Osborne is set to break his golden debt rule

The IMF's warning that Osborne will miss his debt target spells trouble for the Chancellor.

After slashing its forecasts for UK growth earlier this week, the IMF has just delivered its full verdict on the state of the British economy and it makes grim reading for George Osborne. Noting that "the big picture on growth is one of stagnation since late-2010", the Fund repeats its call for Osborne to prepare a plan B if the economy fails to recover.

The planned pace of structural fiscal tightening will need to slow if the recovery fails to take off even after additional monetary stimulus and strong credit easing measures.

And there's more. It expects economy to "grow modestly" but warns that "current policy settings" mean the UK could suffer a "permanent loss of productive capacity".

But worst of all for Osborne, the Fund predicts that he will miss his target for national debt to be falling as a percentage of GDP by 2015-16. The man who mocked Gordon Brown for breaking his "golden rule" is set to do the same. "Under... weaker medium-term growth projections, the net debt target is expected to be met one year late," the IMF says. Government debt is now expected to rise from 78.8 per cent of GDP in 2014-15 to 79.9 per cent in 2015-16.

While Osborne's arbitrary targets are of little economic importance they are of immense political significance. Should he abandon his debt rule, the UK could lose its AAA credit rating. Standard & Poor's, for instance, has previously warned that our top rating is conditional on Osborne meeting his fiscal mandate. But why should we listen to the discredited agenices that rated Lehman Brothers and AIG as "safe investments" days before the crash? The answer is simple: we shouldn't. But this doesn't alter the fact that Osborne did. Having adopted the UK's credit rating as his metric of success (he once boasted that the UK was "the only major western country which has had its credit rating improve") he can hardly change tact now. 

The alternative, of course, is for Osborne to announce billions more in spending cuts and tax rises in a desperate attempt to meet his target. But that would only further reduce growth, meaning that he might miss his target anyway, and would hardly endear him to voters already bruised by austerity. The truth is that for Osborne, who arrogantly dismissed well-intentioned critics as "deficit deniers", there are now no good options.

George Osborne will his target to reduce the national debt, warned the IMF. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

Getty
Show Hide image

Why the Liberal Democrats by-election surge is not all it seems

The Lib Dems chalked up impressive results in Stoke and Copeland. But just how much of a fight back is it?

By the now conventional post-Brexit logic, Stoke and Copeland ought to have been uniquely inhospitable for the Lib Dems. 

The party lost its deposit in both seats in 2015, and has no representation on either council. So too were the referendum odds stacked against it: in Stoke, the so-called Brexit capital of Britain, 70 per cent of voters backed Leave last June, as did 62 per cent in Copeland. And, as Stephen has written before, the Lib Dems’ mini-revival has so far been most pronounced in affluent, Conservative-leaning areas which swung for remain. 

So what explains the modest – but impressive – surges in their vote share in yesterday’s contests? In Stoke, where they finished fifth in 2015, the party won 9.8 per cent of the vote, up 5.7 percentage points. They also more than doubled their vote share in Copeland, where they beat Ukip for third with 7.3 per cent share of the vote.

The Brexit explanation is a tempting and not entirely invalid one. Each seat’s not insignificant pro-EU minority was more or less ignored by most of the national media, for whom the existence of remainers in what we’re now obliged to call “left-behind Britain” is often a nuance too far. With the Prime Minister Theresa May pushing for a hard Brexit and Labour leader Jeremy Corbyn waving it through, Lib Dem leader Tim Farron has made the pro-EU narrative his own. As was the case for Charles Kennedy in the Iraq War years, this confers upon the Lib Dems a status and platform they were denied as the junior partners in coalition. 

While their stance on Europe is slowly but surely helping the Lib Dems rebuild their pre-2015 demographic core - students, graduates and middle-class professionals employed in the public sector – last night’s results, particularly in Stoke, also give them reason for mild disappointment. 

In Stoke, campaign staffers privately predicted they might manage to beat Ukip for second or third place. The party ran a full campaign for the first time in several years, and canvassing returns suggested significant numbers of Labour voters, mainly public sector workers disenchanted with Corbyn’s stance on Europe, were set to vote Lib Dem. Nor were they intimidated by the Brexit factor: recent council by-elections in Sunderland and Rotheram, which both voted decisively to leave, saw the Lib Dems win seats for the first time on massive swings. 

So it could well be argued that their candidate, local cardiologist Zulfiqar Ali, ought to have done better. Staffordshire University’s campus, which Tim Farron visited as part of a voter registration drive, falls within the seat’s boundaries. Ali, unlike his Labour competitor Gareth Snell and Ukip leader Paul Nuttall, didn’t have his campaign derailed or disrupted by negative media attention. Unlike the Tory candidate Jack Brereton, he had the benefit of being older than 25. And, like 15 per cent of the electorate, he is of Kashmiri origin.  

In public and in private, Lib Dems say the fact that Stoke was a two-horse race between Labour and Ukip ultimately worked to their disadvantage. The prospect of Nuttall as their MP may well have been enough to convince a good number of the Labour waverers mentioned earlier to back Snell. 

With his party hovering at around 10 per cent in national polls, last night’s results give Farron cause for optimism – especially after their near-wipeout in 2015. But it’s easy to forget the bigger picture in all of this. The party have chalked up a string of impressive parliamentary by-election results – second in Witney, a spectacular win in Richmond Park, third in Sleaford and Copeland, and a strong fourth in Stoke. 

However, most of these results represent a reversion to, or indeed an underperformance compared to, the party’s pre-2015 norm. With the notable exception of Richmond’s Sarah Olney, who only joined the Lib Dems after the last general election, these candidates haven’t - or the Lib Dem vote - come from nowhere. Zulfiqar Ali previously sat on the council in Stoke and had fought the seat before, and Witney’s Liz Leffman and Sleaford’s Ross Pepper are both popular local councillors. And for all the excited commentary about Richmond, it was, of course, held by the Lib Dems for 13 years before Zac Goldsmith won it for the Tories in 2010. 

The EU referendum may have given the Lib Dems a new lease of life, but, as their #LibDemFightback trope suggests, they’re best understood as a revanchist, and not insurgent, force. Much has been said about Brexit realigning our politics, but, for now at least, the party’s new normal is looking quite a lot like the old one.