Rejoice! We're a safe haven, says Mehdi Hasan

But low gilt yields aren't a vote of confidence in the UK economy.

The Chancellor George Osborne will have been delighted to pick up the Financial Times this morning. As the Eurozone implodes, the FT's splash was headlined:

Gilt yields fall as UK becomes safe haven

"Safe haven" is a line that the Chancellor and his supporters in the right-wing press have been spinning for several months now, arguing that the fall in UK government borrowing costs - gilt yields - to historic lows is a vindication of the coalition's austerity agenda.

It isn't.

The inconvenient truth is that low gilt yields are a reflection of economic weakness, not strength. Investors are pricing for a double-dip recession - or as the Telegraph's in-house deficit hawk Jeremy Warner conceded back in August:

Gilt yields are signalling a depression

As the FT story itself goes on to reveal:

[L]ow returns reflect expectations that the Bank of England will keep interest rates exceptionally low for the foreseeable future given the UK's extremely weak economic prospects.

The paper also cites an important, if under-reported, study by former Cabinet Office chief economist Jonathan Portes:

Examining the links between stock market performance and gilt yields, Jonathan Portes, director of the National Institute of Economic and Social Research, has found a strong correlation between lower gilt yields and greater investor concerns about economic prospects.

Over to you, Gideon...

Mehdi Hasan is a contributing writer for the New Statesman and the co-author of Ed: The Milibands and the Making of a Labour Leader. He was the New Statesman's senior editor (politics) from 2009-12.

How Jim Murphy's mistake cost Labour - and helped make Ruth Davidson

Scottish Labour's former leader's great mistake was to run away from Labour's Scottish referendum, not on it.

The strange revival of Conservative Scotland? Another poll from north of the border, this time from the Times and YouGov, shows the Tories experiencing a revival in Scotland, up to 28 per cent of the vote, enough to net seven extra seats from the SNP.

Adding to the Nationalists’ misery, according to the same poll, they would lose East Dunbartonshire to the Liberal Democrats, reducing their strength in the Commons to a still-formidable 47 seats.

It could be worse than the polls suggest, however. In the elections to the Scottish Parliament last year, parties which backed a No vote in the referendum did better in the first-past-the-post seats than the polls would have suggested – thanks to tactical voting by No voters, who backed whichever party had the best chance of beating the SNP.

The strategic insight of Ruth Davidson, the Conservative leader in Scotland, was to to recast her party as the loudest defender of the Union between Scotland and the rest of the United Kingdom. She has absorbed large chunks of that vote from the Liberal Democrats and Labour, but, paradoxically, at the Holyrood elections at least, the “Unionist coalition” she assembled helped those parties even though it cost the vote share.

The big thing to watch is not just where the parties of the Union make gains, but where they successfully form strong second-places against whoever the strongest pro-Union party is.

Davidson’s popularity and eye for a good photo opportunity – which came first is an interesting question – mean that the natural benefactor in most places will likely be the Tories.

But it could have been very different. The first politician to hit successfully upon the “last defender of the Union” routine was Ian Murray, the last Labour MP in Scotland, who squeezed both the  Liberal Democrat and Conservative vote in his seat of Edinburgh South.

His then-leader in Scotland, Jim Murphy, had a different idea. He fought the election in 2015 to the SNP’s left, with the slogan of “Whether you’re Yes, or No, the Tories have got to go”.  There were a couple of problems with that approach, as one  former staffer put it: “Firstly, the SNP weren’t going to put the Tories in, and everyone knew it. Secondly, no-one but us wanted to move on [from the referendum]”.

Then again under different leadership, this time under Kezia Dugdale, Scottish Labour once again fought a campaign explicitly to the left of the SNP, promising to increase taxation to blunt cuts devolved from Westminster, and an agnostic position on the referendum. Dugdale said she’d be open to voting to leave the United Kingdom if Britain left the European Union. Senior Scottish Labour figures flirted with the idea that the party might be neutral in a forthcoming election. Once again, the party tried to move on – but no-one else wanted to move on.

How different things might be if instead of running away from their referendum campaign, Jim Murphy had run towards it in 2015. 

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

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