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.

Photo: Getty
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Can Philip Hammond save the Conservatives from public anger at their DUP deal?

The Chancellor has the wriggle room to get close to the DUP's spending increase – but emotion matters more than facts in politics.

The magic money tree exists, and it is growing in Northern Ireland. That’s the attack line that Labour will throw at Theresa May in the wake of her £1bn deal with the DUP to keep her party in office.

It’s worth noting that while £1bn is a big deal in terms of Northern Ireland’s budget – just a touch under £10bn in 2016/17 – as far as the total expenditure of the British government goes, it’s peanuts.

The British government spent £778bn last year – we’re talking about spending an amount of money in Northern Ireland over the course of two years that the NHS loses in pen theft over the course of one in England. To match the increase in relative terms, you’d be looking at a £35bn increase in spending.

But, of course, political arguments are about gut instinct rather than actual numbers. The perception that the streets of Antrim are being paved by gold while the public realm in England, Scotland and Wales falls into disrepair is a real danger to the Conservatives.

But the good news for them is that last year Philip Hammond tweaked his targets to give himself greater headroom in case of a Brexit shock. Now the Tories have experienced a shock of a different kind – a Corbyn shock. That shock was partly due to the Labour leader’s good campaign and May’s bad campaign, but it was also powered by anger at cuts to schools and anger among NHS workers at Jeremy Hunt’s stewardship of the NHS. Conservative MPs have already made it clear to May that the party must not go to the country again while defending cuts to school spending.

Hammond can get to slightly under that £35bn and still stick to his targets. That will mean that the DUP still get to rave about their higher-than-average increase, while avoiding another election in which cuts to schools are front-and-centre. But whether that deprives Labour of their “cuts for you, but not for them” attack line is another question entirely. 

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to domestic and global politics.

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