Tuesday 17 March 2015

Party games: constructing the next government

Everyone has their own pet theories about what the next government will look like.  I've already had one look at this in early December:
I am still following the same general approach, but the numbers need quite a bit of updating, which in turn changes the dynamics. We've had a few more statements of intent from the various political parties, which need decoding.  So my thinking has moved on a bit.
A game of consequences

In my previous post on the subject, I looked at the various parties' positions.  Not much has changed here and the underlying dynamics remain the same. 

Labour yesterday explicitly ruled out a coalition with the SNP (though not a supply and confidence arrangement).  UKIP has become firmer about not entering a coalition with the Conservatives:

http://www.telegraph.co.uk/news/politics/nigel-farage/11467020/This-is-my-deal-Mr-Cameron-an-immediate-EU-referendum-where-my-German-wife-is-banned-from-voting.html

"First, would UKIP wish to form a formal coalition with the Tories? The answer is no. We are radicals; we want real change to help Britain get back self-governance and self-confidence. There are many other areas where we can make a contribution. But I have no desire to swap the short-term privilege of a ministerial car for everything that we have fought for. I would look to do a deal where we would back key votes for them – such as the Budget – but in return for very specific criteria on an EU referendum."

This logic would seem to apply equally to deals with Labour, though Nigel Farage avoided commenting on this.

What does that leave us with?

When you eliminate the impossible, whatever remains, however improbable, must be the truth.  Donning my deerstalker (though without the aid of cocaine), I can identify the following possible outcomes:

1) Labour majority government
2) Conservative majority government
3) Labour-Lib Dem coalition - not necessarily a majority coalition
4) Conservative-Lib Dem coalition - not necessarily a majority coalition
5) Labour minority government (with or without explicit confidence and supply from other parties)
6) Conservative minority government (with or without explicit confidence and supply from other parties)
7) Grand coalition

That, or we're being lied to by one or more of the ensemble.  But I'm a trusting soul and I put my trust in them all.  If you back all of these options at best prices in appropriate proportions, you can get a return in two months of 10%. 

There are three risks in this.  First, one or more politicians may indeed eat their words, or may be replaced by others with different approaches.  Secondly, you may have arguments with bookies about some of these bets - do the coalition options include minority coalitions?  They should, but it's worth checking in advance.  Thirdly, I have treated as "impossible" coalitions that involve parties such as the DUP, the Greens and Plaid Cymru.  You could find your bets losing on this basis (though that really would be bad luck).

So on balance, I don't particularly recommend backing all of the above possibilities indiscriminately, but choosing a bit more carefully.  So let's go further and look at how the numbers are currently adding up.

The current par result

Since early December, the Conservatives have strengthened a bit in the markets, Labour has weakened a bit more and the SNP have strengthened a lot.
This morning, Sporting Index had the following midpoint prices:
Conservative Seats 284
Labour Seats 269
SNP Seats 42
Liberal Democrats Seats 26
UKIP Seats 8
Green Party Seats 1.5
Plaid Cymru Seats 3.3

Compiling the current favourites in the individual constituency markets would not get you to a very different point (though it should be noted that this totals nearly three more than the 631 seats in Parliament for constituencies outside northern Ireland).

The models based on the polls are coming in thick and fast, and in general they are broadly in line with the markets, though the SNP are generally forecast by pundits to do better than the markets currently envisage.  As of 13 March, May2015 predicted the following result:



Polling Observatory, unusually, forecast that Labour will get most seats:

http://may2015.com/featured/election-2015-academics-predict-labour-will-win-20-more-seats-than-tories-and-form-next-government/

Their forecast yesterday was:

Labour — 285 (260-313)
Tories — 265 (235-293)
SNP — 49 (34-56)
Lib Dem — 24 (17-33)
Ukip — 3 (1-5)

Others — 6 (4-9)

The May2015 forecast is more in line with the predictions of most other forecasters at present.  Mind you, Polling Observatory may be right - just because they're out of line with the consensus doesn't mean they're wrong.

What would these figures mean?

For the moment, I'll work off the May2015 numbers.  These, in common with most of the pundits' projections, show that not only should we expect a hung Parliament but the only combinations of two parties to command a majority in Parliament are (1) Conservatives plus SNP and (2) Conservatives plus Labour.  The SNP have explicitly and repeatedly ruled out the first of these, as noted above.  The second also looks like a remote prospect, the entreaties of the likes of Lord Baker notwithstanding: neither party looks anywhere near ready for the idea just yet.

So if we get the par result we look set for a government that is going to be dependent on the support, passive or otherwise, of three or more parties.  That sounds like fun. 

In fact on these numbers, the only arrangements of parties that come close to stacking up given the politics involved both require Labour and the SNP to work together, and then either patch up a ragtag army of Plaid Cymru, Respect, Greens and friendly (or bribed) northern Irish politicians or work with the Lib Dems. 

Will the SNP vote on English-only matters? This is important.  If the SNP are going to abstain on English matters, the practical level of an overall majority reduces to 295, but 55 potentially helpful votes also disappear.  Even if Labour can get Plaid Cymru, the Greens, Respect, the SDLP, Lady Sylvia Hermon and the DUP onside, the government still would not have a majority on the May2015 numbers on English-only votes.  This remains true even if the SNP take 20 fewer seats from Labour, because the practical level of an overall majority increases at half the rate that Labour rises in the seat count.  The Conservatives and the Lib Dems would have a blocking majority in England.  

Labour need something like 290 seats as a minimum to be able to disregard the Lib Dems if the SNP are abstaining on English-only matters (more, if they want to avoid being blackmailed by the DUP).  So if the SNP aren't going to help on English votes, Labour would need to deal with the Lib Dems.

So that means that there remain two critical questions.  First, would the SNP help on English votes?  And secondly, if they wouldn't, what would the Lib Dems do?

The SNP strategy

The SNP's long term aim is no big secret: it wants independence for Scotland.  Nicola Sturgeon has named three preconditions for Labour to get its support: no renewal of Trident; more powers for Scotland; and an end to austerity.  The first and last of these are practically unacceptable to Labour, as she well knows.  So what is she doing?

Given that the SNP has just suffered a clear referendum defeat, it cannot make that a precondition.  But it can use its clout in a hung Parliament to advance that cause.  

Nicola Sturgeon has already indicated that the SNP might vote on English matters where they can claim a Scottish interest:

http://www.channel4.com/news/nicola-sturgeon-nhs-election-devolution-referendum

Her pretext:

"The current Westminster agenda of austerity, privatisation and patient charging in the NHS in England threatens to harm Scotland's budget, on which our NHS depends.

"Therefore, SNP MPs elected in May are prepared to vote for a bill which would restore the national health service in England to the accountable public service it was always meant to be."

This is a fairly screeching handbrake turn from the SNP's previous stance, but makes complete sense from a strategic view.  It winds up the English and maximises the destabilisation of the UK-wide government.  Note, the SNP are not committed to voting on all English-only laws.  But they reserve the right.  Nicola Sturgeon is setting up the opportunity to make the SNP as unpredictable as possible and to destabilise the union as much as possible.  
 
That means that if Labour is to be able to govern reliably on English-only matters, it will need Lib Dem assistance.  Will it get it?
 
The Lib Dems' next steps

The good news for Labour is that the Lib Dems look as though they are likely to be moving leftwards after May, if I am right in my previous deductions:

http://newstonoone.blogspot.co.uk/2015/02/blessed-are-kingmakers-who-will-lib.html

But the Lib Dems seem to be getting steadily wobblier about the idea of being in coalition  with anyone at all.  Vince Cable has pretty much ruled out the possibility of the Lib Dems playing ball with either the SNP or UKIP:

http://www.theguardian.com/politics/2015/mar/13/vince-cable-lib-dem-snp-deal-after-election-inconceivable

"He said: “I think it’s inconceivable that we would be getting into tie-ups with the SNP and I would be very surprised if Labour did that but certainly not the Tories.”

The business secretary likened a deal with the SNP to working with the UK Independence party. He said: “The same is true of the attitude towards Ukip; they want to take Britain out of the EU which is just as fundamental a constitutional change as – well, almost as fundamental as – membership of the UK, so we take a comparable approach to that.” "

And the rank and file are potentially unreliable even to their own leadership:

http://www.theguardian.com/politics/2015/mar/15/liberal-democrat-leaders-asked-about-coalition-without-party-approval

"Despite the Liberal Democrat campaign focusing on the idea that the party as a moderating force in coalition with either Labour or the Conservative party, sources in the party say they are increasingly worried that a deal with either of the main parties would not achieve the two-thirds of support needed by the membership.

While there is a lot of anger about the coalition with the Conservative party, “Labour hates us and we hate Labour”, said one source.

“[A coalition with either of the main parties] might get through the parliamentary party and the federal executive might have their arms twisted to support it, but the party as a whole would probably reject it.” "

But we don't need to get into the Lib Dems' hive mind to work out their preferences.  Ultimately, if the Lib Dems are reduced to anything like the 24 seats that May2015 predicts, they will not have enough bodies to form a credible coalition partner.  Whether they offer confidence and supply or, more likely, simply deal with Labour on a case-by-case basis, they will probably not form part of the government.  They don't look like getting the 35+ MPs they would need to start demanding seats at the table.  They will secure what terms they can from Labour to ensure that the nation has a viable government, then find a corner to lick their wounds. 

Interestingly, all this logic is still broadly applicable if the Polling Observatory prediction comes true rather than the May2015 prediction: Labour would still need the SNP to commit to vote on English-only laws and it is not in the SNP's interests to be a reliable partner.  So Labour will need Lib Dem support, which will probably be given in some tenuous form.

The sum total of all this is that anything reasonably close to what is currently widely seen as the par result will probably result in a Labour minority government.

When do the dynamics change?

Given what the various parties have said and my reading of what's going on, I expect a different dynamic to the ultimate form of government only if:

1) Labour is greater than 290; or
2) Conservatives are greater than 295.

Other possibilities also open up if the Lib Dems get 35 seats or more, UKIP get 20 seats or more or if the SNP fall far short at the last minute.  But all of these outcomes now look unlikely, so I'm not factoring them into my thinking.  

The first case is not too complicated.  If Labour can form a government without needing the unreliable SNP as partners for the difficult English-only votes, they will.  They can expect SNP support when it's not needed too.  Labour will rely on the Lib Dems or the Parliamentary shrapnel to get their majority in these cases.  That support may be tenuous, but it will be sufficient to get them into office in a minority government - unless they surpass all expectations and get an overall majority.  But that looks like a very outside chance right now.

When do the Conservatives get the chance to stay in power?  Given that the SNP is avowedly left-wing and anti-austerity and the Lib Dems would describe themselves as progressive, the Conservatives need to secure a seat count for themselves that makes an effective majority impractical without them.  For that they need a seat count that either is sufficient with the Lib Dems to reach an overall majority or to have a seat count at or above the effective level for passing English-only laws if the SNP abstains.  In those circumstances, particularly if Labour is unable to put together a coalition or formal supply-and-confidence arrangement, the Conservatives would fancy their chances of staying in power.  For the reasons given in the previous posts linked to above, I assess that level at 295 seats.

If they get the chance, the Conservatives will form a minority government unless the Lib Dems scramble to 35 or more seats or unless the Conservatives get their overall majority.  Neither outcome looks to be in prospect.

How likely are these other possibilities?

This is the critical question. Most importantly, how likely is it that the Conservatives will get to 295 seats?

I have not repeated my analysis from late last year as to the implications from the betting market on this:

http://newstonoone.blogspot.co.uk/2014/11/conventional-wisdom-on-next-election.html

(I'm hoping that I'll get time to do a full round-up of all the seat markets on the eve of the election.)

My lick-of-the-finger guess is that the Conservatives would have roughly a 1 in 3 chance of getting to 295 seats at present, bearing in mind current polling.  Feel free to disagree with me though.

On that basis, I make the current probabilities something like the following:

Labour minority: evens
Conservative minority: 3/1
Anything else: 3/1

So I see some value in backing a Conservative minority government, but loads and loads of value in backing a Labour minority government.  If anything, I feel that I'm being cautious about my assessment of the chance of a Labour minority government.  You can still back this at 7/2 with SkyBet and 3/1 is widely available.  I've backed this heavily and so far I've ignored the option of backing Conservative minority government (I backed it at 7/1 in November and December and it has improved as a bet since then).  If you are more bullish than me about the Conservatives' prospects, you will want to cover Conservative minority government too.  But for myself, I wouldn't bother with anything else.

The other bet that still looks good is laying David Cameron on Betfair as Prime Minister after the general election.  To me this looks firmly odds against now, and by quite some way.

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