Nick Clegg took many by surprise this morning by appearing in the Guardian calling for an emergency, temporary tax on wealth to help pay down the deficit. Why make the call publicly, when he’s a senior member of the government that decides whether this happens or not? And why now, so far away from Budget time?
The obvious answer is that this is not a thought-through policy proposal, but merely a bit of positioning to cheer the troops ahead of next month’s party conference. It will not happen, say many (including the BBC’s Nick Robinson), so there is no need to worry about what Clegg actually means.
But, that analysis ignores a couple of things. Read more
Lib Dem strategists are fond of telling reporters their assumptions about a Lib Dem collapse at the 2015 election are wrong. The theory goes that there are many more LD-Tory marginals than there are LD-Labour ones, and in those seats, Tory voters will be happy to back a Lib Dem to keep out Labour.
Lib Dem HQ hopes that by going into coalition and signing up to the stringent departmental spending cuts they will combine their traditional strength in local campaigning with a new level of trust to be a party of national government.
The argument is questionable: will Tory voters really back then Lib Dems, especially as the two parties go into the election playing up their differences to appeal to their core voters? And won’t lots of left-wing voters cross over to Labour, even if they know it means letting in the Tories, since many view the Lib Dem as just as bad as their Tory counterparts? Read more
As I reported today, the Treasury is looking seriously into the idea of adopting German-style “mini jobs”, a scheme long championed by free market Conservative MPs. The model is that workers can earn up to €400, or £314, tax free each month, while their employers benefit from flexible labour with minimal bureaucracy: they pay a flat rate of wage taxes, insurance and pension contributions.
It is easy to see why companies and jobseekers might be clamouring for the government to pick this up, but there is actually a serious political case as well. Tories who were frustrated by the Liberal Democrats’ opposition to radical labour market reforms put forward by Adrian Beecroft have been calling for ministers to come forward with some new deregulation measures for some time.
The Lib Dems themselves are keen not to be seen as too obstructionist on this issue given the drive for growth, and party officials have assured me that they are not pushing back against the mini jobs idea. Could this be the middle way? Read more
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. Read more
Sir John Vickers
I revealed in this morning’s FT that Nick Clegg and Vince Cable want to reopen talks on how to put the Vickers recommendations on banking reform into law.
When the commission led by Sir John Vickers first set out its proposals, the government accepted most of them – most significantly that banks’ retail operations should be ringfenced from their investment banking side.
But the banks won two crucial victories in their attempts to water down these proposals. The first was that the government scrapped the Vickers recommendation that ringfenced banks should have stricter standards on how much equity they had to issue compared with their assets. The second was that ministers allowed for interest-rate and currency swaps to be sold from within the ringfenced arms of banks, putting them in the same category as ordinary loans and making them cheaper and easier to sell. Read more
Nick Clegg yesterday exacted the price his ministers and advisers had long warned would be paid for the Tories scuppering Lord reform: the Lib Dem leader in turn killed off the boundary changes, which are important to his coalition partners’ chances of a 2015 majority.
Most Westminster watchers saw it for what it was: a piece of tit-for-tat politics that was not particularly edifying, but probably important for the Lib Dems to show they were willing to use their muscle to get what they want.
Clegg attempted to appeal to principle when giving his rationale for the move yesterday. He said:
Lords reform and boundaries are two, separate parliamentary bills but they are both part of a package of overall political reform. Delivering one but not the other would create an imbalance – not just in the Coalition Agreement, but also in our political system.
Stephen Hester, chief executive of RBS
We reported this morning on high-level discussions in the government about the possibility of buying out the remaining 18 per cent of RBS that taxpayers do not already own.
The argument for doing so runs like this: we are already exposed to the vast majority of the bank’s hugely damaged balance sheet, and the losses only look like getting worse as we find out more about its distressed debt.
Given that, would it not be better to take advantage of our holding and actually use the bank to pump some credit into our stagnating economy?
At the moment, the problem with doing this is that it means making loans the bank does not currently consider commercially viable. That would be a dereliction of duty to the remaining private shareholders, who would have every reason to sue. The answer therefore is simply to buy them out, and actually use the government’s stake to achieve what it is trying to do. Read more
Last month it emerged that George Osborne had ordered the energy department to carry out deeper cuts to onshore wind subsidies in a move designed to appeal to Tory backbenchers – 100 of whom have signed a petition to that effect.
While Decc is already planning a 10 per cent cut to “Rocs” (renewable obligation certificates) the Treasury was seeking cuts of up to 25 per cent, it was widely reported.
But I have been handed a letter from the chancellor to Ed Davey, energy secretary, which suggests that the wind subsidies are only a microcosm of a wider battle over the green agenda raging in Whitehall. Read more
David Cameron’s interview with the Telegraph this morning was interesting for lots of reasons. But the main one was his big hint of having to cope with austerity until 2020. Asked if there was likely to be a decade of cuts, the prime minister said:
This is a period for all countries, not just in Europe but I think you will see it in America too, where we have to deal with our deficits and we have to have sustainable debts. I can’t see any time soon when…the pressure will be off.
I don’t see a time when difficult spending choices are going to go away.
Bleak words, which echoed what Sir Jeremy Heywood, the cabinet secretary, said last month. He told an audience at the Institute for Government:
After weeks of shadow boxing, ministers are finally publishing their proposals on reforming the House of Lords today. They include an 80 per cent elected chamber, filled with 450 part-time “senators”, elected by regional list.
Tory backbenchers are already up in arms, threatening rebellion and, in the case of some ministerial aides, resignation. Conor Burns, PPS to Owen Paterson, said this morning:
If I lose my job for something that was a mainstream view within the Conservative party within the last parliament, which serving cabinet ministers held as their view, so be it.
Reading this morning’s papers, you would have known that Michael Gove’s proposals to scrap GCSEs and bring back two levels of qualification for 16-year-olds have sparked a row. But to a greater extent than any recent government, this row is not between the government and the opposition, it is within the government. The papers reported:
Michael Gove has ignited a furious coalition row with the Liberal Democrats… (FT)
Nick Clegg vows to block Michael Gove’s plan to ditch GCSEs (Guardian)
Nick Clegg erupted with fury and vowed to block Michael Gove’s proposals… (Daily Mail)
To an extent, this suits both coalition partners: Gove gets to posture in front of the Tory faithful, while the Lib Dems get to show their muscle when the eventual compromise is reached. Read more
Vince Cable has reignited one of the questions that has dogged the coalition since it formed: when will it split up? Talking to BBC 5 Live’s John Pienaar, the business secretary said:
Everybody involved knows that before the next general election the two parties will have to establish their own separate platforms and identity.
But how that disengagement takes place, over what time period is very much an issue for the future, certainly not something we’re talking about at the moment.
The question is, what exactly does Cable mean by “disengagement”? Read more