It has reached the point where almost every article about the general election starts in the same way:
“This year’s election is the most unpredictable in a generation. The polls are exceptionally tight. Predicting the outcome is fraught with difficulty…”
All true, of course. But beyond the polls, is there another factor that could give us an indication of the likely winner?
On the other side of the pond, political pundits are broadly agreed that as gas prices rise and fall, so too do presidential approval ratings.
On this side of the pond, ‘gas’ is known as petrol, and the correlation receives considerably less attention.
But there is evidence to suggest that the price paid at the petrol pump is associated with political approval and – potentially – election results.
Indeed between 1997 and 2001 (a time during which Labour was riding high and the Tories remained toxic) the only point at which Labour lost its poll lead was when petrol prices rose rapidly in mid-2000, catalysing nationwide protest.
Perhaps that is why the Chancellor once again opted to cancel the planned fuel duty increase in the recent Budget.
“A tenner off a tank with the Tories” is a good soundbite. It is also good politics.
But whilst tweaking the fiscal regime may result in considerable savings to motorists in the long term, it doesn’t catalyse immediate, demonstrable price reductions. A penny off a litre is unlikely to convince the average motorist to vote a particular way.
The plunge in the oil price is, however, potentially much more significant.
Since last summer, the price of oil has effectively halved. And regardless of some political and media rhetoric, much of that cost reduction has been passed on to consumers.
The AA’s Fuel Price Report in June last year logged a UK average price per litre of Unleaded at 130.5 pence. The figure for March this year is 111.9 pence – around 20 pence off a litre. Filling up a fifty litre tank therefore costs motorists about ten pounds less than it did just nine months ago.
This means more money in the pockets of consumers, leading to a feeling of greater wealth, more disposable income and a boost to consumer spending, catalysing growth, jobs and so on and so forth.
But don’t other measures can have similar stimulus effects? Like cancelling fuel duty increases? Or raising the income tax threshold?
They do, but only to an extent. What makes the oil price fall so impactful is its immediate effect.
Consumers don’t have to wait until September to purchase petrol at a penny less than it otherwise would have cost. And taxpayers don’t have to wait until the next financial year to enjoy a tax cut.
Petrol price reductions mean immediate, positive effects for consumers: more money in their pocket at the end of the month, and a resultant feel good factor.
One month out from a general election, the value of this to the incumbent government shouldn’t be understated.
In the Budget the Chancellor was at pains to emphasise the risks posed to the North Sea offshore sector of the oil price plunge, and to highlight his fiscal rescue package.
I don’t doubt his sincerity, but the Chancellor knows full well that the price drop results in winners as well as losers. Deep down, I suspect he cannot believe his luck.
Image Source: Mark Freeth Flickr