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Coalition agenda

A political pact will see tax changes

We have to go back to 1974 to see the last time that Britain voted for a hung Parliament. Ted Heath stayed in Downing Street for a few days but in the end the opposition leader became PM.

A Government for the “national interest” is on the way.

A Conservative and Liberal Democrat deal would be able to count on 364 MPs – easily surpassing the 326 hurdle for a majority.

Labour and the Liberal Democrats combined fall short at 315 MPs but a rainbow coalition of Labour, LibDem, Scottish and Welsh nationalists and the one Green MP would produce a 325-seat administration.

What would a Conservative/LibDem Government be like? David Cameron and Nick Clegg have a good personal relationship. Cameron’s chief of staff Ed Llewellyn was previously chief of staff to Lord Ashdown, former LibDem leader, when he was in charge of peacemaking in Bosnia.

Llewellyn is also a personal friend of Clegg’s wife Miriam.

But the party leaders should not get too comfortable as their own parties may be deeply uncomfortable with any deal.
Most LibDems would prefer a conversation with Labour on electoral reform and most Conservatives cannot stomach the idea of proportional representation.

What would a Cam/Clegg administration mean for the UK?

The key issue remains the economy and fiscal consolidation. Both parties have been very keen to emphasise the need for deficit reduction.

Any deal with the parties will include the idea that there is no impact on front-line services but this will be very difficult. It will certainly mean that plenty of back-office public sector jobs will be set to go.

It looks like tax reform would be high on the agenda and I can sense the idea of bringing those below £10,000 out of tax being incorporated into the first coalition Budget. The Tories’ plans on National Insurance are also likely to survive but their plans on inheritance tax will bite the dust.

Plans to cut corporation tax are likely to be put on ice – which will come as a relief to many bigger companies which use the mix of tax allowances to encourage investment.

It seems that banking reform is high on the agenda – and that means the price for scrapping the FSA will be the so-called Glass Steagall deal – which the LibDems want – separating the retail banks from their investment banking subsidiaries.

Watch out for a big boost to green policies – both parties are deeply committed to this agenda and organisations which have products and services which address this agenda will be given considerable fiscal incentives.

Many people have been fearful of a deal but I think the initial signs of the coalition talks have shown there can be grown-up negotiations.

But I predict another election on the way in the next 12 months.

Iain Anderson is director of Cicero Consulting

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