The ban on champagne at the Conservative party conference has been lifted and the party will feel it has much to celebrate as it gathers in Manchester this week. Justifiably: confounding pollsters’ expectations, a Tory majority government now faces an overwhelmingly favourable political climate.
But there are two risks looming that are of the party’s own making. The most immediate is Europe, long a source of serious rifts within the Conservatives. Cameron and Osborne will seek to draw attention away from these divisions by further developing their theme of the Tories as the “workers’ party”. But here, too, there lie potential pitfalls, as cuts to tax credits and the lack of a strategy to boost productivity risk undermining the government’s flagship policy of a national living wage, a new higher minimum wage rate for workers over 24.
By promising to win significant concessions from the EU on Britain’s sovereignty and control of its borders, Cameron succeeded in neutralising the Ukip threat in the run-up to the 2015 election. But in doing so he has raised expectations about what his party and voters can expect from any renegotiation deal.
Cameron and Osborne have tough negotiations ahead: they need to bring home something substantial enough to feel like more than a minor tweak to satisfy Eurosceptic MPs and members of the public. But winning anything more significant, such as restrictions on the right of EU workers to claim in-work benefits, would imply the need for EU treaty change.
Such a concession would have been difficult at the best of times: while neither Germany nor France would want to risk Britain leaving, treaty change requires unanimity from all 28 member states. Eastern European leaders have made clear they are firmly opposed to Britain’s proposals on freedom of movement, which they see as unfairly targeting their citizens.
But these are not the best of times: EU leaders are primarily focused on trying to hold Europe together in the face of the refugee and eurozone crises. The refugee crisis has opened up divisions between old and new Europe in the west and east, putting core EU agreements such as Schengen at risk. The eurozone crisis has created rifts within the original EU bloc, with populist parties in Greece, Italy and Spain questioning the harsh austerity imposed by Brussels and Berlin.
Cameron’s lack of global clout makes a deal less likely still. He used Britain’s opt-out to bow out of discussions aimed at finding a common European approach to the refugee crisis, emphasising the significant opt-outs Britain already has, and showing he has few qualms about using them to excuse Britain from providing leadership: hardly a recipe for encouraging EU leaders to grant further exemptions. All the while, the window for renegotiation ahead of a referendum is closing.
There is, then, a real risk that their poor negotiating strategy means Cameron and Osborne will only secure a set of cosmetic concessions that fail to meet the expectations of Conservative MPs and the public. This is a serious risk to Britain’s membership of the EU.
But even if their best-case scenario unfolds, and the government manages to get a deal to limit EU workers’ eligibility for in-work benefits and wins a referendum on this basis, there may be further problems ahead. The deal will be presented to the public as a way of reducing levels of EU migration. But limiting entitlement to in-work benefits is unlikely to have much impact on numbers of EU migrants, even among eastern European migrants, fewer than one in five claim tax credits. A higher national minimum wage and recovering economy will mean, on balance, that the UK will become more, not less, attractive to workers from the southern eurozone and eastern Europe.
This risks Cameron and Osborne’s long-term strategy to position the Conservatives as the party of workers. They have deftly manoeuvred into the centre ground that is seemingly being vacated by Labour. The jewel in the crown of this strategy is the national living wage; together with increases in the personal allowance and a new association for Conservative trade unionists, the party is clearly making a play for the votes of blue-collar workers and families who exist somewhere between the breadline and affluence.
But a perceived failure to deal with the impacts of immigration, together with significant cuts to tax credits, could undermine this approach in the longer term. To succeed in winning votes in former industrial heartlands, the Conservatives will need to convince working-class voters that they are a party committed to helping people cope with the impact of globalisation. The answer cannot lie in closing Britain’s borders, undesirable from an economic perspective and completely off the table while we remain part of the EU. Yet the Conservative strategy to date has focused on an unachievable target to reduce levels of immigration, which surely risks backfiring.For many low-income working families, any gains from a higher minimum wage will be far outweighed by the £4.5bn cuts to tax credits, leaving them much worse off overall: this is why the government has already faced pressure from backbench MPs worried about their constituencies to soften the impact of these cuts.
Moreover, the government lacks a long-term strategy to improve productivity. Without this, the national living wage is, at best, likely to lead to wages bunching around this higher floor, making progression more difficult and having little impact on people who currently make a little above this new wage rate, and, at worst, job losses. Improving productivity would mean greater focus on the UK’s poor levels of intermediate skills and, historically, low levels of investment.
But the government has slashed funding for the FE sector, is seriously jeopardising the quality of apprenticeships by trying to meet an unrealistic target and has been criticised by the Organisation for Economic Co-operation and Development for its lack of strategy to increase investment.
The Conservatives face their most favourable external political climate for decades. But the biggest threats to the party’s fortunes are of its own creation. Whether it is over-promising what he can get from the EU, setting an impossible migration target or committing to a welcome increase in the minimum wage but without a plan to boost productivity, Cameron is prone to adopting short-term fixes to postpone dealing with long-term issues. In doing so, he risks not just his party’s electoral fortunes, but the country’s economic future.
