by Alex Evans | May 3, 2010 | UK
So we’ve looked at the composition of a potential coalition government, how a coalition might change policymaking in Whitehall, and what it might mean for electoral reform. But what about the most immediate issue: how negotiations between the parties would work on the morning after the vote?
Start with the constitutional issues. The key thing to remember is that if we do end up with a hung parliament, then the Queen will first invite Gordon Brown to form a government, because he’s the sitting PM, and only if he can’t will she invite David Cameron to take a shot.
This sequencing issue is of no small importance, because it fundamentally shapes the Lib Dems’ room for manoeuvre – and according to Philip Stephens, they’re already screwing it up. He pronounces himself “baffled” that Nick Clegg “seems intent on throwing away his best negotiating cards in the event that Britain wakes up on Friday to a hung parliament”. He explains (emphasis added):
Were Mr Clegg to repeat on Friday morning that he intended to shun the prime minister and talk to the Conservatives, Mr Brown would be obliged to resign immediately. Mr Cameron would be summoned to the Palace and would be prime minister by Friday afternoon, regardless of anything Mr Clegg said. It would then be entirely up to the Tory leader whether to talk to the Lib Dems before the Queen’s Speech on May 25 or whether to dare Mr Clegg to try to vote the new administration down.
The Lib Dems would have lost all leverage, since forcing a second election would be to risk a backlash from the voters. By contrast, by stating that he was ready to talk to both party leaders with a view to a coalition or other electoral arrangement, Mr Clegg would keep hold of his bargaining chips. Mr Brown would remain in Number 10 while talks were under way, putting pressure on Mr Cameron to match any offer to the Lib Dems from Labour.
I agree with Philip’s argument, but there’s one key variable he doesn’t take account of: the bond markets. In a radically unhelpful move, LIFFE – the London futures exchange – has announced that instead of starting off at 8am, as normal, gilt markets will be open from 1am on election night.
Bond traders will be able to react in real time to results rolling in from key marginal seats, in other words: so as well as measuring how the night’s going through the traditional BBC swingometer, we’ll also be able to track progress through yields on three month short Sterling interest rate futures. Well, great.
Because bond traders – those noted political science experts – have clear views about what a hung parliament would mean for the deficit, as today’s Wall Street Journal makes clear.
“It will be difficult for a minority government to implement credible fiscal tightening through tax hikes or cuts in spending [if] we end up with a hung Parliament,” said Mark Schofield, global head of interest-rate strategy at Citigroup.
As it happens, they’re wrong. As I argued in my post on coalition scenarios, a coalition would be more credible on cutting the deficit, not less, as long as it can hammer out a joint programme; a government with a wafer-thin majority and less than a third of the popular vote doesn’t exactly have a resounding mandate, whereas two parties, with 60% of the national vote, have much more of a base from which to be able to make unpopular decisions.
But who cares about any of that? What LIFFE’s decision means is that if we do end up with a hung parliament, then rather than having a few hours for party leaders to draw breath, get some sleep, and ready themselves for the talks ahead, the pace of events and the media narrative will be dictated by the stampede mentality of the bond markets – and potentially by a rout on sterling that could be well underway hours before the Queen is even awake, never mind receiving party leaders.
Admittedly, such a scenario would pressure party leaders to move decisively to create greater certainty for the markets. But realistically, forming a government is just the first step, nowhere near sufficient on its own. Before investors start to calm down for real, the coalition will need to agree a joint programme for cutting the deficit – and how long do you suppose that’s going to take them to hammer out?
Earlier this week I quoted Alan Beattie observing of the Eurozone crisis that “adherence to constitutional niceties is admirable, but this is a debt crisis in the capital markets of the 21st century, not the Congress of Vienna”. Let’s hope his words don’t come to have similar resonance closer to home.
Update: anonymous senior Tories are quoted in today’s Telegraph as coming close to ruling out a deal with the Lib Dems:
Even if he fails to secure an outright majority, it is understood Mr Cameron is preparing to “go it alone” and form a minority government. The Tories are confident an informal understanding with unionist MPs from Ulster could secure Mr Cameron a safe passage with his key early Commons battles, including getting a first Queen’s Speech and Budget passed …
… Mr Cameron is also relying on the reluctance of the Lib Dems or Labour to risk unpopularity with the electorate by bringing down a minority Tory government at a time of economic uncertainty. Nick Clegg, the Lib Dem leader, indicated yesterday that his party would be unlikely to force another election. Senior Whitehall sources have indicated they expect Mr Cameron to push ahead without a formal coalition if he falls short of a majority. A shadow Cabinet minister said: “We don’t need a formal coalition deal if the unionists are on board for the key pieces of legislation.”
The Democratic Unionists have eight seats in the current Parliament, having won nine of them in 2005.
[Read the rest of our After the Vote series.]
by David Steven | May 2, 2010 | UK
I have been wondering how the road to reform of the British electoral system might play out. Assume Thursday’s vote gives the Liberal Democrats sufficient power to extract a pledge from one of the other parties to move this agenda forward, what might we expect to ensue?
An easy way to address this question is to assume the Lib Dems end up in the (perhaps unlikely) position of being given everything they ask for on the issue.
A bill would swiftly be pushed through Parliament to switch future elections to Single Transferable Vote in multi-member seats, right? After all, the party’s policy brief on political reform is unequivocal (if frustratingly lacking in detail) on the subject:
The Liberal Democrats will change politics forever and end safe seats by introducing a fair, more proportional voting system for MPs, and for the House of Lords.
Well, no, changing politics forever may not be nearly as simple as that.
The Lib Dems can hardly claim a mandate for a fundamental transformation of British democracy based on what Nick Clegg derides as a ‘clapped out’ and ‘potty’ electoral system.
After all, the party knows that polls suggest public ambivalence, at best, about PR. It would have to offer a ‘fair vote’ on a concrete reform proposal. To me, that means a referendum would be inevitable.
Lib Dems concur. The party’s manifesto describes STV as its ‘preferred’ system, but it also promises to ‘introduce a written constitution’:
We would give people the power to determine this constitution in a citizens’ convention, subject to final approval in a referendum.
So, in the Lib Dem ‘dream scenario’, a government would be expected to
- Set up a process that it wouldn’t fully control (and that’s not to criticise the need for inclusion and consultation).
- Through that process, agree a constitution that would contain a package of issues that went far beyond electoral reform.
- Put the whole package to an up-or-down vote and then live with the consequences.
All this would, presumably take time (creating new constituencies would then take even longer). In some ways, this would be good for the stability of a coalition. After all, the Lib Dems will have an enormous incentive to trigger a new election once PR is in place.
But there would be considerable political dangers as well. One can’t help being reminded of the tortuous process that led to the Lisbon Treaty. It also started life at a citizen’s convention and then floundered through a series of referenda.
Surely a Lib Dem-ish government would risk losing a vote on PR because the electorate objected to other parts of the proposed constitution; or was angry with the government for other reasons (highly likely, in an era of austerity) and used the referendum to punish it.
And if the referendum was rejected, wouldn’t the government fall as well? Either because the Lab Dems pulled support in a huff. Or because the government was simply discredited by losing such as important vote. (more…)
by Alex Evans | Apr 30, 2010 | UK
So with a week to go until polling day and the polls still suggesting the possibility of a hung Parliament as the result of the gripping election campaign currently underway in Britain, this is as good a moment as any to start thinking through how such a scenario might pan out – and what it will mean for Whitehall and foreign policy.
First, the obvious question of what colour coalition we might end up with. Many in Labour had assumed that the Lib Dems’ natural inclination would be to snuggle up with them, given their shared progressive tendencies. Rather a rude awakening for them, then, to see Nick Clegg distancing himself from Labour last weekend – prompting plaintive noises from David Miliband on Twitter, who complained that
“Clegg swerve to back Tories needs to be explained to all progressive minded voteras. Old politics not new.”
But according to a senior Tory I spoke to earlier this week, it’s straightforward political logic that the Conservatives would be the Lib Dems’ first choice as a coalition partner, given the political risks they’d run for the next election campaign if they were seen to have propped up “the fag end of an unpopular government”. Well, maybe, maybe not – Lib Dem activists and MPs, most of whem are well to the left of Nick Clegg, might have something to say about that.
More interestingly, though, this same Tory also suggested to me that David Cameron himself might secretly prefer a coalition with the Lib Dems – if the choice is between that and a wafer-thin outright majority. Cameron’s own position as party leader would be secured by an outcome that puts him in Number 10, coalitions included. But the wafer thin majority scenario would face him with the horrendous possibility of his administration being John Major 2.0 – with Number 10 held to ransom by MPs well to the right of the Cameroons’ Tories. (As polling of the Conservatives’ prospective parliamentary candidates shows, many of the likely new intake of Conservative MPs are not, shall we say, in the same place as Global Dashboard readers on issues like Europe or climate change).
A coalition government, on the other hand, might strengthen Cameron’s hand considerably – above all when it comes to making the tough calls needed on public spending cuts. A government with a tiny majority and less than a third of the popular vote has a de facto legitimacy problem in taking brutal decisions. A coalition with 60% of the popular vote, on the other hand, will find it much easier to claim a serious mandate – if it can agree a joint program.
But it’s also too soon to rule out the possibility of a Lib / Lab coalition. There’s a whiff of panic in the air, with even seasoned commentators questioning whether Labour could be obliterated as a political force. My old boss Matthew Taylor said two days ago that “if Labour trails in a bad third next week, a divided, demoralised and impoverished Party could easily go into a long term decline, becoming a Party whose highest realistic aspiration is to a be a minority partner in a future coalition”; Rachel Sylvester, too, asks whether we’re looking at “the end for Labour”. All this may make for fertile ground for a further-reaching coalition deal than the Tories would be willing to offer – and note that Nick Clegg followed his appearance on the Andrew Marr show with an interview with Patrick Wintour setting out his terms for a deal with Labour.
Whichever of the two big parties the Lib Dems get into bed with in a hung parliament scenario, a massive what-if will be whether The Deal is just a short term political pact – on that runs through to October 2011, say – or a proper continental-style Coalition, built to last for a four year term. And that brings us to one of the biggest questions in all this: what would be the Lib Dems’ top negotiation priorities.
To the extent that the media are asking this question, their main assumption is that it will be electoral reform that sits at the top of Nick Clegg’s shopping list. But while that certainly does matter for them, the other sine qua non will be as many seats in the Cabinet as possible. This is all about being seen to be a serious party, ready for government. Today, the Lib Dems have zero ministerial experience, and only two front benchers with national recognition (Clegg and Vince Cable). But if they secured – say – five Cabinet seats, and held on to them for four years, then that could shift how people see the party for good.
I agree with that analysis – and would only add that given the public spending context, there’ll be much more of a premium on some jobs than others. Of course, the obviously top jobs – PM, Chancellor, Foreign and Home Secretaries – will be desirable simply by dint of profile and prestige, even if (as in the case of Chancellor) they’ll be unpopular due to spending cuts. (Interesting to note, incidentally, that in his Paxman interview, David Cameron ruled out any possibility of Vince Cable being Chancellor in a Tory / Lib Dem coalition, saying he disagreed with his underlying analysis of the crisis. That would of course increase the chances of a Lib Dem foreign secretary, always a more politically straightforward job to give to a ‘frenemy’: c.f. David Miliband under Gordon Brown, Joschka Fischer under Gerhard Schroder).
As for the other posts in the Cabinet, I think they’ll fall into two camps. On one hand, there’ll be the big public spending departments: Children & Schools, Housing & Planning, Work & Pensions, Communities & Local Government, Transport, Defence, Scotland, Wales and Northern Ireland. Running any of these departments will, for the most part, involve a whole world of pain: unpopular cuts, furious public sector workers who will spend much of their either abusing you or on strike (or both), and a steady stream of bad news stories. I’d also include Health in this list, as I simply don’t believe that any party will be able to protect it a hundred per cent.
And on the other hand, those departments that are not primarily about spending money: Business & Innovation, International Development, Energy & Climate, Environment & Food, Culture (plus the Leaders of both Houses, and Chief Whip). Given the choice, wouldn’t you rather have one of these? And what’s interesting from a Global Dashboard perspective is that suddenly it’s the departments for global issues that are the really interesting ones, rather than (as has traditionally been the case) the big spending departments. Also interesting is that these are some of the issues the Lib Dems are most interested in.
So much for the political stripe of a coalition government and its ministerial composition. Next question: how might it change the way policymaking works in Whitehall?
[Read the rest of our After the Vote series.]
by David Steven | Apr 29, 2010 | Economics and development, UK
If the BBC leaders’ debate tonight devotes more time to bigotgate than to housing, I am going to dedicate the rest of my days to working for the Corporation’s demise.
Britain’s unsustainable housing market is at the root of many of the country’s problems and could wreak appalling damage on voters during the next parliament. It must feature in the debate.
Someone should start by reminding Gordon Brown of a promise he made in his first budget speech in 1997:
Stability will be central to our policy to help homeowners. And we must be prepared to take the action necessary to secure it. I will not allow house prices to get out of control and put at risk the sustainability of the recovery.
As I argued recently:
When Brown spoke, the average house cost £75k – about £10k above the early 1990s nadir. A long long boom was just beginning. Prices would peak in February 2008 at an average of… £232k!!!
In other words, Brown promised not to let house prices spiral out of control and then allowed them to treble, during a period when household disposable income increased by only 30% or so.
2007 saw what is often called a housing price crash, but as this graph shows, it was really only a blip.
As the government pumped money into the economy and pushed interest rates to unprecedented low levels, the bubble started to inflate again. House prices are now back to the levels of June 2007.
Second guessing the housing market is a mug’s game, surely this is unsustainable. British houses are overvalued by nearly a third, according to one measure. Worse is the amount of mortgage debt outstanding – $1.238 trillion. By comparison, government debt is ‘only’ £950 billion.
Low interest rates and buoyant employment (relative to the economy’s woeful performance) have kept householder’s head above water – but the highly-indebted remain highly vulnerable to any increase in interest rates or to further job losses.
My best case for the housing market is a long period of stagnation (we desperately need lower prices). Worst case would be a sudden, vicious and self-fulfilling collapse. I believe this is currently the most serious economic risk facing the British people (one which is, of course, interrelated to Europe’s sovereign debt problems).
So what do the major parties have to say about this in their manifestos?
- Labour wants to expand home ownership and exempt all houses under £250k from stamp duty (likely to push house prices up). It says it will build 110k houses over two years (likely to push prices down).
- The Conservatives promise to exempt first time buyers from stamp duty if their house costs less than £250k. It wants to put communities in charge of planning, which is highly likely to reduce the number of houses built.
- The Lib Dems plan to use loans and grants to bring 250k empty houses back into use.
Pretty weak beer, all told. No party questions the shibboleth that Britain needs more homeowners. None is prepared to explain how they will manage risks that have been increased by the response to the financial crisis.
Far less do they have policies to fulfil Brown’s promise from 1997 – to end boom and bust in the housing market radical proposals (see my Long Finance paper) to prevent the mortgage market from screwing borrowers every twenty years or so.
So here’s my question for tonight’s debate:
In 1997, Gordon Brown promised he’d never let house prices get out of control again, but then presided over a housing bubble that has left British householders owing £1.2 trillion on their mortgages. In government, what will you do to stop the housing dream from becoming a housing nightmare?
by David Steven | Apr 22, 2010 | UK
Which leader is best able to talk convincingly about the global risks the UK faces?
In the past decade, all the key game changers have been international: 9/11, the food price spike, and the financial crisis. But the international agenda is much harder to explain to voters than local concerns about hospitals, schools, or crime. Which party has a coherent narrative about the UK’s place in the world?
Which leader is up for a fundamental rethink of everything the UK does internationally?
An accelerating shift in the global balance of power, combined with rapid technological change, mean that every aspect of the how the UK operates overseas should be open to question. Our diplomatic, military and development programmes are all struggling to meet policy objectives. Which party is prepared to countenance a genuinely fresh start?
Is all the UK’s international expenditure under review?
Only the Lib Dems are prepared to put Trident on the table. All parties assume that development spending will be ring fenced. And there’s a general assumption that the foreign service will continue to be starved for funds. But strategy (and the need to close the budget deficit) should drive funding decisions – not the need to protect sacred cows.
Does the leader have anything fresh to say about the UK’s alliances?
Can the European Union ever become an effective foreign policy actor? How? What policy results do we expect from the transatlantic relationship? Can the UK seize a brief window of opportunity to make the G20 function effectively? (BTW – ten points are subtracted from the first leader to get misty eyed about the Commonwealth.)
Who is most convincing on Afghanistan?
Clearly, the NATO mission in Afghanistan is in deep deep trouble – with few signs that the insurgency is being tamed or that the Karzai government is getting a grip on the country’s problems. Something has to change, but I’ve no idea what. Does Cameron, Clegg or Brown?
What about the NPT review?
Doha and Copenhagen have shown that the international system is unable to cope with global problems. The odds suggest that the NPT will fail as well, as the pace of nuclear proliferation picks up. The review conference starts immediately after the election. Will the new government bring any fresh ideas to the table?
