The Economic Dilemma of UKIP

Political Science, United Kingdom, Welfare

Let us take a short trip Back to the Future. Step into The Doc’s DeLorean modified time Machine, fasten your seat belt, greet Marty McFly in the back seat, and set the destination to 2016 Britain. We accelerate to 88 miles per hour, and after a loud “bang”, it only takes a few seconds to land after the next general election. There are no flying skateboards, the weather is still miserable and the Royal Family is still reigning, but we have a new government. Just like in the last 2010 election, none of the two big parties managed to gain a majority in the Commons. Due to poor electoral strategies, Labour did not profit from David Cameron’s failures in government, and the Tories have come out of the elections once again with the biggest number of seats. However, their former allies, the Liberal Democrats, have suffered a severe electoral setback, and no longer have enough seats to secure a majority. Instead, the Tories have chosen to form a coalition with the party that made a true electoral breakthrough: Nigel Farage’s UK Independence Party. What kind of policies can we expect  from such a coalition, and would it be viable politically? Would UKIP and the Conservatives agree on issues such as welfare, pensions, taxation and social benefits?

In many ways, a Tory-UKIP coalition in the future is not completely science-fiction. UKIP – as well as a number of other Eurosceptic, anti-immigration parties throughout Europe – is  bound to make considerable advances in the upcoming elections for the European Parliament. A poll conducted in January by the Independent on Sunday revealed that UKIP was the most favourably regarded party in Britain with 27% of favourable opinions, even if voting intentions still placed Labour and the Conservatives ahead. However, UKIP seems indeed to have overtaken the Liberal Democrats as the main alternative to the big two parties: Labour was first with 35%, the Tories were at 30%, UKIP was at 19% and the Libdems at 8%[1]. While European elections are often considered as “second-order” events where voters are more likely to sanction governments and bigger parties because they are presumably less important, EP elections still showcase the strength of the different political forces that will matter for future national elections. In Britain, UKIP is a serious electoral contender, and its impact on government policies can already be felt. The government’s tougher line about immigration control, or the promise to hold an “in-out” referendum about the European Union are without doubt targeted at voters tempted by Nigel Farage’s party. Some Tory politicians have already evoked potential alliances between the Conservative Party and UKIP[2]. Hence, such a coalition cannot be ruled out in the future, even if the first-past-the-post system obviously constitutes a severe hurdle for parties outside the Labour/Conservative duopoly. In first-past the post, what matters is not only how many voters parties have, but also how they are distributed geographically, and UKIP still seems to be lacking as to this second criterion.

UKIP as a Working-Class Party

Besides institutional barriers to acces constituted by the electoral system, UKIP and the Conservatives would need to reconcile the preferences of their respective electorates. If this does not look like a huge problem when it comes to issues such as immigration control and relationships with the European Union, it would certainly be more problematic when it comes to public spending, welfare, pensions, taxes and the like. This is essentially because UKIP and Conservative voters tend to have different socio-economic profiles, different interests and different preferences.

On the one hand, recent research has shown that UKIP has the most working class electorate of all British parties[3]. For some time, many believed that the typical UKIP voter was the disgruntled anti-EU middle-class Tory in the South-East. However, it appears that the UKIP electorate is in fact similar to that of other populist radical-right parties in Western Europe: working class, “pale, male and stale”. The core electorate of UKIP is constiotuted by blue-collar workers, predominantly male, older, with low formal education levels, who feel threated by immigration and economic change, and loathe a political class composed of what they perceive – no without reason – as a bunch of posh, privately educated middle-class Oxbridge graduates. Sociologically, UKIP voters would have been the social groups which used to vote Labour in the 1960s and 1970s, but have been forgotten by New Labour in its drive to appeal to urban middle classes. This pehenomenon is by no means a British exception: in countries such as France, Belgium or Austria, the populist radical right is now the most popular party family amongst the native working class – after abstention – while left wing parties essentially source their voters in the new middles classses (teachers, public sector workers, healthcare workers and professionals). After Tony Blair’s drive to the right, managers are now as likely to vote for Labour than for the Conservatives, and the days of old Labour seem long gone.

Interestingly, the preferences of UKIP voters in terms of economic policies also tend to be more left-wing, even if they intend to vote for a party often considered on the far-right. Research on the US also shows that supporters of the Tea Party, which can be considered as the equivalent of UKIP, also often rely on federal welfare programs while supporting a party that wants to scrap them. Hence, there is often a wide gap between the preferences of the voters and the agenda of the party elites in these domains. A recent Yougov poll showed that 73% and 78% of UKIP voters supported the nationalisation of railway and energy companies respectively[4]. Corresponding figures were twice 52% for Conservative voters, and 79 and 82% for Labour voters. Hence, UKIP voters tend to be closer to Labour voters when it comes to socio-economic issues and state intervention in the economy, while Conservative voters prefer market-based solutions, a smaller state and lower taxes.

Accordingly, austerity policies and cuts in public spending pushed by the Conservative party can be thought to hurt the UKIP electoral base, as lower-educated working-class people also rely to a larger extent on public services than higher incomes who can purchase services privately. A conservative-UKIP coalition would inevitably run into this kind of dilemma, and UKIP is conscious of this. At first, its electoral manifesto promised both lower taxes for all and more spending, for instance by scrapping the bedroom tax[5], or establishing a 31% flat tax rate for all.[6]This is is feasible in opposition, but more problematic when a party accesses government and needs to fulfill its irrealistic promises.Eventually, however, UKIP ended up disowning its whole 2010 party manifesto until after the EP elections, claiming that all its policies were now “under review”.[7] It has been shown that populist right-wing parties such as UKIP are particularly prone to “blur” their positions on economic issues in order to solve these dilemmas.[8]

Betraying Voters, or Betraying other Parties?

In a forthcoming article in the European Political Science Review[9], I show that once these parties take part in government coalitions, however, blurring their position becomes more difficult, and they need to make a choice between office and votes when it comes to socio-economic policies. On the one hand, as argued above, they appeal to a large segment of working-class voters who are supportive of state intervention, and obviously those from which they benefit directly. This includes traditional social security schemes such as old-age pensions. On the other hand, in Western Europe – things are a bit different in Central and Eastern Europe –  these parties have only been able to form government coalitions with Conservative or Liberal parties who are more likely to retrench these very same welfare programmes, and who can even be rewarded electorally for cutting public spending. If populist right-wing parties choose office and want to maximise their coalition potential, they may support retrenchment measures in exchange of concessions about immigration control, but at the cost of betraying their working-class electorate and facing substantial electoral losses at the next elections when cuts in public spending bite in. If they choose votes and seek to protect their electorate from retrenchment, they jeopardise their participation in government by betraying their coalition partners, who often cooperate with them precisely in order to pass austerity measures with little opposition. For this analysis, I have carried out fieldwork in the Netherlands, Austria and Switzerland, three countries where the radical right took part in government at some point in time, and where pension reforms were put on the agenda. In all three countries, the tensions between office and votes outlined above were visible, and can serve as interesting signposts for the problems a Conservative/UKIP coalition might face.

In Austria, the Conservative ÖVP chose to form a coalition with the radical right FPÖ in 2000 as a way to curtail the left and trade unions, and push retrenchment reforms that had been impossible to carry out with the social-democrats in government. Accordingly, the FPÖ went for office and basically subscribed to the retrenchment agenda of its coalition partner in exchange of a tightening of immigration rules. While reforming welfare had proved extremely difficult in the past, this allowed for a number of swift welfare reforms to cut public spending, notably by increasing the age of retirement. The problem was that these reforms soon led to a revolt within the FPÖ, precisely because they were hurting the very electoral base of the party, which just like UKIP, was composed of blue-collar, older and male workers. A number of internal dissensions led to the creation of a splinter party, the BZÖ, and Jörg Haider, the party leader, heavily criticised its own ministers for hurting the “small people” the party was claiming to represent. In the end, the Conservatives of the ÖVP chose to drop the FPÖ and get back to form a coalition with the social-democrats, whom they considered more reliable.

In the Netherlands, Geert Wilders’s eurosceptic Party for Freedom (PVV) similarly committed to support a minority coalition formed by the Liberals and the Christian Democrats in 2010. In the run-up to the elections, Wilders had said that he would do everything he could to keep the retirement age at 65 for “Henk and Ingrid”, the typical hard-working, “squeezed middle” Dutch voters that he sought to appeal to. Accordingly he had said that the retirement age at 65 was a “breaking point” in any coalition negotiation with other parties. One day after his party obtained its best election result ever, however, Wilders said that the retirement age was “no longer a breaking point”, and agreed to support a coalition government between the Christian Democrats and Liberals determined to pursue a harsh austerity agenda, with some concessions regarding immigration and healthcare. However, unwilling to betray explicitly an election promise, the PVV systematically refused to support any attempt to increase the retirement age, forcing the government to seek support from smaller parties. Eventually, after the Netherlands entered a recession in 2012 and was forced to carry out even harsher spending cuts, Wilders pulled out of the government, arguing that he could not support austerity measures that would hurt “Henk and Ingrid”.

Finally, in Switzerland, the Swiss People’s Party (SVP) consistently pushed for retrenchment in welfare programmes as a way to fight “abusers” of social assistance taking advantage of “honest taxpayers’s money”. The SVP notably also pushed for an increase in the age of retirement  without any compensation in an alliance with the Liberals and Christian democrats against social democrats and trade unions. In this sense, the Swiss radical right diverged slightly from parties in other countries by adopting a clearly more neoliberal profile, similarly to UKIP when it doesn’t seek to “blur” or conceal its socio-economic positions. However, in Switzerland as well, the contradictions between office and votes were also visible, as its electoral base is also constituted by large working-class segments. Hence, in the referendum votes called by trade unions and the left to challenge these reforms, a majority of the electorate of the Swiss People’s Party disavowed the party elites by refusing an increase in the age of retirement. Conscious of these internal contradictions, the party subsequently contributed to torpedo another reform where its internal conflicts between a neoliberal elite and protectionist voters would come out once again, this time in the run-up to a new election. This was another strategy to blur and conceal the contradictions of its economic agenda.

In general, parties such as UKIP which build their entire electoral profile on an anti-establishment agenda have a hard time being in government, at the very core of the establishment. The interesting thing about their economic impact is that they do not emphasise economic issues as their prime area of competence, and voters do not vote for them primarily because of their economic positions. However, this is precisely what makes them expedient allies for Conservative parties, since they may be more willing to subscribe to austerity in exchange of a tightening in their domains of predilection (iimigrationa nd law and order), hoping that their own voters won’t see how austerity affects their own interests. Oftentimes, however, these calculations tend to be marked by overconfidence, and to bite them back at election time.

Another version of this paper will be published in Dialogue, the magazine of KCL’s Politics Society.


I have met Pre-distribution. It Wears Clogs, Eats Chocolate, and Works Part-Time.

Welfare

Predistribution” is Labour’s new policy buzzword. It’s been all over the news. Policy Network has events and publications about it, the BBC talks about it, Ed Milliband talks about it, David Cameron ridicules it. Predistribution is supposed to be the new silver bullet for the centre-left, the agenda that will both create social justice and appeal to voters. But how would it work in the real world?

The traditional tool advocated by the left to ensure more equality has been re-distribution. Basically, you let the market do its thing, tax it, and use cash transfers to redistribute the revenues to the poor. The problem with redistribution is that it can never fully compensate for the externalities that the market creates. Moreover, it is increasingly difficult to sell politically, especially in countries like the United Kingdom. In the UK, the middle class doesn’t really have an interest in redistribution because most social schemes are means-tested, and benefits are mainly targeted at the poor only. If you lose your job, you’ll be entitled to Jobseekers’ allowance (56£ or 71£ a week) independently of your previous income. In fact, the drop between unemployment benefits and middle class incomes is so big that the middle class cannot really count on the welfare state as a safety net. They pay for it but don’t get much in return, which tends to create a hostile attitude towards it despite its residual features. As a result, even left-wing politicians are not so keen on it. For instance, Ed Milliband recently said that he would stick to the welfare cap introduced by the coalition. This is what Swedish sociologists Korpi and Palme called the paradox of redistribution: the more you target benefits at the poor to reduce inequalities, the less you actually reduce them.

Pre-distribution, by contrast, seeks to reduce inequalities within the market, in order to lower the need for redistribution. Because “mopping up” after the market through taxes and transfers is subject to political backlash, you need to get the market to distribute wealth more equally in the first place. The policies needed to make pre-distribution possible, however, are not very clear. Hacker emphasises “getting the macro-economy right”, ensuring “quality public services”, and “discovering a new set of countervailing powers in the market”. As far as one can tell, pre-distribution is a project whose policies still need to be invented. But does it exist in the real world?

Pre-transfer, pre-tax income inequality, 1979-2005

Source: Kenworthy 2009 (http://bit.ly/10u3JXU)

According to data from the Luxemburg Income Study, there are two countries where pre-tax, pre-transfer market inequalities have either decreased or stayed at particularly low levels between 1979 and 2005: the Netherlands and Switzerland (Figure 1). By contrast to Scandinavian countries, which rely quite heavily on taxes and transfers to fight poverty, the Netherlands and – especially – Switzerland do not rely that much on redistribution. In fact, due to strong regressive elements in its transfer and tax system, Switzerland hardly redistributes at all, on par with the US, and its market outcomes are fairly equal in the first place.

In a forthcoming chapter co-authored with Jelle Visser, we outline the mix of policies that have allowed these two countries to achieve low levels of inequality without the high taxes and transfers found in Scandinavia. In a nutshell, the recipe is a combination of high female employment underpinned by access to part-time work, and welfare and skill production regimes which lift incomes in the bottom half. They are good examples of what Kenworthy calls the high-employment road to low inequality, a variant of predistribution.

First, you need high employment rates. The rise of inequality in the West has been underpinned by an increase in the number of high-earners with two incomes, and an increase in the number of low-earners with only one income, or no income at all. These, in turn, need cash transfers. If you reduce the number of households with no or only one income by boosting the employment rate, then you reduce market inequalities. The main tool used to do this in the Netherlands and Switzerland has been part-time employment. These two countries have the two highest proportions of part-time employment in the OECD, and among the highest  female employment rates. These two things go hand-in-hand: since they don’t have the publicly subsidized childcare facilities available in Scandinavian countries, part-time employment has been the main channel for women to access employment. For this, however, you need childcare which makes work pay. If their wages are lower than the cost of childcare, it makes little sense for one of the parents to work.

Second, you need institutions which lift up incomes in the bottom tier of the labour market. This can be done either with earnings-related unemployment insurance which provides for higher reservation wages, a greater role for collective bargaining, or – probably more importantly – greater collective investment in occupational skills. What underpins income inequalities in the UK is the prevalence of a low-skill, low-wage, low-productivity service sector caused by 30 years of de-regulation. There has been a massive expansion of higher education, but skills at the bottom have lagged behind. In the construction sector, for instance, a large part of the workforce is outsourced, formally self-employed to bypass social security contributions, and craftsmen have to be sourced from abroad because companies don’t provide training. In countries like Switzerland or the Netherlands, by contrast, vocational training and apprenticeship systems ensure a higher level of skills at the bottom end of the labour market, and therefore higher wages. Vocational training also provides for particularly low levels of youth unemployment. In the UK, low means-tested benefits lead jobseekers to accept any job as fast as possible, even at lower wages. In continental Europe, earnings-related benefits give more leeway to select better jobs, ensure a better allocation of workers, and prevent wages below the living wage.

These measures do not involve an actual redistribution of wealth, but rather ensure a more equal distribution of it within the market. Because low wages in the UK eventually cost massive amounts of public money through tax credits, better skills at the bottom and easier channels for women’s employment could also be implemented in a context of austerity. Of course, the Dutch and Swiss social models should not be idealized. Dutch households now have the highest mortgage debt in Europe. Austerity policies have now partly undermined some of the policies (e.g. childcare) that had allowed for the employment boom of the 1990s and 2000s. Swiss employment success relies partly on very high levels of immigration which have planted the seeds for the strongest radical right party in Europe. But since the high tax/high transfer policies of Scandinavian countries seem difficult to implement elsewhere, some of their “predistribution” policies may be a more realistic path to follow.