Disaster for Cameron as Lib Dems win Eastleigh and UKIP beat the Tories

The PM faces a backlash after the Lib Dems win the by-election and the Tories finish behind UKIP in third place.

Let the Tory crisis begin. The result has just been declared in Eastleigh, where the Lib Dems have won with a reduced majority of 1,771 (4.26%) and where, disastrously for David Cameron, UKIP has finished second. A by-election that Cameron needed to win to convince his backbenchers that their party can achieve outright victory in 2015 has ended with the Tories finishing more than a thousand votes behind Nigel Farage's outfit. Coming second in a constituency where the Lib Dems hold all 36 council seats would have been allowable but to finish third, after a well-resourced campaign, is a terrible outcome.

For Clegg, the result will come as a considerable relief. Had the party lost the seat after earlier leading in the polls, it is his handling of the Rennard scandal that would have been blamed. That the outcome was a comfortable Lib Dem win is proof of the adage that "all politics is local". Voters were more concerned with the proposed gravel pit than they were with the disgrace of Chris Huhne or the allegations against Lord Rennard. Ironically, the result owed much to the "pavement politics" pioneered by the party's former chief executive.

The result is one of the biggest boosts to Clegg's leadership since the formation of the coalition. For once, he goes into his party's spring conference with something to celebrate. By holding Eastleigh in the most unpropitious circumstances, the Lib Dems have upset the assumption that they face wipeout in 2015. The Conservatives' hopes of a majority rest on the belief that they can take as many as 20 seats off Clegg's party (half of the Tories' 40 target seats are Lib Dem-held) but tonight's result significantly undermines that strategy. It is becoming ever harder to see how the Tories will improve on their 2010 performance.

For Labour, which finished a poor fourth, the result is a major disappointment. Having chosen to fight to win, rather than concede the seat to the Lib Dems, it saw its share of the vote increase by a mere 0.22 per cent. The hope was that Eastleigh would demonstrate the progress the party has made in the south, where, outside of London, it holds just 10 seats out of a possible 197. Instead, it has shown how much further it has to go before it can truly claim to be a "one nation" force. The only consolation for Ed Miliband is that the Tories' humiliation means all the attention will be on Cameron.

The big winner of the evening was UKIP, which saw its share of the vote dramatically increase from 3.6 per cent to 27.8 per cent, and finished just 1,771 votes behind the Lib Dems. The party still hasn't won a seat but it is getting closer and many will reasonably ask whether, had he stood, Nigel Farage would now be Westminster's newest MP.

Here's the result in full.

Mike Thornton (Liberal Democrat) 13,342 (32.06%, -14.48%)

Diane James (UKIP) 11,571 (27.80%, +24.20%)

Maria Hutchings (Conservative) 10,559 (25.37%, -13.96%)

John O'Farrell (Labour) 4,088 (9.82%, +0.22%)

Danny Stupple (Independent) 768 (1.85%, +1.56%)

Dr Iain Maclennan (National Health Action Party) 392 (0.94%)

Ray Hall (Beer, Baccy and Crumpet Party) 235 (0.56%)

Kevin Milburn (Christian Party) 163 (0.39%)

Howling Laud Hope (Monster Raving Loony Party) 136 (0.33%)

Jim Duggan (Peace Party) 128 (0.31%)

David Bishop (Elvis Loves Pets) 72 (0.17%)

Michael Walters (English Democrats) 70 (0.17%, -0.30%)

Daz Procter (Trade Unionists and Socialists Against Cuts) 62 (0.15%)

Colin Bex (Wessex Regionalist) 30 (0.07%)

Liberal Democrat majority 1,771 (4.26%, -2.94%)

Turnout: 41,616 52.8% (-12,034, -16.5%)

Swing: 19.34% Liberal Democrat to UKIP

UKIP candidate Diane James is joined by party leader Nigel Farage as they celebrate beating the Conservatives to second place in the Eastleigh by-election. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

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Theresa May wants a Global Britain? Then stay in the single market

The entrepreneur Lord Bilimoria argues the Prime Minister risks both the prosperity and reputation of the UK. 

Since coming to the UK as a student in the early 1980s, I have witnessed the shattering of its glass ceiling and the birth of one of the world’s most enterprising nations. Much of this progress is now under threat due to the great uncertainty Brexit is causing.

It has been six months since the referendum, and we are still presented with no clear strategy except a blind leap of faith out of the single market. By continuing to pursue a closed and inward-looking Brexit, Theresa May risks both the prosperity and reputation of this country. 

Last week I joined with thirty other entrepreneurs and business leaders in urging the Prime Minister to keep Britain within the EU single market. In the coming months Mrs May will face having to make a trade-off between immigration control and loss of single market access. The decision she makes will determine whether we retain much of our economic strength. 

That is why I was disappointed to see May’s most recent comments simply reinforcing the message that the government is pursuing a "hard" Brexit. Over the weekend her big interview sent the pound plunging – yet again. 

It is clear the government is solely focused on delivering stricter immigration regulation, regardless of whether it leaves Britain stranded outside the single market. To fall into the trap of calling the PM "Theresa Maybe" masks the decisive nature of her emerging strategy – which is to head for the hardest of exits.

We know that neither Council President Donald Tusk nor chief negotiator Michel Barnier will accept access to the single market without freedom of movement being part of the deal. This is incompatible with the vision set out by the government.

Yet, movement and access to the single market are vital to the future interests of British business. The PM must do more to reassure those set to be affected. We are currently part of a 500m-strong single market; this is good for British business. Although I believe the whole of Europe needs to reform the current free movement of people, not least for security reasons, we nevertheless must continue to have the ability to move freely within the EU for tourism, business and work.

It is becoming unequivocally clear that the PM is willing to pay any economic price to achieve stricter immigration controls for political gain. Driven by the fear that the far-right will use immigration in future election battlegrounds, the issue of immigration is undermining our ability to negotiate an exit from the EU that is in the best interest of businesses and the nation as a whole. 

The government’s infuriating failure to prioritise continued movement of people means we are set to lose a hugely competitive edge, reducing access to talented employees, and undermining the UK’s rich history of an open, diverse, and welcoming nation.  

To achieve the government’s absurd immigration control, we will have to leave the European single market. In doing so 44 per cent of our exports, the current percentage that go to Europe, will be jeopardised, as they will no longer have free access to their original markets. 

In tandem with an exit from the world’s largest single market, British business will also lose access to one of the strongest international talent pools. This has the potential to be even more devastating than the forfeiture of markets and trade.

Access to skilled workers is critical to future success. As a nation we have the lowest level of unemployment in living memory with less than 5 per cent currently out of work, and that’s in spite of 3.6m people from the EU working in Britain.

Britain will continue to need the expertise that free movement currently provides, regardless of whether Brexit happens or not. You cannot simply replace the skilled doctors, nurses or teachers living and working here overnight. 

The focus on immigration has also strayed into more dangerous territory with the government persisting in including international students as immigrants when calculating net migration figures, whilst having a target to reduce net migration to the tens of thousands. The PM’s insistence on this policy not only stifles encouragement of talent flows, but also sends an incredibly negative message to the international community. It is a policy that I have continually called on the PM to change and I will continue to do so.

Our competitor countries, the United States, Canada, and Australia, do not categorise international students as immigrants and, in fact, they also provide generous incentives to stay in their countries to work after graduating. In comparison, we removed our popular two year post-study work visa in 2012.

Brexit poses an increasingly dangerous reality that we are destined to be viewed as an inward-looking, insular and intolerant nation. That is not the Britain I know and love. That is not the Britain that has attracted enterprising individuals. The UK needs to establish itself once more as an outward-facing nation that welcomes international talent and entrepreneurship. This starts with retaining membership of the single market.  

Lord Karan Bilimoria is a leading British businessman and the founder of Cobra Beer.