Knocked for six: Clegg and Osborne fall out after EU defeat

The government's humiliating defeat over the EU budget last night has dragged up old coalition tensions over Europe.

George Osborne and Nick Clegg appeared to give two contradictory responses to the defeat, when right-wing Conservative backbenchers teamed up with Labour to win the non-binding vote by 307 to 294.

Rebels want a real-terms cut to the EU budget for the 2014-2020 period, but the government is proposing a freeze. Many EU states want a rise in expenditure, despite the ongoing eurozone crisis.

In a speech in central London this morning, Clegg said there was "no hope" of a cut. But speaking on the Today programme, Osborne held out the prospect of satisfying rebel demands when he insisted the UK was still "at the beginning of a negotiation".

He added: "I’m not saying Nick Clegg's wrong, I'm saying we're beginning of a negotiation. Let's see where that negotiation leads."

Osborne's approach suggests the Conservative leadership is trying to be responsive to the defeat, which comes after an 81-strong rebellion over Europe last year.

The votes suggest the Tory party has become all-but ungovernable when it comes to the EU and that the party leadership will have to accept at least some of their demands if it is to head-off further rebellions.

The chancellor also seemed to implicitly criticise William Hague when he compared Labour's approach with the Tory party under the leadership of the now-foreign secretary.

"Labour took a step further away from government last night because they took such an opportunistic position," Osborne said.

"It reminded me of the early part of the Conservative party's period in opposition when we took opportunistic positions and unprincipled positions in parliament that actually pushed us further away from being an alternative government."

Clegg also lashed out at Labour this morning. The party had not expressed a policy on the EU budget for months and it’s decision to whip MPs in to supporting a Tory rebel amendment was seen as a smart but unprincipled strategic coup.

"Their change of heart is dishonest, it’s hypocritical, and worst of all, Labour’s plan would cost the taxpayer more, not less," the deputy prime minister said.

"In pushing a completely unrealistic position on the EU budget – one that is miles away from any other country’s position – Labour would have absolutely no hope of getting a budget deal agreed.

"I’ve heard people describe it as clever opposition politics – and I suppose it is. But it’s not the behaviour of a party serious about government."

Osborne took a similar position. "When the dust settles there'll be a lot of questions about Labour's handling of that debate," he said.

Some in the Labour party worry about the effect on morale of forcing MPs to march into the yes lobby with Tory right-wingers.

There are also concerns about how eurosceptic Ed Miliband is prepared to be to wrong-foot the Tories. His own party is far more divided on the EU than either the Lib Dems or the Conservatives.

Shadow foreign secretary Douglas Alexander said: "Nick Clegg's words say more about his frustrations about the chaos in the coalition than anything else."