Lib-Labism in 2015: The prospects for a radical coalition

The most common question asked by journalists of any senior Liberal Democrat is who they would prefer to do business with next time, Labour or the Conservatives? But this is the wrong question. Personal preferences have to take second place to at least two factors. First, is the government going to look and feel legitimate to the voters? Second, what deal will give Liberal Democrat voters more of what they want?

That is why I believe the assumption that Lib-Dem leader Nick Clegg, having consolidated a centre-right hold on the party, is preparing to do a deal with the Tories next time is wrong. He is certainly safer as leader than he looked a year ago. Vince Cable did not have a good conference. But it is Clegg who has been making clear overtures to the Lib-Dem left, whether it is on personnel changes - with Norman Baker replacing Jeremy Browne at the Home Office - or in policy, with a harder line on standards in academies or a stronger pro-green emphasis on wind power and taxes.

After all, the Liberal Democrats are not in politics to be second-best Labour or second-best Conservatives. Equidistance is not a gimmick; realpolitik makes genuine independence crucial. Lib-Dem voters - not activists - tend to split down the middle in preferring either Labour or the Conservatives as coalition partners, and the 'losing' half needs to be persuaded that the deal wins practical benefits for their point of view. It is also true, of course, that as soon as it looks as if the party can only deal with one of its potential partners, its bargaining position in any negotiation is fatally weakened.

It is worth looking at what happened in 2010 to give a feel for what will matter next time. If personal preferences were what really mattered, I would adamantly have been in favour of a deal with Labour. I was a Labour party member before I left in 1980 to join the Social Democratic party and then the Liberal Democrats. I have always considered myself on the radical end of British politics, helping the underdog, fighting abusive power, greening growth. So for me, it's no contest.

That instinctive preference for Labour is shared, according to polling, by two-thirds of party members and I suspect by the substantial majority of the Lib-Dem parliamentary party. The DNA of the Liberal Democrats is anti-Conservative. Our folk memories are of great anti-Conservative victories: the 1906 government, the first old-age pension, the breaking of the blocking power of the House of Lords.

When we are being mischievous, we like to remind Labour folk that the heavy-duty thinking behind the 1945 Labour reforms was done by Liberal peers, Lord Keynes and Lord Beveridge (later leader in the Lords). We have been fighting the Conservatives for a lot longer than Labour.

In 2010, however, there was ultimately no option but to do a deal with the Conservatives. Labour had lost a dramatic level of support and was not the largest party. This did not rule out a deal, but it would have taken more explaining to shore up what many voters who had voted against Gordon Brown would have perceived as a lack of legitimacy.

Moreover, Labour and the Liberal Democrats did not together have an overall majority, so a deal would have involved long nights in the lobbies hoping that the SNP and Ulster Unionists would not appear on the wrong side. A Lab-Lib coalition would have been born with the disadvantages that the Labour government of 1974-79 only hit late in its term.

Labour was also exhausted. As a result, the Labour negotiators' mindset was not open to new ideas or ways of doing things. Some of Labour's biggest guns - including John Reid and David Blunkett - came out publicly against a deal even while the negotiations were going on, which was hardly reassuring, given the intrinsic difficulties of keeping a minority coalition government on the road against a background of darkening economic storms.

The context was also changing dramatically. The Friday after the general election saw the first market panic over Greece, with its bond yields soaring. Senior British officials wanted a coalition agreement in place by the time the markets opened on Monday morning, a ridiculous timescale for talks of such complexity. Two of us on the Lib-Dem team - David Laws and I - had worked in the financial markets and so were aware of the devastation they could wreak, and of the need to avoid contagion. We were unanimously of the view that there had to be an emergency budget to take the UK out of the firing line, a point that Labour's would-be chancellor Ed Balls in particular was not prepared to concede.

So what does this mean for next time? Policy and practicalities will matter. How much common ground will there be? On the economy, the narratives of Labour and the Liberal Democrats are going to be fundamentally different in the run-up to the general election, but that is not fatal. It will disguise a potential common agenda around lifting living standards and reducing inequality not just of opportunity but of outcomes, which matters to the Lib-Dem left. This, after all, was the greatest failure of the last Labour government. Inequality at the very top worsened.

The Liberal Democrats' proposal to raise income tax thresholds to £10,000 in the 2010 general election manifesto was a partial response to this growing divide. We should take more people out of tax, because that changes the incentives to work, and win where it really matters: at the bottom, not at the top. We should also go further and promise to raise income tax thresholds to the level of a full-time worker on the national minimum wage. It makes no sense to raise people's gross pay to a supposed minimum and then to tax them on it.

Labour can and should pick this up and run with it. It is not the whole answer: so many of the poor are workless, and so many of the low-paid are in fact members of richer households. Part of the answer must come in tax credits and benefits too. Perhaps there should be explicit employer subsidies to hire the low-paid. And it is surely common ground that the education and training system has to be open to all the talents and not focused on provision for the elite. Only productivity gains can ultimately validate higher earnings.

The green economy is another fertile source of agreement between the radical parties. It's also an area where the Tories have proven to be a bitter disappointment, turning against their own promises to champion the green economy and raise the proportion of taxes being taken in green taxes.

True, Labour's populism is a worry to many who want to green the economy. Freezing energy prices is a policy which Labour leader Ed Miliband must hope he has an excuse to ditch after the election, because it is a threat to low-carbon investment. But the fundamental commitment of Miliband and much of Labour to the low-carbon transition is an important bridge to the Liberal Democrats.

There could also be common ground on housing policy, where the Liberal Democrats want to go further and faster than the Tories have allowed on social housebuilding. There is a wider agenda here too, should Labour wish to pick it up: basing business rates on the potential development value of land would give a substantial boost both to construction activity and to jobs for the young unemployed. Nick Clegg has also backed a revival of new towns, which may be one of the most credible ways of sharply increasing housebuilding in the south-east, where the pressures are greatest. New towns, by building on relatively cheap agricultural land, can also capture much of the uplift in land values that goes with planning permission, and thus fund a substantial social housing element.

On foreign policy, and particularly on Europe, the Liberal Democrats (including many on the right of the party, like Clegg) would find Labour infinitely more comfortable than the Conservatives, whose flip-flops on referenda and last-minute vetoes have merely exasperated anyone who wants to work with our continental partners.

The difficulty will come on crime and punishment, where Labour itself has traditionally been riven between the authoritarian instincts of much of its working-class base and the liberal instincts of its radical middle-class supporters. Blair resolved that conflict in only one direction, with disastrous results from any Lib-Dem perspective. Whether on the DNA database, ID cards, the proposal for 90-day detention without trial, extension of searches of who-calls-whom telecoms data, the indeterminate sentences which leave criminals in prison without end, or the vast increase in the prison population, the instincts of Blair's home and justice secretaries - particularly Jack Straw, David Blunkett and John Reid - appalled many Liberal Democrats. The Freedom Act, by comparison, was a key building block of the coalition with the Tories.

Is Labour still determined to be tougher on crime and punishment than the present Tories and even a right-wing home secretary like Michael Howard, which seemed to be the objective throughout the Blair and Brown years? Or will Miliband's Labour recognise that trying to compete on mass-producing criminal justice bills and tougher sentencing ultimately leads to rotten policy?

Constitutional reform will also prove difficult, as the Liberal Democrats are still licking their wounds over both the loss of the alternative vote referendum and the ditching of Lords reform - there is bad blood with Labour over both. There are some areas of common ground: votes at 16, measures to increase registration and turnout, party funding (particularly after Miliband's brave stand on individual union membership).

Those could be part of a coalition agreement, but the rest will be shaped by the outcome of the Scottish referendum. If Alex Salmond wins, I would expect Labour in England to become a rapid convert to electoral reform, simply because the Tories would be likely to win overall majorities much more frequently without the radical Scots. If so, there is a natural English Labour alliance with the Liberal Democrats.

If Salmond loses, there will be a common agenda of devolution of more powers to the Scottish parliament, which must at last have the ability to raise revenue and to take responsible decisions for its spending. The Scottish electorate will want reform, and expect it in short order.

Liberal Democrats and maybe Labour could take a longer look at some other big questions too: how to revive the political process, primary elections, proportional representation, compulsory voting, whether our increasingly presidential prime minister should be directly elected at the same time as the general election. The best approach is probably either a citizens' panel - of the sort that sat in Ontario and British Columbia - or a Scottish-style convention to draw up proposals for reform of the political system that the government would promise to put to a yes/no referendum.

In relationships between parties, policies ought to be key, but it is inescapable that people matter too. It was, in my view, unwise of Nick Clegg to make Gordon Brown's leadership a public issue. It is no business of one party to question the elected leader of another, and inevitably it invited retaliation in kind. Coalition politics requires respect for sincerely held views - and for leaders - whatever your private views may be. Labour leaders will therefore have to bite their lips if personal animus is to be controlled.

The Commons offers plenty of opportunities for MPs to talk to each other, and to understand each other's standpoint. The Liberal Democrats are more tribal than they were, but are generally far more open to working with other parties (for obvious reasons) than Labour or the Conservatives. A little less tribalism all-round, and a little more willingness to see the common ground, could ease any issues of personal chemistry. And so, if the votes fall the right way, there is the potential for an historic radical coalition after 2015.