Big moment for coalition as Lib Dems question Plan A

George Osborne

George Osborne

This morning’s papers are not going to make comfortable reading for George Osborne (not the first time we’ve said that recently…).

The Guardian has splashed on a story in the New Statesman that several of the 20 economists who signed a letter in 2010 backing the Osborne deficit reduction strategy had now changed their minds. The story was picked up in other papers too.

But of greater political significance is the piece I wrote in this morning’s FT about how the first fissures are starting to show in the joint coalition commitment to Plan A. Three Lib Dem MPs went on the record to say they wanted the chancellor to be more flexible with his   spending plans, and allow the deficit reduction targets to slide in order to pay for a short-term stimulus.

John Pugh, who helped write the party’s economic policy before the 2010 election, told me:

We need to look again very carefully at the implications of the sharp reduction we have seen in capital expenditure.

There are a fair number of people who think that if we returned to the plans as conceived by Vince Cable . . . we would be in a slightly healthier position than we are.

Pugh knew that he was in effect calling for Plan B – something Osborne has repeatedly ruled out – but the Lib Dem MP added:

The situation is serious enough now for people not to be bothered about what you call the plan.

The other MPs were Annette Brooke, a former economist, and John Leech. And they are indicative of a growing feeling within the party (there were several MPs we contacted who were simply on holiday and unable to comment).

Potentially the most significant thing I was told is that Tim Farron is being urged by the Lib Dem leadership to make some fairly bold statements about economic policy to the Lib Dem conference in September. Lib Dem HQ wants this so that Nick Clegg  and Danny Alexander will have a mandate to argue for something slightly less radical at the level of the quad (the four people at the heart of the coalition).

At the moment, these are low-level rumblings – no minister has broken cover yet. But if the economy deteriorates, all eyes will be on the response of Vince Cable – the man who coined the term Plan A Plus, and who is generally reckoned to be the most likely to call for an alternative economic strategy.

The problem with him, or any other Lib Dem minister, doing so, is that it would undermine the one thing now keeping the two governing parties together (except for the mutually assured destruction of a general election). Put simply, if the Lib Dems no longer support Plan A, what is the point in them being in government?

The party conference next month could be a very interesting one.