A Labour Majority at the Next Election is Under-Priced

Well before the three Ps (Paterson, Peppa, Parties) derailed Boris Johnson, I thought that a hung parliament was the most likely outcome at the next election. The Tories have defied electoral logic in the last two elections by increasing their percentage of the vote for the fifth and sixth time in succession. As far as I know this has never happened in an advanced democracy before. The reasons they were able to do this were Brexit and the takeover of the Labour Party by the hard left. These two highly unusual factors are now fading as concerns for voters, albeit not yet entirely irrelevant. Barring unexpected events, the next election will be fought on domestic policy issues with a mainstream Labour leadership. After 14 years in power, and without the shields of Brexit or Corbyn, any Tory government would likely see a significant swing away from them. 

A Labour majority, though, is considered a much more distant prospect to most pundits. This is largely a function of electoral geography. If we assume that the SNP continue their domination in Scotland then Labour need an overall lead of around 10 point to win a small majority (in contrast the Tories could maintain their majority with a 3 point win). This would require a 11% swing for Labour. They have only achieved this twice in their history. Under Attlee and Blair. Given that even Keir Starmer’s supporters would not consider him to be at that level, it seems hard to imagine victory on a similar scale.

The betting markets agree. While a hung parliament is now the favourite outcome, with a 50% implied probability, a Tory majority is considered more likely than a Labour one (30% vs 20%).  This has already shifted due to the Tories recent troubles, back last summer a Labour majority was a 5% probability. But I think it is still under-priced. Here’s why: