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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Why relations between Theresa May and Philip Hammond became tense so quickly

The political imperative of controlling immigration is clashing with the economic imperative of maintaining growth. 

There is no relationship in government more important than that between the prime minister and the chancellor. When Theresa May entered No.10, she chose Philip Hammond, a dependable technocrat and long-standing ally who she had known since Oxford University. 

But relations between the pair have proved far tenser than anticipated. On Wednesday, Hammond suggested that students could be excluded from the net migration target. "We are having conversations within government about the most appropriate way to record and address net migration," he told the Treasury select committee. The Chancellor, in common with many others, has long regarded the inclusion of students as an obstacle to growth. 

The following day Hammond was publicly rebuked by No.10. "Our position on who is included in the figures has not changed, and we are categorically not reviewing whether or not students are included," a spokesman said (as I reported in advance, May believes that the public would see this move as "a fix"). 

This is not the only clash in May's first 100 days. Hammond was aggrieved by the Prime Minister's criticisms of loose monetary policy (which forced No.10 to state that it "respects the independence of the Bank of England") and is resisting tougher controls on foreign takeovers. The Chancellor has also struck a more sceptical tone on the UK's economic prospects. "It is clear to me that the British people did not vote on June 23 to become poorer," he declared in his conference speech, a signal that national prosperity must come before control of immigration. 

May and Hammond's relationship was never going to match the remarkable bond between David Cameron and George Osborne. But should relations worsen it risks becoming closer to that beween Gordon Brown and Alistair Darling. Like Hammond, Darling entered the Treasury as a calm technocrat and an ally of the PM. But the extraordinary circumstances of the financial crisis transformed him into a far more assertive figure.

In times of turmoil, there is an inevitable clash between political and economic priorities. As prime minister, Brown resisted talk of cuts for fear of the electoral consequences. But as chancellor, Darling was more concerned with the bottom line (backing a rise in VAT). By analogy, May is focused on the political imperative of controlling immigration, while Hammond is focused on the economic imperative of maintaining growth. If their relationship is to endure far tougher times they will soon need to find a middle way. 

George Eaton is political editor of the New Statesman.