Truss Didn’t Help, but the Tories Were Really Doomed by Inflation

Everyone has their favourite pet theory for why the Conservatives seem destined for electoral defeat. Amid the noise, however, one glaringly simple factor is often overlooked: the party presided over the highest inflation rate since 1982 and the public absolutely hated this.

Rishi Sunak launched the election campaign following the sharp drop in annual consumer price inflation to 2.3 per cent. But this headline figure belies a stark reality: since January 2020, consumer prices have surged by 23 per cent — more than double the 9 per cent increase that would have occurred had inflation stayed anchored at the Bank of England’s 2 per cent target.

Food prices have shot up by 30 per cent, clothes by 20 per cent, rents by 19 per cent and utilities by a staggering 53 per cent. Any government would struggle given these outcomes, even if a collective hush now surrounds inflation as an election topic.

From late 2021, as headline inflation crept above 3 per cent, Ipsos-Mori polls began to show a sharp rise in public concern about “inflation” as an important issue facing the country. This concern peaked at 54 per cent of the public in August 2022.

Economic angst was certainly then exacerbated by Truss’s ill-fated mini-budget in September 2022, but concern about inflation was more deeply rooted. Even with inflation now back near its target, 25 per cent of the public still list it as a major issue — levels comparable to 1990, when inflation was as high as 7 per cent. The public remains livid at the permanent surge in their cost of living.

Inflation has thus been a clear vote-loser for the Conservatives. YouGov’s regular polling on how well the government is handling inflation has been damning: in late October 2022, 86 per cent said it was dealing with it “badly” versus a mere 7 per cent “well”. Though these numbers have improved for the government as inflation has fallen, last week’s figures of 58 per cent “badly” to 32 per cent “well” still indicate strong dissatisfaction — to the undoubted benefit of the Labour opposition.

Some might argue that this public assessment is unfair. Wasn’t high inflation driven primarily by supply shocks from the pandemic and the Ukraine war, and overly loose monetary policy from the independent Bank of England, rather than government actions? Broadly, yes.

However, the generous fiscal relief that Rishi Sunak doled out during Covid-19 didn’t help. And the harsher truth is that incumbent governments are seen as responsible for macroeconomic outcomes, whether deserved or not. Indeed, Sunak’s attempt to claim undue credit for the past year’s decline in inflation shows how governments exploit this association when it suits them.

Unfortunately for Sunak, the public’s flawed understanding of inflation further benefits Labour. Unexpected inflation redistributes income arbitrarily, fuelling misguided calls for relief measures, taxes on “unearned” excess profits, or even direct price controls to correct matters — interventions that Labour is ideologically more comfortable implementing than are the Conservatives.

Many people also mistakenly view inflation not as a macroeconomic phenomenon of excessive money chasing goods and services but the bottom-up result of individual pricing decisions. When retail prices initially rise faster than stickier wages, this thinking lends itself to beliefs about greedy businesses boosting profits by increasing prices and exploiting workers by suppressing wages. A tall tale, of course, but useful mood music for a party championing higher minimum wages and stronger unions and counteracting “market power”.

Yes, look at a time series chart of voting intentions and it’s obvious that the mini-budget was an electoral disaster for the Conservatives and that Sunak’s popularity has further waned in recent months.

Yet, as pre-mortems for the likely Tory defeat are written, let’s not underestimate how high inflation cratered perceptions of Conservative competence, nor the downstream anger it generated.