Decoding the Conservative-DUP agreement

The Government today confirmed details of its ‘confidence and supply agreement’ with the Democratic Unionist Party (DUP). The negotiations dragged on for over two weeks, but a deal of some kind always seemed probable. Holding the balance of power is a dream outcome for smaller parties. The DUP, therefore, had nothing to gain and a lot to lose by bringing down the Prime Minister and triggering another election.

Today’s announcement keeps Theresa May in Downing Street, for now at least. But how much do we know about how this arrangement will actually work?

How it will work in practice

The agreement commits the DUP to support the Government on explicit confidence motions and key votes on the Queen’s Speech later this week. The status of the Queen’s Speech vote as a confidence test is a matter of some debate.

Further, the DUP will back the Government on formal ‘supply’ votes through which the House of Commons authorises government to spend money from the Exchequer, but also on Budgets and other financial legislation. Beyond that, the deal includes a promise to support the Government on Brexit and national security legislation.

This is a broader set of commitments than we might have expected. And in exchange for their support, the DUP will surely expect meaningful rights of consultation on the development of policy whether through the planned ‘co-ordination committee’ or other informal channels.

International experience shows that smaller parties in such deals often grow frustrated at their limited ability to influence government policy. This is a challenge even in formal coalitions, but in this instance the DUP will have no ministerial positions, civil service support or automatic access to confidential information. People are naturally interested in the policy substance of such inter-party deals, but getting the governance of the deal right is just as important if it is going to last.

What's the price tag?

As expected, a core part of the deal is a set of funding commitments by the Government. Gone are the planned reforms to the pension triple lock and winter fuel allowance, although with no majority of its own and stung by the election result, these are barnacles the Conservatives would likely have scraped off the boat without any encouragement. But the DUP can now claim direct influence on a policy area that applies across the UK. The same applies to commitments to spend 2% of GDP on defence and to maintain the same cash total for support to farmers until the end of the Parliament.

More obvious concessions are spelt out in a separate financial annex. These include additional annual spending commitments of £200m for infrastructure in Northern Ireland, £75m for ultra-fast broadband, £50m for “immediate pressures in health and education”, £100m for NHS transformation, £10m for mental health and £20m to tackle “pockets of severe deprivation”. New city deals and enterprise zones will also be unveiled, presumably unlocking additional money.

None of these spending promises will lead automatically to additional money for Scotland, Wales or England. The Barnett Formula ensures that when spending rises in England, this triggers ‘consequential’ extra money for the three devolved governments on a per capita basis. But that has never stopped the Treasury from bypassing the formula for political reasons. The Scottish and Welsh Governments are already calling for extra money too, but this is a matter of pure politics – there is no legal basis to this aspect of devolution.

The DUP has also won the right for underspend from budgets for “shared education and housing” to be “dispersed flexibly”. This reads very much like a Treasury euphemism for removing the ringfence on money previously committed to special schemes for community integration.

Despite speculation to the contrary, the DUP does not appear to have secured Treasury commitment to compensate Northern Ireland for lost tax revenue if and when the planned cut in corporation tax in Northern Ireland is implemented. Plans are “being developed for Autumn Budget 2017”.

There is also a plan to carry out a study of the impact of VAT and Air Passenger Duty on tourism in Northern Ireland – perhaps paving the way for these taxes to be devolved or cut in Ulster. VAT cannot be varied within an EU member state, but Brexit opens additional options for fiscal devolution.

Again, the crunch point will be who picks up the revenue shortfall, at least in the short run. In the long run, the idea is that such tax cuts pay for themselves by boosting investment and consumption.

How long will it last?

Most of these spending commitments announced today will apply for only two years. There is a commitment that the agreement as a whole will be reviewed at the end of each parliamentary session. Since the current parliamentary session runs until 2019, this is effectively a two-year deal to see through Brexit.

After this, further talks would be needed on whether to continue to work together and on what terms. But an early election is far from unlikely.

So, when the parties commit to working together “for the duration of this Parliament”, this means little since Parliament lasts only until it is dissolved.