future or are hoping to cash in for their retirement.

Taxing capital accumulation just as house prices are falling and business value is receding seems cruel or stupid to many in the middle class. It certainly does not seem competent.

The war on tax evasion may not affect too many traditional Labour voters but many New Labour voters now live under the permanent threat of a tax investigation from a revenue system that seems to have excessive powers.

An investigation might well seriously disrupt a business in order to make a cash grab to pay benefits to the underclass - or at least that is how it seems to those on the ground.

Party Disarray

If two thirds of the general population think that the Government has lost the plot over the economy, elements in the Party (admittedly small) are openly talking about walking away in a more unified way.

Cabinet members are manoeuvring both against each other and the Prime Minister.  The Party is in financial trouble with no reserve of support whether from self-interested donors or idealistic members.

There are serious revolts on both socialist (the 10% tax rate) and liberal (the 42 days detention) issues …. this Government is in very serious trouble.

But we are still a year or two off the necessity of an Election. There is no cause to assume either that Brown will not fight it as Party Leader nor even win it. Much can happen in politics. What is not sustainable are negative opinion polls of this order of magnitude for more than a few weeks.

What Could Brown Do?

Perhaps the polls will reverse and Brown restored as a trusted leader as the Party draws back from the brink and the economic crisis proves not quite so bad as expected.

Perhaps we will see an election earlier rather than later in a gamble that the public will prefer a safe pair of hands over the untried Cameron.

The alternative is months and months of attrition with a desperate Party tearing itself apart as rumour becomes reality.

Palace coups do not tend to happen in the Labour Party but there must come a breaking point when the trades unions decide that they need another junior Blair to reach out to Middle England – and the obvious candidate is Miliband.

So what can Brown do, other than be competent and be seen to be so, to reverse the current situation? He and his circle seem to be terribly complacent as if they see this as a mere blip.

Perhaps they believe that, whatever happens, he is untouchable until he calls a General Election, that the emergence of the Tories at mid-cycle will create its own loyal reaction on the Left and that the ‘recession’ may worsen but that recovery will be well on the way just as he is ready to go to the country (“Don’t muck up the recovery, trust Gordon”).

But he is cutting it fine. He cannot afford another serious error of judgement to knock him sideways. His only way forward would be to be so competent that the public believes his policies are averting what now seems an inevitable loss of living standards.

Inflation is probably accepted as a global phenomenon over which the Government has only a little control.

But the public's eye may soon be on the opposite pressures of recession – on failures to bring the banks to heel on credit, on falling house prices, on job losses (which are in the pipeline if this crisis goes on for more than a few months) and on fear of repossession.

Decisive Actions

What should he do? Well, first, he has to end the perception of dithering. Chancellor Darling has seemed a pale shadow of his master, a technocrat looking upward to his boss rather than outward to the people.

The way that Northern Rock was handled had all the signs of political caution getting in the way of decisive action. The whole system - Treasury, Bank of England and Financial Services Authority - appeared leaderless. Darling probably has to go!

This dithering, with all the appearance of a rabbit caught in headlights, has now degenerated into something worse – political mayhem around the Prime Minister as the factions at the top jostle to capture the attention of ‘his majesty’. A purge is in order.

We once, just once, a long time ago, saw Brown at work on a policy before 1997.The seeds of the current crisis could be seen in that experience a decade ago.

An innovative and radical policy (no matter whether it was good or bad) seemed to excite him briefly but he allowed his small coterie of advisers to kill it without any more information being sought.

He is, in short, dependent on technocrats. He lacks that flair or instinct for managing political risk at speed that makes a good Prime Minister.

He was, in this sense, a political accident waiting to happen and perhaps Blair understood this in delaying the transfer of power for so long.

If he is to recover ground, he will have to stop promoting the class of person that the public associates with the cause of the crisis - investment bankers, policy wonks, the metropolitan professional advisory class, women who broke through the glass ceiling - and start being seen with practical men and women of affairs who are much more politically close to the street.

The Need for Ruthlessness

If he had the political skill (which we are now coming to doubt), he would assume that he has a year to eighteen months to recover but that the recovery starts now. 

He would be utterly, totally ruthless in slashing his immediate advisory circle and Cabinet to leave only those with political talent.

He would build a partial counterweight to the Blairites from the Left of the Party, even while continuing to concentrate on policies that reach out to Middle England.

He would also sort out the mess surrounding the General Secretaryship quickly (sending a deadline for resolution of all internal party affairs by High Summer), purge the dead wood at Party HQ over the heads of the trades unions and create a Party with a much more direct appeal to members.

He would make decisions, even wrong ones, but he would look decisive.

Will he remove Darling and take personal responsibility for the economy with an ambitious trusted number two?

He needs to send the signal that things worked well when he ran the economy (though this is a gross simplification, indeed thoroughly wrong-headed) and can do so again.

He should dump foreign affairs for eighteen months and look inward to the plight of the people (at least until we know who is US President and what his policies are).

He should slowly marginalise Miliband, giving him enough rope to hang himself by the time of the next Election.

He should not quarrel with Jack Straw or Harriet Harman on anything – he should concede ground and move on.

But will he do all this? We doubt it. The hole is already deep and he will keep digging remorselessly because that is probably all he knows to do.

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