Liam Fox calls for spending cuts, urges deregulation, attacks the LibDems - and does all this in cahoots with George Osborne

By Paul Goodman
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I predicted before the budget that if it ran into trouble Liam Fox would come to George Osborne's support.  Like many of my predictions, it was wrong: the former Defence Secretary stayed silent while the Chancellor was battered and besieged over tax rises for older people, on pasties, on VAT for church improvements, on plans to scrap relief for some charitable donors.

Or rather, I was half-wrong, because Dr Fox has finally come riding to Mr Osborne's rescue - but over broad economic strategy rather than relatively narrow budget decisions.  He writes in the Daily Telegraph today in much the same vein as he wrote in the Financial Times (£) in February.  His piece this morning has four main messages:

• Spending rises should be scaled back further:  "The news that the Chancellor is considering further spending cuts should be welcomed as a sign that reason and responsibility are dominating at the Treasury."

• Defence spending should be protected (and overseas aid spending perhaps not):  "It must be understood that further reductions in budgets for security, leaving overseas aid untouched, would be met with fury by most Conservatives."

• Deregulation is urgently needed... "Too much recent debate has focused on tax and spend rather than on supply-side reform. This is particularly true in the area of labour market regulation."

• ...And if the LibDems don't like it, they should get out of the way.  "Inside the Coalition, resistance to deregulation largely comes from the Liberal Democrats. Two things need to be pointed out to them. First, that they make up only one sixth – not one half – of the Coalition and must expect that Conservative economic ideas will be dominant. Second, that if the economy does not improve, they can expect a very unhappy date in 2015 with the voters, and their antipathy to labour market reform makes this more likely."

The Sun also has a quote from Dr Fox, and reports: "Crucially, his broadside is with Chancellor George Osborne’s explicit approval, The Sun has learned."  No surprise there.  The Chancellor and the former Defence Secretary rub along very well, united in their pro-American reflexes and hawkish foreign policy instincts.

Osborne consoled Fox over curry after the latter's resignation, and the two will have kept in touch.  The former will want the latter to act as a counterweight to Vince Cable and the Liberal Democrats, especially after yesterday's double-dip news.  But Osborne needs new ideas for getting spending down, and Fox will require a fresh argument next time round.

They should both try pushing a all-party Commission to examine the sustainability of Britain's public spending over the medium and long-term - as I've recommended before.