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Coalition deal: the winners and losers

By Penny Ayres

Updated on 12 May 2010

After five days of negotiations, the Conservatives and Liberal Democrats agree a power-sharing deal. So what can we expect from the coalition government?

Party rosettes (credit:Getty Images

The savage cuts that we heard so much about throughout the campaign are still on the cards. The Conservative plans to cut £6bn from public spending this year will be subject to advice of the Treasury and the Bank of England, but are widely expected to go ahead.

And there will be an acceleration of plans to cut the £163bn budget deficit. The Conservative Office of Budget Responsibility is also still part of the plan.

The Conservative - Lib Dem agreement
- Read the agreement in full

Some of the biggest compromises between the parties have been around the parties' tax plans. The Lib Dems get their way in raising the tax-free threshold to £10,000 and significant increases in the other tax thresholds.

But this will have to be paid for, and so the Conservative plans to scrap "Labour's tax on jobs", the national insurance rise, will now be watered down. They will still scrap plans to increase the employer contribution, but the rise for employees looks likely to go ahead. The parties insist that employees will not be adversely affected as they will benefit from the income tax changes.

The Lib Dems have sacrificed their "mansion tax" on houses worth over £2m. And the Conservatives have also given up their plans to raise the inheritance tax threshold to £1m.

Increasing capital gains tax has also been mooted, a move likely to be unpopular with Conservative supporters. CGT may double or more from 18 per cent on second homes, shares and other non-business assets.

But the Conservatives flagship marriage tax policy, giving £150 to married couple where one does not use their full tax allowance, may still make the grade - the Lib Dems have agreed not to oppose it, so the Conservatives believe they can still get it through.

Passenger duty on airfares has been amended to be a per plane duty instead.

John Whiting, tax policy director at the Chartered Institute of Taxation, told Channel 4 News: "The elephant in the room on all these tax ideas is VAT which everybody studiously danced round. There's still a big expectation that VAT standard rate will have to go up at some stage to raise money to really pay for some of the adjustments.

"So we could yet find that income tax comes down, the burden is less on the lower paid, but then there's still some extra VAT to pay. I'm afraid there's pain to come."

Economics editor Faisal Islam's analysis:
Some economists feel that some of the fiscal space that could have been used for faster deficit reduction appears instead to have been used on concessions to glue the coalition together. For example, George Osborne is going to try to enact at least part of the LibDem policy on raising the income tax threshold.

Here's what to watch out for today:
1. National Insurance rise, aka ‘Labour’s jobs tax which will crush the recovery’, will only be half-reversed
2. Abandonment of inheritance tax cut, semi-abandonment of recognising marriage
3. Capital Gains tax increases
4. Bank tax, and inquiry into breaking banks up
5. Health spending un-ringfenced?
6. Establishment of Sir Alan Budd’s interim Office of Budget Responsibility
7. Emergency Budget

A few familiar Lib Dem policies on banks are emerging, so perhaps not surprising that their proponent Vince Cable is likely to take the brief.

An independent commission will be set up to decide which party's policy on dividing the banking sector should be implemented. Banks will also face a new levy and a cap on cash bonuses.

Electoral reform
One of the lynch-pins of the negotiations was a referendum on the Alternative Vote system, which the Conservatives hurriedly added to their offer after Gordon Brown's first resignation looked set to derail the process. A referendum is unlikely until next year, and the Conservatives still have the option to campaign against any change.

But there will also be a number of other reforms on the agenda.

Members of the coalition insisted this morning that the next general election will not be until the first Thursday in May 2015, and plans are afoot for fixed-term parliaments of five years, which can only be overturned by an "enhanced majority" vote of no confidence in the government that would need to be supported by 55 per cent of MPs.

The Conservatives bid to reduce the number of MPs also gets a look-in, with a review being established to review the boundaries of constituencies. The agreement also sets up a committee to look at a wholly or mainly elected House of Lords.

The agreement also includes early legislation on the "power of recall" - allowing to force a by-election if their MP has engaged in serious wrongdoing and a petition is signed by 10 per cent of the constituents.

International editor Lindsey Hilsum's analysis:
The big question: how can the most Eurosceptic and most Europhile parties work together? The answer is that in many ways the decisions – most importantly, signing up to the Lisbon Treaty – are in the past, and revisiting them isn't high on even the Tories' agenda.

Funny how the differences talked up in the election campaign can seem so easy to play down when needs must.

Foreign policy
Former Conservative leader William Hague has taken over the Foreign Office brief in the coalition government. And there are some concessions from the Lib Dems in this area. They will sign a commitment not to join the euro, and to holding referendums on any future transfer of powers to Brussels.

They have also given ground on a replacement to the Trident nuclear missile system. There will be a commitment to "the maintenance of Britain's nuclear deterrent", but with the caveat that the Lib Dems can still make the case for alternatives and look at value for money.

The Conservatives will keep hold of their policy to cap immigration from non-EU countries.

Civil liberties
An area where there was already some agreement - ID cards and the next generation of biometric passports will be scrapped, libel laws will be reviewed and there will be further regulation of CCTV cameras.

Home correspondent Andy Davies' analysis:
This is one area where the coalition parties have a struck a similar tone in recent years. Significant changes can be expected under the new goverment. In their manifestos, the Lib Dems complain that the UK has become a "surveillance state", the Tories bemoan a "database state". Both have made significant pledges to roll back what they describe as intrusive, authoritarian executive powers introduced under Labour.

If both parties stick to manifesto committments, the ID card scheme - a flagship Labour policy - will be scrapped. Both want to see a reduction in surveillance powers, particularly those exercised by local authorities. There is consensus that libel laws in England and Wales need to be reformed "to protect freedom of speech".

There will almost certainly be a reduction in the capacity for the DNA database to store samples taken from people arrested but not convicted. The national child database in England ("Contactpoint") is likely to be abandoned. And the controversial Control Order regime could be one of the first Labour counter-terror initiatives to disappear under the new National Security Council (the Tories call the orders "inherently objectionable" and want a review; the Lib Dems have said they'll cancel the whole project).

One of the most notable differences, however, in the manifestos involves another flagship reform of the Labour government, the Human Rights Act. The Lib Dems say they'll protect the Act. David Cameron wants it replaced with a UK Bill of Rights. A fundamental difference, but the Lib Dems may find an important ally in the new Justice Secretary Ken Clarke. In 2006 he described his party's plans for a Bill of Rights as "xenophobic and legal nonsense".

Education and health
The "pupil premium" was one of the areas of agreement David Cameron flagged up in his initial speech offering talks with the Lib Dems last Friday, and under it schools will receive extra funding for teaching children from disadvantaged backgrounds.

The Conservative policy for Swedish-style "free" schools also stays, under which groups including parents can set up their own institutions if they are unhappy with the standards of local schools.

On higher education, the agreement says it will look at the proposals of a review into higher education funding, which is due to report in the autumn, and if the Lib Dems are unhappy with the policy they could abstain on any vote. The National Union of Students have written an open letter to Nick Clegg asking him to "make good on your commitments to work to introduce a fairer alternative to higher fees".

And the commitment to funding for the NHS increasing in real terms year on year is set down in black and white.

Restoring the earnings link for the basic state pension from April 2011 is listed in the agreement. And the Conservative commitment to increase the retirement age to 66 stays.

There's also a commitment to make payments to Equitable Life policy holders.

Coalition: the key characters
- David Cameron: from 'brightest boy' to PM
- Nick Clegg: Lib Dem leader in government

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