Nick Clegg on the Lib Dem role in the Spending Review

Emphasises role of Lib Dem ministers in Spending Review, but denies that cuts aim to create a smalle

Nick Clegg has just sent out an email to Lib Dem members giving some of the rationale behind the Spending Review. It's very light on detail, but does provide a couple of interesting insights into how the Deputy Prime Minister is seeking to position his party politically going into this afternoon's announcement.

The core argument is, naturally, the same as the one offered by Cameron and Osborne – the outcome of the review is about fairness and, above all, cutting "Labour's deficit". But there are also certain phrases that demonstrate once again how tightly Clegg's fortunes are now tied to those of the coalition's leading Tory figures. The following paragraph is particularly interesting:

The spending review is a thoroughly Coalition product. Liberal Democrat ministers have been involved every step of the way. Our values and priorities are written through the review, like the message in a stick of rock.

As my colleagues Mehdi Hasan and James Macintyre pointed out in the run-up to the Lib Dem conference, the spending review is just the first in a series of tests for the Lib Dems as a party of government, perhaps the most significant being the local elections to come next May. But with the polling numbers long suggesting we can expect a big swell of unpopularity for this afternoon's announcement, the Spending Review isn't without its challenges for the Lib Dems. Members, and a fair number of Lib Dem MPs, will be feeling very uncomfortable this afternoon.

However, the key paragraph of the letter comes at the end, where Clegg lays out his version of the motivation behind the cuts:

We are not taking the decisions today because they are easy or because we want to see a smaller state, we are taking them because they are right.

He said something similar in his conference speech – it's clearly a line designed for the membership, many of whom will be feeling uneasy about the Tories' mantra of "smaller state, bigger society". Now that Clegg has positioned his party and his ministers so centrally to the Spending Review, it will be fascinating to see how his backbenchers choose to respond, come the inevitable fallout.

Caroline Crampton is web editor of the New Statesman.

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There are risks as well as opportunities ahead for George Osborne

The Chancellor is in a tight spot, but expect his political wiles to be on full display, says Spencer Thompson.

The most significant fiscal event of this parliament will take place in late November, when the Chancellor presents the spending review setting out his plans for funding government departments over the next four years. This week, across Whitehall and up and down the country, ministers, lobbyists, advocacy groups and town halls are busily finalising their pitches ahead of Friday’s deadline for submissions to the review

It is difficult to overstate the challenge faced by the Chancellor. Under his current spending forecast and planned protections for the NHS, schools, defence and international aid spending, other areas of government will need to be cut by 16.4 per cent in real terms between 2015/16 and 2019/20. Focusing on services spending outside of protected areas, the cumulative cut will reach 26.5 per cent. Despite this, the Chancellor nonetheless has significant room for manoeuvre.

Firstly, under plans unveiled at the budget, the government intends to expand capital investment significantly in both 2018-19 and 2019-20. Over the last parliament capital spending was cut by around a quarter, but between now and 2019-20 it will grow by almost 20 per cent. How this growth in spending should be distributed across departments and between investment projects should be at the heart of the spending review.

In a paper published on Monday, we highlighted three urgent priorities for any additional capital spending: re-balancing transport investment away from London and the greater South East towards the North of England, a £2bn per year boost in public spending on housebuilding, and £1bn of extra investment per year in energy efficiency improvements for fuel-poor households.

Secondly, despite the tough fiscal environment, the Chancellor has the scope to fund a range of areas of policy in dire need of extra resources. These include social care, where rising costs at a time of falling resources are set to generate a severe funding squeeze for local government, 16-19 education, where many 6th-form and FE colleges are at risk of great financial difficulty, and funding a guaranteed paid job for young people in long-term unemployment. Our paper suggests a range of options for how to put these and other areas of policy on a sustainable funding footing.

There is a political angle to this as well. The Conservatives are keen to be seen as a party representing all working people, as shown by the "blue-collar Conservatism" agenda. In addition, the spending review offers the Conservative party the opportunity to return to ‘Compassionate Conservatism’ as a going concern.  If they are truly serious about being seen in this light, this should be reflected in a social investment agenda pursued through the spending review that promotes employment and secures a future for public services outside the NHS and schools.

This will come at a cost, however. In our paper, we show how the Chancellor could fund our package of proposed policies without increasing the pain on other areas of government, while remaining consistent with the government’s fiscal rules that require him to reach a surplus on overall government borrowing by 2019-20. We do not agree that the Government needs to reach a surplus in that year. But given this target wont be scrapped ahead of the spending review, we suggest that he should target a slightly lower surplus in 2019/20 of £7bn, with the deficit the year before being £2bn higher. In addition, we propose several revenue-raising measures in line with recent government tax policy that together would unlock an additional £5bn of resource for government departments.

Make no mistake, this will be a tough settlement for government departments and for public services. But the Chancellor does have a range of options open as he plans the upcoming spending review. Expect his reputation as a highly political Chancellor to be on full display.

Spencer Thompson is economic analyst at IPPR