Analysis: Spending cuts bind UK coalition together

By Estelle Shirbon

LONDON (BestGrowthStock) – Dramatic spending cuts have cemented Britain’s government coalition, threatening support for both parties, but junior Liberal Democrats could pay the higher price in losing their fight for electoral reform.

As one pollster puts it, the Conservatives have their partner in a “death hug” over a spending review that will hurt millions of voters. The Liberal Democrats must stick to the austerity program hoping the economy comes through for them in time for the next election in 2015, or face oblivion.

WHAT DO CUTS MEAN FOR THE LIBERAL DEMOCRATS?

The Liberal Democrats have more to lose in the near future. They went into the May election arguing that spending cuts imposed too fast and too deeply could damage the recovery.

Since going into government, they have adopted the Conservative stance that steep cuts were needed immediately to reduce the deficit and stave off a debt crisis. Their popularity ratings have collapsed as a result of the u-turn.

Worse, Liberal Democrats have had to eat their words on a number of specific policies. For example, one of their flagship campaign pledges was to oppose any rise in university tuition fees and they are now defending plans to allow such rises.

Liberal Democrat ministers can, however, point to several victories in Wednesday’s spending review, not least the inclusion of their cherished “pupil premium,” or extra money that will be allocated to schools that take on the poorest pupils.

RISKY REFERENDUM

Despite such concessions, the Liberal Democrats are likely to see their popularity remain very low in coming months as the cuts start to bite, and that could damage their prospects of winning a crucial referendum on the voting system next May.

The referendum was the prize offered to Liberal Democrat leader Nick Clegg by the Conservatives to entice his party to join the coalition.

The Liberal Democrats, who had never been in power until this May’s inconclusive election forced the Conservatives to join forces with them, want a change from the current voting system to boost their chances of holding office. The Conservatives will campaign against the change.

Losing the referendum would be a disaster for the Liberal Democrats. Their political fortunes could be totally dependent on economic growth picking up by 2015 — an outcome that is far from certain, according to many economists.

WHAT ABOUT THE CONSERVATIVES?

On the face of it, the Conservatives are in a much stronger position than their coalition partners. Their popularity has remained high despite constant talk of spending cuts.

The Conservatives keep blaming the previous Labour government for the poor state of public finances and for the necessary spending cuts, and polls show the strategy is paying off, with voters trusting them more than Labour on the economy.

Finance minister George Osborne, known as a shrewd political tactician, pulled off something of a coup when after months of talk of 25 percent cuts to departmental budgets, he said on Wednesday that the average cuts would be only 19 percent.

He said this meant the cuts were less drastic than those implied by Labour’s final budget in office, just before they lost power, though Labour dismissed the assertion as nonsense.

But whether or not Osborne wins the argument with Labour over numbers, the danger for the Conservatives lies elsewhere: they are vulnerable on the issue of social justice.

WELFARE DANGER

In the past, the Conservatives were perceived as a “nasty party” that cared little about the plight of the poor or social inequality. Prime Minister David Cameron has tried very hard to change that perception since becoming party leader in 2005.

One of the main elements of the spending review unveiled on Wednesday is a huge overhaul of the welfare state that will mean many families will see the benefit cheques shrink.

The government says that its welfare reforms mean that “it will always pay to work,” meaning that no family will be better off on benefits than in work. The theory is that this will encourage people on benefits to go out and get a job.

Again, the fate of the economy will determine whether the welfare gamble pays off. If the private sector does create hundreds of thousands of jobs over the next four years, the Conservatives could be in office for years to come.

But if the more pessimistic predictions come true and Britain settles into sluggish growth — or worse, recession — the Conservatives will struggle to convince voters that cutting benefits at a time of hardship was in any way fair.

Analysis: Spending cuts bind UK coalition together