Blair makes it three in a row

May 9th 2005
From The Economist Global Agenda

Despite continuing accusations that he lied to the British public over the Iraq war, and some gathering economic clouds, Tony Blair has won a third term of office, albeit with a much-reduced majority. But how will he handle the big challenges ahead? And how soon will he pass them on to his expected successor, Gordon Brown?

THE candidates and the political pundits did their best to whip up some excitement but as the campaign wore on, Britain's election looked increasingly like a foregone conclusion. And, as the results poured in through the early hours of May 6th, it soon became clear that prime minister Tony Blair’s Labour Party had, for the first time in its history, won its third election in a row, as the opinion polls had been predicting with increasing clarity through the campaign.

Remarkable achievement as this was, Mr Blair's parliamentary majority was slashed to an expected 66 seats (one constituency had still to declare its result on Monday) in a House of Commons of 646 seats—from a 165-seat margin at the 2001 election. At around 36%, Labour's expected share of the national vote is the smallest to provide a parliamentary majority in Britain's democratic history. The slimmer majority will mean that the next Parliament, which Mr Blair insists will be his last as prime minister, could be more of a struggle for the government than the last two. The slump in Labour's majority prompted some malcontents on the party's parliamentary bench to call for Mr Blair to step down sooner rather than later.

Mr Blair clinched victory despite accusations from his opponents that he lied to the British public over Saddam Hussein’s supposed weapons of mass destruction, to justify sending troops to Iraq in 2003. In the closing stages of the election campaign, the issue was given fresh life by the leaking of the attorney-general’s advice to the government on the eve of the war, which seemed to express doubts about its legality. In election week, the widow of the most recent British soldier to die in Iraq blamed the prime minister for her husband’s death. The father of another soldier killed in Iraq stood against Mr Blair in his constituency in north-east England.

But for all the continuing disquiet over Iraq, including among many Labour parliamentarians, Mr Blair’s poll lead grew during the campaign. Though voters have lost faith in the prime minister, they trust the Conservative leader, Michael Howard, even less. So successfully has Mr Blair stolen the Conservatives’ best clothes—sound economic management and reform of public services—that Mr Howard resorted to right-wing populism, trying to whip up fears about immigration. With his tactics having failed to avert a third successive Conservative defeat, Mr Howard announced his resignation on Friday.

Though Britain’s long run of economic growth began under the last Conservative government, its continuation since Mr Blair’s first win in 1997 has reinforced Labour’s argument that it is best for the economy. After decades of relative decline, Britain now has a higher GDP per head than Germany, France and Italy—though this has much to do with the continental countries’ stagnation. Britain’s superior performance is partly due to Labour continuing Margaret Thatcher’s pro-market policies. But Gordon Brown, the finance minister, also deserves praise for having given the Bank of England control over monetary policy in 1997 and for keeping both public spending and taxes under control in his early years in office.

Things can only get…worse

While the economy has been Labour’s strongest electoral card, the government has been storing up trouble for the future. Surging spending, beginning just before the 2001 election, and weak tax revenues have swung the public finances from a surplus of 1.6% of GDP in 2000-01 to a deficit of 2.9% in 2004-05. With spending on health scheduled to continue to grow rapidly until 2008, either other spending will need to be cut sharply or there will have to be a big tax increase. Either way, the economy will be hit, just as dark clouds are gathering on the horizon.

Britain’s recent growth has been consumer-driven, boosted by soaring house prices. But the property market is slowing and consumers are responding to recent interest-rate rises by tightening their belts. The Confederation of British Industry reported in election week that its monthly survey of retailers was the gloomiest since the 1992 currency crisis that saw sterling pulled from Europe’s exchange-rate mechanism. Manufacturers are also flagging, with big job losses resulting from the collapse of MG Rover, a carmaker, and the axe also swinging at Marconi and IBM, two technology giants. On Monday, the Office for National Statistics said manufacturing output had fallen by 1.6% in March, its steepest drop for three years.

Having to raise taxes or slow spending (and perhaps cut state jobs) during a downturn would be especially tough. It could also undermine Mr Blair’s plans for a smooth handover, perhaps towards the end of the coming Parliament, to Mr Brown, who has been disgruntled for years over Mr Blair’s failure to step aside sooner. If Mr Brown deserves a large share of the credit for Britain’s strong economic performance, will he not attract much of the blame if the economy now turns soggy?

A weak economy, combined with a reduced parliamentary majority, may make it rather harder for the government to continue vital reforms to the National Health Service (NHS), which Britons consistently tell pollsters is the most important issue facing the country. Having doubled the NHS budget in the past eight years and found that extra money does not make much difference without reforms to raise productivity, Mr Blair has done a U-turn and reintroduced market-based reforms similar to the ones that he scrapped on taking power from the Conservatives. The government has started rolling out a project in which hospitals in England (the rest of Britain has different arrangements) will be paid for each treatment instead of getting block grants. To spur competition, private health firms are being invited to bid for non-urgent operations. Already, about 4% of such state-funded surgery is “privatised” and the government aims to raise this to 15%.

All very sensible. But taken to its logical conclusion, this market in treatments may mean some of the least efficient state hospitals go bust. Will Mr Blair withstand the pressure from the health unions and their friends on the Labour backbenches—who hate the marketisation of health—to “rescue” such hospitals, thereby undoing the reforms?

The growing cost of pensions provision will be another tough nut that the enfeebled Blair government may struggle to crack. The prime minister has brought back David Blunkett, a former cabinet minister who had resigned amid revelations about his private life, to tackle the issue. One thing Mr Blunkett should quickly get to work on is the unusually generous and increasingly unsustainable pensions provision for state workers—but again, will these workers' trade unions and their friends on the Labour backbenches stomach the reforms needed?

Perhaps a more urgent challenge for a re-elected Mr Blair will be the referendum he has promised to hold next year on the proposed European Union constitution. If Britons vote to reject the document, Mr Blair could be forced out of 10 Downing Street earlier than he would like, and with his work unfinished. Of course he could get off scot-free, if France’s voters say no in their referendum, later this month, which would probably kill the constitution. A run of polls had said the French would reject the constitution but some recent ones suggest that it could be oui after all. It would be unsurprising if, behind his smiles, Mr Blair is more concerned about the current mood of France's voters than he was about Britain's.

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