Featured, Need to Know | 30th April 2015

Election 2015 odds: Miliband is a 59/41 favourite to become PM, despite recent polls

In the past fortnight, one in three recent polls has put the Tories ahead by at least three points, but Miliband’s chances have only strengthened.

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I’m always been fascinated by cosmology and quantum mechanics. I think it’s because it demonstrates the power of numbers to see through the midst of time and show what happened a minuscule fraction of a second after the big bang.

That fascination with numbers is probably what attracted me to the predictive power of the odds market – not only can they provide a guide to the result but they can peer further into the future and suggest to us what might to happen in the days and months following the election.

Well, about two weeks ago the betting market started to come to a tentative conclusion about that post-election landscape, and since then it has firmed up that view. After the election we are going to see a minority Labour government led by Ed Miliband, as May2015 suggested ten days ago.

Miliband is now favoured – by nearly 60 to 40 – to command the confidence of the House after the election. Six weeks ago he was a 37/63 underdog. (Ten days ago he was a slight 52/48 favourite.)

There have been 28 polls in the past 13 days. Nine have put the Tories ahead by at least three points (32 per cent); that includes seven of the past 19 (37 per cent). The Tories lead by 1.5 per cent in May2015’s 5-day Poll of Polls and by 0.9 per cent in our two-week average (which gathers together and weights the past 31 polls).

Six weeks ago Ed Miliband was a 37/63 underdog.

And yet the money markets have only strengthened their belief in a Miliband victory. First, this is probably because many punters realise how difficult it will be for Cameron to reach 323 seats – even if he is three points ahead. And second, not every pollster has suggested Cameron is so far in front: YouGov’s nightly tracker poll hasn’t, and neither have the most recent polls from ComRes, Panelbase, TNS or Panelbase.

With a week to go, the market is unconvinced that the Tories are really at least 4 points ahead, as they may need to be to cobble together 323 seats (if Labour poll 33 per cent, Cameron may need to win at least 37 per cent of the GB vote – as the Tories did in 2010). But perhaps they are wrong and this election really is like 1992. If you think so, there is money to be made.

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What else do the money markets tell us? First, the obvious. The booking market is emphatic, although less emphatic than some forecasters, that no party will have an overall majority. An electoral system that’s designed to give us strong and stable majority government is, for the second time in row, about to produce a decidedly indecisive result.

And, more importantly, the market is now 72 per cent confident that the Tories will be the largest party in the next Parliament. A 28 per cent chance for Labour isn’t insignificant – would you accept a 28 per cent risk of a car crash? – but a plurality for Labour seems increasingly unlikely.

The market is far more ready to believe the polls are slightly wrong in the Tories’ favour than in Labour’s.

The ‘largest party’ market is deep and active – lots of people are trading in it – and thus is one we can be fairly confident in. But we have little confidence about the size of the Tory lead. Although it seems likely to be more than a few seats; Ladbrokes give the Tories a seat lead of around a dozen seats.

You have to go back to 1924 to come up with the last time the head of the largest party was not Prime Minister, and they were very unusual circumstances in which the largest party (the Conservatives) had effectively lost a vote of confidence. Indeed I’ve tried to go back even further in history to find another example of this situation and I can’t – answers on a postcard please!

The markets are taking a position which flies in the face of historical precedent.

The markets are taking a position which flies in the face of historical precedent; that’s the kind of decision that might be called “brave and courageous” in Yes Minister.

This lends greater weight to its predictive value – the market is clearly aware that Miliband is unlikely to win more seats than Cameron, or many more than Brown did in 2010. And yet he is expected to dethrone Cameron – because of the SNP. A formal deal is considered unlikely, with only about a 7 per cent probability in the market.

Can the markets tell us anything else? Well, it is a tiny market at the moment, but there are few indications there will be another election this year; its likelihood is around 25 per cent. (Although that’s considerably higher than last year, when Ladbrokes’ odds implied a 10 per cent chance.)

This isn’t a reflection of the likely stability of a minority Labour government, but a consequence of the Fixed Term Parliaments Act. The only method of achieving another election would be for a block of MPs to, in the immortal words of Jim Callaghan, vote like turkeys for an early Christmas.