Britain's Conservative / Liberal Democrat coalition government is a year old. So how is it doing? Not very well right now, one has to admit. But then this period after the national referendum on electoral reform – demanded by the Lib Dems as part of the price for their partnership with the Conservatives – was never going to be happy, whichever way it went. Humiliated in the referendum and in the local government polls last week, leading Lib Dems have hit out at their coalition partners – and demanded more say on policy in order to placate their own rank and file – many of whom are deeply unhappy about what the coalition is doing, particularly its rush to cut public spending in order to stem Britain's ever-burgeoning debt.
Looking at the mess that Ireland, Portugal and Greece are in, the fact that the coalition is aggressively pursuing a deficit reduction programme must be a positive move. So is its plan to take people on incomes below £10,000 out of tax entirely, which will encourage people off state benefits and into work. That idea, interestingly, was pushed on the coalition by the Lib Dems, who got it from 'flat tax' enthusiasts like the Adam Smith Institute. And the Conservative side of the coalition has plans to introduce something like a negative income tax. Meanwhile, some state benefits and higher rates of civil-service pay have been frozen, quangos have been scrapped, students face higher university fees, the extravagant school building programme has been reined in, corporation tax is being cut. To economists, and to the international markets, this financial prudence all looks very positive too.
However, deficit reduction has come at the cost of higher taxes, such as a rise in Value Added Tax, a 50% tax on higher earners, and a rise in capital gains tax – demanded by Lib Dem Business Secretary Vince Cable – that most Conservatives think will damage business and prove counter-productive. A new windfall tax on oil exploration has had oil and gas firms threatening to close down production – further evidence that to grow its way out of debt, Britain needs to compete on the basis of lower taxes, rather than higher.
One of the coalition's most interesting moves – very much a Conservative idea – is to transform Britain's state schools into a Swedish-style system, where private companies or charities can set up and run schools, so getting choice, competition and innovation into education. The finance would still come from taxpayers, but it would follow parents' choices, rather than being directed by officials. If Sweden is anything to go by, this could bring real and positive reform into state education.
But a similar 'internal market' structure in healthcare – allowing private providers to take over services presently run by the state National Health Service medical monopoly, and having family doctors rather than central officials decide where the money goes – may fall victim to the unhappiness of the LibDem rank and file. The NHS may be an unmanageable 1.4 million workers strong, but the British public have a strong attachment to its principle of free (at the point of use) healthcare and the LibDems in particular don't want to touch it. This would be a sad loss; monopolies are never efficient, and a break-up of this vast state monopoly is long overdue.
Perhaps the most positive and remarkable thing about the coalition, though, is that, despite all the bickering, it has so far held together. Both Conservative and Liberal Democrat sides have committed themselves to stabilising the public finances, seeing that as the only way to provide a sound basis for business and economic growth. They have committed themselves – unusually – to a five-year government, by which time they think those policies will be working demonstrably. At the same time, the LibDems are bringing in a more liberal attitude on social issues, with less nannying and intrusion in everyday life. If the coalition partners can get through their present spat, which they probably soon will, it could turn out to be one of Britain's most reforming and most successful governments.
The good, the bad, and the ugly (Click to read)
Clear commitment to deficit reduction. Absolutely essential to have a stable basis for business and economic growth.
Commitment to take people earning under £10,000 out of tax. A positive incentive to move from benefits into work.
Cuts in company taxes. Vital if the UK is to remain competitive against low-tax countries.
A Swedish-style school system with private providers and state funding that follows parents' choices. Could bring real choice, competition and innovation into the bureaucratic state education monopoly.
Scrapping quangos and bureaucracy. Good to get rid of pointless cost. But there is still a lot more to get rid of.
Scrapping ID cards. Most people in Britain think that nannying by the state is far too pervasive.
Student loan scheme. Students should pay the cost of their higher education, which boosts their lifetime salaries. the combination of higher fees and loans (repaid only by higher earners) is a good compromise.
Moves towards a negative income tax. Replacing a mishmash of different state benefits, the Universal Credit should make sure that the poorest people aren't facing effective 'taxes' of 90% when they earn a few pounds more.
Higher taxes. Some are needed to help balance the books. But the rise in Capital Gains Tax will drive investment abroad, as will the Bank Levy, the new tax on oil exploration, and the 50% tax on higher earners that was inherited from the last government.
Bail-outs. Britain is not a member of the Euro, but has still chipped in to the bailouts of Ireland, Greece and Portugal. It's surely better to countries to face the realities of overspending and Euro membership.
Reversing the Forestry Commission sell-off. It looked feeble – and the country's biggest landowner monopoly is an environmental disaster that needs to be broken up.
Abandoning NHS reform. This may be the price of patching up the coalition spat over electoral reform. But it would be another lost opportunity to bring new ideas into this unmanageable 1.4m-strong monopoly.
And still to decide
The localism agenda. Good to see a government saying that power should move from London down to local communities and indeed to individuals themselves. Making it a reality, though, will be a lot harder.
Commitment to stop more powers leaching to the EU. A positive stance – but a forlorn hope?