Phone hacking? It’s the economy, stupid

By David Talbot

The phone hacking scandal has produced a toxic fallout for the government and for the Prime Minister in particular, who has undoubtedly been weakened by the unfolding events. An exhausted looking Cameron rose to his feet in the House of Commons at 11:35am last Wednesday morning to the synthetic roar of the Tory backbenches. It was clear that Tory members had been whipped into an inch of their lives in order to give the appearance of full and unequivocal support for the PM. But it was glaringly obvious that the phone-hacking scandal was threatening to wreck his premiership, and for the first time since he entered Downing Street in May last year some MPs were questioning his survival. Everyone knew Cameron had to perform.

Submitting himself to a two hour and twenty minute interrogation, with no less than a 138 questions, was a very Blairite show of stamina and leadership. He survived. But it has meant the government has been fighting a fire completely of their own ¬making while other arguably far more serious conflagrations rage out of control all around them. After two weeks of high Westminster drama, it is back to politics as usual. Later on today George Osborne will be told what we will all learn tomorrow: the second quarter growth figures.

From the moment he arrived in office, the chancellor has been blessed with good fortune. The Greek debt crisis erupted as the Conservative-Lib Dem coalition talks were taking place in the days following the general election, providing a rationale for austerity. When the economy shuddered to a halt late last year, the chancellor could blame the snow. In the past few weeks, the phone hacking scandal has diverted attention from what might otherwise have been the big domestic story – the enfeebled state of the economy.

The growth figures due out tomorrow are expected to be ugly. Ed Balls has been putting pressure on the government by highlighting that the figures need to show at least 0.8% growth to keep in line with the Office for Budget Responsibility’s growth forecasts. By broad consensus it is highly unlikely growth will be anywhere near that robust. The only question is whether growth remains weak but positive, or whether we lapse back into negative territory, almost returning the nation to recession. It does mean that the official growth forecast for this year – at 1.7% – is looking absurdly optimistic.
With real incomes being squeezed by inflation and the international outlook darkening, there is little prospect of things getting much better. Even after announcing a programme of austerity last June, Cameron and Osborne appeared to retain a good measure of public support. But if the economists are right in their forecasts that growth will be minuscule this year, the deepest and longest recession since the Second World War will be followed by the weakest recovery. At its current pace, it will take until 2015 for output to return to the level before the impact of the global financial crash pushed Britain into 18 months of retrenchment.

The phone hacking scandal was a sorry and sordid episode in British politics that may well transform the relationship between the police, politicians and the press. Although Westminster has been dominated for the past month by its contortions, it was not a defining issue for the electorate. Bill Clinton famously won election by focusing the electorate’s attention on the economy; the issue that has topped voters concerns for the past three years.

This time last year, there were tentative signs that the recovery was on track. Growth had resumed at the tail end of 2009, aided by the then Labour government’s decision to cut VAT and increase spending. Alistair Darling’s legacy to Osborne was an economy which was expanding at 1.1% in the second quarter of 2010, its fastest rate in nine years. In the time since, Osborne has put the economy to a standstill.

The shadow chancellor rightly believes that the continued weakness of the economy will become the major political issue when MPs return from the summer recess. The phone hacking scandal didn’t bury the government, but the continuing weakness of the economy yet well could.