Clegg's bold move on spending cuts

Lib Dem leader's promise not to ring-fence departmental budgets will split the Tories.

I'm rather impressed by Nick Clegg's confirmation that the Lib Dems will not ring-fence any departmental budgets. It's one stance, along with his party's pledge to raise the income-tax threshold to £10,000, that deserves serious attention.

He told Radio 4's The World At One:

We're not entering into this Dutch auction about ring-fencing. Good outcomes aren't determined by drawing a red line around government departmental budgets.

This is shrewd politics as well as good economics. The line that all government departments should share the pain equally is likely to appeal to voters and it gives the Lib Dems a chance to split the Tories.

David Cameron's pledge to ring-fence spending on international development ("we don't hate foreigners") and the NHS ("it's not a 60-year mistake") has angered many on the right of his own party. And with good reason.

The Institute for Fiscal Studies has estimated that the Tories' promise to protect spending in these areas, combined with their pledge to reduce the deficit faster than Labour, means that all other departments face cuts of 22.8 per cent by 2014-2015.

As the implications of this (especially for defence) become clearer, we can expect Cameron to come under a great deal of pressure to change his stance.

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George Eaton is political editor of the New Statesman.

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How will Theresa May meet her commitment to low-earners?

The Prime Minister will soon need to translate generalities into specifics. 

The curtailed Conservative leadership contest (which would not have finished yet) meant that Theresa May had little chance to define her agenda. But of the statements she has made since becoming prime minister, the most notable remains her commitment to lead a government "driven not by the interests of the privileged few, but by yours." 

When parliament returns on 5 September, and the autumn political season begins, May will need to translate this generality into specifics. The defining opportunity to do so will be the Autumn Statement. Originally intended by George Osborne to be a banal update of economic forecasts, this set-piece more often resembled a second Budget. Following the momentous Brexit vote, it certainly will under Philip Hammond. 

The first priority will be to demonstrate how the government will counter the threat of recession. Osborne's target of a budget surplus by 2020 has wisely been abandoned, granting the new Chancellor the freedom to invest more in infrastructure (though insiders make it clear not to expect a Keynesian splurge).

As well as stimulating growth, Hammond will need to reflect May's commitment to those "just managing" rather than the "privileged few". In her speech upon becoming prime minister, she vowed that "when it comes to taxes, we’ll prioritise not the wealthy, but you". A natural means of doing so would be to reduce VAT, which was increased to a record high of 20 per cent in 2010 and hits low-earners hardest. Others will look for the freeze on benefit increases to be lifted (with inflation forecast to rise to 3 per cent next year). May's team are keenly aware of the regressive effect of loose monetary policy (low interest rates and quantitative easing), which benefits wealthy asset-owners, and vow that those who lose out will be "compensated" elsewhere. 

A notable intervention has come from Andrew Tyrie, the Conservative chair of the Treasury select committee. He has called for the government to revive the publication of distributional analyses following Budgets and Autumn Statements, which was ended by George Osborne last year (having been introduced by the coalition in 2010). 

In a letter to Hammond, Tyrie wrote: "I would be grateful for an assurance that you will reinstate the distributional analysis of the effects of the budget and autumn statement measures on household incomes, recently and mistakenly discontinued by your predecessor." He added: "The new prime minister is committing her government to making Britain a country that works 'not for a privileged few, but for every one of us'. A high level of transparency about the effects of tax and welfare policy on households across the income distribution would seem to be a logical, perhaps essential starting point." 

Whether the government meets this demand will be an early test of how explicit it intends to be in reducing disparities. 

George Eaton is political editor of the New Statesman.