PRIME Minister David Cameron should be prepared to face challenges from determined backbenchers over the “emotive” subject of Europe as his majority whittles away, according to a leading economist.
Bill O’Neill, the head of the UK investment office at UBS Wealth Management, delivered a bullish assessment of the UK’s near term economic prospects, but he warned that the markets will be concerned about uncertainties over the UK’s relationship with Europe, and the possibility of further devolution to Scotland and the regions.
Mr O’Neill made the comments on a trip to visit UBS’s regional office in Leeds. The prospect of a referendum over the UK’s membership of the European Union has already caused uncertainty in the markets.
Mr O’Neill told The Yorkshire Post: “Our view is that retention of membership of European Union will be the decision. But again, there are a whole series of unknowns, (such as) the manner in which the vote will be taken, and what will the question be?”
He said the strong performance of the SNP at the General Election will lead to calls for devolution.
He added: “The markets are clearly worried about this in the sense of how fiscal policy, particularly Government borrowing, spending, taxation, will be run. What are the structures that allow that to go forward? And particularly, this idea that, alongside Scottish devolution, we have forms of English devolution; which are not at all clear.
“But the markets are worried that in some way, this could undermine the authority of a central governing party...the challenge here is, ‘what does autonomy involve?
“Is that autonomy that’s supported by a central budget? Alongside that, we are going into phase two of austerity, particularly in year two, and year three of the new parliament. You’ve got some fairly tough measures coming through, particularly around areas of expenditure, where the brunt is actually falling. This is going to have influence on the debate between England, Scotland, and Wales, in respect to how the burden of that is shared.”
Some commentators have found similarities between Mr Cameron’s position and that of the former Tory Prime Minister John Major, who achieved a relatively small majority in the 1992 election. Mr Major’s final years in office were dominated by Tory back-bench rebellions over Europe.
“In some respects, it’s more challenging than the Major years, ‘‘ Mr O’Neill added. “The Major Government had a 21 majority, at this stage (Mr Cameron’s majority) it’s only 12...The majority will whittle away over time, there may be need for additional support from other parties such as perhaps the Northern Irish unionist parties. The aura of success attached to Mr Osborne and Mr Cameron, will eventually fade, and we have seen in the past, recalcitrant backbenchers, particularly on an issue as emotive as Europe, beginning to play quite a determined role.
“These are issues for the medium term. The economy is growing. You’re going to have a healthy rate of growth this year. Inflation is at a very low level,’’
He added: “Unemployment is falling, we’re getting the first really meaningful improvement in household incomes for a very considerable period of time. All that is still in the sights of the market, in saying ‘OK, in the near term, we view this is still a success story on the international plane, but there are policy challenges in year two and year three.”
Mr O’Neill said he believed that regional patterns of devolution across England will be “somewhat customised”, and not to any fixed template.