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Catastrophe averted?

The leaders of the rich countries went to Washington to save the world from sliding into deep recess

Vincent Cable

Shadow chancellor, Liberal Democrats

By the low standards of economic summitry, the G20 meeting rated quite high. There was a predictable, no doubt pre-written, communiqué, full of the usual banalities. And the meeting suffered from the absence of the world's most important politician, who hasn't yet taken up office. But, these necessary caveats aside, there were important achievements.

The first is that the meeting took place at all. The ludicrous pretence of the G8 (or G7) that the old western powers should set the global economic agenda has been punctured for good. On a purchasing power parity basis, China has the second-biggest economy in the world and India the fourth. It has been clear for some time that China is lender of last resort to the global system (by, in effect, underwriting US government paper) and the main source of global incremental demand (and commodity price inflation). The Chinese self-parody as the pupil sitting meekly at the feet of a dominant, but erring, master defies belief. It is obviously right that China, India and the other main non-G7 countries should be at the top table.

The second achievement was the clear realisation that unless governments hang together they will hang separately. Enough has been learned from interwar history for us to understand the follies of beggar-my-neighbour economics. Perhaps a warning shock was being sent across the bows of the incoming Obama administration not to reinvent the protectionist tariffs of the 1930s in a new guise, directed at China or Mexico in particular, or aiming to salvage the US auto industry through public subsidy. But this new-found concern for open markets has not yet communicated itself to EU or Indian or Chinese trade negotiators, who show no enthusiasm for lifting the block on trade liberalisation under the Doha round.

While trade policy is on the back burner, macroeconomic policy co-ordination is not. With a few exceptions - Germany notably - there is recognition of the need for aggressive monetary and fiscal policy and for large-scale intervention to recapitalise banks. These interventions can be and are being undertaken nationally. But governments acting in isolation attract critical attention from capital markets and currency speculators, as Gordon Brown is discovering. Structures like the G20 are the best safeguard against chaotic, unilateral action.

Will Hutton

Economic commentator

It was remarkable to gather so much economic and political power in one room to address a common agenda. That was the good news - along with commitments to co-ordinate fiscal expansion, to expand the lending power of the IMF and World Bank (Japan's $100bn loan to the IMF will increase the Fund's lending capacity by 40 per cent), to boost cross-border supervision, to tackle credit rating agencies, to reassess mad accounting rules and require member countries to attack the bonus culture in the financial services industry. A year ago such an agreement would have been inconceivable.

The bad news is that much of this is shutting the stable door after the horse has bolted. Four things have to be recognised: that the world has profound imbalances between high-saving, high-surplus areas in Asia and the Gulf and low-saving, structural deficit countries in the transatlantic economy (Germany excepted); that a system of floating exchange rates and private banks can no longer take the weight of recycling those savings; that unless the system is de-risked and the burden of adjustment is placed on deficit and surplus countries alike, the global system faces breakdown; and finally, that the business model used by the banks to recycle surpluses - securitisation and hedging in the $360trn global derivatives market - is broken.

In plain English, China must accept that its currency must appreciate; Britain and America, that they cannot run their economies on foreign savings; and all players that there has to be a system of semi-fixed exchange rates between the yen, the euro and the dollar.

One tough reality is that, for all their new economic weight, China, Brazil, Russia and India do not have fully convertible currencies - nor do they want to accept the discipline involved in having convertible currencies.

Ann Pettifor

Fellow, New Economics Foundation

Over the past decade, the Group of Eight leaders turned their exclusive annual meetings into jamborees. Rock concerts, protesters and celebrities added populist glitz. However, the real purpose of the meetings - international co-operation and co-ordination - was ducked. At last year's G8 Summit in Heiligendamm, Germany, George W Bush and Gordon Brown vetoed Angela Merkel's agenda item for co-operation over tighter international regulation and financial oversight of capital markets. That task, they argued then, could safely be delegated to "the invisible hand". Now that the fantastic, self-regulating machinery of free markets has proved grossly malfunctional, it is good to hear talk of enhanced co-operation and regulation.

But, in places, the joint statement issued by the 20 world leaders borders on the delusional. The phrase "We must . . . ensure . . . that a global crisis, such as this one, does not happen again" implies that they are avoiding the next war when they are still losing this one.

Even more questionable is the call for continued "economic growth". In a world of finite resources on a planet with limited capacity to absorb toxic emissions, and with bushfires encircling Los Angeles, we would have hoped that world leaders had some awareness of the threat of climate change and of the limits to economic growth. But no. The gravest threat to global security - our rapacious attitude to the earth's resources - is once again whipped up with talk of "market principles, open trade and economic growth".

Jesse Norman

Senior fellow at Policy Exchange

One might have thought the G20 summit a good moment for some straight talk from the Prime Minister. Instead, the political wind machine was cranked up to full blast. The summit would be a second Bretton Woods. Gordon Brown would forge a new global consensus on co-ordinated intervention to stimulate growth (while, of course, leading reforms to prevent the banking crisis from ever recurring). Luckily virtually none of this was true, or the summit would have been a hopeless failure. With fiscal measures already widely adopted, the G20 hardly needed Brown's leadership. No surprise that he returned empty-handed.

Labour has moved from despondency to a manic desperation to remain in office. The result is that the ever-fragile concept of truth in politics has wholly been cast aside. Thus the humiliating bank nationalisation has been dressed up as an act of far-seeing economic statesmanship. And a sensible warning from the shadow chancellor that current economic policy puts sterling at risk has been condemned for breaching an irrelevant semi-convention dating from the time of fixed exchange rates.

Alex Brummer

City editor, Daily Mail

There is a golden rule of international financial meetings. The larger the "G" number, in other words the more countries involved, the less likely it is that any worthwhile or binding decisions will be taken. So while it was wholly encouraging that the G20 summit brought a number of emerging market leaders to the top table of finance, including China, Brazil and Russia, there was never any real prospect of the event becoming the new Bretton Woods.

Furthermore, the summit took place in the final days of the lame duck administration of George Bush. Once it became clear Barack Obama was going nowhere near the confab, the event became even more of an irrelevance.

European leaders may like to blame Wall Street and Anglo-Saxon capitalism for the credit crunch and the recession now spreading through the Group of Seven like wildfire, but there is no hope of concerted international action without the new White House and Federal Reserve on board.

Almost all that was agreed could have been decided before the leaders left home. The commitment to reviving the Doha trade round is pure motherhood and apple pie. The prairie populists on Capitol Hill are unlikely to be enthusiastic.

At the core of the proposals was the commitment to use fiscal measures, tax cuts and public spending to kick-start global economies. But despite Gordon Brown's enthusiastic embrace of a new Keynesian big-spending approach - as advocated by Nobel prize-winner Paul Krugman - he neatly forgot to mention that such big-spending ways were only for those countries with a "policy framework conducive to fiscal sustainability". The UK with its ballooning budget deficit, which could hit £100bn or more next year, is clearly in no such position.

It is hard to fathom in what way the G20 was "historic", as the Prime Minister claimed in the Commons. There is little original in a bunch of old ideas designed to remove risk from the financial system and control executive pay. That is what regulators should have done before the banks ploughed into the iceberg.

James Buchan

Author and financial commentator

What is the Financial Stability Forum? What is "mitigating against pro-cyclicality in regulatory policy"? What, if anything, has the G20 summit in Washington on the weekend of the 15 November achieved?

Nothing very much, is the answer to all three questions. In the twilight of a discredited US administration, and with President-elect Barack Obama absent, the meeting was never likely to achieve a great deal or generate excitement in the US. Yet the final declaration, drafted with suspicious ease by the delegations on Saturday night, has something for everybody but not enough of anything to scare the financial horses.

Nicolas Sarkozy, the French president whose idea the whole thing was, gained some support for more institutional government of trade and finance, but no super-gendarme international of the type that has been directing financial traffic in the French imagination since the 17th century. As Jean-Pierre Robin wrote in the Figaro: "Those with fantasies of supranational supervision will need to change therapist." The US, jealous of its commercial sovereignty even when it is going about without its shirt, put paid to those Gallic dreams and also gained some platitudes about free trade.

The new commercial powers, not only Brazil, Russia, India and mainland China but also rich oil producers such as Saudi Arabia, received diplomatic recognition of their deep pockets. "The world's geopolitical structure has a new dimension," the Brazilian president, Luiz Inácio Lula da Silva, said. "There is no logic to making any political and economic decisions without the G20 members - developing countries must be part of the solution to the global financial crisis."

I suspect the winner is Gordon Brown. The next meeting will be held under his presidency in London in April. The Washington ragbag of proposals to reform or tinker with the current system, such as reminding us about the Financial Stability Form and mitigating against that regrettable pro-cyclicality in regulatory policy, appeals to his technical vanity and plays to his technical strengths.

Paul Mason

Economics editor, Newsnight

There was a sense in Washington, despite the throbbing engines and bulletproof glass, of powerlessness. The communiqué was stronger on the causes of the crisis than on co-ordinated solutions. Policymakers are right to stay focused on the near-term dangers: these are country-level debt default, the rising cost of borrowing for non-financial companies, rapid job losses and - via feedback - further destabilisation of the banking system. We are moving into the phase of fiscal stimulus but there are powerful technical arguments that say without "quantitative easing" - that is, printing money to stimulate demand - it doesn't work. The same people who told me it would come to recapitalisation, that the TARP (troubled assets relief programme) would not work, are now saying: nationalise the banks and print money.

Despite the urgency of the focus on near-term dangers, what was obvious at G20 was the lack of vision as to the future growth model of capitalism. The problem was seen as a failure of regulation; the solution a pretty weak brew of re-regulation that will get diluted even more as the lobbyists begin to have influence. But the problem is more fundamental: the growth model based on high debt instead of high wages has failed and will be hard to revive.

Peter Mandelson

Secretary of State for Business

We have been caught in a global whirlwind of extraordinary force.

It has brought with it a fear that has gripped the world economy and taken hold here at home. We are seeing it every day, with fear among consumers that is depressing demand; fear among banks that is inhibiting them from lending; fear among small- and medium-sized businesses that banks are just about to cut off their credit lines. The choice facing us and governments around the world is this: do we act decisively to counter and overcome this fear, or do we become paralysed by it and fail to act?

The government has already shown its willingness to take the bolder course as the first mover in setting about stabilising the banks. What is needed now is action to stimulate the demand essential for recovery. The UK economy, like economies in the rest of the world, needs a shot of adrenalin.

The Bank of England has already made a significant cut to interest rates. This monetary stimulus now needs to be matched by a fiscal stimulus. And because this is a global crisis this is best done if the benefit of the measures taken nationally is maximised by the same measures being taken around the world. That was the message from the international conference in Washington, as governments recognised the need to take the action necessary to stimulate their economies.

People will say, "But you are resorting to borrowing in order to deliver the stimulus that's needed." My answer to that is, what is the alternative? We certainly haven't heard one from the Conservatives.

David Cameron and George Osborne, trapped by their desire to oppose everything the government does, refuse to accept the scale of the challenge the world's economies now face and the prescribed international action. Their stance appears to be, if the rest of the world disagrees with us, it is because the rest of the world is wrong. The result is incoherence and an Opposition at sixes and sevens. One minute this is "do all it takes" and the next it is - as we heard this week - leave the recession to "take its course".

Sitting on our hands watching houses repossessed and businesses go to the wall is certainly not the approach being urged on me by people I have been speaking to up and down the country. They want their government to act to stimulate demand in the economy here and now. With all due prudence, that is what we are going to do.

Diane Coyle

Author and economist

The G20 meeting confirmed a robust and rapid response (by past standards) to recession, even in the US operating under a rump free-market administration. Policymakers around the world have been shaken to see the financial system at the brink of collapse - on their watch.

Yet it is difficult to predict how severe the recession will be. Bank lending to businesses and individuals is virtually frozen. In many (but not all) areas of the economy, activity has come to a halt. The last financial boom and bust, ending in 2001, had surprisingly little impact on jobs and growth, as the financial bubble had become increasingly untethered from anything real. Today's vicious circle of evaporating liquidity is much more serious, but lower interest rates and bigger government deficits will help. The underlying trends are easier to outline. Some challenges are clearly unaltered, such as climate change and our ageing society.

The technological opportunities are still there, too, in communications, the internet and biotechnology. Globalisation will be less driven by finance in future, but it will not be unwound. It would take a generation to turn back the clock on economic linkages, and the cultural impacts are permanent. In fact, the crisis has underlined our interdependence across national borders.

What has changed is the political economy of globalisation. In the triad of efficiency, fairness and freedom which dominates political choice in democracies, fairness will take priority in the years ahead, and the drive for ever greater productivity gains will retreat. The semi-nationalisation of the banks has started to shift the boundary between public and private domains; we will have to think more carefully about how to govern private choices that have big social spillovers. The G20 did not touch on this profound question of governance.

Iain Macwhirter

Political commentator

The G20 was largely a throat-clearing session and was never going to put in place the foundations of a new international financial system. Progress on the stalled Doha trade talks is encouraging but provides no guarantee that protectionism will not raise its head in the coming economic slump.

It is inevitable that countries faced with financial collapse will try to defend their economies by any means possible. Britain is already far down the road of "beggar my neighbour" economics by the "managed" devaluation of the pound, a crude attempt to boost UK industry by lowering the prices of British exports and creating a de facto tariff wall around imports from abroad. It won't work because Britain does not make much of anything any more except debt, and the world has plenty of that already.

But the collapse of the pound will seriously damage what is left of UK financial services. No one in their right minds would put money into the UK economy now, with the property market collapsing, UK banks insolvent and government borrowing likely to reach £100bn in the next 18 months.

Gordon Brown seems to believe that sterling is like the dollar, and that people will buy our dud pounds whatever the likely losses. However, as we are discovering, sterling is not a reserve currency and unlike the US we cannot force other countries to pay our debts. The future for our battered island is likely to be hyperinflation punctuated by appeals to the International Monetary Fund for emergency aid. Forget about spending our way out of recession - the UK government simply lacks the resources to fund the huge borrowing that would be required. Something will have to give. Brown will have cause to regret being so beastly to the Icelanders.

Richard Reeves

Director of Demos

James Carville, the hardened political aide to Bill Clinton, said that if he was reincarnated he'd want to come back as the bond market: "You can intimidate anybody." Right now it seems odd to think of any financial markets threatening anybody. But it is one of the ironies of the current economic situation that the capital markets still have some serious muscle.

Western governments, faced with recession, need to throw a lot of money at their ailing financial institutions - money that can be raised only by selling Treasury debt, mostly to the capital-rich investors of the Far East. For Gordon Brown, this is likely to become a more difficult sell, as Prudence is given the push and the pound takes a nosedive. Even national exchequers invite sceptical scrutiny in this new, nervous world.

The financial crisis is at heart a loss of faith. The word credit derives from the Latin credo - "I believe". When the Titanic of the financial world - in the shape of Lehman Brothers - was allowed to sink, the bonds of trust stretching around the world were snapped. In an instant, everyone stopped believing in each other.

A number of sensible measures should be on the agenda when the G20 reconvenes next year, including legislation to ensure bonuses in financial services are paid on the basis of five-year performance; new "pro-cyclical" provisioning rules requiring finance houses to increase their store of capital in economic upturns; and tougher, independent regulation of the rating agencies whose doe-eyed assessments of banks built on a mountain of paper helped get us in this mess.

There is, however, no quick technical fix for such a dramatic loss of confidence. Trust can be lost in the blink of a market-trader's eye - but it will take years to rebuild.

TEN THINGS THEY ACHIEVED

  • 1 Created a road map aimed at stabilising the world economy and overhauling the banking system with targets for the end of March 2009
  • 2 Advocated Keynesian big-spending
    “fiscal stimulus”
  • 3 Expanded from a small club making world decisions to recognise the importance of the economies of Brazil, Russia, India and China
  • 4 Agreed to reform international finance institutions, including better transparency and supervision of credit ratings agencies
  • 5 Agreed that the Financial Stability Forum should include emerging economies
  • 6 Banks and hedge funds to hold increased levels of capital and cash
  • 7 Recommended “supervisory colleges” for all major cross-border financial institutions
  • 8 Return to the Doha round – trade ministers to meet in Geneva next month
  • 9 Instructed G20 finance ministers to draw up plans and timeline
  • 10 Agreed to meet again, in London next April

. . . AND FIVE THEY DIDN’T

  • 1 Agree a future growth model for capitalism. Instead they reconfirmed their “shared belief in market principles”
  • 2 Agree detailed plans for regulatory reforms of banking
  • 3 Establish a plan of action for achieving the already endangered Millennium Development Goals
  • 4 Set up an international supervisory body with sufficient power to control global markets
  • 5 Halt the run on sterling, which fell sharply against the euro and dollar

Alyssa McDonald

This article first appeared in the 24 November 2008 issue of the New Statesman, How to get us out of this mess

RALPH STEADMAN FOR NEW STATESMAN
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The Tory wars

How the EU referendum exposed a crisis in the Conservative Party that will endure long after the vote.

The Conservative Party is approaching not only a historic referendum, but a historic moment of crisis. It is deeply divided over whether or not to stay in the European Union, and the divisions are unequal. At the top, most want to stay in: not out of conviction, but because most ministers have found it politic to agree with David Cameron, even if they cannot support his view that he got a great deal from other EU countries after his supposed “renegotiations” with them. Among MPs generally the mood is far more hostile; and at the party’s grass roots it is predominantly in favour of leaving. Where this ranks in the history of Tory party crises is not easy to say.

It smells a little like the division over the Corn Laws in 1846, when Robert Peel needed to rely on the Liberals and Whigs to secure repeal, because most of his party was against him. It looks greater than 1903, when a minority of the party sympathised with Joseph Chamberlain over tariff reform. Where it differs from both of those is that for 28 and 19 years, respectively, the Tories had a long wait before coming back into power for a full parliamentary term after their split. Now, Labour itself is so divided, and its leader viewed as so marginal by people outside the party, that the prospect of the Tories losing power for a couple of decades is highly unlikely.

So perhaps we should look at 1922, when a rebellion in the party caused the end of the Lloyd George coalition and put Stanley Baldwin into Downing Street, first briefly, in 1923, and then, after the short-lived first Labour government, for five years; or the more drawn-out legacy of Neville Chamberlain, who left the stain of Munich on the party. In that case, the wound did not heal for 25 years: one of the reasons Harold Macmillan disapproved of R A Butler was that he had been an avid appeaser, and it helped lose Butler the Tory leadership – ironically, to a man, Lord Home, who had been Neville Chamberlain’s private secretary. Divisions over appeasement had already had the effect of putting Churchill into Downing Street in 1940 ahead of Viscount Halifax. Factionalism in the party was one of the causes of the 1945 landslide defeat by Labour, and of the narrow one in 1964.

The current division is open and is breeding hostility, luxuries afforded by one of the Tories’ few unifying beliefs: that Labour poses no threat at the moment, and they can have a quarrel that may even verge on civil war without fearing electoral consequences. Whatever the outcome, the present quarrel allows the opportunity for a major realignment of the party without it having to go out of office. A minister who is (just, and after much soul-searching) committed to our staying in the European Union told me frankly last week that the Tory party was “a mess” and that, whatever happened on 23 June, the referendum would be the beginning and not the end of a painful process for the Conservatives.

Whereas so much of what goes wrong for David Cameron has been down to his arrogance, and his failure therefore to grasp the likely consequences of his actions (think of the policy on Libya), the “mess” of a divided and recriminatory Tory party is, paradoxically, down to a fear of failure. He had, in the first instance, promised a referendum on our membership of the EU in order to see off Ukip. However, like the rest of us, Cameron had never believed he would be in a position where he would have to abide by his promise, because he had, like the rest of us, expected either to lose last year’s election or to be able to govern only with the help of the Liberal Democrats: who would, to his delight and relief, never allow him to call a plebiscite. But he and his party did not fail. The referendum is now just two and a half months away, and it is shredding the Tory party.

***

There is dismay among most of the pro-EU Tories, because they sense they are losing. In his now famous savaging of Boris Johnson in the Times last month, Matthew Parris, who has a record as a level-headed and, if anything, understated columnist, threw in the aside that he thought defeat for the Remain camp was increasingly likely. “I am aware,” another minister told me, “that I, like all of my colleagues, have so far failed to make a convincing case for staying in.” He expressed foreboding about how things could get worse for the Remainers: “One more terrorist outrage that can be attributed to open borders in Europe, or film of the Mediterranean full of boats of refugees, and we’re done for.”

A couple of ministers have told me that their personal loyalty to Cameron was what persuaded them to support him, but that such support is contingent on an understanding that they will not be asked to go out and make far-fetched claims about what will happen if the UK leaves. There is embarrassment even among pro-Europeans about some of the hyperbole retailed so far, not least because of the damage wild and easily disprovable claims do to the credibility of the Remain case. Such is the paranoia about the party post-23 June that no one sensible is keen to speak attributably about how things are, or how they might turn out.

Leading Tories note the disparity between the motivations of the two camps. Whereas groups such as Grassroots Out and Leave.EU have held rallies all over the country, some drawing in 2,000 people, there have been no comparable manifestations of popular enthusiasm to keep Britain in. There seems an inevitable inertia among those happy with the status quo that contrasts with the energy and dynamism of those who want change. And, for the avoidance of doubt, rallies by Leave campaigners have not been packed solely with Ukip stalwarts and disaffected Tories, but have included groups of Labour supporters and trades unionists who have cheered on speakers such as Kate Hoey. After all, many who put Jeremy Corbyn into the leadership are, like him, long-term Bennites, with a Bennite view of the EU: and, unlike their leader, they are saying so.

Tory MPs on the Remain side talk resignedly of the dislocation between them and their activists. Most Conservative associations are minuscule compared to what they were in the Thatcher era, and some MPs say they struggle to find a single activist willing to vote In. In the Commons, an estimated 150 Tory MPs out of 330 have indicated that they are Leavers, and many among the payroll vote who have declared their support for Cameron have done so purely for reasons of job security. Few believe that those who have exercised their right to differ and support Leave can be sure of keeping their jobs, with one or two important exceptions. The whips have been unpleasant and forceful about job prospects, as one MP put it to me, “almost to the point of caricature”.

The unpleasantness starts with David Cameron. The conversation the Prime Minister had with Iain Duncan Smith when the former work and pensions secretary decided to resign is characterised by Duncan Smith’s friends as one in which “expletives were used”. Insiders believe that some of those around Cameron are absolutely ruthless. They sense the argument is going against them and they will do what they must to turn it round. The Queensberry rules do not apply. Hence the threats by whips, the sendings-to-Coventry, the cutting people dead in corridors, the meetings of a “White Commonwealth” of ministers that excludes anyone known or feared to be opposed to Cameron’s view.

Of the six ministers with a seat in cabinet who came out in favour of Brexit, both Iain Duncan Smith and Chris Grayling are said to have long believed they would be sacked after the referendum, and so felt they had nothing to lose. Some think Theresa Villiers, the Northern Ireland Secretary, is in that category, too. John Whittingdale, the Culture Secretary, is treading carefully, and colleagues think Priti Patel ticks too many boxes to be sacked – being a woman from an ethnic minority who is good on television.

Michael Gove’s position is interesting, to say the least. He, unlike any of the other five ministers who came out in February as Leavers, was part of Cameron’s social circle, and clung on there even after his demotion from education secretary to chief whip in favour of the considerably less able Nicky Morgan. He alone of all the six has made a coherent and rigorous case for leaving the EU, and his combination of intellect and conviction makes him by far Cameron’s most dangerous opponent within the party.

He has studiously avoided any personal element in his criticism of the Prime Minister or his colleagues; he rushed to George Osborne’s defence after Duncan Smith’s resignation and when other Leavers were using the Chancellor’s failings to undermine him; and he is maintaining a general decorum at all times. “But the main reason they daren’t touch Gove,” an insider tells me, “is that he knows too much.”

What worries the Cameron camp, and invigorates Leavers, is the perception, shared by anyone over the age of 55, that what is going on now is totally unlike 1975, when the only other referendum on our participation in Europe was held and the United Kingdom decided by a margin of 2 to 1 to stay in the European Economic Community. Veterans remember people saying at the time that Britain had been in only two years, and it had to be given a chance to work. That argument no longer applies. Also, the cast list of serious politicians advocating exit, which in 1975 was Tony Benn, Michael Foot, Peter Shore and Enoch Powell, is now a widening array of people, in and out of politics.

Because a defeat for Cameron is so possible – a poll in last Sunday’s Observer showed Leave 4 points ahead of Remain, 43 to 39, with 18 per cent still to decide – many Tories are spending much time thinking and talking privately about potential outcomes. One that is ruled out by all is that either side will win by a substantial margin: whether we vote to leave or stay, it will be close.

“If we vote to leave, then we leave,” a ­Remain minister tells me. “That’s the end of it, and it’s the end of Cameron, too. It would be like a vote of confidence for him. We need a government to negotiate the terms of our exit and a shedload of trade deals, and it can’t be him in those circumstances. But the nightmare scenario is that we vote narrowly to stay in. That’s when things turn really ugly.”

The “nightmare” is what occupies the thoughts of an increasing number of Tories. The mood among the Remainers is already so bitter – especially, it seems, among those around Osborne, rather than those around the Prime Minister, for they see their man’s promotion prospects as hanging entirely on the outcome of the vote – that calls for magnanimity in victory may not be heeded. Given the profoundly anti-EU temper of the Tory party, such an attitude would be dangerous for its unity and health even if the victory were on the scale of that in 1975. If, as is more likely, the difference is of a few percentage points, the consequences of such an atmosphere of recrimination could be devastating.

“If David wins by a decent margin we can then settle down and face the important challenges the rest of the world offers us, and stop obsessing about Europe,” a close confidant of the Prime Minister told me. “Russia is a growing threat, China is a problem and America could end up being far from reliable. If we win well, then I and many like me will try to persuade David to change his mind about leaving before the next election [in 2020] come what may, as he is manifestly the best man to see us through these problems.” Such sentiments are widespread among Cameron’s friends, and reflect other factors of which they are keenly aware: the recognition that Osborne is deeply damaged, that Boris Johnson would be a disastrous leader and prime minister, and that Gove is rather better at politics than they might like.

***

There is an idea on both sides that scores will have to be settled after 23 June, and, the way things are going with party discipline and out-of-control aides in Downing Street, such an outcome is inevitable. Should Remain prevail, a wise prime minister would understand that this was a time to heal wounds and not deepen them. It remains a matter of conjecture how wise Cameron, whose vindictive streak is more often than not on the surface rather than beneath it, is prepared to be.

Those who work for his party at the grass roots, and on whom MPs depend to get the vote out at elections, will be unimpressed by a purge of those who have not backed him over Europe. There isn’t much of a voluntary party left, and there will be even less of one if he acts rashly in victory. If it is a narrow victory – and it is, at this stage, hard to envisage any other sort – his party could become unmanageable unless he acts with restraint and decency.

It won’t help Cameron, who is already considered out of touch because of his personal wealth and the life he leads as a consequence, that (as a result of the Panama Papers) we now know that part of his family’s wealth was based on precisely the sort of systematic tax avoidance that Osborne has branded “immoral”.

Yet things could be worse for the Prime Minister. Tory Leavers believe that if only Corbyn would say what he really thinks about the EU their side would be assured of victory. It does not seem to worry them that that, if true, would be the end of Cameron, for whom they have the sort of disdain the Heseltine faction had for Margaret Thatcher in the late 1980s, or the “Bastards” had for John Major after Britain ratified the Maastricht Treaty in 1993.

Conservatives worried about the stability of their party believe that only Labour under a new, more effective and less factional leader could present the serious electoral challenge to them that would shake them out of these unprecedentedly acrimonious and self-indulgent divisions. We can only imagine how differently the In campaign would be conducted if Labour had a nationally popular and an obviously electable leader.

As it is, many more dogs are likely to be unleashed. Things promise to become far nastier, dirtier and ever more internecine for the Tories, not just before 23 June but for a long time afterwards: and with the party in power for at least four more years, one can only guess what that means for the governance of Britain.

Simon Heffer is a journalist, author and political commentator, who has worked for long stretches at the Daily Telegraph and the Daily Mail. He has written biographies of Thomas Carlyle, Ralph Vaughan Williams and Enoch Powell, and reviews and writes on politics for the New Statesman

This article first appeared in the 08 April 2016 issue of the New Statesman, The Tories at war