Deputy Managing Director of APCO London, Razi Rahman, comments on the New Government

The UK entered unchartered political waters as David Cameron and Nick Clegg announced details of the new Liberal-Conservative coalition government.   Speaking to press in the Downing Street garden on their first full day in office, Mr Cameron and Mr Clegg emphasised their ‘shared resolve’ to tackle the challenges facing Britain.  The Prime Minister said the new coalition will be united behind the principles of freedom, fairness and responsibility and its key purpose would be to provide ‘strong, stable and determined’ leadership for the long term.

The scale and extent of the change in politics was underlined by the fact that the process for appointing Ministers was conducted not by the Prime Minister alone, but together with his Deputy, Nick Clegg, with each new Cabinet Minister meeting both men in No.10.  By agreeing to Liberal Democrat representation in every Ministerial department and a joint programme of government, the new government will very much be a partnership between the parties, albeit with the Conservative Party as the senior partner.

Until Monday 10 May the working assumption had been that there would be some form of ‘confidence and supply’ agreement between the parties.  However, Liberal Democrat MPs on Monday afternoon made it clear that their price for entering into an agreement was a full coalition and a referendum on electoral reform.   Fearing that they may be about to be trumped by Labour, the Tories readily agreed to these demands.

The outline of the coalition agreement was contained in a seven page document issued by the two parties, followed by a final Coalition Agreement, covering the full range of foreign, defence and domestic policy.  This fuller document will be drawn up with the assistance of the civil service.

The new government has agreed to a ‘significantly accelerated reduction’ in the structural deficit in line with proposals contained in the Conservative manifesto and that such a plan should be set out in an emergency budget to be held within 50 days.  A full Spending Review will be held this autumn, but a real terms increase in NHS funding in each year and additional funding for the pupil premium has been agreed.

If the Liberal Democrats have conceded ground on deficit reduction, it is the Conservatives who have done so on tax, agreeing to the long-term policy objective of increasing the personal allowance to £10,000.  As a first step, they have agreed to ‘a substantial increase in the personal allowance from April 2011,’ as an alternative to the Tory proposals to raise Employee National Insurance thresholds.  Although Conservative proposals on Inheritance Tax and the Married Couples allowance have not been dropped altogether, it is clear that that they are now a low priority.  With the current state of the public finances, it is questionable whether they will ever be implemented.

While there is broad agreement on banking reform, it is clear that there is a lot of detail to be worked through, with a new government committee set up to deal with this.  Although Vince Cable will be the lead on this policy, he is unlikely to have a completely free hand.  Expect this to be a focus for robust discussion both within and outside the government.

There are of course points of real disagreement between the parties – principally on Europe, immigration and Trident, the UK’s missile-based nuclear weapons programme.  So how are they proposing to deal with this?  On defence, they have agreed that Britain’s nuclear deterrent should be retained, but that Trident should be scrutinised to ensure value for money.  Interestingly, the parties have agreed that the Liberal Democrats will be able to make the case for alternatives – a decision which may stretch the boundaries of collective responsibility.  On immigration, the coalition will adopt Conservative proposals for an annual limit on non-EU economic migrants.  Expect early legislation on this issue.

It is Europe which may cause the coalition most difficulty.  In William Hague, the government has a Foreign Secretary who is a genuine eurosceptic.    The rest of Europe will hope that the Liberal Democrat presence in the government may tame the wilder excesses on the Conservative benches.  While the parties have agreed that any further transfer of power will require a referendum, the language in the Conservative manifesto around repatriation of powers – on the Charter of Fundamental Rights, criminal justice and social and employment rights – has been quietly dropped. The agreement suggests an uneasy compromise and the government may be fortunate that the focus of the first few years is likely to be on the economy and domestic policy rather than Europe.  Expect this area, however, to continue to be a potential flashpoint between the parties.

Given that Conservatives have conceded more in policy and government positions than many expected, were they outmanoeuvred by a more experienced Liberal Democrat negotiating team?  Commentators have pointed to the fact that Clegg has negotiated with China on behalf of the EU, David Laws was famously well prepared when conducting the 1999 coalition negotiations in Scotland and Andrew Stunnell is an experienced negotiator in countless local councils.

But perhaps there is another explanation.  Having failed to gain the overall majority that many Tories expected, there has been a rumbling criticism within the party about the strategy, message and tactics of the campaign.  Yet a more considered analysis may be that the problem was not so much the campaign, but rather the fact that an electorate which wanted change, was still unconvinced that the Conservative Party had itself really changed.  May Cameron himself have realised that he needed a ‘Clause 4’ moment, deciding that the election result provided such an opportunity?

Certainly the language between David Cameron and Nick Clegg at the No.10 press conference was warm, with Cameron describing the full coalition as ‘so much better than the alternative.’  Interestingly, David Cameron also said that the parties had discussed having a minority Conservative government, supported by the Liberal Democrats on key votes but had concluded that was ‘uninspiring.’ Mr Clegg admitted both party leaders were taking ‘big risks’ but said it would bring about a ‘new politics.’

Nor do the Conservatives appear to be looking to leave themselves room to seek an early election.  Not only have they agreed to the establishment of a five year fixed term parliament, but they are also proposing introducing legislation that will provide for dissolution if 55 per cent or more of the House votes in favour.  This figure appears to have been chosen on the basis of the 2010 results as it would mean that if the Liberal Democrats decided to leave the coalition, the Conservatives would be able to continue as a minority government as they hold 47 per cent of the seats, blocking any ‘no confidence’ motion.  This will clearly be constitutionally controversial and there must be some question as to whether it will be agreed to by the House of Lords.

There will be MPs and activists in both parties who will hate this arrangement and although they may keep their counsel during the political honeymoon, they will be more than prepared to speak out in the months to come. There are still many questions unanswered and much scope for tension and rivalry.  Will some Conservative MPs look at their Liberal Democrat counterparts and wonder, have they got my Ministerial job? How will Liberal Democrat MPs respond to being told what to do by a Tory Chief Whip, Patrick McLoughlin?  Can the two parties deport themselves during by-elections and local council elections in such a way that it does not damage relations at Westminster?  Will the parties restrain themselves during the party conference season?

The way in which the two parties and their leaders navigate these challenges will go some way in determining whether today’s announcement represents the ‘historic and seismic shift’ in British politics which the Prime Minister heralded today.