2016 in review: Britain rejects the economists
It was the year of the UK’s biggest political shock for generations. The vote for Brexit defied an overwhelming economic consensus. So did British voters change their entire outlook in 2016?
‘The unimaginable has happened.’
This was how one German newspaper described the early hours of June 24th, as news of the UK’s narrow vote to leave the EU emerged.
Many were stunned – not least financial analysts. In May almost 90% of Britain’s top economists told one survey Brexit would damage the country’s economic prospects. Christine Lagarde, the head of the International Monetary Fund, had bluntly said her organisation had not found ‘anything positive to say about a Brexit vote’.
No wonder, that Friday morning, the pound plunged and global stock markets went into turmoil.
British voters have long voted with their wallets. This weekend George Osborne, who made the economic case for Remain as chancellor, said his political generation had been raised on the mantra ‘it’s the economy, stupid’.
That seemed a strong rule. Economic factors were crucial in landmark general elections in 1979 and 1997 – and last year’s Conservative victory.
Hence, Osborne admitted yesterday, his side spoke ‘a lot about the economy’. As its appeals on other issues fell ‘on deaf ears’, Britain Stronger in Europe warned of rising costs, falling house prices, recession and job losses if the UK voted for Brexit.
But eight years after the catastrophic 2008 financial crisis, that advice did not carry enough weight. Polls suggested Leave voters were more concerned about sovereignty and immigration. And trends since the vote suggest this may be part of a bigger shift; in Osborne’s words, ‘we’ve moved more to a politics of identity than a politics of the economy’.
Theresa May, a critic of mass immigration, became prime minister. Her government said ending the free movement of people would be its top priority in departure negotiations. Such a stance could drive the UK out of Europe’s single market and prompt an exodus of major banks. That would severely damage financial services, the country’s most significant industry.
So are British voters now ignoring the economists?
Money makes the world go round
Voters’ priorities fundamentally changed this year, say some. People now care most about national identity, a sense of community and the desire for control. After almost a decade of lost earnings for millions, people have grown sick of listening to financial experts. The fluctuations in GDP figures now seem increasingly irrelevant to ordinary people.
Not true, comes the response. Many Leavers made a libertarian case during the campaign, arguing Britain would be better off if freed from EU regulation. And economic concerns are linked to many other issues anyway. People would happily accept the status quo on sovereignty and immigration, for example, if they had money in their pockets.
- Is money the most important concern in your life?
- Did Britain stop caring about the economy in 2016?
- Who were the stars of British politics in 2016? In groups of four, you have one minute to write down everyone you can think of, and what they did this year. Compare as a class.
- Find out about an important event in British political history (for example, the 1979 or 1997 election). Prepare a one-page memo explaining how important a role economics played. Discuss the implications of your findings.
Some People Say...
“A rich voter is a happy voter.”
What do you think?
Q & A
- My life didn’t change much this year. Isn’t this Brexit stuff over-hyped?
- Little has changed yet: this was just the year the UK voted Leave. Next year more will happen, and the government is due to invoke Article 50 — the trigger for departure. You could still argue that predictions about the impact of Brexit are over-hyped — but you will need to keep reading The Day in 2017 to find out.
- I’m not that interested in economics. How does it affect me?
- Economics affects who gets the money and opportunities in society, so it is vital for an understanding of the world. It will change important things in your life — eg, your chances of getting the job you want, or buying a house, or the health of the services you use. But that does not mean there is no case for caring about identity issues either.
- It’s the economy, stupid
- A phrase coined by a strategist for Bill Clinton when he successfully ran for US president in 1992.
- The Conservatives won. Labour had presided over a period of strikes known as the ‘winter of discontent’ and years of stagflation — where both unemployment and inflation were high, defying traditional Keynesian economists.
- Labour regained power after adopting more business-friendly policies. The Conservatives’ economic reputation was hit hard by Black Wednesday, when Britain pulled out of Europe’s Exchange Rate Mechanism in 1992. Interest rates rose, at one point, to 15% — making it harder for millions to pay their mortgages.
- Financial crisis
- A crash in the global economy, when many banks failed as they held worthless assets. The UK government, like many others, spent hundreds of billions of pounds to bail the banks out, prompting a prolonged period of financial restraint.
- These were the top two reasons for voting Leave, according to a poll by Lord Ashcroft.
- Areas of the UK with the most stagnant wages were most likely to be anti-EU.