Original URL: http://www.theregister.co.uk/2009/05/04/election_betting/

How to turn votes into tax free cash

Betting on Bozza for PM?

By Jane Fae Ozimek

Posted in Government, 4th May 2009 08:02 GMT

As Labour’s penultimate gamble – the budget – works its way through the system, professionals and dabblers alike are starting to size up the odds on the next election. There is tax-free money to be made – and lost as well – and whilst we’re never going to advocate betting the house, here are some pointers that anyone looking to have a little flutter may find useful.

First off, the election is getting closer. The latest date on which an election may be held – barring military coup, or serious parliamentary tinkering – is 3 June 2010 or (as some purists have argued, Friday 4 June).

Commentators doubt that Gordon Brown would dare push his rule out that far, not least because most forecasts are for Labour to receive an absolute hammering in the local elections due to take place a month earlier. Received wisdom is that such a move would be electoral suicide – so the smart money, assuming a 2010 election, is on Thursday 6 May.

Expect an upbeat budget in April 2010, loads of highly partisan measures, with parliament dissolved a couple of days later.

It is just conceivable that Gordon Brown could go for an election in October of this year. Back in 1978, Prime Minister Jim Callaghan faced a similar fix: rock bottom polls, economy in a mess, parliamentary term running out. Every expectation was that he would go to the polls before he was absolutely forced to - as in the end he was, six months later. Then, what was always predicted to be certain Labour defeat turned to absolute rout.

Over the last 100 years, the most popular month for general elections – preferred on 6 out of 25 occasions – was October. May and June have come into favour only over the last two decades. The last January election took place in 1911: the last August one in 1895. There has never been a September General Election.

As possible election dates grow fewer, so the frequency with which polling organisations turn out their predictions grows ever more frequent.

The latest projection – and the first post-budget forecast – comes from YouGov, who chart a Labour collapse and clear Tory lead. That is:

Tory 45% Labour 27% Lib Dem 18%

This translates, according to what is called "uniform swing" to a Tory lead over Labour of 102 seats and an overall Tory majority. However, the experts who follow this sort of thing – the "psephologists" - are more cautious. UK Polling suggest that on these figures the Tory lead should be adjusted down to 88.

The main difficulties that afflict any attempt to forecast electoral outcomes are to be found first in interpretation of the raw data, and second in the application of that data to a seriously quirky first-past-the-post electoral system. This time round, prediction will be made even more difficult by changes to constituency boundaries since the last election.

The figures quoted by most polls relate to expressed preferences. There is a wealth of debate and analysis as to how the exact question asked can affect the answer given: however, a far greater skew is given by the allocation of those who don’t express a clear preference. These are the "don’t knows" and the "likely to vote" for a given party (but not sure).

So, YouGov ignore voting likelihood: Populus weight by it, Ipsos MORI and ICM filter by it. Clearly, it makes a difference, but there is no general agreement as to how much.

If front end data is a problem, then turning that into real results is a nightmare. In 1992, polls predicted a Labour win: in the end, John Major snuck back in with a majority of 21. To put that result in context, the Tory majority would have been reversed had the result in the 11 most marginal seats gone the other way: the final result was determined by just 1241 votes out of a total electorate of over 43 million.

Vote distribution also plays a major part in outcome, with Lib Dems historically suffering for having support spread across the nation. In 1983, 27.6% of the vote left Labour with 209 seats, whilst 25.4% of the vote gave the Liberal/SDP Alliance just 23 seats.

Whilst that may feel quirky, the ultimate prize for quirkiness brought about by the first-past-the-post voting system goes to Canada, where, in 1993, the governing Progressive Conservative Party saw its parliamentary share fall from a solid 169 seats out of 295 to just 2 - on 16% of the vote.

Our own Tories skirted disaster on a similar scale in 1997 – although in the UK system, both the main parties have a solid core of support that means it would take an electoral earthquake to take them much below the 200 seat mark. Despite their current poll woe, political better and author of a book on how to make money betting on politics, Mike Smithson, estimates that the worst Labour outcome is likely to lie in the 175 to 200 seat range.

There is still much potential mischief in the assumption, made by many newspapers and pundits, of "uniform swing". That is the assumption that if the polls show a national transfer of votes from Labour to Tories of 10%, it is possible to work out the most likely outcome by applying that 10% to every seat in the country. Apart from ludicrous results (such as this leading to a negative Labour vote in some seats), it is well established that swings vary by region.

At the last election, the London result was quite different from the rest of the country. More practically, Mike Smithson makes the point that uniform swing is quite wrong when applied to Scotland, where politics is now evolving very differently from the rest of the UK. It also doesn’t work when looking at what is likely to happen to the Lib Dems, whose share of the vote almost always increases as an election draws closer, and who are very good at holding on to individual seats against the national trend.

His preferred approach is to apply the uniform swing – and then to look at the seats predicted to change hands on a case by case basis. Incumbency counts, with new candidates often doing less well than their immediate predecessor. Local issues can play a part, which explains spectacular Labour losses in Wyre Forest and Blaenau Gwent at the last election. Scandal, too can affect the outcome, as Neil Hamilton found out to his cost in 1997, when he was ousted by BBC journalist Martin Bell.

For a reasonable analysis of the factors in play at election time, two sites are useful: UK Polling Report, and Electoral Calculus. If you want to test your own expertise as a political pundit, both sites offer election predictors, that enable you to work out likely seat outcomes based on a particular poll result. Electoral calculus includes the ability to vary your estimates by region and to look at results on a seat by seat basis.

However, for a daily updated analysis of what is happening both in UK politics and overseas, the premier source of informed expert information has to be politicalbetting.com, run full-time by the above-mentioned Mike Smithson.

His site will keep you abreast of the polls and, more importantly for anyone looking to lay a bet on electoral outcomes, it analyses how the odds are stacking up and identifies which bets look good and which don’t.

Earlier this year we explained to readers how it is possible to treat betting as tax-free investment. The approach we outlined was not, strictly, gambling, but a technique known as "arbitrage". This involves taking advantage of price differentials between different markets – sometimes quite small ones – in order to create a position where whatever the outcome of a particular event, you have laid down bets that ensure a net profit.

Scenarios of this sort emerge where a betting book evolves over time, and the betting view as to most likely outcome shifts. Were a bookmaker to offer odds of 10 to 1 on Labour winning the next election, and simultaneously odds of 10 to 1 on the Tories doing so, you should place bets on both outcomes: your chance of losing is effectively nil.

Whilst such an open goal is unlikely ever to present itself, it is not unthinkable that over a period of time odds of 3 to 1 on each party might arise – though not simultaneously. The principle still applies: if it is possible to cover a book in this way, you cannot lose.

A rather more precarious route to financial satisfaction turns up when you have good reason to suspect that the odds offered on a given outcome are far higher than the risk merits. Bookmakers are currently offering odds of around 1 to 5 on that the Conservatives will be the largest party following the next election. As bets go, this is probably a fairly safe one – but is scarcely going to make you a fortune: for every £100 bet, you could win £20.

In the closing stages of the 2008 US election some individual state results were quoted in terms of 1 to 100 on: they were considered to be so definite for Republican or Democrat that betting on them was hardly worth the bother.

Our own guess is that with a year still to go, the Tory-Labour odds will still fluctuate, but a bet on the Tories to win the largest number of seats is a safe but unexciting way to spend a little bit of money. Should the odds on their being the largest party move to 5 to 1, this would suddenly look like a very good bet indeed.

The reason that even "safe bets" can go awry is that the unexpected CAN always happen, and the more distant the event, the greater the chance that it will. We do not expect to see stories headlined "Cameron, Osborne, German Shepherd in kinky love triangle": following the revelations over "smeargate" and the resignation of Damian McBride, Labour would not dare.

However, the death of John Smith in 1994 was a shock and it is likely that his replacement by Tony Blair as Labour leader did affect the subsequent general election. A serious accident could befall David Cameron in the next 12 months: a scandal could break; Gordon Brown could be hailed as saviour of the world economy. These are all unlikely – but none are impossible.

When it comes to betting, the safest approach remains the simple "back bet": this involves laying money against fixed odds of a particular event occurring. Much more risky – and certainly not a practice for the novice – is spread betting. For instance, a back bet on Labour getting 240-250 seats at the next election might attract odds of 2 to 1 and a £10 bet on that outcome guarantees one of two results: guessing correctly will win £20; getting it wrong will lose £10.

A £10 spread bet on Labour getting 250 seats would win £10 for every seat over 250 that they eventually win: but also attract a loss of £10 for every seat by which they fall short of that tally. In theory, a spread bet of this kind could cost the punter £2,490.

In laying bets, you might want to differentiate between traditional bookmakers, such as Ladbrokes and Coral, where the book is run by the bookmaker, and online sites such as Betfair, where individual books are made up according to the weight of betting placed by all those betting. In general, the latter give slightly better odds - they recoup their costs by making a small deduction from winnings - but are less likely to provide the opportunity to bet on more esoteric outcomes.

As to what you might bet on, the obvious big bets being taken now revolve around the date of the next election (May 2010 is now favourite), largest party (Conservatives), and whether or not there will be a hung parliament (possibly a good bet at present, since despite the known idiosyncracies of the UK electoral system, Conservatives are also favoured to have an overall majority).

Odds on individual constituency results are now available. Sadly, for those looking for a repeat of the shocks that afflicted leading Tories in 1997, most members of Gordon Brown’s current cabinet are sat on majorities that would require major shifts in voting to remove them.

On current figures, Chancellor Alastair Darling and Defence Secretary John Hutton, both with 16% majority, should be only very slightly nervous: but Home Secretary Jacqui Smith, nursing a 6% majority in Redditch looks to be an almost certain loser, as her Tory opponent is now odds-on favourite to take that seat.

Last but by no means least, good news, perhaps for the feminists, as Harriet Harman edges ahead of David Milliband and Alan Johnson in the betting stakes and is now favourite - at 3 to 1 - to succeed Gordon Brown as leader of the Labour Party.

Stranger things have happened. However, when it comes to leadership bets, favourite status can shift rapidly, and this is one instance where our money will not be going anywhere near the bookies. ®

Bootnote

According to the Mail on Sunday, a government Minister has placed a bet on Gordon Brown to lose the next election and to be forced into coalition with the Lib Dems. There are a number of question marks over this story - not least the claim that the Minister in question managed to obtain odds of 66 to 1. We checked the major bookies and canít see anything close to that for such an outcome.

More to the point, the question remains as to whether this is a sensible bet. As the election approaches, the current Tory lead over Labour is likely to be chopped back (probably to half) and the Lib Dem vote will almost certainly rise. The overall Tory majority will therefore be nowhere near the apocalyptic figures quoted. But there are two sorts of hung parliament: the first, where a third party can ally with either party; the second where there is only one party where the electoral math gives them a majority.

There may be a hung parliament. The Tory lead will probably decrease. But we will be putting money on Labour not having enough seats to form a coalition with the Lib Dems.