Why the Lib Dems won't be choosing their coalition partner anytime soon

If the election results in another hung parliament, the party will side with whichever partner gives it the most liberal government.

So Nick Clegg suggests George Osborne is on the verge of making a monumental mistake, next thing you know Ed Balls is describing Nick as a man of integrity, suddenly there’s a Twitter love-in going on, and everyone acts like we may as well not bother with the 2015 general election, as a Lib-Lab coalition is a done deal. Coaliscious

Or is it?

Well, as Labour figures get increasingly nervous about whether it will be able to achieve a majority in 2015, you can see why they are suddenly making rather kinder noises about Nick than ever before. They’ve been positioning themselves as more Lib Dem friendly for a while now, with their adoption of policies like the Mansion Tax and low carbon energy targets, partly to secure the 2010 Lib Dem voters that have moved to them already, but also just in case the next election result leads to coalition negotiations with the Lib Dems. As it seems increasingly likely that Nick will be leading the party into that election, a softening of attitudes towards him was also inevitable.

But is the feeling really mutual?

I suspect the true feelings of the Westminster Lib Dems are better expressed when you look at the press release put out on Tuesday by the red-hot favourite to be next deputy leader of the party, Lorely Burt, where she said:

“I would also stand up for the Liberal Democrat Party’s core values of fairness and economic responsibility, which the Conservatives and Labour are incapable of delivering on their own.

“As we draw the battle lines for the next General Election against both the other major parties, I want to see the Liberal Democrats continuing to deliver more jobs, lower taxes for ordinary workers, and a fairer start in life through free school meals and help with childcare.”

In other words, a plague on both your houses.

The Lib Dems have consistently refused to say which side they would jump to if a repeat of the 2010 result happened. Rather, we’ll be talking to the largest party first – but not necessarily uniquely. And let’s not even get into the scenario where the Tories have the most votes but Labour have more seats.

Sure it's lovely when Ed Balls starts making cow eyes in your direction. But if the votes fall for a coalition, we’ll be looking for whichever partner gives us the most liberal government. We’re a way off deciding whose Prom invite we’ll be accepting just yet.

David Cameron, Nick Clegg and Ed Miliband attend a ceremony at Buckingham Palace to mark the Duke of Edinburgh's 90th birthday on June 30, 2011. Photograph: Getty Images.

Richard Morris blogs at A View From Ham Common, which was named Best New Blog at the 2011 Lib Dem Conference

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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