Coalition – tackling long term issues not playing short term politics.

Lords reform, an issue all the parties believe in and the public believe in, but which the proposed solution, by Nick Clegg, is viewed as not the right type of reform, not allowing enough time for scrutiny or just at the wrong time. I’m being generous to those who are purely playing party politics with this issue!


Lords reform is a big deal and Liberal Democrats want to see it delivered, not because we benefit, but because it’s the right thing to do. However, if we can’t get support for it, we should not enter into tit for tat politics with the Conservatives.  There are other things we need to get done, so lets do them rather than get bogged down on an issue seen as honourable but not a wider priority.

I want to see the drive to renewable energy, properly supported. As reported in the Guardian, the Treasury and Conservative backbenchers are blocking proposals, despite the promise of this Government being the “greenest government ever”. Increased certainty is needed for companies to invest in green technology, certainty we are not providing.

We can work together with the Conservatives, we have delivered:

  • Increase the income tax threshold to £8,105, taking 2m out of paying tax, and a tax cut of £546 to 21m taxpayers
  • Pupil premium for the poorest primary school children, worth £600 each
  • Driving the agenda for banking reform
  • Green Investment bank with £3bn of initial funding
  • Pension rises of 2.5% guaranteed or the rate of inflation, average wage increases if these are higher
  • Simplifying future pensions, so everyone gets £140 a week, no means testing

Coalition requires compromises, but as Andrew Rawnsley said in the Observer “by and large, it is the Lib Dems who have been the grownups of the coalition and the Tories who have been the juveniles”.Ultimately the Conservatives are behaving and wanting to enact policies of the party of old. In reality they could use the coalition to show that they have modernised, in actions not just words.

When political ideology trumps economic sense

Oh dear the Tory economic policies are coming under scrutiny again – I know the Liberal Democrats are part of the Government, but let’s face it, they’re running the economic show.

Anyway, Richard Lambert, outgoing Director General of the CBI, has already raised the immigration cap being introduced, as bad for business, and is a view the Liberal Democrats support. Now as part of the “clampdown” on immigration, Post Study Work Visas (PSW), are being scrapped. PSWs allow foreign graduates of British universities to stay and work in the UK for two years after the end of their degree.

The reforms, suggested by Immigration Minister Damian Green, would toughen entrance criteria and make it almost impossible for international students to stay on and look for a job in Britain after their course has ended.

The UK border agency claim the policy’s aim is to ensure “that only genuine students who are committed to their academic study come to the UK, with a presumption that upon completion they will leave promptly.”

However, the impact of tougher immigration controls on the British higher education will be extremely damaging to the education sector, as the same thing has happened in Australia. They cracked down on PSW, but this reduced the attractiveness of Australian universities to international students and it’s been estimated to cost Australia £2bn and eventual job losses of 35,000 over 3 years.

Encouraging international students to study in the UK is a large part of a universities income, even more important, when universities are asked to find more money away from Government than ever. Properly funded universities help all UK students.

From a business point of view, they also appreciate the ability to choose the best graduates to work for them. Of course there’s the counter argument that you want “British jobs for British graduates”, but if graduates are good enough, businesses will hire them, it’s not like international graduates bring a cost saving and in fact, many don’t even stay long term.

The liberal, and sensible solution to the employment of graduates is to ensure that the UK graduates entering the workforce all have the skills businesses need. That may require more careers help for undergraduates – bearing in mind many international students will be amongst the best from their respective countries.

The Politics of Economics

Yesterday’s Comprehensive Spending Review will have been well analysed by all the papers and commentators with lots of questions about whether the cuts are “fair” or not and if they are necessary at all.

What was more interesting to me (or dismaying) as an economist (but very much lapsed one) was the extent the political aspects decided the economic decisions. This is never unusual but given the unique financial situation interesting.

2010 Comprehensive Spending Review being delivered

I won’t touch on if the cuts are necessary or not except to say that as Labour were overspending when the economy was in a boom, therefore not saving for a rainy day, when the recession struck our borrowing rocketed and we ended up with the worst structural deficit of the G20, and gave us less room to carry out some of the fiscal expansionary policies of other countries such as Germany and France.

So on the political aspect, the key was the Prime Minister was determined to stick to as much of his electoral promise as possible, this makes sense politically to ensure manifesto promises were being kept. However, this causes a few economic problems:

  • NHS, one of the largest government spenders, was ringfenced
    • This meant other departments cuts had to be increased
  • Universal benefits were not looked at
    • I really felt, as Vince Cable said, that everything must be reviewed (this was in relation to tuition fees) then the idea of the well off receiving Winter Fuel Allowance, free TV licences, free bus passes and even a state pension to be absurd. However, the grey vote are more likely to vote and have strong lobbying powers so this was always a dangerous territory
  • Income tax would not increase, under any party
    • One way to fill to ensure spending could be protected, but seen as deeply unpopular, even though it could pay for Higher Education and protect some of the social housing
  • Due to the above welfare was targeted, which although needs to be reviewed, was taken further than expected
  • The child benefit political hit was in exchange for the Liberal Democrats hit on tuition fees, even though tuition fees was much more symbolic to the Liberal Democrats than child benefit to the Conservatives

So what did I make of it?

Well I really felt the Conservative need to protect the NHS and universal benefits restricted the options available. I would have:

  • Ringfenced no department except International Development (peanuts in the grand scheme of things)
  • Scrapped universal benefits for well off pensioners
  • Put a little bit more money into capital investment projects
  • Ensured a coherent plan on housing, both private and social, as the new proposals are clever in encouraging more housing associations to build property at commercially viable rates, there is no proposal to ensure enough housing does get built. One of the key problems of the past 30 years.
  • Probably would not have brought forward the rise in pension age for everyone to 2020, fundamentally wrong for women in their 50s.

I was a little surprised that more was not made of the fact:

  • Total government expenditure is still rising to 2014/5
  • The rate of growth is declining
  • Total public sector expenditure as a % of GDP will be at the same level as 2006/7.

The problem with all the above points is the NHS is growing in real terms so everyone else gets less of the pie. What I can’t work out now is how we’ll get enough money to increase the income tax threshold again, although it is in the coalition agreement so should happen.

A journey with no clear destination is the reason for Lib Dem jitters

Almost from day 1 of the new government, there has been constant press reports of tensions from the coalition parties, how the grassroots are reacting, mainly from the Liberal Democrats. This is partly true, the Liberal Democrats believe in fairness and our current thoughts are that some of the cuts are more ideological than necessary and changes in government spending could be implemented better (for example I would re-examine Child Benefit as a universal benefit). 
I’m of the impression, despite the polling, that most people are pretty agnostic about the coalition government, not the best preference but ultimately it’s not Labour and not as bad as a full Conservative government. What many Lib Dem members and voters cannot see is the end game for the Liberal Democrats after this term in government. 


For the Conservatives it’s a stepping stone, although it would appear that the core Cameron team are actually very pleased with the actual outcome. The Conservative right are very disappointed with the current situation and some of the policies which are being pursued such as restorative justice, alternatives to short jail sentences and a pragmatic approach to Europe. However, they can see that by staying tight and hopefully winning the next election outright they can exert their influence.  

For the Lib Dem members and voters it is less clear how our influence on government will be seen by the general public. It is true that the Liberal Democrats have been less influential than I hoped, partly this is to do with visibility, but also that we did not secure the big jobs of State (Treasury, Home, Foreign Office or Education and Health Departments). These dominate the news, and although we have Ministers in those departments it’s not the same as running them.  

As analysed by Andrew Russell and Edward Fieldhouse Lib Dem voters are neither left nor right, whatever the party’s chosen path we would have disappointed many of our voters. There were very few options actually open to us, my firm view is if the Liberal Democrats are not here to try to govern, if the opportunity is available (and a rainbow coalition was never on), then what are we for?  

It will be a long and rocky path and the party leadership is right that we need to reach out to the voters to explain ourselves. I also believe that the Government (as noted by Jackie Ashley) needs to spell out what the vision is and it’s guiding principle, only then will voters understand what the coalition are trying to do and the Liberal Democrats role within the government. 

What would I / the Liberal Democrats have done differently with the Budget?

An emergency budget for tough times. Overall, although I was uncomfortable with some of the budget announcements there were few things in there I didn’t expect or which Labour would have done vastly differently. Cuts are needed, although timing is always questionable and to some degree it has been driven by the financial markets / ratings agencies (yes the same ones which thought Lehman Brothers was sound…).

I won’t cover what’s in there and how the Liberal Democrats have managed to get a few of our policies in the budget announcements, but rather to highlight the distinction between my party and the Conservatives I want to highlight what I would have done differently: 

  • I’m still uncomfortable with the £6bn cuts this year, given the need for public demand to fill the lack of private sector demand, this is a concern shared by the US, fuelled by the 1930s depression and the problems faced by Japan since the 1990s.
  • I would have kept child benefits rising year on year, but I would have withdrawn it from better off families via taxing of the benefit.
  • Invested more in capital projects such as green technology to kickstart the growth in the private sector which the Government is relying on.
  • Announced the renewal of trident to be included in the Strategic Defence Review to understand the potential for cost reduction.
  • Examined the case for road pricing along with investment in public transport (have the environmental costs fully accounted for).
  • Although I don’t want council tax increases, I would allow local authorities the ability to increase council tax if it’s needed to protect local services, many of the cuts will be at the local level due to tight budgets.
  • Look to increase the incentives to work via a greater personal allowance rather than just cutting back on benefits.
  • Not enforced the rule stating single parents must work when their child begins school, too broad brush and ignores the poverty trap.
  • Remove the winter fuel payments for pensioners.


Best performance ever in Bromsgrove by the Lib Dems

Although not the result we were looking for, and in common with the national picture, not what the Lib Dems expected. It was nonetheless the best ever general election performance by us in Bromsgrove.

Over 10,000 votes (up 3,000) and almost 20% share of the vote (up 5%) whilst both the Conservatives and Labour saw both votes and share of votes decline, even if the Conservatives have an increased majority.

The Lib Dems will be building on this in next years local elections and the next general election (whenever that may be!)

Yougov shows the Lib Dems ahead by 3%

A Yougov poll out today show the Liberal Democrats on 34%, Conservatives on 31% and Labour on 26%.  Yougov also found:

“Just under half the country (49%) would vote for the Liberal Democrats if they were seen to have a reasonable chance of winning. Only 25% would vote for the Conservative party in these circumstances; a comparatively meagre 19% would vote for Labour.”

We’re not far off that situation to be honest! We’ll be there if we can get to 36-38% in the polls.

Despite days of scrutiny the political opponents are unable to find severe weaknesses in our policies. Just today in the Times several Generals  have said that Trident should be examined.

They “express ‘deep concern’  that the future of Trident has been excluded from the Strategic Defence Review that will follow the election. They caution that suppressing discussion of the issue or dismissing alternatives would be ‘a major strategic blunder’ “.

The key here is “alternatives” as the Liberal Democrats are not saying have no nuclear deterrent, we’re saying are there cheaper forms of nuclear deterrents?