Lord Oakeshott speaks after Tory MP Liam Fox lauds George Osborne and calls for sacking of workers to be made easier
A growing rift between the coalition partners over how to respond to the recession became apparent on Friday when senior Liberal Democrats described plans for 5% spending cuts as “economic madness”.
They also ridiculed Conservative rightwinger Liam Fox’s call for employers to be given new rights to sack workers without fear of unfair dismissal claims.
In a Daily Telegraph column, seen in advance by the Treasury, Fox called for further labour market deregulation. The former defence secretary said: “Deficit reduction without labour market reform is like driving with the handbrake on.”
He reminded Lib Dems – who have 57 MPs to the Tories’ 306 – that their party represented only one sixth of the coalition.
As such, he said, they must expect Tory economic ideas to be dominant. He also said that if growth were not achieved by the next election, Lib Dems could expect an unhappy date with the electorate in 2015. Fox welcomed “the news that the chancellor is considering a further round of spending cuts as a sign that reason and responsibility are returning to the Treasury”.
He said that if cuts were made to security but the overseas aid budget left untouched, that would infuriate many Conservatives.
Fox also supported the decision to increase the UK commitment to the IMF by £10bn, a statement that will be especially welcomed by George Osborne.
But Lord Oakeshott, one of the most articulate exponents of Lib Dem economic thinking, hit back.
He said: “With growth invisible to the naked eye, it will simply be a form of self-harm to engage in another round of unplanned spending cuts such as the recent proposed cut of 5%. It would be a form of economic madness. Liberal Democrat ministers would not stand for it and nor would some Tories.”
He added: “The idea that simply making it easier to sack people will create growth is just foolish. What we need is fresh efforts to get the banks to lend, something that is under the chancellor’s control, and we must get capital spending rising through a massive housebuilding programme. That will create jobs.”
Osborne has already signalled that spending cuts will have to continue into the next parliament to meet the government’s fiscal targets, and suggested on current plans there will have to be another £10bn in welfare cuts.
That suggestion has not been welcomed by the Department for Work and Pensions, which believes it has already delivered on cuts and should not be asked to bear the burden of a second round of cuts in a spending review that is likely to take place next year.