What concessions could the Tories make to the Lib Dems? And why?

By Peter Hoskin
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I know I'm getting to this a bit late, but was last week's reshuffle a Coalition-friendly reshuffle of the sort I discussed recently? On paper, it doesn’t look like it. The Lib Dems will surely be pleased with some of their appointments: Norman Lamb’s move to Health, the return of David Laws, or Jo Swinson's belated appointment as Equalities Minister yesterday, for instance. But, on the whole, there now seems to be more opportunity for competing ideologies and ideas to rub up against each other and cause chafing; whether it is between Mr Lamb and Jeremy Hunt, Mr Laws and Michael Gove, or Vince Cable and the entire Tory web that has been woven around him. 

But “on paper” doesn’t count for much in the weird world of shared government. The past two-and-half years have shown that surprising alliances can emerge between coalition partners, such as the one that has persisted between Iain Duncan Smith and Nick Clegg. And then there is that which is more important than personnel: policy. Under a majority government a change of minister might also herald a significant change in approach. But under this Coalition change is restricted by the parameters of the Coalition Agreement. The Coalition’s agenda will shape this reshuffle probably more than this reshuffle shapes the Coalition’s agenda.

In which case, I thought I’d turn to that agenda now. Much of it we know, as that is what the Coalition Agreement is for. But we also know — particularly from this summer — that the Agreement can come undone at any moment, causing heartache and hatred on all sides. If the Coalition is to persist successfully, as I believe both parties must make it persist, then it needs to be self-healing. Potential concessions must be found to get it through the bad times, and areas of happy cooperation found to occupy it through the good. I look at the areas of concession below, and shall devote a future post to ideas for renewed cooperation.   

Concession

You may well being thinking, “Concession? To the Lib Dems? Haven’t we already conceded quite enough?!” But please look at this more as the sharp end of making sure the Tories get what they want. The six policy concessions that I’ve listed below may not all be probable, nor are they necessarily recommendations, but they are all possible, and they would be significant enough to ensure that the Tories get something meaty in return. We’ll give them a wealth tax if they give us a boundary review, so to speak. Anyway, here goes:

i) Fewer benefit cuts… The strange thing about much of the intra-Coalition tension that we can expect over the next year is that it will focus on the period after 2015. We already know the story: George Osborne has mooted the possibility of a further £10 billion in benefit cuts across the two years after the election, but the Lib Dems are opposed and certainly don’t want to go into the next election campaigning on this point. At the moment, this looks as though it will seriously undermine the Spending Review that has been pencilled in for next year.

But what if those benefit cuts don’t happen? Sure, both Mr Osborne and fresh-to-government types like Nick Boles are currently pushing for them — but it’s worth remembering that the matter has not yet been decided. These cuts will presumably be subject to the same Quad-level negotiation and horse-trading that goes into any fiscal document.   

If the £10 billion became, say, £5 billion, then the money would need to be made up some other way. That would mean extra tax rises, which I look at below. Or it would mean spending cuts elsewhere, which would be more popular with most Tories. There is certainly room for those cuts: the £10 billion figure is calibrated so that there would be no increase in the rate of departmental cuts after the election. The departments could instead be asked to give a bit more.

But it should also be noted that departmental spending cuts are often not as straightforward as some suggest; they can take years to filter down through Whitehall’s constitution. If they are to be made, then ministers and their permanent secretaries should start preparing soon.    

ii) …unless they are cuts to universal benefits. But if there are to be social security cuts, then the Lib Dems would be much happier if they were made to universal benefits such as the Winter Fuel Allowance. It’s striking that Mr Boles recommended this at the same time as he recommended £10 billion of extra welfare cuts, almost to sweeten the pill. And I agree with him: there are moral, as well as fiscal, reasons to contain this benefits sprawl.

But this is particularly unlikely. Universal benefits — specifically, the keeping of them — inspired Mr Cameron into one of his few “read my lips” moments at the last election. And he has repeated that message since, in response to Mr Boles’s work. “At the last election I made a very clear promise about bus passes, about television licences, about winter fuel payments,” he said in a recent session of PMQs, “We are keeping all those promises.” And then Downing St suggested that those promises might continue past 2015.

Besides, even Mr Boles’s proposed package of universal benefit cuts — which is fairly extensive — would save the Exchequer only around £2 billion. More benefit cuts would still need to be found.

iii) A wealth tax. What do the Lib Dems really, really want right now? The clue is in the subtitle given to their forthcoming party conference: “Fairer tax in tough times” — by which they really mean a wealth tax of some sort. We have already debated this on ConservativeHome recently, with Tim suggesting that “Tories should support more property taxes if proceeds are used to cut other, more harmful taxes,” and the IEA’s Philip Booth striking back. But I’d just like to throw in this report from the OECD which suggests that, of all taxes, taxes on property are the least harmful to economic growth, with those on corporate and personal income being the most harmful.

We already know that George Osborne was prepared to concede a mansion tax to Nick Clegg during the last round of Budget talks, in return for cutting the top rate of income tax to 40 per cent. Both measures were blocked by David Cameron at the time. But a mansion tax could still be a useful negotiating chip for the Chancellor. If he wants to retain this chip — perhaps to barter for shifting the tax burden away from income — then he ought to set HMRC on working out the full effects, as he did for the 50p tax.

iv) Party funding. The Lib Dems love presenting themselves as the insurgents within the system, poised always to demolish Westminster’s old power structures, etc., etc. Thing is, they haven’t had much joy at it. AV and now Lords reform have both been cast aside, which leaves a deal on party funding as the most significant prize remaining for them. What would such a deal require? A lot of compromise from all sides. At the moment, the matter of party funding has reached inglorious impasse. The Lib Dems would probably be happy with a solution similar to that proposed by the Committee on Standards in Public Life — a £10,000 cap on individual donations, with £23 billion of state funding for parties — but the Conservatives would prefer a £50,000 cap, and are wary of state funding. And Labour have their own concerns too, particularly about the nature of union members' contributions to their coffers.

Intriguingly, the Telegraph's Ben Brogan recently suggested that the Tory leadership may concede to state funding in return for the boundary changes. On ConservativeHome, Tim argued against the idea.

v) The Trident review. What's going on with Trident? No-one really knows for sure. The Coalition is currently undertaking a review designed, basically, to resolve two competing tendencies: the Tories' support for spending a lot of money on its renewal, and the Lib Dems' reluctance to do so. But from this murk has emerged little light so far. It's not even entirely clear that the review will be published this winter, as planned, nor that both parties will eventually sign up to its recommendations. Indeed, some Lib Dems were left worried that the reshuffle had undermined their position, now that there is no Lib Dem ministerial presence in the MoD.

But it has since been announced that David Laws is overseeing the Trident review, so perhaps the Lib Dems might get more from it than they expect. And then there's the fact that there's a lot of money to be saved on Trident, which George Osborne will surely not be be oblivious to. A recent study suggested that scrapping Trident could save £1.86 billion a year until 2062, to a total of £83.5 billion. But there is much middle ground in between, with a sliding scale of altenatives (and cost savings) that the Lib Dems would probably be pleased to endorse.

vi) Immigration caps. The Coalition's policy on immigration has always been rather disjointed. That plan to reduce net migration to under 100,000? It's not so much official government policy as an aspiration held by the Conservative half of it. But government policy has been comandeered in service of it nonetheless, particularly in the case of immigration caps. And we already know that plenty of Lib Dems — most famously, Vince Cable — would prefer those caps to be loosened, with the aim of delivering skilled migrants to our shores.

But now consternation at the net migration target, and its associated caps, appears to be spreading. A recent report from the Business select committee suggested that overseas students be removed from its domain. And it even seems that Tory MPs are becoming less wedded to the target, particularly as it is unlikely to be met in this Parliament. Is the new immigration minister Mark Harper among them? That isn't yet clear. But, given that he was previously the Tory deputy to Nick Clegg, doing a lot to push for Lords reform, his appointment could mark a change in attitude. 

Any thoughts?

I don’t, of course, need to invite you to use the comments system, below. But, in this case, I am particularly keen to read your thoughts. Would you concede any of the above, or anything more, to the Lib Dems? What would you expect in return? And what are the thick blue lines that should never be crossed? Over to you.