How much threat is Darlingâ€™s position under?
Since the Summer reshuffle when Alistair Darling apparently successfully fought off an attempt to remove him from the Treasury, speculation about his future has died down. Despite that, the odds on the next Chancellor being from the Labour party remain significantly shorter than Labourâ€™s prospects at the next election.
The Next Chancellor market on Betfair is not a particularly well traded one but it does have only a small overround so is fairly competitive. On there, and rebalancing to 100%, it implies that the chances of the next Chancellor being a Tory are 75%, Labour 20.6% and Lib Dem 4.3%.
Matching those odds against the markets for parties isnâ€™t easy because of the different scenarios (outright win / largest party / which one forms the government) but the Conservatives are about 1/7 (or 87.7%) to win most seats and Labour correspondingly a little over 7/1 (or 12.2%). Winning most seats wonâ€™t necessarily mean forming a government but wonâ€™t be far off.
The likelihood of Darling leaving Number 11 before the election ought to be the difference between the prices, plus the possibility that Labour might form a coalition government with a different party providing the chancellor, or that Darling might himself serve through after a Labour win (especially in a hung parliament which might only have a short life).
So at a minimum, going by the figures already quoted, thereâ€™s an 8.4% chance of Darling leaving office before the election, equating to about 11/1. Add in some for the two other scenarios – could Vince Cable really be a chancellor in a Tory-lead coalition? – and we should be looking at perhaps a 12% shot of Darling going before May.
That seems to me to rate the possibility too highly. Barring health problems, there are only three ways he could go: he could be sacked/reshuffled, he could resign or he could be forced out.
We already saw after the Euro- and local elections that Darling is in a very strong position to defend from (or perhaps that Brown is in a weak one from which to dictate terms). If he doesnâ€™t want to go, his knowledge would be extremely dangerous for Brown were he to refuse any other position and go to the backbenches. In any case, thereâ€™s unlikely to be a PM-inspired reshuffle before the election so if one does happen it would be in response to events. Such cases are usually not wide-ranging as the PMâ€™s had little time to prepare.
How likely is a resignation? Itâ€™s getting close to the point where making one could be seen as sabotaging an election campaign but that cuts both ways: were Darling to be forced into an impossible position, Brown would get the blame. Darlingâ€™s strength however makes it unlikely that there could be such a clash: if he doesnâ€™t like something Brown wants, he can simply say â€˜noâ€™ in the knowledge that he runs the Treasury and thereâ€™s little the PM can do about it (a fact that Brown used frequently to his advantage in Blairâ€™s premiership).
Events forcing him out isnâ€™t a scenario that can be ruled out but itâ€™s difficult to see what they might be. The markets might not like an Autumn statement or Budget but as Brown seems more gung-ho on borrowing than Darling, thereâ€™s no reason why he should be the one to carry the can. Similarly, any downgrade of the UKâ€™s AAA rating is more likely to reflect badly on the government as a whole rather than the chancellor in particular. Besides, as Lamont proved, chancellors can survive quite dramatic market turmoil if the will is there.
All in all, I canâ€™t see the justification in the disparity between the â€˜most seatsâ€™ and â€˜next chancellorâ€™ markets. Cable also looks overpriced: even if the Lib Dems could enter a coalition, could Clegg really accept his deputy taking a more senior office than him? Indeed, could the main party offer two senior positions to their junior coalition colleague? That leaves the Tories. To me, there looks to be value in Osborne and Hammond collectively. There is a risk that neither becomes the new chancellor should the Conservatives win the election (in fact, an implied 2% for â€˜anyone elseâ€™ looks low anyway) but all the signs are that one or the other will. If polls like yesterdayâ€™s continue, their prices should only shorten as time goes on.