Austerity Budget tests strength of coalition

BRITAIN: The unity of Britain's coalition Government was strained as the deputy leader of the Liberal Democrats threatened to try to rewrite parts of Chancellor of the Exchequer George Osborne's austerity Budget.

Simon Hughes spoke out amid fears on his party's backbenches that the poorest families would bear an unfair share of the dramatic squeeze on public spending and benefits.

Plans to raise VAT to 20 per cent in January and a threat to the winter fuel allowance paid to pensioners have intensified the jitters among Nick Clegg's MPs over the tough economic medicine being administered.

The Government announced plans yesterday for a fundamental overhaul of a pensions system it condemned as "outdated and inadequate".

The state pension age will be raised to 66 as early as 2016 and private sector workers forced to sign up to company pension schemes. It could later be raised to 70 and beyond.

Hughes told the House of Commons there would be "trouble" if ministers attempted to renege on their commitment to protect allowances paid to the elderly.

He said: "The coalition deal is a deal and what has been agreed must stand - and there cannot be any unpicking of items in that deal, otherwise the whole thing risks falling apart.

"The deal has to be that we go down the committed road. We signed up and the Conservatives signed up, all compromising where appropriate, and that must stand. If there is any suggestion that it changes, there clearly would be trouble."

He made clear his qualms about the rise in VAT, which he warned was "less progressive" than income tax. He accepted the increase was necessary to "fill a huge gap Labour has left us" and would support Osborne's package in next week's second reading vote on the Budget.

But he warned that backbench Liberal Democrats could attempt to amend key parts of the Budget later when it faces line-by-line scrutiny in the Commons. "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."

His anxieties are shared by Liberal Democrat MPs. Bob Russell, MP for Colchester, has already said he would find it difficult to vote in favour of the VAT rise. Tim Farron, MP for Westmorland and Lonsdale, who is on the left of the party, has said he supports the Budget plans for now - but the coalition must be prepared to look at other measures if the economy plunges into a double-dip recession.

Osborne says he is looking for extra benefits cuts on top of the £11 billion ($23.3 billion) set out in the Budget - cash that would be used to limit the savage spending cuts to be announced in October.

Only one-third of private sector staff are currently in pensions schemes. The Government wants them to be automatically enrolled, but allowed to opt out.

- Independent