Uneasy bedfellows: Party partners can agree to differ

Full details of the complicated arrangements which relax the normal requirements of party discipline and Cabinet collective responsibility were revealed in a document published today.

The document stated that Liberal Democrats will be able to "continue to make the case for alternatives" to the renewal of the UK's Trident nuclear deterrent and abstain in votes on higher education funding.

A Lib Dem spokesman will be allowed to speak in opposition to the construction of new nuclear power stations, which Conservatives support, in the House of Commons, but the party's MPs will be required to abstain rather than join other parties in voting the policy down.

The seven-page "Agreements Reached" document represented the final accord reached during five days of negotiations following the inconclusive General Election.

It showed how the Lib Dems accepted Tory plans to cut 6 billion from state spending this year, which they had vociferously opposed during the General Election campaign.

And it confirmed that the Conservatives have agreed to adopt the "long-term policy objective" of fulfilling the Lib Dem policy of raising income tax thresholds to 10,000.

Chancellor George Osborne's emergency Budget, to be held within 50 days, will announce a "substantial increase" in personal allowances to reduce the burden of income tax on lower and middle-income earners, stated the document.

In order to fund this reduction, Tories have agreed to drop their plan to reverse the 1p rise in National Insurance on employees. However, the rise in employers' National Insurance payments pencilled in by Labour will be ditched, as the Tories promised during the election campaign.

The agreement deals only with "issues that needed to be resolved between us in order for us to work together as a strong and stable government" and a further document covering less contentious matters will be released in due course.

Today's paper confirmed that the coalition would bring forward a Referendum Bill on electoral reform and that both parties would whip their MPs and peers to support a simple majority referendum on the Alternative Vote system for Westminster elections.

However, it made clear that this would not tie both parties to campaigning for AV when it came to the referendum - raising the prospect that Tories and Lib Dems may find themselves on opposite sides of the battle when it comes to the public debate.

The document showed that Lib Dems have agreed to put their enthusiasm for Europe on hold during the proposed five-year duration of the coalition Government.

While agreeing that the UK would be "a positive participant in the European Union", both sides accepted that there would be no transfer of powers or sovereignty to the EU over the course of the Parliament and that Britain would neither join nor prepare to join the euro during that period.

Any future treaty that transfers powers to Brussels would be subject to a referendum, the coalition partners agreed.

On nuclear power, the document set out a process "that will allow Liberal Democrats to maintain their opposition to nuclear power while permitting the Government to bring forward the national planning statement for ratification by Parliament so that new nuclear construction becomes possible".

The Government will draft a planning statement and put it before Parliament under a specific agreement that a Lib Dem spokesman will speak in opposition to the statement but that Lib Dem MPs will abstain, without it being regarded as an issue of confidence.

While the Tories did not back down on their insistence that Britain's ageing nuclear deterrent should be replaced, the parties agreed that the renewal of Trident should be "scrutinised to ensure value for money" and that Liberal Democrats will "continue to make the case for alternatives".

Conservative proposals for a tax allowance to reward marriage and civil partnerships will go ahead, though provision will be made for Lib Dem MPs to abstain on the issue.

And Tories agreed that the flagship Lib Dem call for "fairer taxation" by raising income tax thresholds to 10,000 should "take priority" over other tax cuts, including Mr Osborne's cherished proposal to take estates under 1 million out of inheritance tax.

In recognition of their long-standing promise to abolish university tuition fees, Lib Dem MPs will be allowed to abstain in any vote on the forthcoming Browne Report into higher education funding.

Liberal Democrats have accepted a Conservative "ring-fence" to guarantee real-terms increases in NHS funding every year of the Parliament, which were criticised by new Business Secretary Vince Cable during the campaign because they will lead to deeper cuts elsewhere in Whitehall. The target of spending 0.7% of national income on overseas aid will remain.

Lib Dems have signed up to Tory plans for an annual limit on the number of non-EU economic migrants. Conservatives have accepted proposals for a statutory register of lobbyists.

Other policies agreed between the coalition partners include cuts to child tax credits and the Child Trust Fund for higher earners; a "pupil premium" for disadvantaged schoolchildren; a full Strategic Security and Defence Review; the restoration of the state pension link to average earnings; a power of recall for errant MPs; a banking levy and action to tackle "unacceptable" bonuses as part of reform of the financial services sector; the cancellation of the third runway at Heathrow; and the return of regulatory powers to the Bank of England.

Commissions, committees and reviews will be set up to investigate proposals to separate retail and investment banking; to create a wholly or mainly elected Upper House elected by proportional representation; and to raise the state pension age to 66 as early as 2016 for men and 2020 for women.