Ukip boosted by Labour decision to soft pedal in Newark by-election

"It's bad news for the Tories, also facing a wobbly weekend after the European Parliament elections"

Last night Ukip's hopes of winning its first Westminster seat received a major boost as it emerged that Labour is to make little more than a token effort in the Newark by-election on 5 June.

With the Conservatives facing a tough fight with Ukip for first place, there has been speculation that the Tory vote in the constituency would be split, allowing Labour to come through the middle.

But The Independent on Sunday understands that Labour, despite coming second in 2010, has all but written off its chances of winning in Newark, calculating that victory is so unlikely that it is not worth the estimated cost of £100,000 for leaflets and accommodation for party staff. While Labour is still fielding a candidate, Michael Payne, and there will be some shadow ministerial presence on the ground, the cash-strapped party is concentrating its scarce resources on the local and European elections and the general election battle next year. The move will effectively leave the way clear for Ukip's candidate, Roger Helmer, to gain ground on the Conservative, Robert Jenrick.

Labour ploughed effort and funds into Corby, which it snatched from the Conservatives two years ago, and in Wythenshawe and Sale East, where the party fought off a decent challenge from Ukip earlier this year. Labour won Newark in 1997, but lost it in 2001 to Patrick Mercer, whose resignation over cash-for-lobbying triggered the by-election. Boundary changes in 2010 mean Labour's support has dwindled further. And at last year's local elections, Labour won no seats in Newark as part of Nottinghamshire County Council.

The move will be seized on by Tories as evidence that Labour leader Ed Miliband's appeal does not stretch beyond the North and metropolitan centres of Middle England – unlike Tony Blair, who took seats across the country when he swept to victory in 1997.

Yet the news that Labour is to underplay its hand in Newark and increase the chances of Ukip's first MP will cause further uncertainty among Conservative MPs. With Ukip on course to come first in the European elections on 22 May and the Tories expected to be pushed into third place, there is disquiet among backbenchers about how David Cameron is going to rally his party for a general election victory in 2015.

George Osborne will lead the "keep calm and carry on" strategy by appealing for unity in a speech to the ConservativeHome conference in London on 24 May. By then, votes will have been cast in the European elections and Downing Street is braced for a "wobbly weekend" when MPs could start speculating about Mr Cameron's leadership. The Chancellor, in his speech to the ConHome conference entitled "Securing a Majority", will stress that only with a united party can the Conservatives win outright and go on to complete the "long-term economic plan". But Mr Osborne's speech – and with Boris Johnson still prevaricating over whether he will stand as an MP in 2015 – will also be an opportunity for him to cement his position as a natural successor to Mr Cameron in the event of a Tory defeat next May.

Speaking about Britain's economic recovery yesterday, Mr Osborne insisted it was for the Bank of England to act to cool the housing market if it was at risk of overheating. Critics, including three former chancellors, have made clear their unease that Mr Osborne's Help to Buy mortgage guarantee scheme is fuelling an unsustainable property bubble. But Mr Osborne told Radio 4's Today that he had given the Bank of England "tools to intervene in the housing market to ensure economic stability". However, pressed on whether he would intervene, Mr Osborne said: "I'm responsible for the overall framework of economic policy."

Mr Miliband will make a speech on the NHS tomorrow; the Labour Party was accused of negative campaigning with its attack on Nick Clegg as the "Un-credible Shrinking Man". The firm behind the film, Lucky Generals, also created Labour's Budget advertisement which attacked the Chancellor over the cost of living. Its other campaigns include bookmaker Paddy Power's anti-homophobia in football "rainbow laces" adverts. The company was also behind Labour's chocolate "Easter Cleggs" which were "completely hollow".

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