Will Cameron's five nightmares come true?

Defeat in Eastleigh, a higher deficit, a triple-dip recession, poor local election results and the loss of Britain's AAA rating could prompt a new revolt by Tory MPs.

At the start of this month, the Evening Standard reported that Tory rebels had set David Cameron five challenges: victory in the Eastleigh by-election, a successful Budget, a return to economic growth, a strong performance in the county council elections and the retention of the UK's AAA credit rating. A few weeks on, what are the PM's chances of success looking like?

1. Eastleigh by-election: preparing for defeat

The Tories already appear resigned to defeat in Eastleigh, where the Lib Dems' local advantage - they hold all 36 council seats in the constituency - has given them the edge. Victory for "the yellow bastards" means it will be even harder for Cameron to argue that a Conservative majority is achievable in 2015. The party has included 20 Lib Dem MPs on its target list of 40 in the hope that they will prove easier to dislodge than their Labour counterparts, but Eastleigh suggests that Clegg's party will benefit from a significant incumbency advantage. The Lib Dems' plan to treat the general election as "57 by-elections" looks increasingly smart. 

2. The Budget: Osborne faces failure on the deficit

The pressure on George Osborne to deliver a "game changing" Budget has never been greater and will reach a new peak if the Tories lose in Eastleigh next Thursday. After growth of just 0.4 per cent since the Spending Review in October 2010, Conservative MPs are demanding shock-and-awe tax cuts. Graham Brady, the chairman of the backbench 1922 Committee, has called for the abolition of Air Passenger Duty; others demand the suspension of capital gains tax and a reduction in corporation tax to an Irish-style level of 11 per cent.

But the problem for the Chancellor is that as Tory calls for action have grown, his room for manoeuvre has shrunk. After no growth in 2012, there's precious little spare money in the Treasury. When Osborne steps up to the despatch box on 20 March, he'll almost certainly be forced to announce that the deficit is expected to be higher this year than last.

Until now, even as he's repeatedly missed his borrowing targets, the Chancellor has at least been able to boast that the deficit has continued to fall each year. 'It's taking longer than we thought but we're still heading in the right direction' has been his mantra. But that's about to change. Even with the addition of the £2.3bn proceeds from the 4G spectrum auction, the OBR will likely forecast a deficit for 2013 in excess of the £121bn recorded in 2012. With just two months of the financial year remaining, borrowing is £5.3bn (5.8 per cent) higher than in the same period last year. Osborne, one Tory MP tells me, will have "the worst of both worlds": no growth and a rising deficit.

3. Triple-dip recession: still on the table

After the economy shrunk by 0.3 per cent in the final quarter of 2012, the UK is in danger of suffering its first-ever triple dip recession. And while most economists expect us to (just) avoid this fate (NIESR is forecasting growth of 0.2 per cent in the first quarter), last week's worse-than-expected retail figures, the weakest for three years, led to warnings that a triple-dip was still "on the table". Rob Wood, an economist at Berenberg Bank, said: "The underlying picture is that the economy is bouncing along the bottom, so weather disruptions can easily tip it into negative territory." 

The Office for National Statistics will publish its first estimate of Q1 GDP on 26 April, six days before the county council elections. 

4. County council elections: will the Tory vote hold up?

On paper, the county council elections should give Cameron the least cause for concern. As Tom Watson, Labour's campaign co-ordinator, told me yesterday: "It's shire elections in their heartlands. It's May 2014 that will be their big test." But with local Conservative associations reporting mass resignations over equal marriage and Ukip still polling strongly, the Tory vote could still take a battering. 

5AAA rating: increasingly at risk

The rising deficit means at least one of the big three credit rating agencies - Moody's, Fitch and Standard & Poor's - is likely to strip the UK of its AAA rating this year. All three have already put Britain on "negative outlook" after anaemic growth forced Osborne to borrow £212bn more than planned. 

The loss of our AAA rating would, as I've written before, be of little economic significance. The US and France have seen no significant rise in their borrowing costs since losing their AAA ratings and there's little reason to believe Britain would be any different. All the evidence we have suggests that the market is prepared to lend to countries that can borrow in their own currencies, such as the US, the UK and Japan, and that enjoy the benefits of an independent monetary policy, regardless of their credit ratings or their debt levels.

But for Osborne, the politics of losing AAA would be toxic. Both before and after entering the Treasury, he chose to make our credit rating the ultimate metric of economic stability. When Britain was first put on negative outlook by S&P in May 2009, Osborne declared:

It's now clear that Britain's economic reputation is on the line at the next general election, another reason for bringing the date forward and having that election now ... For the first time since these ratings began in 1978, the outlook for British debt has been downgraded from stable to negative.

And when the UK was taken off negative watch by S&P in October 2010, he boasted of "a big vote of confidence in the UK, and a vote of confidence in the coalition government's economic policies". By his own logic, then, the loss of AAA would amount to a vote of no confidence in his economic policy. 

For political purposes, Osborne used Britain's credit rating as a stick to beat Labour with. He can hardly complain if others now use this move against him. The hunter has become the hunted.

David Cameron holds a Q&A session with workers as he campaigns for the forthcoming by-election in Eastleigh. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

Screengrab from Telegraph video
Show Hide image

The Telegraph’s bizarre list of 100 reasons to be happy about Brexit

“Old-fashioned light bulbs”, “crooked cucumbers”, and “new vocabulary”.

As the economy teeters on the verge of oblivion, and the Prime Minister grapples with steering the UK around a black hole of political turmoil, the Telegraph is making the best of a bad situation.

The paper has posted a video labelled “100 reasons to embrace Brexit”. Obviously the precise number is “zero”, but that didn’t stop it filling the blanks with some rather bizarre reasons, floating before the viewer to an inevitable Jerusalem soundtrack:

Cheap tennis balls

At last. Tennis balls are no longer reserved for the gilded eurocrat elite.

Keep paper licences

I can’t trust it unless I can get it wet so it disintegrates, or I can throw it in the bin by mistake, or lose it when I’m clearing out my filing cabinet. It’s only authentic that way.

New hangover cures

What?

Stronger vacuums

An end to the miserable years of desperately trying to hoover up dust by inhaling close to the carpet.

Old-fashioned light bulbs

I like my electricals filled with mercury and coated in lead paint, ideally.

No more EU elections

Because the democratic aspect of the European Union was something we never obsessed over in the run-up to the referendum.

End working time directive

At last, I don’t even have to go to the trouble of opting out of over-working! I will automatically be exploited!

Drop green targets

Most people don’t have time to worry about the future of our planet. Some don’t even know where their next tennis ball will come from.

No more wind farms

Renewable energy sources, infrastructure and investment – what a bore.

Blue passports

I like my personal identification how I like my rinse.

UK passport lane

Oh good, an unadulterated queue of British tourists. Just mind the vomit, beer spillage and flakes of sunburnt skin while you wait.

No fridge red tape

Free the fridge!

Pounds and ounces

Units of measurement are definitely top of voters’ priorities. Way above the economy, health service, and even a smidgen higher than equality of tennis ball access.

Straight bananas

Wait, what kind of bananas do Brexiteers want? Didn’t they want to protect bendy ones? Either way, this is as persistent a myth as the slapstick banana skin trope.

Crooked cucumbers

I don’t understand.

Small kiwi fruits

Fair enough. They were getting a bit above their station, weren’t they.

No EU flags in UK

They are a disgusting colour and design. An eyesore everywhere you look…in the uh zero places that fly them here.

Kent champagne

To celebrate Ukip cleaning up the east coast, right?

No olive oil bans

Finally, we can put our reliable, Mediterranean weather and multiple olive groves to proper use.

No clinical trials red tape

What is there to regulate?

No Turkey EU worries

True, we don’t have to worry. Because there is NO WAY AND NEVER WAS.

No kettle restrictions

Free the kettle! All kitchen appliances’ lives matter!

Less EU X-factor

What is this?

Ditto with BGT

I really don’t get this.

New vocabulary

Mainly racist slurs, right?

Keep our UN seat

Until that in/out UN referendum, of course.

No EU human rights laws

Yeah, got a bit fed up with my human rights tbh.

Herbal remedy boost

At last, a chance to be treated with medicine that doesn’t work.

Others will follow [picture of dominos]

Hooray! The economic collapse of countries surrounding us upon whose trade and labour we rely, one by one!

Better English team

Ah, because we can replace them with more qualified players under an Australian-style points-based system, you mean?

High-powered hairdryers

An end to the miserable years of desperately trying to dry my hair by yawning on it.

She would’ve wanted it [picture of Margaret Thatcher]

Well, I’m convinced.

I'm a mole, innit.