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Labour vs Conservative – Economy

House of Commons, where Conservative and Labour MPs debate the economy.

House of Commons – taken from Wikipedia.

I already posted a short version of this on Twitter, so if you want a much less detailed analysis, it’s worth reading there instead. Essentially, I was told in a meeting yesterday that Labour always (emphasis mine, but reflective of what was being said) lead to a worsening of the economy. This was part of a wider discussion on whether rich people actually flee the country when tax rates are higher (a la the Laffer Curve), but the specific comment was that the economy always suffered after a deferred period of about five years. As a finance professional, this piqued my interest and didn’t sound exactly right, so I thought I would refresh my memory on Labour vs Conservative when it comes to the economy.

The Claim

I am trying to be as fair as I can possibly be here, but it was a pub discussion without access to actual data, so the terms are more loosely defined than I would prefer. Nevertheless, the claim made was that the economy always suffers under a Labour government and recovers under a Conservative one. The concept of a delay of around five years was added after I mentioned that I had looked many times at both the FTSE 100 and GDP charts, and I had never been able to spot such a pattern, but the interlocutor was 100% certain that this was the case.

FTSE 100

Once I got home, I decided to visit Trustnet to get a chart of the FTSE 100 over time. For those not in the know, this represents the performance of the 100 largest companies traded on the London Stock Exchange, so it is a measure of the overall strength of the economy in one form, albeit not perfect. It is the most-quoted indicator of how the UK stock market is doing, and you will see it on various news programs simply referred to as the “Footsie”.

This index was launched for the first time in 1984, so getting data before that date is much harder. I confess, I have not put in that effort. In my view, the chart since 1984 does not show any data that I feel would make the effort of going back further worthwhile.

FTSE 100 since inception - can you see any difference between Conservative and Labour management of the economy?

FTSE 100 since launch in 1984. Hard to spot any patterns attributable to party in power.

I haven’t done any sort of regression analysis on this data, so my conclusions are just a result of “eyeballing” the chart, but I cannot see any observable pattern which could be attributed to the change in governments in 1997, 2010 or 2015. As such, I decided to look at another measure.

GDP

GDP by administration since the 50s. Again, can you see any impact of Conservative or Labour on the economy?

Growth by administration in GDP since the 50s. Importantly, no reliable pattern of GDP being lower when Labour come into power.

Gross Domestic Product, or GDP, is a measure of how much value is being produced within an economy per capita. It is probably the most used indicator of the strength of an economy, and indeed GDP is used as the sole metric for whether an economy is growing or in recession.

GDP is a much longer-recorded metric, as it has been used as the fundamental underpin of our economy for well over a century. I did not decide to do primary research on this subject, as I don’t believe I have much to add in terms of analysis, but I did find a very comprehensive-looking analysis here. I must stress, I have not checked this publication for robustness, but the figures seem to agree with what I have experienced in my years of work with finances.

Their summary is interesting from a statistical perspective. Their conclusion is that the two main parties in the UK achieve approximately the following:

  • Conservatives:
    • Mean quarterly GDP growth of 0.62%
    • Median quarterly growth of 0.58%
  • Labour:
    • Mean quarterly GDP growth of 0.56%
    • Median quarterly growth of 0.62%

If you’re not familiar with the mathematical terms, mean is the average growth rate, while median is the typical growth rate. As such, both figures are important for statistical analysis, and if there was a significant difference between the mean and median, that would indicate more extreme periods of either growth or contraction.

Importantly, taking the absolute best figure for the Conservative party of 0.62% vs the Labour party’s 0.56% (ignoring the fact that Labour’s lower difference to median indicates more reliability of GDP growth for the economy), this equates to about 11% outperformance.

It is, however, important to consider a few factors:

  • Some periods of performance will be attributable to the previous party, as changes take time to report.
  • GDP is purely an arithmetic mean. In theory, one person could massively increase their wealth and GDP would be reported as positive. It says nothing about the well-being of people in that society.
  • This analysis ignores error bands which should be applied to all forms of statistical analysis. It is quite possible that this difference is not statistically significant when factoring in those error bars.
  • Also ignored are the things that might not count towards GDP, for example having a functioning NHS. This is particularly relevant now, as we have a failing NHS and a troubled economy.

Conclusion

There is no evidence that there is a pattern to economic growth linked to a change in the majority party in government. Unfortunately, this is another example of a very widespread falsehood that has been spread by those who want to manipulate political power. Most people do not have the mathematical confidence to go looking for the data. I do.

This claim is false. Numbers simply do not back up the assertion. Conservative and Labour parties are both equally competent (or incompetent) at managing the economy.

The follow-up to this claim is that if we assume that Conservatives represent lower taxes and Labour represent higher taxes, there is no evidence that the party of higher taxes reliably reduces growth by a significant margin.

Importantly, this shows that the country’s growth as a whole does not suffer just because of higher taxes or funding of the public sector. This means that the higher taxes required on wealth for something like Universal Basic Income (or anything else from my personal manifesto) are highly unlikely to have an impact on the growth of the country as a whole.

Hazeena A

Ian, thank you once again for your support. It means a lot.

Thank you so much for [creating this petition] and so amazingly quickly!!!

You did a brilliant job on both the blog and petition. Some of the NHS staff were even impressed with the speed at which you addressed this, and I have had varying positive comments from friends who have read your post.

Hazeena A – Ruislip, Northwood & Pinner Resident

Sheena Y

Having worked with Ian I can say that I found him incredibly transparent and honest which I think would be rare and much needed in today political arena. He is also very clever, direct and a great communicator.

Sheena Y, former co-worker

Andy H

Ian is a very smart individual, but more importantly is honest and truly cares about people.

He is an unselfish individual and would absolutely have the public’s best interests at heart.

Andy H, brother

Luca M

I met Ian a few months ago for the first time and straight away I felt confortable with him and I thought: ” Ok I would trust that guy”.

Luca M, fellow speakers’ club member

Francisco V

Throughout the 12 years I have known Ian, he has always demonstrated to be very bright, kind and upright. I’ve seen all of these attributes in his personal life, for instance, in our sport association he volunteered as treasurer where he improved the overall system and costs as well as championing charitable giving & generous donations. He’ll definitely make a difference in a bigger role in politics.

Francisco V, fellow jū jūtsu instructor and friend

Irene H

You have the moral integrity and high standards in all aspects of the requirements of your potential constituents. You will stand up to injustice and defend those deemed to have had injustice against them. You are committed to environmental change and to look after the less well off in society.

Irene H, mother

Graham C

First and foremost, your personal ethos of kindness and care for others is your top qualification. That you are also highly driven with a need to be productive, and understand very complex matters such as financial systems, makes you stand out.

Graham C, fellow jū jūtsu instructor and friend

Anonymous

You are one of the most principled people that I know. You are committed to making changes that support the most vulnerable in our society and you don’t give up when you know you’re fighting for what’s right.

Anonymous

Helen C

Integrity.
Unlike the rest of us who are disillusioned with the lack of honesty, morals, and the unfair and outdated ‘public schoolboy network’ displayed by this government, you have decided to stand up and make a difference.
Your constituents couldn’t have a better candidate.

Helen C, Aunt

Miles H

Having known Ian for a number of years during which we worked closely as Financial Advisers, I am confident that he would make an excellent MP. Ian is an intelligent man who has the ability to absorb, understand and manage complex information quickly; I have, on many occasions, witnessed him do this whilst retaining the ability to explain it, in a manner which is easy to understand.

I have seen Ian display the courage of his convictions on a professional level, where he has put the clients needs before that of the company and have no doubt he would carry this attitude into public life.

Ian and I have disagreed on politics in the past, but he has always listened carefully to any position and taken time to offer a thoughtful response. If he became an MP I am sure his constituents would benefit from an effective and hard working representative.

Miles H, former co-worker

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