Nick Clegg speaks at Bloomberg's London headquarters on June 9, 2014. Photograph: Getty Images.
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The smaller coalition party nearly always gets smashed – but all is not lost for the Lib Dems

To cement its identity in future coalitions, the party needs to own departments.

Shortly before the 2010 general election, aware that the Conservatives were unlikely to win a majority, an anxious David Cameron asked Angela Merkel what it was like to lead a coalition government. “The little party always gets smashed!” she mischievously replied. As he met the German chancellor in Sweden in recent days, Cameron could have been forgiven for recalling her remark. Like their sister party in Germany, the Free Democrats, which lost all of its seats in the 2013 Bundestag election, the Liberal Democrats have indeed been smashed.

Since 2010, they have lost a third of their members, 1,500 of their councillors, all but one of their MEPs, nine by-election deposits and more than half of their previous opinion-poll support. The Tories, by contrast, have retained most of their 2010 vote share of 36 per cent and have consistently exceeded expectations in local elections. “We knew we would pay a price for working with the Conservatives,” said Nick Clegg in his recent speech at the Bloomberg headquarters in London.

In these circumstances, one might expect there to be little optimism among the Lib Dems. But the shifting plates of British politics have given them hope. With both the Tories and Labour doubtful of winning a majority in 2015, many Lib Dems believe that they will once again act as kingmakers in a “balanced parliament” and extract significant concessions for doing so.

Some are even more sanguine. At a recent parliamentary party away day in Wyboston, Bedfordshire, Danny Alexander declared that the Lib Dems could become the largest party in British politics by 2025. “We were all rolling our eyes, even Clegg’s spads,” one of those present tells me. David Steel’s 1981 exhortation to Liberal activists to “go back to your constituencies and prepare for government” looks modest by comparison.

Though it is now rarely recalled, there were those who argued that coalition would enhance, not diminish, the Lib Dems’ popularity. The standard explanation offered for the party’s recurrent midterm slumps was that it failed to receive the media attention devoted to the Conservatives and Labour, a defect rectified by equal treatment at the time of the general election. But with Liberal Democrats in government, this disadvantage would be removed permanently. The more the public saw of the third party, the logic ran, the more it would like it.

That the reverse proved to be the case was partly because of their alliance with the Tories. As Tony Blair shrewdly observed, a party that ran to the left of Labour for three successive elections could not hope to avoid punishment for entering government with a party to its right. Long before Clegg and his fellow Lib Dem ministers walked through the division lobby in favour of higher tuition fees, their poll ratings had collapsed.

The party’s “contamination” by the Conservatives encourages the thought that an alliance with Labour could have a cleansing effect. Clegg’s pledge in his Bloomberg speech to borrow to invest in infrastructure was the latest example of policy convergence between the two parties. But a partnership with the opposition would pose dangers of its own kind. Such is the degree of policy overlap that the Lib Dems would risk becoming indistinguishable from their centre-left rival. The existential question that stalks Clegg – “What is the point of the Lib Dems?” – would become more rather than less insistent in coalition with Labour.

It is in anticipation of this fate that the former Lib Dem minister Jeremy Browne has called for the party to embrace an “unbridled, unambiguous” programme of free-market liberalism. Browne considers the left-leaning party president, Tim Farron, and the Business Secretary, Vince Cable, to be examples of what Keynes called “watery Labour men”: social democrats who would be better off with Ed Miliband.

What Browne’s position boasts in intellectual rigour, it lacks in electoral nous. Outside the City of London, there is little appetite for turbo-Thatcherism. Rather than veering to the right, the Lib Dems should adopt other means of differentiating themselves. An increasing number in the party, including on its federal executive, believe it was a mistake for Clegg not to demand control of entire government departments in 2010. His decision instead to spread the Lib Dems across Whitehall made it harder to claim credit for policy achievements and left the party’s junior ministers looking like the helpless hostages of their Tory superiors. The next time parliament is hung, the party should learn from the approach of its Scottish sister, which took control of justice and agriculture in its first Holyrood coalition with Labour in 1999 and prospered in the subsequent election. Far from being wiped out, the party retained all 17 of its seats in 2003 and most of its vote share.

Having named his coalition negotiating team for 2015, Clegg should already be targeting politically attractive departments. A Lib Dem minister could win control of the housing portfolio and take credit for a Macmillan-style building programme, or secure home affairs and act as the guardian of civil liberties. Tim Farron told me: “There’s a lot of wisdom in that . . . When you’re a smaller party, identity is everything. Being known for one or two and, if you’re really lucky, three good things is what you’re after in terms of getting traction with the voters.”

A few days ago, Clegg received a consoling text message from his friend Jan Björklund, the leader of the Swedish Liberal People’s Party (currently polling at 6 per cent). “Us liberals,” he wrote, “must never accept that we can only survive in opposition.” An admirable sentiment – but if the Lib Dems are to avoid being continuously smashed in a new era of hung parliaments, they need to wise up and ensure they are better prepared.

George Eaton is political editor of the New Statesman.

This article first appeared in the 11 June 2014 issue of the New Statesman, The last World Cup

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Cabinet audit: what does the appointment of Liam Fox as International Trade Secretary mean for policy?

The political and policy-based implications of the new Secretary of State for International Trade.

Only Nixon, it is said, could have gone to China. Only a politician with the impeccable Commie-bashing credentials of the 37th President had the political capital necessary to strike a deal with the People’s Republic of China.

Theresa May’s great hope is that only Liam Fox, the newly-installed Secretary of State for International Trade, has the Euro-bashing credentials to break the news to the Brexiteers that a deal between a post-Leave United Kingdom and China might be somewhat harder to negotiate than Vote Leave suggested.

The biggest item on the agenda: striking a deal that allows Britain to stay in the single market. Elsewhere, Fox should use his political capital with the Conservative right to wait longer to sign deals than a Remainer would have to, to avoid the United Kingdom being caught in a series of bad deals. 

Stephen Bush is special correspondent at the New Statesman. He usually writes about politics.