Why Britain is not Portugal

George Osborne is wrong to argue that Portugal’s woes make the case for his spending cuts.

Demonstrating once again that he is much better at politics than he is at economics, George Osborne has cited Portugal's request for an EU bailout as further evidence that those opposed to his excessive spending cuts are playing "Russian roulette" with Britain's national sovereignty.

"Today, of all days, we can see the risks that would face Britain if we were not dealing with our debts and paying off our national credit card. These risks are not imaginary," he said.

What the Chancellor refuses to acknowledge is that Britain, unlike Portugal, Greece and Ireland, can afford to meet its debts over a sustained period of time (even under his plans, debt will be 68.8 per cent of GDP in 2014-2015). As Duncan Weldon points out, the average maturity of UK government debt is currently around 14 years, while Portugal's is 6.8.

Indeed, the Barclays Capital Fiscal Vulnerability Index (see Table 3.1 of the IFS Green Budget), ranks the UK first for public debt duration and as joint first on the percentage of borrowing that is in domestic currency (leaving it less exposed to the foreign bond markets).

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Britain's large structural deficit means that its overall rating is worse, but even then we're ranked 32nd, next to Japan (31st) and the United States (30th), and above India (35), France (39), Poland (40), Spain (42) and Italy (51). What's more, Osborne's premature cuts and the resultant collapse in economic growth have prompted the Office for Budget Responsibility to revise its borrowing forecasts up by £44.5bn. The Chancellor may claim that Labour lacks a "credible deficit reduction plan" but, without growth, so does he.

There is, however, one big similarity between Portugal and the UK. They were both among just five EU countries to suffer negative growth in the final quarter of 2010 (the others were Greece, Ireland and Denmark).

This week's economic survey by the British Chambers of Commerce suggests that the situation may be even worse than thought. According to the BCC, the economy may have grown by just 0.1-0.2 per cent in the six months to March.

Osborne's fixation on deficit reduction, rather than growth, means that he deserves neither and will lose both.

UPDATE: The excellent Will Straw points out that the OECD's new report includes even more evidence that Britain is not Portugal.

George Eaton is political editor of the New Statesman.

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Will Euroscepticism prove an unbeatable advantage in the Conservative leadership race?

Conservative members who are eager for Brexit are still searching for a heavyweight champion - and they could yet inherit the earth.

Put your money on Liam Fox? The former Defence Secretary has been given a boost by the news that ConservativeHome’s rolling survey of party members preferences for the next Conservative leader. Jeremy Wilson at BusinessInsider and James Millar at the Sunday Post have both tipped Fox for the top job.

Are they right? The expectation among Conservative MPs is that there will be several candidates from the Tory right: Dominic Raab, Priti Patel and potentially Owen Paterson could all be candidates, while Boris Johnson, in the words of one: “rides both horses – is he the candidate of the left, of the right, or both?”

MPs will whittle down the field of candidates to a top two, who will then be voted on by the membership.  (As Graham Brady, chair of the 1922 Committee, notes in his interview with my colleague George Eaton, Conservative MPs could choose to offer a wider field if they so desired, but would be unlikely to surrender more power to party activists.)

The extreme likelihood is that that contest will be between two candidates: George Osborne and not-George Osborne.  “We know that the Chancellor has a bye to the final,” one minister observes, “But once you’re in the final – well, then it’s anyone’s game.”

Could “not-George Osborne” be Liam Fox? Well, the difficulty, as one MP observes, is we don’t really know what the Conservative leadership election is about:

“We don’t even know what the questions are to which the candidates will attempt to present themselves as the answer. Usually, that question would be: who can win us the election? But now that Labour have Corbyn, that question is taken care of.”

So what’s the question that MPs will be asking? We simply don’t know – and it may be that they come to a very different conclusion to their members, just as in 2001, when Ken Clarke won among MPs – before being defeated in a landslide by Conservative activists.

Much depends not only on the outcome of the European referendum, but also on its conduct. If the contest is particularly bruising, it may be that MPs are looking for a candidate who will “heal and settle”, in the words of one. That would disadvantage Fox, who will likely be a combative presence in the European referendum, and could benefit Boris Johnson, who, as one MP put it, “rides both horses” and will be less intimately linked with the referendum and its outcome than Osborne.

But equally, it could be that Euroscepticism proves to be a less powerful card than we currently expect. Ignoring the not inconsiderable organisational hurdles that have to be cleared to beat Theresa May, Boris Johnson, and potentially any or all of the “next generation” of Sajid Javid, Nicky Morgan or Stephen Crabb, we simply don’t know what the reaction of Conservative members to the In-Out referendum will be.

Firstly, there’s a non-trivial possibility that Leave could still win, despite its difficulties at centre-forward. The incentive to “reward” an Outer will be smaller. But if Britain votes to Remain – and if that vote is seen by Conservative members as the result of “dirty tricks” by the Conservative leadership – it could be that many members, far from sticking around for another three to four years to vote in the election, simply decide to leave. The last time that Cameron went against the dearest instincts of many of his party grassroots, the result was victory for the Prime Minister – and an activist base that, as the result of defections to Ukip and cancelled membership fees, is more socially liberal and more sympathetic to Cameron than it was before. Don’t forget that, for all the worry about “entryism” in the Labour leadership, it was “exitism” – of Labour members who supported David Miliband and liked the New Labour years  - that shifted that party towards Jeremy Corbyn.

It could be that if – as Brady predicts in this week’s New Statesman – the final two is an Inner and an Outer, the Eurosceptic candidate finds that the members who might have backed them are simply no longer around.

It comes back to the biggest known unknown in the race to succeed Cameron: Conservative members. For the first time in British political history, a Prime Minister will be chosen, not by MPs with an electoral mandate of their own or by voters at a general election but by an entirelyself-selecting group: party members. And we simply don't know enough about what they feel - yet. 

Stephen Bush is editor of the Staggers, the New Statesman’s political blog. He usually writes about politics.