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What Fox's intervention means for the Budget

The former defence secretary has called for faster spending cuts, tax cuts, and a relaxation of work

In his first major political intervention since resigning as Defence Secretary last year, Liam Fox has called for tax cuts for businesses and a relaxation of labour laws.

Writing in the Financial Times, the Conservative MP warned that although George Osborne's deficit reduction plan has restored some credibility and allowed the government to "buy time", something must be done to encourage growth.

There are two key passages in his article. The first reignites last year's debate on workers' rights:

To restore Britain's competitiveness we must begin by deregulating the labour market. Political objections must be overridden. It is too difficult to hire and fire and too expensive to take on new employees. It is intellectually unsustainable to believe that workplace rights should remain untouchable while output and employment are clearly cyclical.

The second -- perhaps the most newsworthy, given that we are just a month away from the Budget on 21 March -- argues for deeper, faster spending cuts:

There is a strong argument for further public spending reductions, not to fund a faster reduction in the deficit, but to reduce taxes on employment. Although the coalition agreement may require the chancellor to raise personal tax allowances (which should be paid for with spending restraint not new taxes) he should use the proceeds of spending reductions to cut employers' national insurance contributions across the board. If that is deemed impossible, he should consider targeting such tax cuts on the employment of 16 to 24-year-olds, making them more attractive to employers.

In his attack on the left and his call for mroe cuts, Fox speaks on behalf of the right of the Tory Party, for whom he has long been seen as a leader. Indeed, during the scandal over his relationship with his friend Adam Werrity which eventually led to his resignation, it was speculated that David Cameron was reluctant to sack him because it was better to have him inside the cabinet than outside causing trouble. Both Osborne and Cameron have kept in touch with Fox since he left front-line politics. Over at ConservativeHome, Tim Montgomerie points out that in calling for faster cuts, Fox is in line with the party's grassroots.

His intervention does not just reflect the views of the Tory right; it is also a clarion call for them to fight their corner. Last year saw a battle between the Conservatives and their Liberal Democrat coalition partners over Steve Hilton's attempts to remove a range of workplace rights. A compromise was reached in November when the Lib Dems agreed to look at relaxing rules for small companies (with less than 10 employees) but the business department has yet to take action on this.

This battle for the Budget is in evidence today, as another former cabinet member, the Liberal Democrat David Laws, writes in the Guardian about the party's "ambition for fairer tax" -- namely their key policy of raising the personal allowance to £10,000.

Little money is available to fund this tax, meaning that Fox's attack on workers' rights is shrewd. In order to safeguard the cut for low and middle earners -- one of the few popular policies that voters associate with Nick Clegg -- the Lib Dems may be forced to make concessions in other areas, such as labour regulation.

What today's intervention shows above all else is the political challenge that Osborne faces in creating a Budget that will at once appease the right of his own party while not pushing his coalition partners to breaking point.