Steve Richards: Now we're seeing where the real divisions in the Coalition lie

We are not used to this, cards being played in public so close to a pivotal Budget

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An unusual public debate has erupted in the build-up to next month's Budget. On the one side, we have Nick Clegg and David Laws calling for the first £10,000 of each person's income to be free of tax. On the other, the former Defence Secretary, Liam Fox, pops up to argue for different tax cuts and for sweeping deregulation of the labour market. After the 2010 election, all three sat around the Cabinet table. Clegg is still Deputy Prime Minister. We are not used to this, cards being played in public so close to a pivotal Budget.

Part of the novelty arises inevitably from the dynamics of a Coalition. Since losing the referendum on electoral reform, Clegg opts, with good cause, for more public distinctiveness for the Liberal Democrats and extends this new approach to economic policy. In January, he put the case for speeding up the implementation of the £10,000 threshold in a speech. This was the first sign that this pre-Budget period was going to be very different – in previous economic statements, negotiations were conducted behind the scenes and Clegg was left subsequently to defend the entire package in public.

This week, the third most influential Lib Dem, after Clegg and Danny Alexander, gave an interview to Newsnight and wrote a newspaper article on the same theme. David Laws argued that the tax cut could be paid for by changes in pension relief for high earners, and went as far as to suggest that such a policy could mark the end of austerity for those on low and middle incomes. Laws speaks to Clegg and Alexander regularly. He made his moves with their explicit endorsement.

The increasingly complex rhythms of the Coalition are not the only reason why such public assertiveness is a novelty. When Gordon Brown was Chancellor for 10 years, the pre-Budget build-up was so controlled that Tony Blair often had no idea what was going on. Brown's iron control was exerted for the understandable reason that Labour lost four successive elections rowing about economic policy in public, and also to avoid what he regarded as Blair's incoherent demands in relation to Budgets. But his grip became so extreme that the rest of his ministerial colleagues ceased to think about economic policy, let alone debate options in public.

The consequences of stifling debate within Labour on "tax and spend" are being played out now. Few of the Shadow Cabinet and former Labour cabinet ministers no longer on the front bench have given much thought to economic policy. There has been no serious debate since 1992. Not even when ministers left the Labour cabinet did they suggest what Brown should put in his Budget, or even think about it. Economics was out of bounds.

The former Defence Secretary, Liam Fox, has no such inhibitions. He puts forward robust views on his proposed tax cut, a reduction in national insurance for employers, and how it should be paid for. Fox wants further spending cuts along with a bonfire of regulations in relation to employees' rights.

But the novelty of such a pre-Budget debate should not obscure its limits. Every part of the sequence is not remotely surprising and can look more boisterous and insurrectionary than it really is.

In relation to the interventions of Clegg and Laws, it is important to recall that even these so-called "Orange Book Liberals" have been consistently ardent advocates for redistribution. Before the election, Clegg was the only leader to put the case openly for a radical redistribution in tax, an argument accompanied by detailed policy proposals.

Laws shares Clegg's instincts. He was the key figure behind the scenes who argued for benefits to be uprated in line with inflation when the rate peaked last summer, another significant, but private, intervention from Laws. The subsequent fall in inflation means some claimants will get real-terms increases. Laws's high-profile interventions this week are aimed at intensifying the pressure on Osborne to deliver on income tax and to ensure that the Lib Dems get the credit if he does so. But, in both cases – the Lib Dems' leadership, and Liam Fox – the public pressure on Osborne is not quite as it seems.

Osborne signed up to the Coalition agreement that pledged to exclude the first £10,000 of income from tax within this parliament and has always insisted he was keen on the policy. The issue being raised by Clegg and Laws is one of pace. They want to reach the £10,000 threshold earlier than originally planned.

Given the flat-lining economy, they are right to stress the urgency, and Osborne is unlikely to be too horrified by the idea that a policy he was always going to implement should be brought forward. Clegg and Laws are deliberately not specifying what that deadline should be in public, but the detailed work has been carried out. In addition, Laws is careful to explain how the tax cut could be paid for. He does not renege at all on the deficit reduction plan and ends with an attack on Ed Balls and a strong endorsement of George Osborne. Even a control-freak Chancellor, or a Chancellor with more opportunity to be one, would not feel too threatened by such a move.

Far from feeling threatened, there will be some within No 10 nodding enthusiastically as they read Fox's words. Steve Hilton is a fan of the unpublished internal report by the venture capitalist Adrian Beecroft, who argued that employment protection laws addressed yesterday's problems and that even if it meant employers could sack staff simply because they did not like them, it was a price worth paying.

Fox is less precise, but he is equally crusading in his call for a revision of employment laws. Osborne pursued a similar theme at his party conference speech when he outlined policies aimed at "making it much less risky for businesses to hire people".

Osborne is committed to the Clegg/Laws tax policy. It is in the Coalition agreement. More cautiously, he has advanced some of the same case as Fox. I would not be surprised if, in the Budget, both sides get quite a lot of what they want.

What will not happen, and neither Laws nor Fox is calling for it, is any relaxation of the spending cuts, most of which are still to be implemented. Such a call from a senior Lib Dem or Tory would cause real alarm in the Treasury, but, while he might sometimes yearn for Brown-like control, Osborne can live with these noisy interventions and might find some of them quite helpful.

s.richards@independent.co.uk; twitter.com/steverichards14

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