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December 6, 2012 8:04 pm
George Osborne and Nick Clegg were congratulating themselves on Thursday on agreeing an Autumn Statement which, unlike the March Budget, did not self-destruct within seconds of being delivered.
But Wednesday’s statement presaged what could be a much tougher coalition negotiation, as Conservative and Liberal Democrat ministers embark on the sensitive task of identifying a further £10bn of cuts in a general election year.
The chancellor’s gloomy statement confirmed that the fiscal pain would continue until 2018. But the coalition must set out detailed cuts for only one more year: the one that begins in April 2015 – only weeks before the scheduled date of the next election.
The 2015-16 spending talks begin in earnest in January and will consume the first half of next year.
One coalition official said: “Ministers will be given a little light reading to do over Christmas, setting out the parameters of what has to be agreed.”
Mr Osborne wants to cut spending by £16bn in election year, and his Autumn Statement listed only £6bn of that sum: £3.6bn through a welfare squeeze and £2.4bn in day-to-day Whitehall spending.
Unexpectedly, the Tory chancellor has told colleagues that he does not expect to make up the rest of the £10bn in further cuts to welfare, not least because Mr Clegg, the Lib Dem deputy prime minister, has indicated that his party will not wear it.
Many on the Tory right think Mr Osborne must be bold and go further. Priti Patel, a rightwing MP, said: “These are very early days on welfare reform and we have to build on what we already have in train.”
But Andrew George, a Lib Dem backbencher, said the welfare cuts had gone too far. “The majority of people in receipt of benefits are not actually unemployed,” he said. “This is a knee-jerk response from the chancellor playing to the prejudices of some of the press.”
Vince Cable, business secretary, also hinted at Lib Dem unease. Referring to Mr Osborne’s tough rhetoric, he told BBC Radio 4’s World at One: “That stuff about people being at home, unemployed, with curtains drawn, was not the way I would have addressed it.”
The remaining £10bn will probably have to be found from the budgets of “unprotected” departments, such as the military, local government, police and prisons. Health, schools and overseas aid are exempt.
The cuts the coalition chooses to make in an election year will send a clear signal to voters about their priorities.
Lib Dem ministers say they expect to fight hard to protect areas such as local services, apprenticeships and science, while the Conservatives are likely to oppose defence or police cuts.
The options for cuts are therefore narrowing. The Treasury believes that if applied equally across all unprotected departments, the cuts would amount to 7 per cent of spending – on top of cuts of 20 per cent or more under way.
But if the 2015/16 spending round throws up big challenges for the coalition, it also poses a problem for the Labour opposition.
Ed Miliband, the Labour leader, will be under pressure to say how he would approach public spending in election year and whether he would support higher spending in some areas and higher taxes.
The Treasury’s Christmas reading list being prepared for spending ministers is unlikely to improve the festive spirit.
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