Will banking reform be one of the issues the Lib Dems toughen up?

A huge amount of broadcast time and newsprint has been expended since the end of last week analysing the election and referendum results and, in particular, what they mean for the Liberal Democrats. Quite alot of it has missed some key points, not least in the almost exclusive focus on the proposed NHS reforms as the issue that the Lib Dems can use to put some distance between them and the Conservatives. I'm not sure it will be that easy for the Lib Dems to claim credit for any changes to NHS policy, partially because Labour is already moving effectively to set the pace and partially because there are many  vocal Tory critics of Andrew Lansley's proposals too. For this reason I can see the breaking up of the major banks emerging as one of the key distinguishing issues between the Coalition partners.

But first back to last week's voting and a few thoughts on what it means.

Headlines about 'Lib Dem meltdown' were some way wide of the mark. It wasn't a meltdown. It was a significant drop from last year in as much as (in percentage terms) one third of the people who voted for them last year deserted them this year. Where these votes went is by no means an even pattern across the United Kingdom. In Scotland, they almost certainly went to the Scottish National Party, in the north of England to Labour, in the south of England mainly to Labour but there was some drift back to the Tories as well and in Wales they largely held steady.

These results - apart from Scotland - are not a disaster for the Lib Dems. The third party has been in many worse places in the last fifty years and is certainly not about to drop into a grave for its opponents to dance on.

The referendum on voting reform on the other hand was a disaster for them and one largely of its leadership's making. A fundamental error was made when Nick Clegg and his colleagues decided to rush the referendum through and hold it on the same day as the local, Scottish and Welsh elections. Almost every Lib Dem council leader in the country pleaded with them not to do this but with the same blind arrogance that led Clegg to vote for tuition fees rather than exercise the opt-out to abstain that was in the original coalition agreement, they ignored this sage advice.

The consequences of this decision were three-fold.

  • First, there was no opportunity for pushing for the inclusion of a third option on full proportional representation which even if voted down by the Tories would have allowed the Lib Dems to claim they were still fighting for a policy that has been dear to their hearts for over fifty years.
  • Second, it would have given the Yes campaign much longer to consolidate the majority there was for reform a year ago rather than fritter it away with a shambolic campaign. By comparison look at that savvy political operator Alex Salmond and his determination to play the long game over a referendum on Scottish independence.
  • Third, by linking it to the other elections it meant that the pro-reform Labour lobby was almost non-existent as it was out campaigning for Labour candidates. This also made it very easy for the No campaign to characterise voting reform as a purely Lib Dem issue and personalise their campaign around the unpopular Mr Clegg. It also showed up the new Labour leader, Ed Miliband, as very weak as he failed to swing the majority of his party behind a policy that was in their manifesto only a year ago. By the end of the campaign the Labour opponents of reform were feeling so bold that they were campaigning under the banner 'Labour No to AV' making many of their supporters think this was official Labour policy. Miliband should have stamped on this.

The upshot of the huge vote against reform is that it is off the agenda now for at least a decade, if not two, rather like devolution was after the similarly botched referenda of the late 1970s.

Now the focus has switched to what the Lib Dems should do to recover from the double blow of electoral defeat and the loss of the referendum.

It has to be said that alot of the commentary this weekend and the statements from leading Liberal Democrats betray a high degree of naivete about what life in a coalition with the Conservatives would be like. I really don't think they have been used merely as a lightening conductor for public dissatisfaction over unpopular policies such as tuition fees but that their presence around the Cabinet table has emboldened the Tories to pursue tougher and more radical policies than they would have done. I offered this as a likely scenario last summer when reviewing the first 100 days of the Coalition.

This boldness might be about to come back and bite the Tories over the rushed and ill-thought out proposals to reform the National Health Service.

There seems to be very little desire among Lib Dems to precipitate a change of leadership and this probably makes sense. However, they could do with making it feel rather more collegiate as it was before Cleggmania blinded them during the televised leadership debates last year. Prior to that Vince Cable was by some way the most respected and popular senior Liberal Democrat. He hasn't had found the transition to ministerial life that easy but does seem to have a better grasp of the need for Lib Dems to have a distinctive voice in the Coalition government. If Clegg wants to restore Lib Dem fortunes he is going to have to take some risks and one of those is to give Cable more support and a higher profile.

This would have potential implications for the policies on which the Lib Dems could chose to draw some battle lines, most obviously banking reforms. 

Prior to the General Election last year, Cable was by some way the most consistent and thoughtful political critic of the banks and the way the City operates and has consistently been in favour of splitting investment banking from retail banking. The timidity of the Banking Commission report that recently landed on his desk hands him a golden opportunity to stake out some distinctive political ground. It could also wrong-foot the Labour Party which has shown little appetite for radical reform of the banks.

Obviously, there are other issues the Liberal Democrats can pursue as they struggle to shed the image of being Cameron's lapdogs - environment policy and reform of the House of Lords being two of the other obvious areas - but neither of these would restore Cable to a high profile alongside Nick Clegg which seems to me to be one of the most obvious options for the Liberal Democrats.

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