Fears among senior Liberal Democrats about the coalition with the Tories were brought into the open yesterday as Simon Hughes, the party's newly elected deputy leader, raised the prospect of tabling rebel amendments to the finance bill.
Hughes issued a blunt warning to the Tories that the government would break up if key pensioner benefits in the coalition agreement were cut. He launched the most significant intervention since the formation of the coalition in the debate that followed George Osborne's emergency budget on Tuesday when the chancellor of the exchequer said that welfare would bear the brunt of cuts.
Although Hughes, the veteran Lib Dem MP for Bermondsey and Old Southwark, said he supported harsh budget measures to help deal with Britain's weak public finances, he indicated that he was prepared to table rebel amendments to promote fairness. "If there are measures in the finance bill where we can improve fairness, and make for a fairer Britain, then we will come forward with amendments to do that because that is where we make the difference," he said.
The Lib Dem high command denied that there were any divisions. A spokesman said: "Given that fairness has been built into the budget there are no plans to lay any amendments."
The intervention by Hughes, which reflects the private misgivings of the former leaders Charles Kennedy and Sir Menzies Campbell, comes amid concerns among senior Lib Dems that Nick Clegg is wrong to claim the budget is progressive. Many MPs were alarmed after Robert Chote, the director of the Institute for Fiscal Studies, described the budget as "somewhat regressive". Lib Dem spokesmen pointed out that Chote had said the budget was regressive if the effects of Labour's budget in March were stripped out. Hughes endorsed this view when he said: "This government has continued with those elements of the budget passed earlier in the year. On that basis it is a budget that produces greater fairness."
He said he had hoped that the budget would not raise VAT, which is "clearly less progressive". But he added: "It is a measure that is necessary when we have to fill a huge debt the Labour party has left us."
While the Lib Dem leaders ensured last night that there would be no rebel amendments to the budget next week, there may be concerns after Hughes warned that the coalition deal would collapse if the freedom pass and winter fuel allowance for pensioners were deemed unaffordable. "The coalition deal is a deal," he said. "There cannot be any unpicking of items in that deal, otherwise the whole thing risks falling apart."
The Lib Dem deputy leader said he was commenting on speculation about the threat to the bus pass and fuel allowances. The chancellor told the BBC on Wednesday that he could soften the impact of cuts on government departments if further cuts could be made to the welfare budget, which already accounts for more than a third of the £32bn of cuts.
As Hughes spoke in the Commons, the work and pensions secretary, Iain Duncan Smith, indicated that pensioner benefits could be threatened. Asked on Radio 4's The World at One whether such benefits were sustainable, he said: "That is something I have to look at obviously."
Ed Miliband, for Labour, said: "It takes a long time to establish an honourable political tradition. But it takes a very short time to destroy it. Are [Lib Dems] still the party of Keynes, Beveridge and Lloyd George? We all know these three men would turn in their graves at the idea that the inheritors of the Liberal tradition were supporting this budget."
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