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.

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Theresa May gambles that the EU will blink first

In her Brexit speech, the Prime Minister raised the stakes by declaring that "no deal for Britain is better than a bad deal for Britain". 

It was at Lancaster House in 1988 that Margaret Thatcher delivered a speech heralding British membership of the single market. Twenty eight years later, at the same venue, Theresa May confirmed the UK’s retreat.

As had been clear ever since her Brexit speech in October, May recognises that her primary objective of controlling immigration is incompatible with continued membership. Inside the single market, she noted, the UK would still have to accept free movement and the rulings of the European Court of Justice (ECJ). “It would to all intents and purposes mean not leaving the EU at all,” May surmised.

The Prime Minister also confirmed, as anticipated, that the UK would no longer remain a full member of the Customs Union. “We want to get out into the wider world, to trade and do business all around the globe,” May declared.

But she also recognises that a substantial proportion of this will continue to be with Europe (the destination for half of current UK exports). Her ambition, she declared, was “a new, comprehensive, bold and ambitious Free Trade Agreement”. May added that she wanted either “a completely new customs agreement” or associate membership of the Customs Union.

Though the Prime Minister has long ruled out free movement and the acceptance of ECJ jurisdiction, she has not pledged to end budget contributions. But in her speech she diminished this potential concession, warning that the days when the UK provided “vast” amounts were over.

Having signalled what she wanted to take from the EU, what did May have to give? She struck a notably more conciliatory tone, emphasising that it was “overwhelmingly and compellingly in Britain’s national interest that the EU should succeed”. The day after Donald Trump gleefully predicted the institution’s demise, her words were in marked contrast to those of the president-elect.

In an age of Isis and Russian revanchism, May also emphasised the UK’s “unique intelligence capabilities” which would help to keep “people in Europe safe from terrorism”. She added: “At a time when there is growing concern about European security, Britain’s servicemen and women, based in European countries including Estonia, Poland and Romania, will continue to do their duty. We are leaving the European Union, but we are not leaving Europe.”

The EU’s defining political objective is to ensure that others do not follow the UK out of the club. The rise of nationalists such as Marine Le Pen, Alternative für Deutschland and the Dutch Partij voor de Vrijheid (Party for Freedom) has made Europe less, rather than more, amenable to British demands. In this hazardous climate, the UK cannot be seen to enjoy a cost-free Brexit.

May’s wager is that the price will not be excessive. She warned that a “punitive deal that punishes Britain” would be “an act of calamitous self-harm”. But as Greece can testify, economic self-interest does not always trump politics.

Unlike David Cameron, however, who merely stated that he “ruled nothing out” during his EU renegotiation, May signalled that she was prepared to walk away. “No deal for Britain is better than a bad deal for Britain,” she declared. Such an outcome would prove economically calamitous for the UK, forcing it to accept punitively high tariffs. But in this face-off, May’s gamble is that Brussels will blink first.

George Eaton is political editor of the New Statesman.