Osborne prepares to admit defeat on debt reduction

The Chancellor will abandon his debt rule to prevent even deeper cuts.

In his "emergency Budget" in June 2010, Osborne declared that "unless we deal with our debts there will be no growth". But as all Keynesians know, the reverse is true. Unless you stimulate growth, you can't deal with your debts. According to the latest independent forecasts, Osborne will be forced to borrow £174.9bn more than originally planned from 2012-16, a figure that is only likely to rise as growth remains anaemic or non-existent.

Indeed, so bad is the fiscal situation, that, as today's Times reports (£), Osborne is preparing to announce the abandonment of his golden debt rule in the Autumn Statement on 5 December. The rule, which forms the second part of his "fiscal mandate" (the first relates to the structural deficit, which the Chancellor aims to eliminate over a rolling five-year period), is designed to "ensure that debt is falling as a share of GDP by 2015-16". Based on the most recent set of forecasts from the Office for Budget Responsibility, published at the time of the Budget, debt will decline from 76.3 per cent in 2014-15 before dropping to 76 per cent in 2015-16. But since then, the economy has fallen back into recession, with borrowing already up by more than a quarter on last year. As a result, independent forecasters now say that Osborne will miss his target. The IMF, for instance, has forecast that debt will rise from 78.8 per cent of GDP in 2014-15 to 79.9 per cent in 2015-16.

In response, the Chancellor could, of course, announce billions more in tax rises and spending cuts. 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. Thus, as the Times reports, Osborne, with David Cameron's agreement, "is ready to take a political hit on missing the target rather than face the "nightmare" of further cuts."

For the Chancellor, the consequences could be grim. The abandonment of the debt rule would dismay his party's fiscal conservatives, and could trigger the loss of the UK's AAA credit rating, the metric by which he has set such stock. But it could also offer Osborne one final chance to redeem himself. Once he accepts that debt reduction should not be prioritised over growth, the menu of policy options expands accordingly. Indeed, a  well-sourced leader (£) in yesterday's Times suggested that the Chancellor was even considering a small stimulus. And why not? With the UK able to borrow at the lowest interest rates for 300 years, it is only Osborne's political pride that has prevented a change of course thus far. Even the IMF has said that a reduced pace of deficit reduction would not lead to a rise in UK bond yields. Freed from his fiscal straitjacket, Osborne would finally be liberated to pursue a policy that works.

Chancellor George Osborne leaves 11 Downing Street in London. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

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Who will win in Stoke-on-Trent?

Labour are the favourites, but they could fall victim to a shock in the Midlands constituency.  

The resignation of Tristram Hunt as MP for Stoke-on-Central has triggered a by-election in the safe Labour seat of Stoke on Trent Central. That had Westminster speculating about the possibility of a victory for Ukip, which only intensified once Paul Nuttall, the party’s leader, was installed as the candidate.

If Nuttall’s message that the Labour Party has lost touch with its small-town and post-industrial heartlands is going to pay dividends at the ballot box, there can hardly be a better set of circumstances than this: the sitting MP has quit to take up a well-paid job in London, and although  the overwhelming majority of Labour MPs voted to block Brexit, the well-advertised divisions in that party over the vote should help Ukip.

But Labour started with a solid lead – it is always more useful to talk about percentages, not raw vote totals – of 16 points in 2015, with the two parties of the right effectively tied in second and third place. Just 33 votes separated Ukip in second from the third-placed Conservatives.

There was a possible – but narrow – path to victory for Ukip that involved swallowing up the Conservative vote, while Labour shed votes in three directions: to the Liberal Democrats, to Ukip, and to abstention.

But as I wrote at the start of the contest, Ukip were, in my view, overwritten in their chances of winning the seat. We talk a lot about Labour’s problem appealing to “aspirational” voters in Westminster, but less covered, and equally important, is Ukip’s aspiration problem.

For some people, a vote for Ukip is effectively a declaration that you live in a dump. You can have an interesting debate about whether it was particularly sympathetic of Ken Clarke to brand that party’s voters as “elderly male people who have had disappointing lives”, but that view is not just confined to pro-European Conservatives. A great number of people, in Stoke and elsewhere, who are sympathetic to Ukip’s positions on immigration, international development and the European Union also think that voting Ukip is for losers.

That always made making inroads into the Conservative vote harder than it looks. At the risk of looking very, very foolish in six days time, I found it difficult to imagine why Tory voters in Hanley would take the risk of voting Ukip. As I wrote when Nuttall announced his candidacy, the Conservatives were, in my view, a bigger threat to Labour than Ukip.

Under Theresa May, almost every move the party has made has been designed around making inroads into the Ukip vote and that part of the Labour vote that is sympathetic to Ukip. If the polls are to be believed, she’s succeeding nationally, though even on current polling, the Conservatives wouldn’t have enough to take Stoke on Trent Central.

Now Theresa May has made a visit to the constituency. Well, seeing as the government has a comfortable majority in the House of Commons, it’s not as if the Prime Minister needs to find time to visit the seat, particularly when there is another, easier battle down the road in the shape of the West Midlands mayoral election.

But one thing is certain: the Conservatives wouldn’t be sending May down if they thought that they were going to do worse than they did in 2015.

Parties can be wrong of course. The Conservatives knew that they had found a vulnerable spot in the last election as far as a Labour deal with the SNP was concerned. They thought that vulnerable spot was worth 15 to 20 seats. They gained 27 from the Liberal Democrats and a further eight from Labour.  Labour knew they would underperform public expectations and thought they’d end up with around 260 to 280 seats. They ended up with 232.

Nevertheless, Theresa May wouldn’t be coming down to Stoke if CCHQ thought that four days later, her party was going to finish fourth. And if the Conservatives don’t collapse, anyone betting on Ukip is liable to lose their shirt. 

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