That fragile voice straining to be heard above yesterday’s talk about May, Gove and extremism was Nick Clegg’s. Yes, the Deputy Prime Minister delivered a speech in response to his party’s “gutting” performance in the local and European elections. It was full of stuff about what the Lib Dems have achieved in Government; what they’ve prevented the terrible Tories from doing; fairness and opportunity, etc, etc.

But don’t tune out just yet. The way I’ve described it so far, this speech may sound like just another song of differentiation and despair, of the sort we’ve heard before and will hear many more times before the next election – but there was actually something different here. This was the speech in which Clegg described a new pair of fiscal rules that the Lib Dems will look to promote after 2015. First up, a debt rule:

“…we will abide by a new debt rule in which we will significantly reduce national debt as a percentage of GDP, year on year, when growth is positive, so that it reaches sustainable levels around the middle of the next decade.”

And then a Cable-esque deficit rule:

“…once we’ve dealt with the deficit in 2017/18, we’ll balance the overall budget but we’ll do it in a way which still allows us to invest in the things we and future generations need. So a second, balanced budget rule, in which we run a cyclically adjusted balanced total budget, excluding capital spending that enhances economic growth or financial stability.”

Which leaves a several questions hanging in the air. For instance, when it comes to the debt rule, what exactly does Clegg mean by “sustainable levels”? The Institute for Fiscal Studies reckons that the debt-to-GDP ratio will be back to its pre-crisis level “at the end of the 2020s” (see p20, here). So, does the Lib Dem leader want to reach that point sooner, which would imply more fiscal consolidation? Or does he have a different, higher definition of what’s sustainable?

In a way, though, the answers don’t matter – and Clegg knows this. Any fiscal rules for the next Parliament will be determined not by the Lib Dems, but by the Tories or Labour, perhaps in conjunction with the Lib Dems. The rules that the Deputy Prime Minister set out yesterday are primed for future coalition negotiations. They’re so broad that they are unlikely to offend anyone. Simply tweak or jettison as required.

What mattered more was Clegg’s salesmanship. When it came to the public finances, Labour got off unusually lightly. There was a reference to the “mess” that the last Government left behind, and Gordon Brown was chastised for his tendency to “slap the words ‘capital spending’ on anything and everything just so he could get away with borrowing to pay for it”.

But the Conservatives received much worse. There was implicit criticism of David Cameron’s last Mansion House speech in Clegg’s description of the deficit rule: “We don’t believe in an ever-shrinking state. We are not so ideological about making cuts that we’ll deny the country what it needs to prosper.” And there was explicit criticism of what the Tories would do to cut the deficit in the meantime: “once you look at the kinds of things they want to cut, that’s £12 billion from the working age poor. … I cannot accept that at all.” Hardly the first time Clegg has made these arguments, but certainly the most forceful.

All of which threatens to make this year’s Autumn Statement and next year’s Budget rather awkward events. The Office for Budget Responsibility’s fiscal projections are stretching further into the next Parliament, and as they do so they expose more and more differences between the two Coalition parties. We’ve already seen some disgruntlement from the Lib Dems at having to put their name, even loosely, to Osborne’s post-election proposals.

This isn’t to say that the Tories and Lib Dems will be tearing at each other’s rosettes come the Autumn Statement – the last Budget actually demonstrated how civilised their partnership still is. But it does make me wonder how the two parties will balance their political instincts with against governing ones at next year’s Budget, so close to the election. I wouldn’t be too surprised if a mutually-determined split took place then.

18 comments for: Clegg’s fiscal rules don’t really matter. How he sold them does.

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