Lib Dems unsure whether to stick or twist with Tories in the budget

Discarded Playing Cards

The Liberal Democrats are discussing the extent to which the budget on 18 March can be regarded as a coalition effort at a time when they are odds with the Tories over deficit reduction, capital investment and tax rises.

The budget is the last major fiscal event before the election and each wants to claim responsibility for rising living standards and the coalition’s overall economic record.

Yet at the same time, the two parties are increasingly divergent on future economic policy. The Lib Dem leader, Nick Clegg, stayed away from the Commons during the autumn statement and may do so again for the budget.

Some MPs, mainly on the left of his party, privately believe that the Lib Dems must abandon any pretence that this is a joint budget and merely use it as an occasion to highlight differences between the coalition partners.

It is unprecedented for a budget to be presented by a coalition so close to an election and it is clear that the Conservatives will see it as an opportunity to set out priorities for the next parliament, including further tax cuts for the middle class.

Tory sources in the Treasury are playing down suggestions that the lower-than-expected inflation and falling oil prices since the autumn statement could have given the chancellor, George Osborne, a £5bn windfall. He will use the budget to effectively set out his economic manifesto for the next parliament, including action to help the low paid and pensioners.

Strategically, the Lib Dems know the greatest chance of retaining MPs lies in Tory-facing seats – an electoral reality which requires the party to maximise its differences with the Conservatives over fiscal consolidation and public services.

The schools minister, David Laws, and the chief secretary to the Treasury, Danny Alexander, are two of the Lib Dems most committed to fiscal consolidation in this parliament, The pair have criticised Conservative plans for public services after 2017-18 by saying they will return the level of public spending as a proportion of GDP to below that of the 1930s. Tories say the comparison is specious and does not take into account the difference in living standards between the periods.

The Lib Dems’ party conference next weekend in Liverpool will largely be a showcase for their manifesto and will endorse eradicating the current deficit by 2017-18, in line with the charter of budget responsibility passed by parliament in January.

Yet in one of the few hints of controversy, the conference is expected to face calls to agree that half the fiscal consolidation in the next parliament should come from tax rises and half from spending cuts.

The party is currently committed to placing about 60% of the burden on spending cuts and 40% on tax rises. It does not support the government running repeated surpluses after 2017-18, arguing that do so would constrain growth and send key public services back to the Dickensian era.

A minority would like to see the party abandon its obsession with the deficit altogether, but that debate has largely been settled internally between the business secretary, Vince Cable, and Alexander.

Meanwhile, Labour intends to firm up its offer to pensioners by guaranteeing that there will be no changes to winter fuel payments except for the wealthiest five per cent, and promising to maintain universal TV licences and bus passes. As prime minister, the Labour leader, Ed Miliband, wants also cap fees and charges on new products, allowing people to draw-down on pension savings so they are protected when they take money out in the same way as when they put money in.

Powered by article was written by Patrick Wintour Political editor, for The Guardian on Thursday 5th March 2015 21.02 Europe/London © Guardian News and Media Limited 2010