British Conservatives, Liberals at Odds Over Budget Plan

Conservatives champion deeper spending and tax cuts. Liberal Democrats are skeptical.

British business secretary Vince Cable answers questions from reporters outside Cass Business School in London, England, June 3, 2010
British business secretary Vince Cable answers questions from reporters outside Cass Business School in London, England, June 3, 2010 (CASS/Duncan Phillips)

As Britain’s coalition government prepares to unveil its budget plan for this fiscal year, both members of Prime Minister David Cameron’s own Conservative Party and his Liberal Democrat allies have publicly questioned its approach to spending.

Negative growth in the fourth and final quarter of last year, when British gross domestic product contracted .3 percent, has given left-wing critics of the government’s austerity policy ammunition to argue that it’s cutting too fast. However, rightwingers contend that it shows the coalition isn’t reducing spending fast enough.

Cameron’s administration had extended its deadline for reducing the national debt as a percentage of national income from the next election, scheduled for 2015, to the 2016-2017 financial year but it will still need to come up with another £10 billion in cuts to meet that target.

Business secretary Vince Cable, a Liberal Democrat, told BBC Radio on Tuesday that means deeper cuts to “the army, the police, local government, skills and universities” if the prime minister insists on continuing to exempt health care, which accounted for a fifth of public-sector spending last year, from cuts — “a very unbalanced approach,” he argued.

Defense secretary Philip Hammond, whose procurement budget, like health care, is “ringfenced” from further reductions, told The Daily Telegraph early this month that cuts should be found elsewhere. There is a “body of opinion within cabinet that believes that we have to look at the welfare budget again,” he suggested, worth more than £200 billion or 30 percent of total spending last year.

In a speech to the Institute of Economic Affairs, a free-market think tank, on Monday, Hammond’s predecessor as defense secretary and Conservative lawmaker Liam Fox proposed deeper budget as well as tax cuts to boost the economy. “I believe that in leaving money in people’s pockets, economic activity will follow,” he said.

We should gradually move toward the reduction, or even abolition, of the taxes where the state not only taxes the same money on multiple occasions but discourages the very behavior that would lead to a more responsible society.

Home Secretary Theresa May was more cautious in her speech to the Conservative Home conference on Saturday but said more or less the same thing: “You don’t get economic growth by spending more and more money but by getting behind the country’s wealth creators.”

The Liberal Democrats, on the other hand, join the Labour opposition in resisting tax cuts but are ambivalent about whether to continue to restrain spending or seek to stimulate growth with investments.

Deputy Prime Minister Nick Clegg lamented the “reduction in capital spending when we came into the coalition government” in an interview with The House magazine in January but insisted in an interview on the BBC the next Sunday, “The idea that we can simply return to the bad old days of borrowing our way out of the crisis,” as the Labour Party attempted when it was in government, “is clearly not possible when we still have one of the largest deficits in the developed world.”

Cable, who is believed to want to take over the party leadership from Clegg, similarly wrote in the New Statesman this month that “the data does not support the conclusion that deficit reduction has had dramatic effects on the economy” yet urged infrastructure investment to “inject demand into the weakest sector of our economy — construction.”

Cameron, for his part, insists that health care will not be cut — a key election promise he made in 2010. But he hasn’t said where cuts, if any, will be made instead.