Coalition ministers set out today to sell George Osborne’s payback Budget to the people who could most easily derail it: Liberal Democrat backbenchers angered by their party’s complete U-turn on VAT.
With one Lib Dem MP warning that he could vote against the Budget and others questioning the need for such savage public spending cuts, the party leader Nick Clegg will have to explain why he went back on an election pledge to oppose the Tories’ “secret VAT bombshell”.
The Lib Dem Chief Secretary to the Treasury, Danny Alexander, won a round of applause when he addressed the meeting of the party’s MPs after the Budget statement but still faces disgruntlement.
Appearing on BBC2’s Newsnight he denied misleading voters. “What we actually said in the election was that we would seek to reduce the deficit through spending but only if, on the grounds of fairness, we needed additional tax rises would we seek one,” he said.
“And on VAT, we have a choice: if the structural deficit is £12 billion larger than the previous government told us - do we fill that with yet more spending cuts or do we choose a tax measure? We want to see income tax thresholds rise to help with incentives to work. That means VAT was the unavoidable choice.”
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In the traditional round of post-Budget interviews this morning, Mr Osborne repeated his assertion that the Budget had been “unavoidable” and rejected the suggestion made by one senior Lib Dem MP that the swingeing cuts were motivated more by Thatcherite ideology than practical need.
The Chancellor did his best to play down divisions between the two coalition parties, insisting that during the election campaign both he and Vince Cable, as Lib Dem Treasury spokesman, had argued the case for cuts, including the removal of child tax credits for medium earners.
He denied that the Tories had always known that they would have to raise VAT, which will go up from 17.5 to 20 per cent next January, raising up to £13 billion a year.
“We were not thinking seven or eight weeks ago we are definitely going to go ahead with VAT. We wanted to keep options open, which is why we didn’t rule it out and the reason you kept asking that question was because we weren’t ruling it out,” he told BBC Radio 4’s Today programme.
“It was only when we saw the public finance and we got the independent assessment of the structural deficit that we decided we had to go ahead with the VAT rise.”
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He added: “The issue was aired in the general election and I think the fact we have now got two parties working together in the national interest with a mandate to do this has enormously strengthened my hand as a Chancellor trying to make sure the country can live within its means.
“I think there is a democratic mandate for what we’ve done and I think the country understands that when you’ve got a debt problem you’ve got to get on and deal with it.”
Financial markets were giving George Osborne’s debt-cutting budget the thumbs up today.
Gilt prices rose and yields fell as investors in British government debt took heart from the fact that the Chancellor had set a four-year timetable to bring down the country’s debts.
The September gilt future rose at one stage to its highest level for three months at 120.26, before easing back a little. The yield on ten year gilts hovered around a six month low at 3.3 per cent.
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Sterling hit its highest level against the euro for nearly two weeks at 85.52p.
David Cameron, the Prime Minister, and Mr Clegg, his deputy, are to make a joint television appearance tonight in an apparent bid to emphasise that this Budget - despite its Thatcher-era echoes - is a genuine coalition exercise in which the Lib Dems have had a real input.
But one Lib Dem left-winger, Bob Russell, warned last night that he might vote against the Budget because he thought the party had reneged on its pitch to voters.
“Less than 50 days ago, I was seeking re-election in Colchester opposed to a raise in the level of VAT. So I am not at all happy. I need to discuss with colleagues how it is we have got into this situation.” He added: “I can’t see myself at the moment voting for the Budget.”
Richard Grayson, vice-chairman of the Liberal Democrat federal policy committee, accused Mr Clegg and Mr Alexander of ignoring manifesto commitments and the views of the wider party.
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“Agreeing with those who have called for rapid cuts now is not simply an objective judgment about the state of the economy. It is an ideological choice,” he wrote.
Lib-Dem MPs were given no advance warning of the extra £40.2 billion squeeze on the public sector, prompting unease that their leadership has endorsed one of the most hawkish deficit reduction strategies in Europe.
One senior Lib Dem, Tim Farron, who narrowly missed out to Simon Hughes for deputy leadership of the party, said that unemployment was not a price worth paying - and said a “watchful eye” should be kept on the economy in case next January’s VAT rise needed to be pushed back.
“If we have any influence then we have to revisit things, VAT in particular,” he said.
Mr Farron also questioned the decision to eliminate the entire structural deficit by 2014-15 rather than just bring it back to more manageable levels. “Some form of debt and deficit is not abnormal for every civilised country. So we ought not to panic about the margins. And as the Parliament goes on, if it looks like pressure on the economy is receding, the emphasis has to go back on redistribution rather than clearing up the last few pounds of debt.”
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Mr Grayson went further, echoing a gibe from Labour’s acting leaders by saying that some Lib Dem MPs would “feel like the fig-leaves described by Harriet Harman”.
“It is far from clear that all these choices have to be made now and in the way the Government has made them. Liberal Democrats may soon realise that a centre-left party is being led from the centre-right,” he said.