John Rentoul: Osborne is not Brown, but the faultline is showing

The Chancellor is the pole around which disaffection organises itself

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When David Cameron was asked if he had told George Osborne how long he intended to go on as Prime Minister, he said: "I don't think it's something we have ever really talked about." We enjoyed the inscrutability of that "really". Cameron was speaking during a joint interview with his Shadow Chancellor on a trip to China at the end of 2007. Osborne subtly undermined his boss by describing this as "an answer worthy of a Chinese official".

Since then, the difference of interests between the two has been a neglected faultline, hardly noticed beside the great jagged rift between the two parties of the coalition. Yet we saw last week how it could become of historic importance if it contributes to Britain's departure from the EU.

Before we come to that, however, we should note the power of the Chancellor in the dominant Conservative part of the Government. He is not, of course, as destructive as Brown was to Blair. Osborne and Cameron have a civilised working relationship, and civil servants note that Osborne is readier than Gordon Brown ever was to accept that the Prime Minister is the boss. But the Chancellor wields power both through his control of the Treasury and by being the PM's main adviser.

Thus he has been the source of many of the Government's troubles. He suggested hiring Andy Coulson. The televised debates during the election campaign, from which Cameron came off worst, were his idea. And it was his brilliant gambit not just to have a tax cut for the rich as the main proposal in the Budget, but to announce it a year in advance to give rich people plenty of time to defer income.

For all these reasons, Osborne's reputation as a grandmaster of political chess, which derives mainly from his plan for a cut in inheritance tax at Tory conference in 2007, which helped deter Brown from calling an early election, has been damaged. Yet he remains the pole around which Tory disaffection with Cameron organises itself, and which he seeks to foster in much the same deniable way as Brown did against Blair.

That is why it was significant that Osborne was identified with last week's reports that the Conservative manifesto will promise a referendum on UK membership of the EU. James Forsyth of The Spectator reported that a source "intimately involved in Tory electoral strategy" said this was "basically a certainty". He thinks that the manifesto is likely to promise that a Tory government would seek to renegotiate the terms of UK membership and then to put the outcome to a referendum.

This is a big deal. It would be a re-run of Harold Wilson's policy in 1974. To hold his party together, he promised exactly the same. James Callaghan, his Foreign Secretary, engaged in a "renegotiation", which did not involve changes to the Treaty of Rome, but which did allow us to enjoy cheap New Zealand butter for slightly longer, and the outcome was approved in a referendum in 1975.

Is Cameron intending to do the same? Not yet. Forsyth's story came as news to him. Some in No 10 believe it comes from Steve Hilton, the Prime Minister's recently-departed adviser, who intends to return from California to help in the 2015 election campaign. But several Tory MPs, according to Paul Goodman, a Tory ex-MP, say that the Chancellor is also "floating the possibility". It is worth recalling that Daniel Finkelstein, chief leader-writer for The Times and a friend of Osborne's, asked in November: "For how long will it remain the case that questioning Britain's membership of the EU will be something that cannot be done by a mainstream political figure?"

But the promise of renegotiation and referendum makes much less sense than in Wilson's time. Wilson offered the British people the chance to have their say on a huge constitutional decision, to join the Common Market in 1973, which had been taken by Parliament alone. There is some talk now among pro-Europeans of renewing that mandate for a new generation.

Peter Mandelson appeared to make that case last week, although closer scrutiny of his words revealed that he wants a referendum only after the unworkable euro has been replaced by a euro mark II, presumably including the UK. In other words, never.

The Tory split on Europe is just as deep as Labour's in the 1970s, but it is not so explicit. The Tories are united in "Euroscepticism", defined as opposition to the euro. But that, contrary to the opinions of Lords Mandelson and Heseltine, is yesterday's question. On the question of in or out of the EU, most Tory MPs take refuge in "repatriation of powers" – they do not usually specify which ones – and a referendum. Most of them, if pressed, say they want Britain to stay in the EU if changes can be made.

That sounds like a party gearing up for a token renegotiation and a "Yes" vote to stay in the EU. But the timing, in the middle of the collapse of a currency union, is peculiar. The outcome is unpredictable. I cannot believe that Cameron wants to hold a referendum that could easily take Britain out of the EU. But I can believe that Osborne, looking for support for his future leadership on the Tory back benches, might push him into it.

twitter.com/JohnRentoul; independent.co.uk/johnrentoul

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