The 2013 spending review: the Lib Dem problem is at least as big as Labour’s

by Stephen Tall on April 23, 2013

Piles of money. Photo credit: czbalazs - http://www.sxc.hu/photo/1236662Last Friday’s Independent splashed on the story, Exclusive: Labour bets the house with pledge to outspend Tories.

The story itself is disputed: Ed Balls rushed on the radio to rebut it: “Is it the policy of Ed Miliband and me Ed Balls that we will decide now to bet the house with a pledge to outspend the Tories? No, that is not our policy, that is not our position.” (Note to Ed Balls’ handlers: speaking of yourself in the third person is rarely a good sign.)

One aspect that I looked for was missing: no-one thought to ask what the Lib Dem position on spending at the 2015 general election will be.

On one level that’s odd. With Labour’s poll lead ebbing to single-digits, even while the UK stands on the brink of an unprecedented triple-dip recession on the Coalition’s watch, much of the smart money is on a second hung parliament, with Labour probably the largest single party. The Lib Dem view is, therefore, of more than passing relevance.

On another level perhaps it’s less odd. Perhaps journalists were defaulting to their usual ‘just ignore them’ mode. Perhaps they assumed that whatever spending envelope is set by this June’s Coalition spending review will be matched by the Lib Dems as a party. The reality isn’t that simple, however. The decision about whether to stick to the Government’s spending plans will be taken by the party’s manifesto drafting group subject to the approval of the party’s Federal Policy Committee. It’s not a decision within the gift of the leader.

But though that’s the technically accurate position it’s not the whole truth. When the Coalition announces its spending plans on 26 June, covering government expenditure from April 2015 onwards, it will have been signed-off by Nick Clegg and Danny Alexander, the Lib Dem half of the Government’s decision-making ‘Quad’. So the party leadership will be tied to the size of the spending envelope, while the party isn’t.

This puts both the party and the leadership in an awkward position. The party won’t take kindly to having the leader sign it up for as yet unknown cuts. The leadership won’t take kindly to having its stout defence of the Coalition line reversed after the event. If we’re tempted to mock Labour’s paralysis in the coming weeks and months, let’s remember we’re at least as compromised (probably more so: after all, Lib Dem members still have a real say in policy-making).

And let’s be in no doubt: the cuts that are coming will be the most severe yet. With growth sluggish (at best), debt repayments rising and the NHS, schools and overseas aid budgets ring-fenced, there will need to be cuts of 2.8% in all other departments for non-investment spending and of 4.9% for investment spending (or else equivalent tax rises identified).

If that sounds a relatively small cut, don’t forget it follows on from a 2.3% average annual real cut throughout this parliament. Cumulatively since 2010-11, this has meant large cuts in department budgets: for example, 12.5% in defence, 25.5% in the Home Office, and 70% in Communities and Local Government. This IFS table shows the full story of this parliament:

department spending cuts

Of course, the Lib Dems will still have options even within the to-be-announced envelope. There are tax rises the party can propose, such as the mansion tax or even (as Tim Farron favours) a restoration of the 50% top-rate; and there are spending cuts we can put forward, such as a cheaper alternative to Trident and the means-testing of wealthy pensioner benefits.

But the room for manoeuvre will be extremely limited.

Even if the party wants to reverse the ‘bedroom tax’ or benefits cap — and the party has yet to take a public position on it, as I noted here — finding the money to back up such a promise is going to verge on the impossible. Stopping worse stuff happening is probably about as far as our ambition can affordably stretch. The same is true of the hugely expensive pledge to lift the personal allowance to the level of the minimum wage, from £10k to £12.5k.

And all of this has been made harder still, let’s note, by the party’s much-vaunted ‘triple lock’ guarantee for pensioners: spending on the state pension in Great Britain, which accounts for nearly half of all expenditure on benefits, will increase by nearly 20% in real terms between 2010–11 and 2017–18 (an average annual real increase of 2.5%).

There are tough decisions coming. And being in Coalition but not in power makes that harder still.

* Stephen Tall is Co-Editor of Liberal Democrat Voice, a Research Associate for the liberal think-tank CentreForum, and also writes at his own site, The Collected Stephen Tall.