Cameron confirmed as PM as Liberal Democrats secure a number of cabinet positions After the five day hiatus the Conservatives entered Government last night as David Cameron swept into Downing St, in circumstances he may not have chosen and few would have fully envisioned. Shortly before 9pm, to the sound of supporters and detractors assembled outside the gates, he gave a short speech. There was none of the rhetorical flourish with which Tony Blair marked the start of his premiership, instead his speech was determined and focused, ‘hard and difficult work’, lay ahead he said. For those doubting the durability of the Con-Lib coalition, Cameron pledged to put political differences aside and within minutes began building his first administration.
Key points
Cameron moved swiftly to appoint key cabinet posts last night and this morning. Confirmed Tory appointments include George Osborne as Chancellor of the Exchequer, William Hague as Foreign Secretary, Andrew Lansley as Secretary of State for Health and Liam Fox as Defence Secretary.
Key Lib Dem posts go to Nick Clegg as Deputy Prime Minister and Danny Alexander as Secretary of State for Scotland.
There is speculation this morning that Vince Cable could have a role overseeing banks and business, David Laws could become Schools Secretary and Chris Huhne could become Environment Secretary.
With an eye to the longevity of the coalition and the to ensure the Lib Dems get their share of the blame, Cameron is expected to offer 15 ministerial posts to Lib Dems in addition to the Cabinet posts.
The broad terms of the agreement are detailed below before the full documents are published later today. In a surprising move the Tories are thought to accede to Lib Dem demands to increase capital gains tax and offer a referendum on AV, they are also expected to increase the income tax threshold and postpone or scrap the totemic increase in the inheritance tax threshold.
In return Clegg will agree to a cap on non EU immigration, shelve plans to take Britain into the euro, drop the mansion tax proposals and agree to early deficit reduction.
Precise implications for financial services will become clearer in due course but at the time of writing there is strong speculation that the coalition will announce an immediate review of separation of retail and investment banks.
This is likely to take the form of an independent commission to consider whether some of the ‘too big to fail’ universal banks should be broken up and the investment arms hived off.
There is also speculation this morning that the Tories may scale down some of their plans to dismantle the FSA, the Bank of England is expected to get greater macro prudential responsibilities but less of the micro oversight than the Tories planned.
There is strong agreement between the parties for some form of banking levy and reforms to inject competition into the banking sector which we expect to be taken forward.
After the perennial speculation it now looks like capital gains tax will be brought in line with income tax rising to 40 or 50% with the entrepreneurial relief remaining.
The formation of the Government will take up most of today with cabinet, senior ministers and Lords appointment being made in that order. Lansons Public Affairs will be producing an afternoon bulletin to capture these developments.
Negotiation agreement emerges Details of the agreement arrived after many hours of Liberal Democrat and Conservative negotiation last night. Teams from both sides had been analysing the two parties’ election manifestos for common ground since the hung parliament scenario unfolded. Key concessions were made on both sides as the parties sought to neuter each others’ more controversial proposals.
The Conservatives’ plans to increase the inheritance tax threshold has fallen victim to these negotiations, with the Liberal Democrats’ cooperation coming at the cost of agreeing that no ‘meaningful’ alterations will be enacted. However, a ‘red line’ was drawn over their flagship proposal – one that formed the very crux of their election campaign – to repeal Labour’s planned increase in National Insurance Contributions. The £6 billion this would save had been intended for use as a ‘down payment’ against the structural deficit. But as compromise kicks in, some of this may well have to be siphoned off to part-fund the Liberal Democrats’ own ‘red line’ – an increase in the personal allowance for income tax, eventually up to £10,000. The Conservatives have conceded this key tax reform, and meaningful movement on the personal allowance will occur rapidly, with a timetable for a threshold of £10,000 being set out in full. Tory plans to recognise marriage in the tax system will be put to the House, but the Liberal Democrats will abstain from the vote.
The Tories tough stance on immigration – arguably the policy area where the parties are widest apart – will remain. The Liberal Democrats have dropped their amnesty proposal for illegal immigrants and have agreed to embrace a cap on immigration from outside the EU. Foreign policy will remain fundamentally dominated by Conservative policy: a replacement for Trident will be implemented, although the Liberal Democrats have the option to vote against this; a referendum lock on any proposals for transferring powers to the EU will be put in place; and the Liberal Democrats have dropped their position of recommending that the euro replaces the pound.
Other emerging details of the negotiations:
Referendum on Alternative Vote, although MPs will be free to campaign for a ‘No’ vote
Five year fixed-term parliaments
Mansion tax scrapped
Entirely or predominately elected second chamber
Review of party funding
School reforms including introduction of the ‘pupil premium’ and Swedish-style ‘free’ schools
Reaction “The reality is that Nick Clegg has taken the decision to take the Liberal Democrats to the right. They've got into bed with the Conservatives and I think they will regret it," says former Labour spin doctor Alastair Campbell
Lib Dem Norman Lamb says "any Liberal Democrat member, when they read the agreement will just think, 'This is a remarkable agreement that has been negotiated for the Lib Dems.'" He adds: "You would be crazy to turn your back on that."
Alan Johnson rejects suggestions Labour is in disarray. "Whereas in 1979 or the late 60s when we went out of government, there was internal strife and almost a feeling of relief, (this time) we would have stayed in government. We are used to government now. We previously had only had one term and they were short interludes in Conservative rule. That's changed over the last 13 years."
David Laws "I think most people in this country, regardless of which party they voted for, will think that there is a lot good in this document,"
Richard Lambert, director general of the CBI, said: "The agreement between the Conservative and Liberal Democrats to form the next Government is welcome news. Business wants to see a stable government with the authority to take the tough decisions that will be required to keep the economic recovery on track and to get a grip on the fiscal deficit. This coalition should have the votes and the mandate to get on with the job."
Contact us
Ben Abbotts, Head of Public Affairs
Lansons Public Affairs and Regulatory Consulting Direct +44 (0)20 7294 3668 Email publicaffairs@lansons.com Web www.lansons.com
