A government-wide spending review is to be scaled back because Nick Clegg is refusing to commit to billions of pounds of further cuts in the welfare budget.
The Deputy Prime Minister is facing a grassroots revolt from Liberal Democrats against signing up to a detailed package of public spending cuts during the two years after the 2015 general election. Activists are threatening to table an emergency motion at the party's autumn conference in an attempt to prevent the leadership supporting a new round of cuts, which they fear would be deeply unpopular.
Mr Clegg and other Liberal Democrat ministers were already worried about plans floated by David Cameron and George Osborne for an extra £10bn of welfare cuts. They believe they could not be imposed without harming vulnerable people.
Instead, the Liberal Democrats are likely to fight the election on a pledge to clear the remaining deficit through tax rises such as a mansion tax on homes worth more than £2m and a cut in the 40 per cent tax relief on pension contributions enjoyed by higher rate taxpayers.
Mr Osborne, pictured, had wanted the Coalition to agree a department-by-department spending review before the next election, covering the period up to 2017 and possibly beyond. The current five-year programme runs out in 2015.
The Liberal Democrats' opposition means the review will have to be watered down. Before the election, the Coalition will need to agree detailed plans for the 2015-16 financial year – for example, so that local authorities can fix council tax levels for that year. But a detailed agreement on across-the-board cuts well into the next parliament now looks politically impossible. "It is proving too difficult; we are not going to reach agreement," one Liberal Democrat minister told The Independent.
Mr Cameron and Mr Osborne may outline proposed cuts at the 2015 election to show how the Tories would "finish the job" of clearing the deficit and put Labour under pressure to spell out how quickly it would balance the nation's books. The move would also be designed to reassure financial markets that the Tories were still prepared to take "tough decisions" on spending.
Liberal Democrat activists are discussing whether to try to force a debate and vote on the sensitive issue at their Brighton conference in September – a move that would not be welcomed by the party leadership.
Evan Harris, vice-chairman of the Liberal Democrats' federal policy committee, said: "Many of us would argue that we ought to decide in our own manifesto what the split should be between tax rises and any spending cuts, for years 2015 to 2017 and certainly not be tied into any ratio agreed by any other party. Then, within any spending cuts that are part of that, we should decide ourselves what to suggest the proportion is, if any, that would fall on welfare as opposed to departmental spending."
Yesterday Liberal Democrat and Treasury sources insisted no decisions had been reached.Reuse content