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June 23, 2010 10:07 pm
Nick Clegg expressed sympathy on Wednesday with the idea of “stinging the bankers” to help fill the fiscal black hole, reflecting Liberal Democrat unease that the £2bn bank levy in the Budget is dwarfed by tax increases and spending cuts that will hit low-paid workers.
The Lib Dem leader defended the Budget’s value added tax rise, which his party opposed before the election, as an unavoidable alternative to even greater spending cuts.
Rejecting suggestions that the package had failed to achieve the Lib Dems’ progressive ideals, Mr Clegg said: “If we thought we could get all the money we need . . . just by stinging the bankers, I’m sure we would try and do it.”
Another senior Lib Dem privately expressed regret the bank levy had not been greater.
But the prime minister struck a different tone, suggesting that existing public sector workers face cuts to future pension benefits under looming reforms of a “welfare budget [that] has ballooned”.
David Cameron, in a BBC interview with Mr Clegg designed to show the coalition’s unity of purpose, made it clear the government intends to end the cushioning of state employees from the recessionary hardships suffered by the private sector. His warning reflects a view among many Tory MPs that cuts to public sector pay and welfare benefits should be prioritised over axing departmental programmes that could contribute to the recovery.
This political pressure from the right helps to explain the stress laid on Wednesday by George Osborne on the “trade off” in this autumn’s spending review between increasing the £11bn of Budget welfare cuts and reducing the 25 per cent cut to spending for non-protected departments. “We have said 25 per cent, but I hope that number can come down over the next few months if we can find more welfare savings,” the chancellor said.
Public sector pension rights will be curbed as part of welfare savings drive, Mr Cameron suggested. “We’ve got to confront this truth, if we don’t do anything about it, there’s going to be a massive great bill,” he said. “In the private sector, they’ve taken some really difficult medicine which we need to try and spread across more evenly.”
Labour attacked the severity of the £113bn five-year fiscal squeeze, warning it ran a “real risk” of derailing a fragile recovery.
Alistair Darling, shadow chancellor, said it could result in “a situation where our economy simply bumps along the bottom for a number of years, we don’t get the growth we need . . . and we don’t have the funds to reduce our deficit”.
But Vince Cable, the Lib Dem business secretary, said his support for the austerity package sprang from a warning from senior Bank of England officials after the election. “The advice I received, absolutely uncompromising and unequivocal, was that the incoming government . . . would have to act immediately and decisively on the deficit because there was a serious threat to this country,” he said.
His comments reflect Lib Dem sensitivities to Labour charges they are being used as a fig leaf to cover a Conservative smaller state agenda.
Tim Farron, a Lib Dem MP, on Wednesday contradicted Mr Osborne’s assertion that the Budget was progressive. “Austerity is never progressive. When you’re making cut-backs, even if you really load things on to the rich, the people who will feel the pinch are bound to be those living on the margins,” he said. But he said the package was “the right thing”, given the alternative to taking action on the deficit was economic “carnage”.
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