Why the UK moved closer to the EU exit today

If Osborne fails to secure "safeguards" for the City of London, Britain's membership will be in doubt.

George Osborne's assertion that the UK will require "safeguards" for the City of London before consenting to the creation of a eurozone banking union is an important moment. The Chancellor is effectively renegotiating the terms of Britain's EU membership in public. Referring to David Cameron's "veto" of the fiscal compact last December, he told the Today programme:

We were identifying a potential issue for the UK, which is do we want, as Europe’s largest financial centre, to have a banking union on our doorstep without certain safeguards?

There will have to be safeguards, there will have to be conditions to protect Britain’s most important industry, its largest private-sector employer and, by the way, Europe's largest financial centre.

It was odd of Osborne to cite Cameron's "veto" as an example of how the UK could win safeguards. As Tory MPs well know, Cameron won nothing of the sort. He received no guarantee that members of the fiscal union would be blocked from using the EU's institutions to alter the terms of the single market. As the PM was later forced to admit, "I'm not making a great claim to have achieved a safeguard".

There is no reason to think that he will prove any more successful in winning special treatment for the City of London. Channel 4 News's Faisal Islam notes that a eurozone banking union "will not function properly without some oversight of the wilder activities of the City of London casino. The shadow banking system in particular is disproportionately run from the Thames."

If, as seems likely, Osborne fails to prevent greater regulation of the City that will strengthen the hand of those Tories who argue that EU membership is no longer in Britain's interests. And that would raise the prospect of an in/out referendum on EU (see David Owen's piece for more on this), something the Tories have privately refused to rule out. With such a referendum likely to end in a No vote, it is no longer inconceivable that the UK could leave the EU in the second term of a Conservative-led government.

Chancellor of the Exchequer George Osborne leaves Number 11 Downing Street on May 10, 2012. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

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Iain Duncan Smith says what most Brexiters think: economic harm is a price worth paying

The former cabinet minister demonstrated rare candour by dismissing the "risks" of leaving the EU.

Most economists differ only on whether the consequences of Brexit would be merely bad or terrible. For the Leave campaign this presents a problem. Every referendum and general election in recent times has been won by the side most trusted to protect economic growth (a status Remain currently enjoys).

Understandably, then, the Brexiters have either dismissed the forecasters as wrong or impugned their integrity. On Tuesday it was the turn of the Institute for Fiscal Studies (IFS), one of the most revered bodies in Westminster. In response to its warning that Brexit would mean a further two years of austerity (with the hit to GDP wiping out George Osborne's forecast surplus), the Leave campaign derided it as a "paid-up propaganda arm of the European commission" (the IFS has received £5.6m from Brussels since 2009). 

The suggestion that the organisation is corrupt rightly provoked outrage. "The IFS - for whom I used to work - is not a paid up propaganda arm of the EU. I hope that clears that up," tweeted Brexit-supporting economist Andrew Lilico. "Over-simplified messaging, fear-mongering & controversialism are hard-minded campaigning. Accusing folk of corruption & ill intent isn't." The Remain campaign was swift to compile an array of past quotes from EU opponents hailing the IFS. 

But this contretemps distracted from the larger argument. Rather than contesting the claim that Brexit would harm the economy, the Leave campaign increasingly seeks to change the subject: to immigration (which it has vowed to reduce) or the NHS (which it has pledged to spend more on). But at an event last night, Iain Duncan Smith demonstrated rare candour. The former work and pensions secretary, who resigned from the cabinet in protest at welfare cuts, all but conceded that further austerity was a price worth paying for Brexit. 

"Of course there's going to be risks if you leave. There's risks if you get up in the morning ...There are risks in everything you do in life," he said when questioned on the subject. "I would rather have those risks that we are likely to face, headed off by a government elected by the British people [and] governing for the British people, than having a government that is one of 27 others where the decisions you want to take - that you believe are best for the United Kingdom - cannot be taken because the others don't agree with you."

For Duncan Smith, another recession is of nothing compared to the prize of freedom from the Brussels yoke. Voters still reeling from the longest fall in living standards in recent history (and who lack a safe parliamentary seat) may disagree. But Duncan Smith has offered an insight into the mindset of a true ideologue. Remain will hope that many more emulate his honesty. 

George Eaton is political editor of the New Statesman.