The 2013 spending review: the Lib Dem problem is at least as big as Labour’s

Piles of money. Photo credit: czbalazs - http://www.sxc.hu/photo/1236662Last Friday’s Independent splashed on the story, Exclusive: Labour bets the house with pledge to outspend Tories.

The story itself is disputed: Ed Balls rushed on the radio to rebut it: “Is it the policy of Ed Miliband and me Ed Balls that we will decide now to bet the house with a pledge to outspend the Tories? No, that is not our policy, that is not our position.” (Note to Ed Balls’ handlers: speaking of yourself in the third person is rarely a good sign.)

One aspect that I looked for was missing: no-one thought to ask what the Lib Dem position on spending at the 2015 general election will be.

On one level that’s odd. With Labour’s poll lead ebbing to single-digits, even while the UK stands on the brink of an unprecedented triple-dip recession on the Coalition’s watch, much of the smart money is on a second hung parliament, with Labour probably the largest single party. The Lib Dem view is, therefore, of more than passing relevance.

On another level perhaps it’s less odd. Perhaps journalists were defaulting to their usual ‘just ignore them’ mode. Perhaps they assumed that whatever spending envelope is set by this June’s Coalition spending review will be matched by the Lib Dems as a party. The reality isn’t that simple, however. The decision about whether to stick to the Government’s spending plans will be taken by the party’s manifesto drafting group subject to the approval of the party’s Federal Policy Committee. It’s not a decision within the gift of the leader.

But though that’s the technically accurate position it’s not the whole truth. When the Coalition announces its spending plans on 26 June, covering government expenditure from April 2015 onwards, it will have been signed-off by Nick Clegg and Danny Alexander, the Lib Dem half of the Government’s decision-making ‘Quad’. So the party leadership will be tied to the size of the spending envelope, while the party isn’t.

This puts both the party and the leadership in an awkward position. The party won’t take kindly to having the leader sign it up for as yet unknown cuts. The leadership won’t take kindly to having its stout defence of the Coalition line reversed after the event. If we’re tempted to mock Labour’s paralysis in the coming weeks and months, let’s remember we’re at least as compromised (probably more so: after all, Lib Dem members still have a real say in policy-making).

And let’s be in no doubt: the cuts that are coming will be the most severe yet. With growth sluggish (at best), debt repayments rising and the NHS, schools and overseas aid budgets ring-fenced, there will need to be cuts of 2.8% in all other departments for non-investment spending and of 4.9% for investment spending (or else equivalent tax rises identified).

If that sounds a relatively small cut, don’t forget it follows on from a 2.3% average annual real cut throughout this parliament. Cumulatively since 2010-11, this has meant large cuts in department budgets: for example, 12.5% in defence, 25.5% in the Home Office, and 70% in Communities and Local Government. This IFS table shows the full story of this parliament:

department spending cuts

Of course, the Lib Dems will still have options even within the to-be-announced envelope. There are tax rises the party can propose, such as the mansion tax or even (as Tim Farron favours) a restoration of the 50% top-rate; and there are spending cuts we can put forward, such as a cheaper alternative to Trident and the means-testing of wealthy pensioner benefits.

But the room for manoeuvre will be extremely limited.

Even if the party wants to reverse the ‘bedroom tax’ or benefits cap — and the party has yet to take a public position on it, as I noted here — finding the money to back up such a promise is going to verge on the impossible. Stopping worse stuff happening is probably about as far as our ambition can affordably stretch. The same is true of the hugely expensive pledge to lift the personal allowance to the level of the minimum wage, from £10k to £12.5k.

And all of this has been made harder still, let’s note, by the party’s much-vaunted ‘triple lock’ guarantee for pensioners: spending on the state pension in Great Britain, which accounts for nearly half of all expenditure on benefits, will increase by nearly 20% in real terms between 2010–11 and 2017–18 (an average annual real increase of 2.5%).

There are tough decisions coming. And being in Coalition but not in power makes that harder still.

* Stephen was Editor (and Co-Editor) of Liberal Democrat Voice from 2007 to 2015, and writes at The Collected Stephen Tall.

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16 Comments

  • “Even if the party wants to reverse the ‘bedroom tax’ or benefits cap — and the party has yet to take a public position on it, as I noted here — finding the money to back up such a promise is going to verge on the impossible. ”
    But it is unlikely either of these policies will save any money. Even if they did the amounts are will be relatively small. The govts own figures suggest a saving from the benefits cap of 110 million which is utterly insignificant in terms of govt spending (for perspective, as you probably know the Coalition quango you work for was set up with a grant of 125 million). The benefits cap is purely a cynical political device designed by the Tories to place Labour on the “wrong” side of the welfare debate. The arguments advanced for it are specious nonsense and a Lib Dem party worth voting for would defend the principle that benefits should be given according to need not whether you happen to live in an average sized family in part of the country with average housing costs.

  • Excellent article, it shows the maturity of the Lib Dems that we can have this discussion while Labour are stuck in ‘nasty Tory cuts’ mode which won’t last for 5 minutes when they need to write a manifesto.

    We should also remember that Labour have no intention of repealing the size criteria for housing benefit if elected in 2015 – Helen Goodman MP I believe has confirmed that Labour would keep it. So don’t give them an inch and remember that their angry words are just froth which they have no intention of following up with any action.

    The leadership are in a bind having to agree to a spending envelope which the party could overrule. But we can fight the election on which savings we’d make: The Tories want to cut child benefit, we’d scrap Trident instead. The Tories want to cut renewable energy, we’d ask for more from those in mansions. Labour want to remove incentives to work from the benefits system, we want to raise the personal allowance so work always pays etc. We have powerful and attractive policies if we can get the debate into this sphere.

  • Geoffrey Payne 23rd Apr '13 - 1:19pm

    The reason the party hasn’t taken a position on the benefit cuts is because FCC will not allow any debate on the topic. Benefits were removed from the inequality working group terms of reference, and are not included in the taxation working group either.
    Cutting benefits are counter productive. It takes money out of deprived areas, and since most benefit claimants are living on subsistence levels to begin with, they will be forced into crime in order to make ends meet.
    It is strange that the government tells us to look at the knock on effects of increasing the taxes of upper band income tax, but ignores the unintended consequences of cutting benefits for the poor.
    What the government obviously lacks is an effective growth strategy. Vince Cable suggested we should take advantage of the historically low interest rates to invest in capital spending. What the government is currently doing is nothing like othe scale of what should be done. It amazes me he goes along with it.

  • David Evans 23rd Apr '13 - 1:47pm

    @tpfkar

    Absolutely true. Unfortunately, the biggest bind our leadership is in is due to their failure to build that narrative over the first three years of coalition and it is so late in the day now that it will all come to nothing in terms of saving our electoral bacon in 2015.

  • Peter Watson 23rd Apr '13 - 3:10pm

    I think this article raises important issues about how Lib Dems will approach the 2015 election if the party chooses to oppose or distance itself from policies endorsed in coalition government.

    I know that the point has been made many times on these pages that as the minority partner in a coalition Lib Dems could not overrule Tory policies, but the leadership never gives the impression that it is reluctantly settling for policies with which it disagrees. By “owning” coalition policies (often with apparent enthusiasm), any position on reversing them will be seized upon by the party’s opponents and enemies in the media as evidence that Lib Dems are inconsistent, unprincipled, hypocritical or dishonest. Even on an issue like Trident we do not appear strong, having kicked the issue in to the long grass and allowed hundreds of millions of pounds to be spent on its replacement.

    At the next election the party must campaign, for the first time, on the basis of what it has done and allowed to be done. It will want to point to successes like raising the income tax threshold but will also have to defend reversals (e.g. tuition fees) and failures (e.g. electoral reform). This is new territory for Lib Dems and might need a new approach, but it is how the Labour and Conservative parties have fought elections for decades.

  • I don’t think it is realistic for the party to start proposing reversal of policies it has passed under the coalition government.

    As regards the so called ‘bedroom tax’ I think there is a certain merit in trying to free-up much needed housing space where possible, but we need a method of doing so based on individual choice. I can see the logic of aligning social housing tenancies with housing benefit rules. For example, if all social housing rents are charged at the aame rates as local housing allowance this will align public and private sector rents. Housing benefit payments to social housing tenants would then be made on the same basis as to those renting in the private sector based on household size and need. Individuals would retain the flexibility to occupy larger properties but benefit payments would be no more than what would otherwise be paid to a tenant renting in the private sector.

    On the spending envelope, whie we will be clearly committed for 2015-16 there should be ample room for differentiation going forward.

    The hugely expensive pledge to lift the personal allowance to the level of the minimum wage, from £10k to £12.5k should be dropped. The increase to £10k has only be delivered by bringing ever more people on moderate incomes into the 40% tax band. Our focus now should be on delivering relief to those with incomes of below £10,000 per year.

    A key area of differentiation should be on the distinction between current spending and capital spending. It is now widely acknowledged that it was a serious mistake to make such deep cuts to capital spending at the outset of this parliament. We need to frontload investment spending on infrastructure and housing in the next parliament, while freezing the level of current spending in real terms and allowing enhanced economic growth to eliminate the cyclical deficit .

    Tax increases and real terms spending reductions aimed at reducing the structural deficit should only be implemented as and when economic growth has been firmly re-established in the wake of significant public investment. That growth is unlikely to be re-established by following flawed Tory economic strategies that deliver declining living standards to the bulk of the population

  • paul barker 23rd Apr '13 - 3:49pm

    A generally excellent article but we dont face the same problem as Labour because our divisions are nothing like as deep. Big chunks of The Labour Party are controlled by groups who dont even believe in “Bourgois” Democracy. I suppose the equivalent for us would be to have whole regions dominated by Anarchists.
    Both extremes in Labour see their opposite numbers as Infiltrators/5th columnists & call for each others expulsion.
    So far Labours divisions have been kept out of The News but that cant last all the way to 2015.

  • andrew Colman 24th Apr '13 - 10:03am

    I beleve we (the Lib Dems) should keep to current coalition plans for borrowing and spending (or tighter) but with one very important difference

    Emphasis should be shifted from welfare cuts (which is like trying to sink a balloon ) to scrapping tax reliefs. All higher rate tax relief should go except perhaps charity donations. It should aso make it much harder to take advantage of tax havens. If the same mindset was applied to tax dodging as has been applied to welfare through the dreadful ATOS checks for example, we would be well on the way to fixing the deficit. We should also introduce the mansion tax and land value tax being suggested bu ALTER. Finally, last but not least we should push for an international tobin tax on financial transactions to curb the gambling excesses of the markets and make them work for industry and people once again

  • Andrew Colman 24th Apr '13 - 2:19pm

    In addition to my comment above

    We should keep our pledge to raise the threshold to 12.5 K

    Cuts in tax relief and the land value tax should enable us to out do the tories as a tax cutting party for ordinary people exposing the tories as a party of the rich

    We should be able to position ourselves in a centre position between the tories who want to turn the clock back to the 19th century and Labour who have no policy but to borrow more and more.

  • Excellent analysis. Chillingly accurate and highlights the massive problems we confront as a party and a country.

    I fear that we will come to reret the much-vaunted “triple lock” on pensions as the pledge on university fees … and will probably end up making a similar messy policy reversal.

  • Simon Hebditch 25th Apr '13 - 3:27pm

    I am afraid I am one of those who believes that you can’t picl and mix different policies with which you agree/disagree and be part of a government. It is the Coalition government as a whole which bears responsibility for its collective decisions. That is why the Lib Dems will have to both take that collective responsibility for the period 2010/2015 and for the decisions of the spending review which is coming up.

    In terms of the last autumn statement we have already signed up to a joint economic strategy till 2018! The first year of the forthcoming spending review, 2015/16, is important in its self but we cannot get out of the commitments already made. The only way we could do that, and assert our independence, is to leave the Coalition before the election.

  • Alex Macfie 25th Apr '13 - 3:39pm

    Only government ministers are bound by collective responsibility. The Lib Dem party as a whole is not.

  • JoeBourke has raised an interesting idea. Should housing benefit be paid at local housing allowance. I don’t think so. For reasons I don’t understand mortgage interest when paid for those on benefit is no longer paid at the rate it is charged at but at some government fixed average. This means that some people don’t receive enough to pay the interest while others receive more and so the government is paying off some of the capital. However maybe there could be a housing benefit cap set at the local housing allowance rate.

    It is a good idea to increase personal tax allowances to the level of the minimum wage and we should make it clear that we would only cut income tax by raising the personal allowance and not by cutting the rate. We also need to make the same commitment regarding National Insurance. However JoeBourke makes a good point about those with incomes of less than £10,000 pa. We should look at raising the minimum wage to help these people. Up until 2008 the minimum wage was increased above inflation but since then it hasn’t kept up with inflation. We need to commit to increasing it by either at least 1% above CPI or at least 1% above the increase in wages every year whichever is the highest.

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