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First cracks in the coalition

Divisions over capital gains tax highlight how precarious the coalition is.

Was David Laws the victim of a media "witchhunt"? That was the fatuous explanation offered by the former Liberal Democrat MP, Lembit Öpik, upon the resignation of his friend, the ex-chief secretary to the Treasury.

The departure of Laws from the coalition government after only 18 days has been largely reported by our media echo chamber in the reverential tone of a national tragedy. Much of the centre-right, cuts-obsessed commentariat has been in mourning. The deficit-hawk Laws was the Liberal Democrat that Conservatives could do business with (or, depending on your view, a Tory in Lib Dem clothing). Leftists and liberals, meanwhile, have despaired at the "outing" of a gay minister and inveighed against the intrusions into his private life.

So where, I wonder, are these witch-hunters? On the contrary, the outpouring of media sympathy for Laws has been astonishing. Laws was "the sort of person you want" in charge of the Treasury, one BBC presenter told me during a live radio discussion about his resignation. Really? Laws is a former investment banker who made millions in his twenties working at J P Morgan and Barclays de Zoete Wedd, enjoying the kind of bonuses from so-called casino banking that later helped wreck the economy. Perhaps, I would suggest, he was the wrong sort of person to be put in charge of punishing public-sector workers for the sins of the financial sector.

Future's orange

The facts of this case are clear: the ex-banker tasked with cutting Britain's biggest peacetime Budget deficit handed more than £40,000 of taxpayers' money to his boyfriend, despite parliamentary rules banning MPs from paying rent to partners. That he did so to protect his privacy is neither here nor there. Had one of his Yeovil constituents done the same with his or her housing benefit, they would be facing criminal prosecution and a potential prison sentence.

Nor is it relevant that Laws himself did not profit personally from the misuse of allowances. And, the truth is that he may have done. One under-reported aspect to this story is how Laws claimed up to £150 for utilities and up to £200 for service and maintenance right up until March 2008, when the Commons fees office began asking MPs to submit receipts for claims over £25. Suddenly, and curiously, his claims dropped to £37 a month and less than £25 a month for service charges.

But David Cameron has held open the possibility of a return to high office for Laws. Assuming Laws does not quit the Commons altogether and the parliamentary standards commissioner accepts his preposterous, 1950s-style defence ("We did not treat each other as spouses - for example, we do not share bank accounts and indeed have separate social lives"), I suspect he will be offered the opportunity to rejoin the coalition government.

In the meantime, his fellow Lib Dem MP and former Scottish Secretary Danny Alexander picks up where Laws left off at the Treasury. Alexander, like Laws, is on the Orange Book, neoliberal wing of the party. In the coalition discussions with the Conservatives and Labour, both he and Laws argued in favour of tearing up the Lib Dem manifesto pledge to defer spending cuts until the recovery was secure. But the inexperienced Europhile Alexander, unlike Laws, has little credibility in the eyes of restless, right-wing Tory backbenchers. They wanted Philip Hammond, Transport Secretary, to be given the job he had prepared for in opposition. Then there is the list published on the ConservativeHome website of the 37 potentially disgruntled, pre-election Tory frontbenchers who have not been made ministers in the coalition government.

So Alexander, parachuted into the Treasury three weeks out from an emergency Budget, is under huge pressure. But his critics should not underestimate him. "Danny is a shrewd operator," one senior Lib Dem told me. "You write him off at your peril." A former chief of staff to Nick Clegg - as well as an ex-press officer for Britain in Europe and for the Cairngorms National Park - 38-year-old Alexander's success or failure at the Treasury could impact on the Deputy Prime Minister's ability to shape the future of this government.

Elsewhere, cracks in the coalition are evident. The former Lib Dem leader, Sir Menzies Campbell, has said he plans to rebel against the coalition over any rise in university tuition fees. Other Lib Dem backbenchers such as Greg Mulholland, the MP for Leeds North West, have made similar pledges. Vince Cable, the Business Secretary (who, in the words of one senior Labour politician who knows him well, is "semi-detached" from the government), is doing his best impression of Walter Matthau in Grumpy Old Men. He is said to mope around the Department for Business, Innovation and Skills (BIS), while some Lib Dems believe he is setting himself up as a restraint inside the cabinet on his old enemy, George Osborne.

Capital punishment

Cable, meanwhile, has clashed with Tories such as John Redwood and David Davis over their objections to the coalition's proposed rise in capital gains tax (CGT), accusing them of "reinventing the wheel". Cameron and Osborne, however, have told their backbenchers that they are "listening" to MPs' concerns. The Work and Pensions Secretary, Iain Duncan Smith, has referred to "major exemptions for all kinds of different groups" - both coded messages that a climbdown is coming. "There is a huge campaign from the business community to try to get Tory backbenchers to put pressure on Osborne to water it down," says one Lib Dem source I spoke to. But John Redwood is delighted. "The Treasury is taking my proposal quite seriously," he tells me.

There is a danger that the coalition agreement could start to fray at the edges before the summer is out, with ominous consequences for the government itself. Chris Huhne, the Lib Dem Energy Secretary, may have been playing the role of canary in the coalition coal mine when he warned on 30 May that Tory backtracking on the CGT proposal would be akinto pulling "at that little piece of string, and you find that all the rest of the woolly jumper is unraveling". His forthright conclusion sums up the precariousness of this Lib-Con alliance: "You have to be very, very careful. If you move something, everything else changes." Conservatives and Lib Dems alike would do well to heed his message.

Mehdi Hasan is a contributing writer for the New Statesman and the co-author of Ed: The Milibands and the Making of a Labour Leader. He was the New Statesman's senior editor (politics) from 2009-12.

This article first appeared in the 07 June 2010 issue of the New Statesman, The myth of Mandela