Already wounded by battles with backbenchers, the prime minister is faced with a revolt by ministers over cuts
Well-calibrated: David Cameron speaking to the media after the death of Drummer Rigby. Photograph: Alastair Grant/AP
Reports of the grisly death of Drummer Lee Rigby on the streets of London first reached David Cameron as he travelled with François Hollande from an EU summit in Brussels to Paris. By the time they reached Gare du Nord, the prime minister had decided to curtail his planned talks with the French president in order to get himself back to Britain. By the time they swept up to the Elysée Palace, he had crafted a simple but resolute message for the audience back home: "Live your life and show the terrorists they can never win."
He had departed for the continent on Wednesday the tattered chieftain of a fractured tribe, battered first by the massive revolt over Europe and then by another backbench uprising over gay marriage, during which he had to appeal to Labour to save the legislation by throwing him a lifebelt. He was even lectured by his junior coalition partner about the need to impose some discipline on the Tory party.
Before he reaches the safety of the summer recess, the prime minister faces another, potentially even more serious, challenge to his command. Whereas the struggles that have dominated the headlines over the past fortnight have been battles between him and his backbenchers, the next big one pitches senior members of the cabinet into direct conflict with their leader and the chancellor.
On 26 June, George Osborne is due to announce a spending review for the financial year 2015-2016, a rather crucial period because it coincides with the next general election. The Treasury was originally looking to lop an extra £10bn off spending, a demand for further cuts that has since risen to around £14bn. With just a month to go, sources of cabinet rank tell me there is near deadlock between the chancellor and many of the spending ministers. At stake is both the credibility of the government's fiscal policy and the authority of the prime minister and his ally at the Treasury over the cabinet.
Each of the resistant ministers thinks they have a very good case for being made an exception – and part of the problem is that nearly all of them do. The Home Office has already slashed police budgets by about 20% and there was pressure from the security services for more resources to tackle terrorism even before Woolwich. Mr Pickles has already shed 40% of the civil servants he inherited and imposed severe cuts on local government. Colleagues have heard this former chairman of the Tory party arguing that a further attack on town, city and shire halls is not going to do much for Conservative prospects at future local elections, nor for the morale of Tory councillors and activists, still fuming about being called "swivel-eyed loons".
The military has taken deep and embarrassing cuts: aircraft carriers without aircraft. The defence secretary has been contending that they simply can't absorb any more without risking a public revolt by the service chiefs who were promised that spending would start to rise again after the next election. Some colleagues interpret Mr Hammond's recent and uncharacteristically dramatic displays of disloyalty as displacement for his fury about the size of the cuts being asked for by the Treasury. These Thatcherite Tories may all be notionally signed up to tackling the deficit and shrinking the state, but ideological theory is now trumped by the impulse to defend ministerial redoubts and guard personal reputations. Of Mr Paterson, one cabinet colleague says: "He doesn't want to go down in history as the man who endangered Britain's flood defences."
This unprecedented resistance to the chancellor contrasts vividly with the ease with which he prevailed in his first spending review. Cabinet members speedily agreed to hefty cuts in 2010 and proved so pliable that the "star chamber", which hears appeals from ministers against the Treasury, never met once.
"There was quite a lot of low-lying fruit to grab at," explains one official. Fresh to office, and gung-ho to demonstrate their prowess at cutting, a lot of the Tory ministers were naive or reckless about the impact of cuts. Now they are much more painfully aware of the consequences – including the political ones. That has been accompanied by a dramatic change in the power dynamics at the top of the government. Cabinet members are now much less intimidated by the prime minister and chancellor, both of whom are considerably weaker. "They were frightened of Cameron and Osborne then," explains one member of the cabinet. "They aren't now."
Is there an answer to this impasse? One way out would be for Osborne simply to abandon the struggle, making the excuse that there is too much uncertainty at the moment. A review covering just one year was always a bit of a nonsense in the first place. Or the chancellor could say that he was taking the advice of the IMF to ease austerity until growth is more firmly established and postpone some cuts. But there is little indication that he will take a path that would involve accepting he misjudged the fiscal policy on which he has staked all and conceding that he is too drained of political capital to impose his will on the cabinet.
Another way to try and bring this deadlock with key ministers to resolution would be to spread the pain by demanding more from other departments. But the options are very limited. Spending on health, international development and education is broadly ring-fenced. So is the very large proportion of spending – more than half of the welfare budget – that goes on the state pension and other entitlements for the elderly.
Ministers who don't enjoy protected status have been agitating to remove that privilege from the departments that do. Tory Cabinet members have been joined in this revolt by Vince Cable whose Department for Business has already taken a big hit to its budget. They have a point when they argue that it is increasingly unbalanced and unsustainable to concentrate all the cuts on selected state functions because others with bigger budgets are exempt. But Mr Cameron and his advisers have set their faces against a volte-face. The pledge to meet the international aid target is one of the few remaining vestiges of the pre-government, compassionate Conservative Cameron. It is, relatively speaking, a small amount of money anyway. Number 10 believes that to break his word on NHS spending and the election pledges to the elderly is too politically toxic to risk. In the words of one prime ministerial ally, many voters "would never trust him again about anything".
The chancellor could try raiding deeper into the budgets of the smaller departments, such as culture and transport. But the culture budget is pretty piddling anyway and transport argues that it is supposed to deliver a lot of the infrastructure spending that the coalition is now committed to increasing. Finally, there is welfare, further cuts to which is the default demand of Tory ministers who are trying to protect their own departments. But the chancellor announced a further £3.6bn cut to benefits last autumn and the Lib Dems are saying that they will veto anything more, partly in revenge on the Tories for blocking a mansion tax.
Beyond this particular battle over one year of spending loom fundamental questions about the shape and size of the state. Labour, which has yet to resolve its own testing conundrums, will have to confront these challenges one day too. If they remain as protected as they are now, health and pensions will be consuming half of all state spending by the middle of the century. At some point, a brave government will have to deal with this. But it isn't going to be this one. They are in enough trouble over just one year.
Observer
