A hung parliament, a disgruntled working class, terrorist attacks, immigration fears, a country torn on its relationship with Europe, and a US administration under investigation make a startling backdrop. And that was just 1974.
Today’s result of a hung parliament therefore has an apparent precedent. In 1974, a snap election resulted in a hung parliament. Back then, it was Labour that formed a minority government. Despite fears that a new Labour government would lead to market chaos, markets remained more concerned with the structural challenges of the UK as they had under the previous Conservative government. The political scene remained unstable, though, with a second election called later in 1974. This could prove to be a template for the rest of this year.
Challenging backdrop ahead of 1974 snap election
Ted Heath became Prime Minister with his Conservative party winning the 1970 election. He brought the UK into the European Community in 1973, which introduced the divisive topic of EC membership into the heart of UK politics. But Ted Heath’s Conservative party had even bigger problems to deal with on the economic front.
Oil producers had introduced an oil embargo in 1973, which saw oil prices shooting higher and triggering inflation. The government introduced public sector pay rise limits to curb inflationary pressures. Trade unionists did not take well to seeing their wages rise by less than inflation. Coal miners, in particular, took industrial action that saw electricity production fall. To conserve energy Ted Heath introduced a three-day work-week in early 1974, but it was increasingly evident that the unions had gained significant leverage over the government. It was this backdrop that Ted Heath called a snap election for late February with a slogan “Who governs Britain – the unions or the government?”
The general instability of the political system was also likely a contributory factor to this idea of who was running the country. The so-called “Troubles” (Northern Ireland conflict) were at their peak in 1974 and 1975. A power-sharing agreement in Northern Ireland known as the “Sunningdale Agreement” had been established for the first time in late 1973. But there was much opposition to this, including from the IRA, which sought a unification of Northern Ireland with the Republic of Ireland.
The IRA engaged in a terrorist campaign in Northern Ireland, which meaningfully spilled over to the UK mainland in 1974. That year, the UK experienced on average one attack every three days. The escalation began by the IRA bombing a coach three weeks before the snap election. The attack left 12 dead and 38 injured.
Unstable global political order
Outside of the British Isles, the US was transfixed by the escalating Watergate scandal that was engulfing President Nixon’s administration. The scandal had started in 1972 when a break-in to the Democrat National Committee headquarters began a process that established a connection to President Nixon. He was forced to release incriminating personal tape recordings of all his meetings in 1973, which was to see him resign in August 1974.
So between the miner’s strikes, IRA terrorist attacks, embargoes by oil producers and a US political system in crisis, the mood music of the time was disruption and possibly revolution. Indeed, it was common to quote the Italian neo-Marxist Antonio Gramsci (1891-1937):
“The crisis consists precisely in the fact that the old is dying and the new cannot be born; in this interregnum a great variety of morbid symptoms appear.”
The “Who governs Britain” election
The Conservative manifesto of the February election captured this mood with its:
“A Britain united in moderation, not divided by extremism. A society in which there is change without revolution.”
And described the Labour Party as –
“committed to a left-wing programme more dangerous and more extreme than ever before in its history … the moderates within Labour’s ranks have lost control, and the real power in the Labour Party has been taken over, for the first time ever, by its extreme Left wing.”
The Labour party meanwhile ran on a platform of “let us work together” and shifting power back to the working class. It also promised a referendum on continued membership of the European Community – it had opposed entry to the single market. It also received support from an unlikely source. The arch anti-immigration Conservative politician Enoch Powell urged followers to vote Labour. He felt betrayed by Ted Heath leading the UK into the European Community with the resultant loss in sovereignty.
Expectations were not realised
Ahead of the election, polls suggested a Conservative win. The actual result was a shock, the Labour party won the most seats, but not enough to capture a majority – ie a hung parliament. It appeared that a resurgent Liberal party had eaten into the Conservative vote. Ted Heath attempted to form an alliance with the Liberals, which failed and so the Labour party took office as a minority government.
Many had expected a Labour party win to result in a collapse in the pound, but that failed to materialise. The Labour party meanwhile focused on assuaging the coal miners. Yet, it was apparent that governing as a minority was unstable, and so the Labour party called an election for October 1974. That election was more subdued and Labour squeaked to victory with a three-seat majority.
But political instability was to continue with a change in Labour leadership in 1976, the “Winter of Discontent” in 1978, a narrow Conservative victory led by Margaret Thatcher in 1979. It was only in 1983 with a landslide Conservative victory that the political environment stabilised.
What this tells us about 2017
There are some important lessons from 1974 that are relevant for now. Perhaps the most important one is that there can be broader structural changes that no political party could overcome. In 1974 it was the breakdown in the post-war economic order of low inflation, fixed exchange rates and solid growth. This contributed to the rise in far-right and far-left ideas that exploited divisions across class and race. It also meant that one party or political idea could not gain dominance, so elections and leadership changes were frequent throughout 1974 and beyond.
This suggests that today’s broader challenges of stagnating wages, the uneasy relationship with Europe and immigration and a shifting global order will likely affect UK markets more than the drama of UK elections. It also suggests that we could get more elections in the UK whether it will be another general election or leadership election. The EU referendum appears not to have settled divisions within the major parties. But political stability will only come once some political idea that solves the structural issues of the day comes to light. Until then expect more political volatility.