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.

Photo: Getty Images
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The buck doesn't stop with Grant Shapps - and probably shouldn't stop with Lord Feldman, either

The question of "who knew what, and when?" shouldn't stop with the Conservative peer.

If Grant Shapps’ enforced resignation as a minister was intended to draw a line under the Mark Clarke affair, it has had the reverse effect. Attention is now shifting to Lord Feldman, who was joint chair during Shapps’  tenure at the top of CCHQ.  It is not just the allegations of sexual harrassment, bullying, and extortion against Mark Clarke, but the question of who knew what, and when.

Although Shapps’ resignation letter says that “the buck” stops with him, his allies are privately furious at his de facto sacking, and they are pointing the finger at Feldman. They point out that not only was Feldman the senior partner on paper, but when the rewards for the unexpected election victory were handed out, it was Feldman who was held up as the key man, while Shapps was given what they see as a relatively lowly position in the Department for International Development.  Yet Feldman is still in post while Shapps was effectively forced out by David Cameron. Once again, says one, “the PM’s mates are protected, the rest of us shafted”.

As Simon Walters reports in this morning’s Mail on Sunday, the focus is turning onto Feldman, while Paul Goodman, the editor of the influential grassroots website ConservativeHome has piled further pressure on the peer by calling for him to go.

But even Feldman’s resignation is unlikely to be the end of the matter. Although the scope of the allegations against Clarke were unknown to many, questions about his behaviour were widespread, and fears about the conduct of elections in the party’s youth wing are also longstanding. Shortly after the 2010 election, Conservative student activists told me they’d cheered when Sadiq Khan defeated Clarke in Tooting, while a group of Conservative staffers were said to be part of the “Six per cent club” – they wanted a swing big enough for a Tory majority, but too small for Clarke to win his seat. The viciousness of Conservative Future’s internal elections is sufficiently well-known, meanwhile, to be a repeated refrain among defenders of the notoriously opaque democratic process in Labour Students, with supporters of a one member one vote system asked if they would risk elections as vicious as those in their Tory equivalent.

Just as it seems unlikely that Feldman remained ignorant of allegations against Clarke if Shapps knew, it feels untenable to argue that Clarke’s defeat could be cheered by both student Conservatives and Tory staffers and the unpleasantness of the party’s internal election sufficiently well-known by its opponents, without coming across the desk of Conservative politicians above even the chair of CCHQ’s paygrade.

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.