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The National Union of Ministers' target is IDS's budget - not the health and aid ring-fences

By Paul Goodman
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Screen shot 2013-03-02 at 07.04.09Theresa May was reported earlier this week to have led a Cabinet charge by the "National Union of Ministers" - herself, Philip Hammond and Vince Cable - against the protection of the health, education and aid budgets.  I have certainly heard senior figures in the Home Office suggest that the NHS might like to take a leaf out of its own lead on police reform with a non ring-fenced budget.

But tearing up party and Government pledges on ring-fencing is not the aim of the new N.U.M - or not of all of its members, at any rate.  A Cabinet Minister told me earlier this week that its real aim is the welfare budget. Indeed, my source claimed that the Home Secretary wasn't even at the Cabinet meeting in question, since she was abroad.

And now Philip Hammond breaks cover this morning, giving an interview to the Daily Telegraph in which he warns that "any further reduction in the defence budget would fall on the level of activity that we were able to carry out". (He also gave a quick interview yesterday to the Sun.)  He says:

It is the welfare budget, and other issues dear to Liberal Democrat hearts, that are in this Defence Secretary’s sights. “There is a body of opinion within Cabinet that we have to look at the welfare budget again. The welfare budget is the bit of public spending that has risen the furthest and the fastest and if we are going to get control of public spending on a sustainable basis, we are going to have to do more to tackle the growth in the welfare budget.”

The Telegraph describes the Defence Secretary's move as "a dramatic public intervention".   The interview certainly demonstrates Hammond's self-confidence, and my sense is that he is emerging as the most powerful figure on the party's centre-right in Cabinet.  (He apparently plans to vote against the same-sex marriage bill at Third Reading.)

However, I doubt that the Defence Secretary's intervention will be unwelcome to the Chancellor, who is known to believe that the main way in which his Treasury tenure would have been different if the last election had been won is that the spending settlement would have been less favourable to welfare.  Was the Hammond intervention cleared with Osborne in advance?

Either way, the Liberal Democrats won't be happy.  As Tim Montgomerie pointed out earlier this week, they "are telling the Chancellor that they won't accept further cuts to welfare if he isn't willing to cut richer pensioners' benefits and, potentially, also "gently trim" the budgets for the NHS, schools and aid".

However, David Cameron's ruled out action on free bus passes or the winter fuel allowance or free TV licences during the election.  Iain Duncan Smith appreciates the absurdity of elderly millionaires enjoying a taxpayer-funded fuel allowance, but the National Union of Ministers and Mr Osborne musn't assume that the Work and Pensions Secretary will sacrifice his budget for theirs.

Duncan Smith is unshakeably committed to the Universal Credit project, and as a former party leader has a sympathy for the Prime Minister's problems.  But for precisely that reason he is a man without ambition.  I wouldn't rule out him simply walking away if he felt that the funding settlement was unfair to his budget, over which he has fought many battles with the Treasury.

The budget and the local elections stand out in this spring's political calendar.  Stewart Jackson, Peter Bone, Philip Davies and - perhaps more surprisingly - Eleanor Laing follow Adam Afriyie on this site yesterday by calling for Downing Street not to treat the loss of Eastleigh as business as usual: a leadership challenge is May remains possible.

But the Chancellor's most testing challenge may well turn out to be not the budget, but the spending round.  Tim suggested exempting the salaries of teachers and doctors and nurses from the ringfence.  Were this the start of the Parliament, I'd favour following Ireland's lead, and cutting public sector pay for all but the poorest workers.

However, we aren't there, and Osborne surely won't take such a dramatic step now.  He could have roped in senior figures from all parties and none in the early years of the Coalition, when its political position was stronger, and sought to bring home to voters the severity of the situation by setting up a Commission on Affordable Spending, but the moment has passed.

1pm Update: We have a statement from Liam Fox:

“Our deficit remains too high and, with a faltering eurozone, growth prospects remain subdued. We need to look again at public expenditure. We do not have a deficit because we don’t tax enough but because we spend too much. But, while the MOD must constantly look for better value for money,defence and security has already taken its full share of spending cuts. The size of our national debt and the interest payments that come from it are a long-term strategic threat to our national well-being. We must look to other areas, especially our huge welfare budget, for the savings that we simply have to find. We cannot cut spending on our national security while continuing to spend on what are, ultimately, discretionary domestic programmes.”

I ask above whether the Hammond intervention cleared with Osborne in advance.  Little doubt about the answer now.  Statements such as Fox's don't appear out of thin air.  The former Defence Secretary is on excellent terms with the Chancellor...




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