Can Labour win the election, and what happens if it does?

A month or so ago, I put on a bet on that Jeremy Corbyn would stay put as leader of the Labour party after the election.

I can’t say I expected any real Labour comeback. I just assumed that as an old-school Marxist with an unhealthy respect for dictators, he’d have to be dragged out of office, and that it would take them a long time to figure out how to do it.

When I placed the bet (with the help of MoneyWeek’s political betting columnist extraordinaire, Matthew Partridge), no one could imagine how any leader – even one as thick-skinned as Corbyn – would be able to hang on with a straight face, after the sort of drubbing predicted for Labour.

The odds on Corbyn staying were 5/4. In other words, for a £100 bet, you stood to make a profit of £125.

How things change. Now there’s virtually no chance of Corbyn going (you’ll win £22 on a £100 bet now), and you can get 3/1 odds on him leaving – ie you make £300 on a £100 bet.

Lucky me. But turns out, if I’d wanted to be really smart, I’d have taken a punt on him winning…

What Labour would mean for the economy

When Theresa May first announced next week’s general election, Corbyn was unelectable. The Labour party was doomed.

Everyone was rolling out their comparisons to the days of the SDP and wondering when David Miliband would return from his profitable charity ventures in the US, on a white steed, waving a red flag, to save the day. Nothing short of annihilation was anticipated.

How things change. Now there’s talk of everything from a hung parliament to an outright Labour victory.

Does this seem likely? I’ll get to that in a moment. But first, let’s have a quick think about what a Labour win would actually mean.

The easy assumption to make is that sterling would crash and the markets would too. I’m not so sure about that. I think that markets have grown so used to “buy the dip” that they might shrug it off at first.

Brexit would still happen. Corbyn is anti the European Union (EU), but from a left rather than right-wing point of view. Some argue that it would be a softer Brexit, which might be the case, although it depends on exactly where his own red lines lie.

Also, for the moment, no one in the world seems to care about public spending. If anything, they want more of it. So the fact that Labour would spend a lot more money than the Conservatives (who are hardly hacking and slashing themselves) may not faze the gilts market either – where yields on the ten-year are currently below 1%.

But it’s not today’s policies that concern me, it’s tomorrow’s. Corbyn has spent his life on the hard left, and so have most of his cabinet. Like any politician, he’s not above promising the world to get into power.

For now, Corbyn is presenting his cuddly uncle face to everyone in the run-up to the election, and there are freebies for all (plenty of middle-class parents of a certain age will like the sound of free university education, even although their taxes might rocket to pay for it).

But once he’s in power, he’s not above deciding to do whatever he feels like. I might be being unfair, but I do find it hard to trust someone who could ever see Venezuela as a good model for anything, let alone an economy. If you value good intentions and bold words over actual outcomes, you often end up turning a blind eye to the most hideous injustices.

A Labour win still seems unlikely – here’s why

So, is it likely to happen? My view is that it’s highly unlikely. I won’t pretend to be neutral here – I haven’t been impressed by the Tory campaign, but I do think a Labour victory would be bad news for the UK. So I’ll try to be objective, and as a reader, you can take my bias into account.

With that disclaimer out of the way, for me, the general election is an object lesson in the power of expectations versus fundamentals, and the fact that markets have an all-too-human tendency to exaggerate.

Markets were overly negative on Corbyn and overly positive on May. The fundamentals looked bad for Corbyn and good for her – and the market took that idea and ran with it.

But when expectations are high, it doesn’t take much to disappoint. And when they’re low, your stock can shoot up when you turn out to be less awful than expected.

It also makes for a great story – Icarus crashing after flying too close to the sun; the phoenix erupting from the dying embers – they are potent myths for a reason.

May has been disappointing. Corbyn has been better than expected. And so, part-fuelled by the power of narrative, May’s stock has crashed and Corbyn’s has rallied sharply.

The thing is, it’s very easy for markets to run too far in the opposite direction. And that’s probably what they’re doing now.

One thing that I found notable was the shift in the polls after the deadline for voter registration passed. The polls that show narrower Conservative leads are the ones that assume a larger youth turnout than seen in the past.

Maybe that’ll happen. Things do change. But it’s unusual. And you’re also polling a highly motivated section of a frequently politically uninterested demographic.

It’s also worth remembering that there’s an element of the London media bubble at work here. The anger about Brexit is palpable in London in a way that it isn’t elsewhere in the UK – and noisier too. So I suspect that the noise around the anti-May vote is being amplified somewhat by wishful thinking.

Also, there’s a weird English class system thing going on. There are lots of perfectly reasonable reasons to dislike May, but something about her being a vicar’s daughter seems to rub a lot of people up the wrong way.

Finally, in most cases, we’re still talking about the difference between a landslide and a narrow victory for the Tories here. This isn’t a close-run thing – it’s just gone from being a guaranteed wipeout to something approaching a proper election race.

So that’s my tuppence-worth. I wouldn’t worry about making any changes to your portfolio one way or the other (it should be long-term enough to ride out this sort of thing). As for the more short-term speculators among you, I’ll take a look at the potential effect on sterling and the like closer to the vote next week.

  • hohum

    Good luck with buying the Corbyn “dip”. The only sectors you want to own is anything which benefits from public spending.

    And I’d be surprised, if the Bank of England’s independence lasted very long.

  • Alastair Macmillan

    I find it extraordinary that my fellow voters do not seem to equate higher public spending and that means much higher with higher taxes. One keeps hearing from Labour, Kezia Dugdale on the Today program this morning saying the rich must pay their fair share. I have to admit to being rich in Labour’s book but when added to indirect taxes VAT, IPT, Duties etc I am working Monday, Tuesday and Wenesday to just pay the Government, with Labour’s plan I would also be working part of Thursday and I am afraid I see no point in trying to run a business with the stresses of employing people, and just rrying to keep the show on the road to have the results of ones efforts largely confiscated by the Government. I am trying to think what I will do in a week’s time, probably cut my pay to below £80,000, claim every expense possible, take up spread betting and have a second self employed job or possbly just sell up here and move abroad. Whatever, I am not going to work part of Thursday to pay the Government they will just have to do without me on that, I suspect others will do the same !

    • AAJ

      Most people would love the possibility of cutting their salary to below £80k …

      Are you really sure you are being hard done by? You could easily not run a business and instead work for someone else, being just as stressed but being paid less.

      In fact, I don’t mind taking your business off your hands. That way you won’t have to worry yourself about being taxed any extra, as my salary is less than £80k 🙂

  • Triple H

    I will tell you who is a dictator. It is that ugly old hag of yours, Theresa May, who is in love with that dictatorial maniac called Trump while also sleeping with the despots in Saudi/Qatar/Bahrain/UAE. I suppose that is the training one receives from a vicar.

    How exactly is Corbyn a dictator? He was *ELECTED* by a large majority of his party’s members (numbering hundreds of thousands) and it is up to them to decide whether he should stay or leave. You, and the Cons, are simply annoyed that despite the media dogs doing their best, he not only became a stronger Labour leader but has a real chance of making it to Number 10.

    It’s quite disappointing to read this article from you. You have really sunk low and it is quite obvious you were foaming your mouth when you typed it.

    And yes, I may end up paying a bit more in tax but it is worth it if the likes of your loved ones, May(hem) and her cronies in big business, are made to pay 26% instead of the 17% they’re promised.

    • Not the BBC

      I think it tis u who is foaming at the mouth judging by your post!

      • Triple H

        Sorry for having a go at the cabal. I understand your comment.

    • Kevin Smith

      Judging by this comment seems MW comments sunk to the low level of many other sites infected by those who think abuse adds to their intellectual thoughts.
      Triple H may indeed have a point about reducing corporate tax rates but his “foaming mouth” rather the authors does tend to put reasonable people off.

      • Triple H

        So while you find my comment putting you off, you didn’t really reply why John thinks Corbyn is a dictator? Just re read his piece and you’ll understand why I reacted to his post.
        For what it’s worth, I’ve never been a Labour voter and am not likely to vote for them this time around either but the hypocrisy and shamelessness of the mainstream media is unbearable.

        • William Webb

          I think Mr Corbyn is pandering to young voters who are finding the job market a struggle and to those who probably don’t understand the risks of him getting into power and the adverse impacts it would have on the economy. The job market would just worsen and no doubt produce desperation manifested by illconceived left wing policies. Including repeating mistakes of the past like privitising everything…. high tax and under employment. The list could go on. To me it does not matter if he is a dictator (within the context of the UK’s evolved political system) or not.

  • smspf

    No chance of Labour winning the General Election. Their proposals to take rail franchises back into the public hand is upsetting too many sound-minded commuters who are perfectly happy with price and service.

  • LG

    I really resent May’s cynical approach to this election. Just keeps saying her awful soundbites over and over again without any real engagement. It’s a shame for good local candidates who might actually have something to say – but May’s vacuous, empty statements will just put people off.
    And Corbyn? Heaven forbid.

  • Horiboyable .

    I don’t know if May is purposely trying to throw the election to deprive us of our BREXIT or she is just stupid but I believe that Britain is at the stage that Thomas Jefferson wrote about,

    When the representative body have lost the
    confidence of their constituents, when they have notoriously made sale of their
    most valuable rights, when they have assumed to themselves powers which the
    people never put into their hands, then indeed their continuing in office
    becomes dangerous to the state, and calls for an exercise of the power of

    “what country can preserve its liberties if
    their rulers are not warned from time to time that their people preserve the
    spirit of resistance? Let them take arms. The remedy is to set them right as to
    facts, pardon and pacify them. What signify a few lives lost in a century or
    two? The tree of liberty must be refreshed from time to time with the blood of
    patriots and tyrants. It is its natural manure.”

    “The natural progress of things is for liberty
    to yield, and government to gain ground