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How close is Tory and Lib Dem economic policy?

By Siobhan Kennedy

Updated on 07 May 2010

As David Cameron attempts to woo Nick Clegg, Channel 4 News's Business Correspondent Siobhan Kennedy looks at the common ground - or sometimes lack of it - in Liberal Democrat and Tory economic policy.

George Osborne and Vince Cable

So Nick Clegg and David Cameron have had a conversation in which they've agreed to "explore further proposals for a programme of economic…reform".

But just how far apart are the two parties, and what are the key stumbling blocks before they can agree to agree?

The biggest potential issue is the 'cut now, cut later' argument; that dominated the debate (ironically) between Labour and the Conservatives in the run up to polling day.

To recap: the Tories have said they would start to make spending cuts this year, about £6bn's worth in total, as a way of regaining confidence in the markets.

But the Liberal Democrats, like Labour, think that spending cuts this year would pose a big risk to economic recovery.

While David Cameron said his party was willing to compromise on many issues to get Nick Clegg on side, on this particular one, he's adamant he won't budge.

If anything, given what's happened in recent days in the markets in New York and London – and with continuing uncertainty over Greece – David Cameron wants to get on with the cuts as quickly as possible.

His statement said it all: "The national interest is clear: the world is looking to Britain for decisive action. The new government must grip this deficit and prevent the economic catastrophe that would result from putting off the difficult, and the urgent action that needs to be taken."

It seems, then, there is little wriggle room on that, so the question for the Liberal Democrats will be whether or not they can tolerate a Conservative government that wants to start slashing immediately.

Perhaps that could be resolved by David Cameron providing some of the much sought-after detail behind the cuts.

He's refused to do that thus far, but if ever there was a time to start spelling out the nitty gritty, it's now.

The other potential sticking point is inheritance tax. It was one of the areas where Nick Clegg and David Cameron publicly clashed during the televised debates.

At issue is the Conservatives' plan to raise the inheritance tax threshold to £1m, which both Mr Clegg and Gordon Brown says would reward the richest 3,000 people with an extra £200,000. So that would need to be resolved too.

They are agreed, however, in their mutual disdain for Labour's hike in National Insurance tax, which both David Cameron and Nick Clegg say is a tax on jobs.

The only difference here is that the Conservatives have said they would abolish it, whereas the Lib Dems were prepared to live with it because they couldn't see a way of affording NOT to introduce it.

Again, more detail from David Cameron on the spending behind the promises could probably give the Liberal Democrats some comfort here.

Nick Clegg will also no doubt want some form of tacit agreement on the Liberal Democrats' central issue of lowering taxes for the poor.

In its manifestothe party promised to raise the income tax threshold to £10,000, which it says would put £700 back in the pockets of those who need it most. It would be funded by a "mansion tax" on the rich.

Not something David Cameron would presumably readily stomach.

But the Conservative leader did offer this in his statement today: "It has always been an aspiration for the Conservative Party to reduce taxes, especially on those who earn the least, and we are happy to give this aim a much higher priority, and to work together to determine how it can be afforded."

Elsewhere, both parties agree they should abolish child tax credits for those on middle to high incomes and similarly, both say they would abandon Labour’s child trust fund that gives £250 to every newborn in the country to set up a bank account.

The Tories want a public sector pay freeze and the Lib Dems say they would cap public sector pay increases at £400.

On balance, the two parties are not a million miles apart on economic and tax policy and it’s conceivable that with compromises on both sides – and some much needed details on the planned Tory cuts – that an agreement could be reached.

Perhaps too, a wild card: that Vince Cable be given a seat on the cabinet as Chancellor or Chief Secretary to the Treasury.

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