Liberal Democrats face the biggest decision of their time in Coalition By Ed Randall

In just a few days' time Liberal Democrats will be invited to decide whether to endorse their Party's unswerving support for George Osborne's
plan for the UK economy OR announce that they believe Osborne's plan hasn't worked and that the Government should change course.

Confusingly, in a motion entitled Generating Jobs and Growth in a time of Austerity - due to be debated on Monday (24th September) at the party's Brighton Conference - the Lib Dems appear to want to do both. Even the Liberal Democrats, with their belief in finding and claiming the middle ground, won't be able to pull that off. They have a big decision to make.

In February 2010 the current Chancellor, George Osborne, delivered the Mais Lecture at the Cass Business School in London. Mr Osborne's recipe for economic recovery anticipated not only the general direction but the detail of Coalition policy. He made taming public sector debt a paramount objective for Conservatives in government. He represented it as the key to Britain's recovery from recession. And, amongst the first acts of the new Coalition Government, in May and June 2010, was his announcement of the 'fiscal mandate' he had championed in his lecture.

The Osborne plan (and the Coalition Agreement) called on Conservative and Liberal Democrat ministers to achieve a cyclically-adjusted target to reduce government debt as a share of national income between 2014-15 and 2015-16 and, political and economically most significant, to do so by achieving a budget balance by the end of the Parliament.
The fiscal mandate has suffered grievous blows. Both the politics and the economics have gone horribly wrong. Speeding up the process of fiscal consolidation hasn't worked. Even George Osborne accepts that he won't be able to balance the Government's books in this Parliament. But the Coalition's embarrassments with its Conservative economic strategy go deeper.

In his Mais lecture Osborne had taunted Gordon Brown. He told his audience:

"We are coming to the end of the first full Parliament since the Second World War when national income per person has actually declined."

With characteristic arrogance (and what now looks like extraordinary hubris) he posed what he took to be a critical question before Britain's electors:

"'Are you better off than you were five years ago?'"

He went on to tell his audience:

"This will be the first election in modern British history when the answer from the government must be 'no'."

Liberal Democrats - and not just Liberal Democrats - posing the same question today would have to answer 'no'. Many (a majority of plain
speaking Liberal Democrats?) would be tempted to add: 'It has been hurting but it hasn't been working'.

What is the most appropriate response from Liberal Democrat representatives at their Party's annual conference to an invitation to endorse and to continue with the Conservative's economic strategy? Should it be: "We admire what you have done and we agree to give you more time
for more of the same"?

The 'Growth' motion before the Party's annual conference suggests that even though Liberal Democrats in high office are asking the Party's representatives to do precisely that they nevertheless accept that the Government needs to do more, much more, to foster and promote economic recovery. But our leaders and Coalition ministers want to have their cake and eat it - and, at the very least, they don't want to have to eat humble pie.

The Coalition's fiscal mandate has been strained and stretched - just as Gordon Brown's fiscal rules were constantly reapplied and reinterpreted. Indeed, Liberal Democrats should anticipate more bending of the Coalition's publicly stated commitment to fiscal rectitude. Of course, Liberal Democrat members - at their Party's conference - will be aware of (and may even sympathise) with ministers' reluctance to accept publicly that the Coalition's fiscal mandate has already failed. But a refusal to acknowledge failure cannot be either honourably or - more important - constructively maintained. The fiscal mandate, in its current form, has to be abandoned and fiscal policy has to be refashioned.

The Party's 'Growth' motion, F23 (on page 34 and 35 of the Conference Agenda), calls for a panoply of measures aimed at boosting business investment in the UK; measures which true believers in the original version of George Osborne's economic aphrodisiac, unrelenting downward pressure on public expenditure, hadn't anticipated. The Coalition's discovery of a compelling case for an industrial strategy and for a massive public investment stimulus is - or at least it should be - a great triumph for Liberal Democrat economics and good sense. However, it is unlikely to win plaudits for the Party if, at the same time as making the case for far more active government, the Party insists on taking credit for Conservative measures - above all the fiscal mandate - which have frustrated recovery and intensified Britain's economic problems.

Liberal Democrats shouldn't be afraid to say what at least one Liberal Democrat cabinet member has been saying for some time now in private and
more recently in public. They shouldn't be afraid to announce their belief that Conservative economics has failed and that it is time for Liberal Democrats in the Government to give their unapologetic support to Liberal Democrat policies. Liberal Democrat policies that have been approved by the Party's Parliament not only to promote investment in a more sustainable and a fairer economy but which stand a realistic chance of counteracting the collapse in demand that bears the chief
responsibility for the UK's 'double dip'. In private Vince Cable told Prime Minister David Cameron earlier this year that the Government lacked a compelling economic vision. He was right. Liberal Democrats should join the Business Secretary in saying so.

In public - and just a few days ago - Vince Cable told Andrew Marr that:

"The problem of growth is that we have a very serious shortage of demand. It's nothing to do with those supply side measures basically. It's a
demand issue."

Dr Cable has some very weighty supporters who have wrestled long and hard with the complexities of macroeconomic policy. Perhaps the most notable of them - because he has had to acknowledge that he underestimated the size of the stimulus that was needed to revive the US economy - is President Obama's former principal economic adviser: Larry Summers. In a commentary on the state of (and prospects for) the UK economy, published in the FT, Larry Summers awards nuls points to Coalition economic policy. He warns, quite unequivocally, that continued adherence to the Osborne (to the Conservative's economic) strategy will only make matters worse for team GB. And he is right to do so.

Of course Liberal Democrats can fudge the big decision and give Danny Alexander a pat on the back for his no doubt well intentioned - though misguided - participation in the Osborne plan. Or the Liberal Democrats can signal their displeasure with economic policies that have unquestionably failed and worsened the state of Britain's economy and made recovery, before the next General Election, less rather than more likely.

The Liberal Democrats have an opportunity, at their annual conference, to make their dissatisfaction with George Osborne's self-defeating austerity plain, regain some of their Party's political integrity, give real momentum to a more intelligent economic strategy and help to restore a modicum of intellectual coherence to the Party's approach to economic policy-making. I hope that we won't fail to take it.


About the author: Ed Randall is the Chair of Greenwich Borough Liberal Democrats, a Visiting Fellow at Goldsmiths College University of London, a former Liberal Democrat Councillor in the London Borough of Greenwich and the author of Food Risk and Politics (Manchester University Press, 2009). He jointly edited the Dictionary of Liberal Thought (2007) with Duncan Brack.