Why the Lib Dems' funding crisis could end the coalition early

Faced with mounting debts, the party may be forced to leave government in order to reclaim the "short money" provided to opposition parties.

Whether or not Joan Edwards's £520,000 bequest was intended for the government of the day or whichever party formed the government, there's no doubt that the Lib Dems could have done with the money (they received £99,423 based on their share of MPs and ministers). The party ran a deficit of £410,951 last year (the only one of the three main parties to do so) largely due to a 13% fall in its membership to 42,501, a decline of 35% since 2010 (when it stood at 65,038) and the lowest annual figure in the party's 23-year history.

While the party insists that its Finance & Administration Committee "has taken steps to ensure that satisfactory surpluses will be achieved in 2013 and 2014" (having previously projected a surplus of £200,000 for 2012), this will likely mean cutting back on campaign spending, something the party can ill afford to do given the political obstacles it faces and the decimation of its councillor base (many of whom pay a tithe of 10% to their local parties). 

Lib Dem finances have also been hit by the loss of "short money", the state funding made available to assist opposition parties with their costs. The party received £1.7m from this source in 2009-10 and its removal forced it to make more than 20 staff redundant. Over the five year parliament, the loss amounts to nearly £9m. 

With an eye to this, one scenario put to me by several in Westminster is that the Lib Dems will ultimately be forced to return to opposition in advance of the 2015 general election in order to reclaim the short money they'll need to mount anything like an adequate campaign. 

It's worth noting that before the defeat of the boundary changes in January, there was talk of the Tories doing a "cash-for-seats" deal with the Lib Dems under which the party would receive millions in state funding in return for supporting the review. It didn't come to pass (would anything have looked more grubby?) but it shows that the issue hasn't escaped the attention of Conservative ministers. Rather than an epic tussle over policy, the coalition could yet fall based on the inescapable fact that the Lib Dems are running out money. 

Nick Clegg makes a speech at the G8 Open for Growth - Trade, Tax andTransparency conference at Lancaster House in central London on June 15, 2013. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

Photo: Getty
Show Hide image

Can Philip Hammond save the Conservatives from public anger at their DUP deal?

The Chancellor has the wriggle room to get close to the DUP's spending increase – but emotion matters more than facts in politics.

The magic money tree exists, and it is growing in Northern Ireland. That’s the attack line that Labour will throw at Theresa May in the wake of her £1bn deal with the DUP to keep her party in office.

It’s worth noting that while £1bn is a big deal in terms of Northern Ireland’s budget – just a touch under £10bn in 2016/17 – as far as the total expenditure of the British government goes, it’s peanuts.

The British government spent £778bn last year – we’re talking about spending an amount of money in Northern Ireland over the course of two years that the NHS loses in pen theft over the course of one in England. To match the increase in relative terms, you’d be looking at a £35bn increase in spending.

But, of course, political arguments are about gut instinct rather than actual numbers. The perception that the streets of Antrim are being paved by gold while the public realm in England, Scotland and Wales falls into disrepair is a real danger to the Conservatives.

But the good news for them is that last year Philip Hammond tweaked his targets to give himself greater headroom in case of a Brexit shock. Now the Tories have experienced a shock of a different kind – a Corbyn shock. That shock was partly due to the Labour leader’s good campaign and May’s bad campaign, but it was also powered by anger at cuts to schools and anger among NHS workers at Jeremy Hunt’s stewardship of the NHS. Conservative MPs have already made it clear to May that the party must not go to the country again while defending cuts to school spending.

Hammond can get to slightly under that £35bn and still stick to his targets. That will mean that the DUP still get to rave about their higher-than-average increase, while avoiding another election in which cuts to schools are front-and-centre. But whether that deprives Labour of their “cuts for you, but not for them” attack line is another question entirely. 

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to domestic and global politics.

0800 7318496