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.

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Inside the progressive alliance that beat Zac Goldsmith in Richmond

Frantic phone calls, hundreds of volunteers, and Labour MPs constrained by their party. 

Politics for a progressive has been gloomy for a long time. On Thursday, in Richmond Park of all places, there was a ray of light. Progressive parties (at least some of them) and ordinary voters combined to beat Ukip, the Tories and their "hard Brexit, soft racist" candidate.

It didn’t happen by accident. Let's be clear, the Liberal Democrats do by-elections really well. Their activists flood in, and good luck to them. But Richmond Park was too big a mountain for even their focused efforts. No, the narrow win was also down to the fast growing idea of a progressive alliance. 

The progressive alliance is both a defensive and offensive move. It recognises the tactical weakness of progressives under first past the post – a system the Tories and their press know how to game. With progressive forces spilt between Labour, Liberal Democrats, Greens, the SNP, Plaid Cymru, the Women’s Equality Party and more – there is no choice but to co-operate, bring in proportional representation and then a whole new political world begins.

This move opens up the wider strategy – to end the domination of the City, and right-wing newspapers like the Mail, so Britain can have a real debate and make real choices about what sort of economy and society it wants. A pipedream? Well, maybe. But last night the fuse was lit in Richmond Park. The progressive alliance can work.

Months before the by-election, the pressure group for a progressive alliance that I chair, Compass, the Greens, and some Labour, Liberal Democrat and SNP MPs and activists, began considering this. The alternative after Brexit was staring into the void.

Then the Tory MP Zac Goldsmith stepped down over Heathrow. To be fair, he had pledged to do this, and we should have been better prepared. In the event, urgent behind-the-scenes calls were made between the Greens and the Liberal Democrats. Compass acted as the safe house. The Greens, wonderfully, clung onto democracy – the local party had to decide. And they decided to stand up for a new politics. Andree Frieze would have been the Green candidate, and enjoyed her moment in the autumn sun. She and her party turned it down for a greater good. So did the Women’s Equality Party.

Meanwhile, what about Labour? Last time, they came a distant third. Again the phones were hit and meetings held. There was growing support not to stand. But what would they get back from the Liberal Democrats, and what did the rules say about not standing? It was getting close to the wire. I spent an hour after midnight, in the freezing cold of Aberdeen, on the phone to a sympathetic Labour MP trying to work out what the party rule book said before the selection meeting.

At the meeting, I am told, a move was made from the floor not to select. The London regional official ruled it out of order and said a candidate would be imposed if they didn’t select. Some members walked out at this point. Where was the new kinder, gentler politics? Where was membership democracy? Fast forward to last night, and the Labour candidate got less votes than the party has members.

The idea of a progressive alliance in Richmond was then cemented in a draughty church hall on the first Tuesday of the campaign – the Unitarian Church of course. Within 48 hours notice, 200 local activist of all parties and none had come together to hear the case for a progressive alliance. Both the Greens and Compass produced literature to make the case for voting for the best-placed progressive candidate. The Liberal Democrats wove their by-election magic. And together we won.

It’s a small victory – but it shows what is possible. Labour is going to have to think very hard whether it wants to stay outside of this, when so many MPs and members see it as common sense. The lurch to the right has to be stopped – a progressive alliance, in which Labour is the biggest tent in the campsite, is the only hope.

In the New Year, the Progressive Alliance will be officially launched with a steering committee, website and activists tool-kit. There will also be a trained by-election hit squad, manifestos of ideas and alliances build locally and across civil society.

There are lots of problems that lie ahead - Labour tribalism, the 52 per cent versus the 48 per cent, Scottish independence and the rest. But there were lots of problems in Richmond Park, and we overcame them. And you know, working together felt good – it felt like the future. The Tories, Ukip and Arron Banks want a different future – a regressive alliance. We have to do better than them. On Thursday, we showed we could.

Could the progressive alliance be the start of the new politics we have all hoped for?

Neal Lawson is the Chair of Compass, the pressure group for the progressive alliance.

Neal Lawson is chair of the pressure group Compass, which brings together progressives from all parties and none. His views on internal Labour matters are personal ones.