By Paul Goodman

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Cameron & Clegg laughing

Hats off to the Liberal Democrats.  They are showing us the way.  We have six times as many MPs as they do, experience of government that they don't, and poll ratings three times higher than theirs.  But while David Cameron has moved from one message to another, and his party's noises off have sometimes drowned out those he's sent, Nick Clegg has stuck to his script, and the LibDems has amplified it repeatedly and consistently.  Furthermore, Vince Cable and Tim Farron's spicy attacks on their coalition partner, far from harming him, has actually helped him.

Clegg's line is that the Conservatives may stand for a stronger economy, and Labour for a fairer society, but only the Liberal Democrats stand for both.  To Cable, all the Conservative mainstream have to offer is a "an ideological jihad".  To Farron, his partners speak  "reactionary Tory drivel".  The budget offers the Tory half of the Coalition an opportunity to learn from their example.  Indeed, the Budget's politics presents more opportunities to Downing Street and CCHQ than its economics, for the following reasons:

  • The reach of Budgets is more limited than most Chancellors claim.  The way in which Chancellors try to frame their budgets usually have little to do with their content.  (Prepare for Osborne to frame this one as as an "Aspiration Budget".)  For example, the Chancellor wants to raise Britain's education and skills standards – part of his desire for a German-style economy.  But Michael Gove's school reforms and John Hayes's work on apprenticeships – now picked up by Matthew Hancock – will do more to improve these than most budget measures.  Or again, Osborne will want to please the Cost of Living Caucus.  But again, one of the main drivers of that pressure on costs has been higher utility bills.  The dominance of the big energy suppliers helps to drive it, and budgets aren't the vehicle by which energy supply is reformed.
  • The reach of Budgets becomes even more limited as an election draws nearer.  Lord Lawson pointed out
    that governments are at their most authoritative early on.  This, he
    said, is why he reformed business taxes in his first budget after the
    1983 election, and personal taxes in the first one after the 1987
    election.  Options that were open to Osborne in his first budget are
    therefore less open to him in this one.  For example, he could have
    followed the example of Ireland in 2010, and cut public sector pay in
    order to bring the deficit down faster.  On paper, he could still do so
    on Wednesday; in practice, this would be almost impossible at this stage
    in the political cycle.  ("If it's so important to cut public sector
    pay, Chancellor, why didn't you do it in your first budget?  Why have
    you wasted three years?") 
  • The reach of this Budget will be especially limited if, as expected, it deals mostly with tax rather than tax-and-spending as a whole
    Osborne set out his spending plans for this Parliament in his first
    budget.  This was necessary in order to provide a stable means of reducing the deficit, but this framework is gradually becoming a cage.  The Competitiveness Caucus wants further reductions in the growth of spending to fund tax cuts.  The Chancellor is very unlikely to concede this.  The corporation tax and air passenger duty cuts that it wants will thus be hard to find.  So will the capital gains tax reduction that Liam Fox has called for or the further corporation tax cut championed by Adam Afriyie.  The Chancellor is likely to ignore the Plan C Caucus, which argues that bold tax cuts would be self-financing.  (David Davis provided a characteristic example of its thinking yesterday.)
  • The reach of Osborne's Budgets is also limited, because of…the Liberal Democrats.  In his piece yesterday, Davis lauded Gerhard Schröder’s "growth agenda" – which gave "SMEs special exemptions from employment law, eased laws governing dismissals
    and redundancies, protected companies from vexatious employee lawsuits and
    reformed the welfare system to improve incentives to work".  Perhaps the Chancellor will be able to follow likewise on Wednesday.  But Vince Cable, that former Social Democrat, is resistant to following the example of Schröder, another social democrat.  Cable is not the slavering Marxist that some Conservatives believe him to be, but it's no secret that he believes there's nothing much wrong with the supply side of Britain's economy, and that the problems are all on the demand side.

I'm not saying that nothing can be done in the budget (though I agree with Lawson that the Chancellor has no "growth button" to press).  Far from it.  There at least three important measures Osborne could take within the framework he has set himself.

  • Speed up the shift back to capital spending.  The Chancellor inherited Alistair Darling's reductions in capital spending, and took rather a long time to reverse them.  Building houses, roads, railways (though I have my doubts about HS2), and nuclear plant (if only) may not provide high-end employment but it would provide more jobs to help Britain move towards sustained recovery.
  • Cut Employers National Insurance contributions.  The debate about whether the Osborne should raise thresholds or restore the 10p to help poorer voters enlivens this site.  But given the limited options that the Chancellor's framework provides I would plump for business rather than income tax cuts this year.
  • Scrap the fuel duty rise.  I expect that Osborne will do this anyway, but cheaper energy costs is even more of a priority for worse-off voters than lower taxes.  The Chancellor must do something to meet the Cost of Living Caucus halfway.  Footnote: many of its concerns are in the hands of Mark Carney as much as Osborne, given the role of the Bank of England in setting monetary policy.

I agree that these three measures are a small-scale response to very big problems.  But there's little point in calling for this Chancellor to follow Plan C, which he won't do, or to abandon ring-fencing, which he won't do either, or to tear up his spending plans.

What he and David Cameron can do, however, is borrow several leaves from the Liberal Democrats playbook.  In short, they should loose the party's attack dogs on their partners as early as Thursday morning, as follows:

  • The dispute between the Chancellor and the "National Union of Ministers" over public spending has been exaggerated.  The Conservative members of the union want bigger welfare cuts in future.  So does the Chancellor.  Iain Duncan Smith would countenance a bigger reduction in his budget.  It is the Liberal Democrats who won't.  So the row turns out to be one between rather than within the two parts of the Coalition.
  • The fracas is about spending in the next Parliament, but it has an application for this one.  Osborne has been known to say, when asked what he'd have done differently had he been Chancellor in a Conservative-only government, that he'd have cut the growth in the welfare budget further and faster.  IDS was willing to freeze benefit payments entirely, and restrict some child benefits and housing benefit payments to under-25s for future claimants.
  • Spending reductions seldom win unambiguous polling support (with the exception of overseas aid).  But voters have flinty views on welfare and crime.  Acccording to
    Policy Exchange's Northern Lights report, 81% think that handing out benefits doesn't tackle the causes of poverty, 69% support longer sentences, and 63% believe that the benefits system is too generous.  There is more where that came from.
  • I'm not calling for attacks on "scroungers", which can recoil on those who make them.  Lots of people on tax credits are working, and are going through very tough times.  But the Work and Pensions Department itself points out that benefits have risen twice as fast as earnings since the Government took office.  The Liberal Democrats are on the wrong side of public opinion in lobbying to maintain that ratio.
  • CCHQ should thus be let off the leash, post-budget, to point all this out – and add that some of the tax cuts and spending rises that are called for, at one time or another, could have funded if bigger welfare savings had been found. It's a task peculiarly suited to the Party Chairman, and to backbenchers who are fed up with the Liberal Democrats, and are willing to say so.  (There's no shortage.)
  • And, no, the world – or, rather, the Coalition – wouldn't end.  It would stagger on as it's doing at present – edgily, suspiciously, often acrimonously.  But stagger on it would.  All that would be different is that Clegg and company would be held to account for their actions – in much the same way that they, in their own way, try to hold us to account for ours.  What's to lose?