Although I have been a reader of The Spectator almost since I have been in short trousers I have rarely been as irritated by an article as I was by last week’s cover story, ‘Britain must be saved from the financial abyss’. Its author, Allister Heath, is by no means a lone voice: he speaks for a considerable number of vocal, if unrepresentative people in the City who believe a hung parliament would mean weak government and fiscal peril. This view is profoundly mistaken.
The implication of this argument is that, even to Conservative voters, a Labour victory would be preferable to a House of Commons where neither of the two main parties has an overall majority. It would then follow that, in a constituency where the Lib Dems — or any other minor party — has a chance of prevailing over Labour, a Conservative voter should vote Labour to minimise the chances of a ‘hung parliament’. By symmetry of argument, a Labour voter in a constituency where the Lib Dems have a chance of prevailing over the Conservatives should vote Conservative to prevent that happening.
This is outrageous. It is contrary not only to democracy but to any principled method of selection. We are all entitled to our own opinion on the merits of a hung parliament and a more consensual style of government. We are entitled to our opinions on a move to a more proportional voting system which such a parliament might produce. What is not acceptable is that decisions on such matters should be decided by passing tides of City opinion or such opinion as interpreted by short-termist commentators.
A case for such a surrender of judgment might just be made if the balance of power were likely to be held by a party such as the pre-1914 Irish Nationalists, intent on dislocation, but it is ludicrous when the likely balance holders are today’s Lib Dems. Indeed, Nick Clegg has made it very clear in a recent interview in the Financial Times that his party would not merely support but insist on the financial stabilisation measures that are so much in vogue.
We are told that the City dislikes uncertainty. I was always taught that businessmen in general — and financiers in particular — are paid to deal with uncertainty. The case for a competitive market economy rests on its outcomes, not on the passing obiter data of its practitioners. In any case, the uncertainties of a hung parliament are trivial compared with the much larger uncertainties still emanating from the world banking system, uncertain energy prospects or political conflicts in the Middle East and elsewhere.
The one specific indicator which is relied upon to advance the scare about complete collapse is the sterling exchange rate. I would have hoped that we had become sufficiently adult to see the exchange rate as a price rather than a virility symbol. The Spectator article rightly credits Gordon Brown for keeping the UK out of the euro. This means that, unlike Greece, the UK can follow a policy based on its needs rather than be committed to defending at all costs a particular sterling rate.
Of course, prices matter — not least the price of sterling. But it is a price particularly difficult to interpret. A falling pound boosts net exports, but can be associated with higher domestic inflation. The balance between these two effects varies with circumstances and cannot really be judged in advance. After some unfortunate early attempts, the British authorities have wisely decided to leave it to the market and to abandon attempts to operate with a sterling target or to intervene in a significant way in the foreign exchange market. But as matter of record nearly all the 25 or so per cent fall in sterling prices since the beginning of 2007 took place long before market commentators began to worry about a hung parliament or even knew what it was.
There is, in fact, no danger of a bottomless plunge in sterling so long as the domestic money supply is kept under control. Despite all the hysteria that some people are trying to whip up over the technical device known as ‘quantitative easing’, the broad money supply has been pretty stagnant and the Bank of England would quite rightly like to see it go a bit higher to stimulate the economy. There is the additional question of the currencies against which sterling might plunge. The euro has its own troubles, of which Greece is only a symptom; and the US dollar is made suspect by the hard money lobby, which focuses on the budget deficit.
The broader question is whether either voting behaviour or government policy should be determined by superficial City chatter. The only self-respecting answer can be a resounding no. As Sushil Wadhwani, who himself runs a city fund, has written, the supposed city view of the economy is not always right. But for what it is worth, I am told that the prospect of a hung parliament is already ‘priced into the market’.
The Cabinet Secretary has spelt out in some detail what would happen if an election does not result in a clear majority for either party. The incumbent government is entitled to see if it can command a vote of confidence. If it fails, according to guidelines published by the government last month, ‘the person who appears to be most likely to command the confidence of the House of Commons will be asked by the monarch to form a government’. The Cabinet Secretary would be able to facilitate discussions between the parties. The monarch is not bound to accept an immediate request to dissolve parliament and would in practice want to make sure that attempts to form stable government continued. This hardly sounds like a banana republic.
Fiscal plans are prepared by the Treasury, in whose favour parliamentary procedures are rigged. My colleague at the FT, Chris Cook, has explained how the only real power of the non-government parties lies in their ability to vote down a budget. This would indeed trigger a general election, and voters would wreak vengeance on those who had precipitated the election. The Lib Dems would be fully aware of this, giving them a clear electoral incentive to support whatever fiscal consolidation is proposed by the prime minister. We should by now have learned that in the UK the stakes are loaded in favour of the executive — if anything too much.
I have, up to now, refrained from expressing an opinion on the value of a hung parliament and what may flow from it. But I cannot resist pointing to one merit from any move away from a two-party, winner-takes-all system. At present a government can all too easily rebut criticism by pointing to the record of the other party.
The Brown government, for instance, regards an attack on the Conservatives as a sufficient defence for its own record and policies — as if only two options were available. If there was more than one alternative government, it might just have to argue on the merits of the case; and so might the opposition parties. But these advantages would only accrue if the Lib Dems use their pivotal position — assuming they will have one — to force through electoral reform, rather than blow it, as their Liberal predecessors have done on the past.
Samuel Brittan is a Financial Times columnist.
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