The Tories' Fate Is in His Hands

Party leader Michael Howard wants Tony Blair's job. If he fails, the Conservatives' very existence could be in question

By Stanley Reed

In a sign of how much U.S. investment banks are now part of the British Establishment, the London headquarters of Goldman Sachs (GS ) is much sought after as a political venue. Prime Minister Tony Blair addressed a packed house of Goldman bankers and clients earlier this year. On Oct. 28, the firm extended the favor to Michael Howard, leader of the opposition Conservatives, who by all appearances has already launched his campaign for Prime Minister.

British elections have no set poll dates, but it's expected that Blair will call for a vote around May, 2005 -- four years after his second landslide victory. Trim and looking fit in a well-cut suit, Howard was clearly in vote-winning mode at Goldman. Howard, a Queens Counselor, was all politeness and smiles. Indeed, the prosecutorial "barrister with a brief" approach that alienated voters after he became party leader a year ago was mostly under wraps.

Much -- including possibly the fate of his party -- is riding on Howard's performance. Most analysts reckon that Blair's huge majority -- his Labour Party holds 407 of the House of Commons' 659 seats -- will be impossible to overcome. But if Howard's Conservatives, who have only a measly 163 seats, suffer another major electoral defeat, their very existence could be in question.


  Peter Kellner, chairman of pollsters YouGov, thinks if the Conservatives suffer a third straight election debacle, the moderate, pro-Europe wing of the Tory party could split off and join the third-party Liberal Democrats. While the Liberal Democrats hold only 55 seats, they're running very well in the polls and are picking up support, in part because of their opposition to the war in Iraq.

In a recent speech, Charles Kennedy, the Liberal Democrat leader, reminded his listeners of the long history of British parties suffering disastrous defeats and passing into irrelevance. Kennedy, of course, aspires to haul the Liberal Democrats up to official Opposition status.

The betting is that Howard's Tories will improve their numbers in the next go-around. Robert M. Worcester, chairman of polling organization MORI, thinks Blair's overall majority in Parliament will be trimmed from 150 seats to somewhere between 40 and 60. But, he warns, "If Howard were to blow it in some way, there could well be another Labour landslide."


  Just how George W. Bush's reelection victory will play out in British politics is a matter of some debate. Some analysts think Blair would have preferred that Bush be defeated because the Prime Minister's close ties to a conservative Republican are an irritant to many in his own left-leaning Labour Party. On the other hand, a loss for Bush would have been interpreted as the writing on the wall for Blair over Iraq.

Blair's biggest risks going forward: that the Iraq situation gets even worse (British forces sent north to back the coming U.S. assault on Fallujah have already had several men killed and injured by suicide bombers) or that Bush launches another war, perhaps on Iraq's neighbor Iran, which Blair has tried hard to engage.

For now, Howard is chiseling away at Blair on the economy. Although Britian "appears to be doing pretty well," Howard went on to say that this health conceals "a number of ticking time bombs which are storing up trouble for the future." His beef: Since taking power in 1997, Blair's Labour Party has jacked up government spending about 4%, to 42% of gross domestic product, and hobbled the economy in snarls of red tape, much of it the result of decrees from the European Union in Brussels. Howard's solution: Roll back spending to 40% of GDP.


  He also gave Europe, another Tory bugaboo, a pasting. Howard blasted the EU's new constitution. Blair has signed up for it but -- perhaps foolishly -- promised to put it to a national referendum, which he could lose. The constitution aims to lead to greater European political and economic integration, raising fears of even more Continental-style regulation imposed on British business. It "will be a ball and chain around the ankle of British business," Howard said. He pledged to work to defeat the referendum.

Whether this tried-and-true Tory approach will do the trick is a matter of some doubt. Howard may well be right about Labour's insidious effects on the economy, but with the nation having avoided recession since Labour took office in 1997, Britons feel pretty good about their prospects, pollsters say. The EU is also a mixed bag for the Tories. While many Britons fear losing sovereignty to Brussels, a Tory leader criticizing Brussels inevitably reminds Britons of Tory infighting over Europe in the 1990s.

And while Labour's poll numbers have been hurt by anger at Blair over Iraq, the Tories haven't benefited. In a recent YouGov/Daily Telegraph poll, Labour scored 36%, vs. the 42% it posted in the 2001 election. But the Tories fell as well: from 33% in 2001 to 32% now. Worst of all, Howard badly trails Blair in the public's eye as best Prime Minister, 32% to 21%.


  One reason the Tories can't capitalize on Blair's obvious vulnerability is policy. Howard supported the war in Iraq, so he can't exploit the most damaging issue for Blair. Also, Howard's approach to managing the economy isn't all that different. In effect, only two percentage points of GDP separates the two parties, and Howard isn't promising tax cuts.

But the bigger problem may be that the Tories just aren't taken seriously after a series of setbacks in the '90s. They're still remembered for financial and sexual scandals, division over Europe, and economic ineptitude that led to a nasty recession and sharply falling home prices in the early 1990s.

According to pollster Kellner, Howard is a terrible choice as Tory leader because, as a member of government in the '90s, Howard was part of the mess. "I'm not sure the Tories are ever going to recover until they have a new political generation [as leaders] who weren't around in the 1990s," Kellner says.

Ironically, between 1979 and 1997, Labour was stuck in the same sort of funk that the Tories are in now. Only when a fresh, nontraditional politician named Tony Blair came along was Labour able to break out of its permanent Opposition status. The Tories need their own Tony Blair -- not Michael Howard.

Reed is BusinessWeek's London bureau chief

Edited by Patricia O'Connell

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