Not a game changer

Valencia: Reuters rang me up yesterday evening to ask for comment on Liam Fox's resignation. My view was and is that it is not a game changer for the Coalition Government.

It is clearly an embarrassing episode, but Dave has handled it as well as he could in the circumstances. It is not indicative of the kind of sleaze which haunted the last years of the Major Government. Indeed, these days to get away with two Cabinet resignations in eighteen months is not bad going given the rapacity of the media pack.

Of course, one potential future problem is that Dr Fox could act as a focus on the backbenches for discontented right-wingers.

The Government would also have preferred stability in the defence ministry given that it has been critical of the turnover of ministers there under Labour. This made it more difficult to get a grip on the cost effectiveness of defence spending.

Phillip Hammond has been an effective transport minister, facing down opposition to the high speed train proposal. He is also on the right of the party so the balance of the Cabinet has not been changed. His replacement, Justine Greening, is also a rising talent.

So there has been some reputational damage, but it is relatively limited, certainly in terms of any lasting effect.

Liam Fox wins

Cuts in the defence budget will be less than 10 per cent after the personal intervention of the prime minister. It's a considerable victory for Liam Fox after what Michael Heseltine described 'as the letter designed to be leaked'. Even Hilary Clinton weighed in on his side.

There will be some painful cuts for the Navy and RAF, but the two aircraft carriers are safe. Cutting them would have hit jobs in what remains of the shipbuilding industry hard. There will be some unspecified savings on Trident as a concession to the Lib Dems.

The schools budget is also to be protected, at least in the sense tha Nick Clegg's 'pupil premium' for disadvantaged pupils will offset cuts elsewhere. This could mean that some schools with better off pupils could lose out.

All this means bigger cuts elsewhere. Higher education will take a big hit with 79 per cent of the teaching budget cut and £1bn off the research budget. Higher education is effectively being marketised and there will be big structural changes as a result with some universities merging or disappearing.

Although the Government is doing what it can to protect the less well off, some of these cuts, such as those in education, could hit median income families hard. However, the Government is going to give £1.5bn to Equitable Life policy holders from 'middle England', although their spokeswomen was not pleased and argued that taxpayers should have provided nearly £5bn.

And the Scottish Government has somehow found the money to abolish prescription charges.