Massive revolt by Tory MPs is beginning of end for coalition

Allister Heath
YOU may not care about the government’s bizarre obsession with trying to replace the unelected House of Lords with an almost equally strange upper chamber. If so, you are not alone – the public has completely switched off from the arcane, introspective world of the Westminster village.

Ordinary people want to talk about growth and jobs, not about irrelevant niceties. They want a political elite that focuses on fixing an economy that probably shrank by 0.2 per cent in the second quarter, not one that constantly wants to rejig the political rules to advance its own power base.

But the fact that such a huge number of Tories rebelled still matters hugely: it means that the coalition is now in near-terminal crisis. There could be an election much sooner than most people in the City realise – and even if the government stumbles on, it is now even more weakened and in even greater disarray. Given that the Labour party is way ahead in the polls, and that the Liberal Democrats may not now allow a change in electoral boundaries to reduce the system’s bias against the Conservatives, this bodes ill for David Cameron’s chances of staying in office.

Ed Miliband could easily become Prime Minister sooner rather than later, with Ed Balls, the architect of much of what went wrong during the bubble years, our new chancellor of the exchequer.

But it’s not all doomed for the coalition – or not quite yet anyway. It still just about has the time to fight back, though that would require a dramatic shift in economic policy. The only hope is a set of emergency supply-side reforms after the summer to incentivise companies and individuals to invest and work – while not increasing spending any more than already agreed. If such a plan doesn’t materialise in the next few months – and to be honest I have given up hope that the present chancellor and business secretary would ever countenance this – the coalition might as well pack it in. There is no way George Osborne’s fiscal plans will be met: the growth isn’t there. All of the job-destroying tax hikes have come through, and spending is falling slowly in real terms. But Osborne’s six-year plan to get rid of most of the deficit was always predicated on hopelessly optimistic growth forecasts.

The lack of growth is not all Osborne’s fault, of course. The impact of the Eurozone is clear. An analysis by Capital Economics shows that the value of exports to non-EU countries in May was seven per cent above its level at the end of 2011 but that exports to EU countries were down five per cent. Goods exports to non-EU countries exceeded exports to the EU for only the second time since 1998.

But Britain is also being dragged down by still high inflation (that is cutting real wages and wealth), anti-growth and anti-wealth taxes, crippling labour, product market and planning regulation, an anti-business climate, a bloated state that still accounts for close to 50 per cent of GDP, ever-higher public debt, private sector deleveraging and excessively harsh capital and liquidity rules that are reducing the supply of credit.

The coalition’s last remaining public interest rationale for sticking together is to deal with the public finances. When it eventually becomes apparent that that too has come unstuck – another couple of quarters of GDP contraction should do the trick – there will be nothing apart from the love of the trappings of power to keep Lib Dems and Tories together. One should never underestimate the self-preservation instincts of politicians – but the future is looking very bleak indeed for Britain’s brave experiment in coalition politics.