Osborne's rhetorical shift

The Chancellor insists that "flexibility" is built into his plan.

George Osborne conceded little ground to his critics on the Today programme this morning, but there was a notable shift in his rhetoric. To those who have demanded that he produce a "plan B", the Chancellor replied that "flexibility" was already built into his economic strategy.

There is flexibility built into the plan that I announced a year ago... We're talking about the structural deficit, so in other words we allow the automatic stabilisers to operate, which means that the economy can move up and down with the cycle, the government spending can move up and down with the cycle.

It's a point that Osborne could have made at any time over the past year - the government can eliminate the structural deficit (the part of the deficit that remains when the economy returns to growth) even if the overall deficit, owing to higher spending on unemployment benefits (the "automatic stabilisers"), is higher-than-expected. But it's telling that he chose to make it now. Of course, should economic growth continue to disappoint, there's every possibility that Osborne will miss his flagship pledge to eliminate the structural deficit by the end of this Parliament. As I've noted before, anaemic growth means a slower pace of deficit reduction.

Osborne also came close to admitting that the success of his strategy depends on loose monetary policy (interest rates and the exchange rate) compensating for tight fiscal policy (spending cuts and tax rises). He noted: "We of course have an independent monetary policy committee and tighter fiscal policy gives the monetary policy committee greater freedom to operate monetary policy."

Despite the growing clamour for interest rate rises from some quarters, it's clear that the Chancellor both hopes and expects rates to remain at record lows. But how will ministers respond if the Bank of England raises rates prematurely? What is their plan B? That question, sadly, was not put to Osborne today.

As an aside, it's worth noting that Osborne berated the BBC for its allegedly negative coverage of the economy. It's a complaint that almost any politician could make (the truth is that bad news makes for better copy) but Osborne is on less than solid ground here. An economy that was growing at an annual rate of 4 per cent when Labour left office has not grown for the past six months. If the BBC has focused on reporting bad news, it's partly because there really hasn't been much good news. But it's also unwise for the man who repeatedly talked down the British economy in opposition (erroneously describing it as "bankrupt"), to complain of others doing the same.

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.