24/02/2015 06:05 GMT | Updated 25/04/2015 06:59 BST

Market Failure in the UK Political System

If current trajectories persist, something is going to have to give. The most likely casualities over the next few electoral cycles are political stability and government effectiveness. In the longer term, however, a correction of some sort seems inevitable...

The UK is on the cusp of a potentially prolonged period of political instability. Ultimately, something is going to give.

The unexpectedly rapid fragmentation of voters' preferences in recent years will make it increasingly difficult to form the kind of governments that have been the norm in the UK: single-party administrations with a parliamentary majority. There is a rapidly widening gap between what voters want and what the political system is capable of delivering to them. Supply and demand have moved out of equilibrium. The political market is failing.

The market analogy is becoming more and more apt. Voters are approaching electoral contests as if they are - or should be - responsive to their individual preferences in the way that much of the rest of life in an advanced economy now is. They are looking for a degree of suppleness that they expect in most other walks of life but that the political system isn't capable of providing.

The electoral process is quaintly unchanged when compared with the rapid evolution of social, cultural and economic patterns of life. UK citizens are asked to cast their vote for a set of political services that will last five years, the character of which will be one-size-fits-all and determined by the preferences of a minority of the eligible pool of voters. (Since 1945, the closest a governing party has come to winning the support of a majority of eligible voters was in 1951, when the Labour Party was supported by 39.3% of the electorate. As the chart below illustrates, in 2005 the figure dropped to 21.6%.)

The kind of choice required of us in a general election is unlike most others. Perhaps that has always been the case, but the disconnect between politics and most of the rest of life has become more profound. The youngest voters in the May 2015 election will have been one year old when Google was founded. The world in which they have grown up is not one in which the concepts "one size fits all" or "for five years" occur with great frequency. Immediacy and consumer choice prevail. Significantly, the period during which winning parties' popular mandates have shrunk coincides with a period of significant deregulation.

The problem's caused by the fragmentation of voters' preferences is compounded badly by the UK's electoral system. The first-past-the-post system is designed to sacrifice proportionality (the relationship between a party's share of votes and its share of seats in parliament) in favour of stable government. Smaller and newer parties are squeezed particularly badly. That may have made sense in more-or-less two-party times, but not when the combined support of Labour and the Conservative Party is in steady decline (see second chart).

As many voters now support parties other than the Conservatives or Labour as support either of those two parties. This is a trend that feeds on itself. As support grows for smaller parties, they become a more attractive option for other disaffected voters. This in turn affects the dynamics within the two main parties, making it more difficult for their leaders to hold together broad coalitions of parliamentarians and supporters. The risk of schisms and defections increases, as the Conservatives have discovered with their loss of two MPs to Ukip.

If current trajectories persist, something is going to have to give. The most likely casualities over the next few electoral cycles are political stability and government effectiveness. In the longer term, however, a correction of some sort seems inevitable. Voters will either have to swing back to the two main parties to give them the seats needed to form stable single-party governments, or they will have to accustom themselves to the idea of a fragmented political landscape and adapt the electoral system to reflect that shift.

At the moment, however, voters are demanding conflicting things. They chose overwhelmingly in a 2011 referendum to retain first-past-the-post because of its historical efficiency at delivering strong governments. But they are also distributing their support among the various parties in a way that is going to make it all but impossible for first-past-the-post to deliver a government with a solid popular mandate and parliamentary majority.

Aengus Collins, Lead Euro Zone Analyst at The Economist Intelligence Unit.

Aengus is responsible for all forecasts relating to the euro zone at The Economist Intelligence Unit (EIU), an independent business within The Economist Group which provides forecasting and advisory services to businesses, governments and academia. Aengus is also responsible for the EIU's coverage of France and Spain and is consultant editor for the UK, Germany, Turkey, Portugal and Ireland. He is a frequent commentator in print and broadcast media on political and economic developments in Europe.