The coalition: a pact signed in blood

As a demonstration of his commitment to the coalition, David Cameron is considering reversing his op

"Thank you," Nick Clegg mouthed to David Cameron in the House of Commons during the Budget on 22 June. The Deputy Prime Minister was expressing gratitude for George Osborne's announcement that the coalition government would raise the personal income-tax allowance by £1,000 to £7,475. Clegg hopes that it is the first step towards fulfilling the Liberal Democrats' flagship policy of raising the lowest threshold of income tax to £10,000, ostensibly to help the poorest members of society.

But at what price was that concession won? If Clegg was happy, some Lib Dem backbenchers were far less impressed. In return for this tweak to the tax system, the government pushed through a hike in VAT from 17.5 per cent to 20 per cent that the same Lib Dems had opposed during the election campaign, calling it a potential Tory "bombshell", and that the Institute for Fiscal Studies deemed "regressive".

On top of that came an unexpected three-year freeze to child benefit and then, in advance of the summer spending review, the small print on welfare reform: proposals by the Work and Pensions Secretary, Iain Duncan Smith, to force the long-term unemployed to move from their homes in search of work, and to crack down on incapacity benefit and disability living allowance.

Ready to rumble

The Budget could be the first chapter in the story of backbench Lib Dem rebellions, with two MPs, Bob Russell and Mike Hancock, voting against the rise in VAT in the Commons on 28 June. Simon Hughes, the party's new deputy leader, continues to make dissenting noises, and one Lib Dem backbencher tells me ominously that "loyalty" is less required under a coalition government than it was under a one-party government.
Meanwhile, rumours abound that although the Lib Dem ex-leader Paddy Ashdown is privately defending the coalition's policies to friends, Charles Kennedy - the party's most electorally successful leader since Lloyd George, and a popular politician - is unhappy. The Lib Dems are slumping in the polls, one recent YouGov survey showing that 48 per cent of those who voted for them in the May election are preparing to abandon their party as a direct result of Osborne's "austerity Budget".

One senior Lib Dem strategist tells me that "we are going to get completely hammered" in the Scottish, Welsh and local elections in May 2011. For while this autumn's Tory and Lib Dem annual conferences are likely to be cautiously triumphant affairs (senior representatives of both parties are discussing the possibility of Cameron and Clegg addressing each other's conferences), future gatherings are unlikely to be so benign.

“I suspect that next year's conference will be not unlike a wake," says a senior Lib Dem peer. "It will be the moment the party asks itself, 'What is our exit strategy?'"

Equally, Cameron himself could come under pressure from the Tory right to do away with the Lib Dems when the circumstances present themselves. One Conservative backbencher speculates that if Cameron judges he can win the next election without his coalition partners, he will ditch them. "We need the Lib Dems for cover right now, for the cuts. That situation may change."

But sources close to both Clegg and Cameron insist that they are unequivocally invested in the coalition for the full five years, and are dismissive of rumblings inside their parties. "They might as well have signed in blood," a Tory strategist says. "They have gone through all the possible obstacles and pitfalls they can envisage . . . and they have agreed that their fortunes are tied together and they will not let anything get in the way of serving a full term together."

This is the cynicism of power, according to some observers. "The Lib Dem cabinet ministers are enjoying being in office," says a Lib Dem peer. But it is also because the Prime Minister knows that the coalition is working from a Tory point of view, with senior Lib Dems such as Vince Cable forced to defend the cuts in public. As one former Labour cabinet minister observes: "Cameron has shown a brilliant understanding of the dynamics of power. Imagine where the Tories would be now if they had not secured Lib Dem support and instead formed
a minority government. The Budget would be dead in the water and there would be another election this year."

So how far will the Tory leader go to hold this coalition together? Looming over the horizon is the issue of the agreed referendum on voting reform, for which no date has yet been agreed. Most Lib Dem MPs say the referendum has to happen next year, and some Tory backbenchers suggest that it will be the moment Cameron will be forced to divorce the man he likes to call his "civil partner" and oppose Clegg by leading the Tories in a campaign for a "No" vote.

According to this theory, the Alternative Vote (AV) would face official opposition from the Conservatives as well as from sections of the Labour Party (if not its new leadership), which would prove fatal to the "Yes" campaign - and to further Lib Dem participation in the coalition.

Reformed character

However, as a demonstration of the extent to which Cameron is committed to the coalition, and to Nick Clegg in particular, for the length of this term, I understand that the Prime Minister has discussed reversing his opposition to electoral reform. While Cameron is unlikely to campaign for AV, he could issue a statement of support on the grounds that the conventional Tory scepticism towards coalitions has been disproved by the success of the government.

His backbenchers will be free to campaign for a "No" vote as fiercely as they want, but the Prime Minister may decide not to join them. This would have the added advantage of exerting pressure on the new Labour leader. He or she will have to decide whether to gain tactical advantage by opposing both the Lib Dems and electoral reform, or more honestly supporting the introduction of AV, as promised in the Labour manifesto.

The referendum on the Liberal Democrats' glittering prize of electoral reform will be a big test of how serious Cameron is about sharing power. If the Prime Minister surprises us all and passes it, Clegg's whispered words of thanks would suddenly start to make a whole lot more sense.

James Macintyre is political correspondent of the New Statesman.

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