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The Lib Dems' surrender on the economy will cost them dearly

It is clear now that the Liberal Democrat party surrendered too easily on economic issues as the price of entering into coalition with the Conservatives. This could cost them crucial support in the referendum on voting reform, which is more and more a matter of survival for the party.
Mike Rustin
18 June 2010

Anthony Barnett is right to commend David Cameron’s unequivocal statement on the Saville findings on Bloody Sunday – this was indeed welcome. But this does not by itself show that Cameron has repositioned the Tories as a party of inclusion rather than polarisation. One can only take this view if one ignores what is happening in the larger field of economic and social policy.

It did seem from the Coalition programme that the Lib Dems had achieved a reasonable deal with the Tories, and that Cameron might welcome their presence in government as a counterweight to the Tory right. The commitments to a Freedom Bill, to a 40% capital gains tax, and to the Alternative Vote referendum were indicators that something worthwhile had been gained in the Coalition negotiations.

But matters began to look different as soon as the shape of economic policy emerged, with David Laws’ appointment as Chief Secretary to the Treasury, and the eclipse of Vince Cable as a significant force. The Lib Dem concern not to risk economic recovery through premature expenditure cuts was dropped, major banking reform now waits on a commission’s report, and it remains to be seen how much of the capital gains tax increase will survive next Tuesday’s budget announcement.

The government has embarked on a programme of deficit reduction which is likely to lead us into a double-dip recession (see Robert Skidelsky in the FT of 17 June) and whose driving purpose is to reduce the role of the public sector in the economy.  Investigations of inequalities in public sector pay (welcomed by Anthony) will proceed, but there will be no comparable inquiry into the greater inequalities of the corporate and financial sectors.  The range and scale of cuts just announced shows just how devastating this economic strategy is going to be. It seems careless or suicidal for Nick Clegg to have agreed to the cancelling of a loan to Sheffield Forgemasters, a major manufacturing firm in the city where his own constituency is located. So much also for the new priority of putting manufacturing over finance.

There are now great risks for the Lib-Dems, and for their crucial AV reform. If they are seen to be colluding with a conservative approach on economic and social issues, via fixation with deficits,  unravelling of public services etc., the wider support for electoral reform, which offers them, a more permanent place of influence will weaken. Labour, who put AV in their Manifesto, may become very lukewarm about it indeed - why would they want to entrench a Lib Dem party which is colluding with attacks on those whom they wish to defend? We know that most Tories are against AV anyway. Where, if the Lib Dems seem to be wholly collusive with Tory economic and social policy, is the majority for AV to come from?

It seems that the Lib Dems made the wrong call in joining the Coalition, through not realising how crucial economic strategy was going to be, and how little influence they would have over it. The option not much noticed, when the Coalition negotiations with both parties were going pell-mell, was to stay out of Government, but to offer issue-by-issue support to the largest party, the Tories. (Cameron described this option as ‘uninspiring’.)  Lib Dem influence and independence might then have been real, and visible. They could have insisted on AV as a condition for continued support of the government, but not been so compromised by the nastier side of Tory policy. The question to ask of the famous Cameron-Clegg press conference in the Downing Street garden is, who seduced whom?  The answer seems clear, and as Anthony himself noted, the Lib Dems now seem likely to the victims of the pact.

Anthony suggests that nevertheless the Cameron Tories will emerge from this as a new modern inclusive party, leaving Labour on the sidelines.  But this won’t be the case, if, as seems likely, the Tories follow an economic policy in which balanced budgets count for more than growth, and in which nationalist self-assertion is preferred to the shared sovereignty which is now necessary to manage global markets. A period of great economic and social damage lies ahead.  Oh for a successful Green Party, since the Lib Dems have abandoned the cause of progressive political pluralism. 

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