This article is from the source 'guardian' and was first published or seen on . It last changed over 40 days ago and won't be checked again for changes.
You can find the current article at its original source at http://www.guardian.co.uk/politics/2013/mar/06/vince-cable-contradicts-osborne-borrowing
The article has changed 3 times. There is an RSS feed of changes available.
| Version 0 | Version 1 |
|---|---|
| Vince Cable contradicts Osborne in call for more borrowing to ease bottlenecks | Vince Cable contradicts Osborne in call for more borrowing to ease bottlenecks |
| (35 minutes later) | |
| Vince Cable has become the first cabinet minister to question George Osborne's "plan A" economic strategy by suggesting that the Treasury should use Britain's record low interest rates to increase borrowing as a way of stimulating growth. | |
| On the eve of a speech by David Cameron on the economy, in which the prime minister is expected to criticise Labour for demanding increased borrowing, the business secretary said that greater public investment was "crucial" to reviving the economy. | On the eve of a speech by David Cameron on the economy, in which the prime minister is expected to criticise Labour for demanding increased borrowing, the business secretary said that greater public investment was "crucial" to reviving the economy. |
| The intervention by Cable, expressed in a lengthy essay in the New Statesman, exposes deep divisions on the economy within the coalition. | |
| The prime minister and Osborne regularly taunt Ed Balls, the shadow chancellor, about economic responsibility, following the latter's calls for increased public investment – which would, the Tories say, have to be financed by increased borrowing. | |
| But Cable comes close to siding with the shadow chancellor when he says it would be "absurd" to say that the government is incapable of mobilising capital investment. | But Cable comes close to siding with the shadow chancellor when he says it would be "absurd" to say that the government is incapable of mobilising capital investment. |
| Cable writes: "The more controversial question is whether the government should not switch but should borrow more, at current very low interest rates, in order to finance more capital spending: building of schools and colleges; small road and rail projects; more prudential borrowing by councils for house building. This last is crucial to reviving an area which led economic recovery in the 1930s but is now severely depressed. | Cable writes: "The more controversial question is whether the government should not switch but should borrow more, at current very low interest rates, in order to finance more capital spending: building of schools and colleges; small road and rail projects; more prudential borrowing by councils for house building. This last is crucial to reviving an area which led economic recovery in the 1930s but is now severely depressed. |
| "Such a programme would inject demand into the weakest sector of our economy – construction – and, at one remove, the manufacturing supply chain [cement, steel]. It would target two significant bottlenecks to growth: infrastructure and housing." | "Such a programme would inject demand into the weakest sector of our economy – construction – and, at one remove, the manufacturing supply chain [cement, steel]. It would target two significant bottlenecks to growth: infrastructure and housing." |
| Cable challenges one of the chancellor's central arguments – that increased borrowing would add to the fiscal deficit. | Cable challenges one of the chancellor's central arguments – that increased borrowing would add to the fiscal deficit. |
| He writes: "Such a strategy does not undermine the central objective of reducing the structural deficit, and may assist it by reviving growth. It may complicate the secondary objective of reducing government debt relative to GDP because it entails more state borrowing; but in a weak economy, more public investment increases the numerator and the denominator." | He writes: "Such a strategy does not undermine the central objective of reducing the structural deficit, and may assist it by reviving growth. It may complicate the secondary objective of reducing government debt relative to GDP because it entails more state borrowing; but in a weak economy, more public investment increases the numerator and the denominator." |
| He qualifies his remarks and makes clear he is not siding with Balls entirely when he dismisses the "crude and binary" argument that sticking to plan A poses a greater risk to the economy. | |
| "There is a body of opinion arguing that the risks to the economy of sticking to existing plans are greater than the risks stemming from significantly increased and sustained public investment targeted at those areas of the economy where there are severe impediments to growth (housing; skills; infrastructure; innovation). | "There is a body of opinion arguing that the risks to the economy of sticking to existing plans are greater than the risks stemming from significantly increased and sustained public investment targeted at those areas of the economy where there are severe impediments to growth (housing; skills; infrastructure; innovation). |
| "But this is also too crude and binary a characterisation of the position; the government has carried out considerable policy reform in these areas, not least in my own department, the fruits of which take a while to mature. The balance of risks remains a matter of judgment." | "But this is also too crude and binary a characterisation of the position; the government has carried out considerable policy reform in these areas, not least in my own department, the fruits of which take a while to mature. The balance of risks remains a matter of judgment." |
| Cable's article was published hours after the prime minister once again attacked Labour for advocating increased borrowing. "He has no proposals to do anything about welfare other than to put up borrowing," Cameron said of Ed Miliband. | Cable's article was published hours after the prime minister once again attacked Labour for advocating increased borrowing. "He has no proposals to do anything about welfare other than to put up borrowing," Cameron said of Ed Miliband. |
| In his article Cable defended the chancellor's deficit and debt reduction plan on the grounds that Osborne had been flexible. | In his article Cable defended the chancellor's deficit and debt reduction plan on the grounds that Osborne had been flexible. |
| Osborne has acknowledged that he will not meet his target of reducing debt as a proportion of GDP by 2015-16. He will also not meet his informal target of eliminating the structural budget deficit by 2014. By extending his target he has avoided even deeper spending cuts and even higher tax rises. | Osborne has acknowledged that he will not meet his target of reducing debt as a proportion of GDP by 2015-16. He will also not meet his informal target of eliminating the structural budget deficit by 2014. By extending his target he has avoided even deeper spending cuts and even higher tax rises. |
| "The data does not support the conclusion that deficit reduction has had dramatic effects on the economy," writes Cable. "There has been only modest reduction in the budget deficit, partly because the government has been allowing counter-cyclical stabilisers to operate, and partly because we have taken the conscious decision not to introduce further cuts at a time when the weaker economy has damaged tax revenues." | "The data does not support the conclusion that deficit reduction has had dramatic effects on the economy," writes Cable. "There has been only modest reduction in the budget deficit, partly because the government has been allowing counter-cyclical stabilisers to operate, and partly because we have taken the conscious decision not to introduce further cuts at a time when the weaker economy has damaged tax revenues." |
| Chris Leslie MP, the shadow financial secretary to the Treasury, said: "Vince Cable may at last be seeing sense. He is right to admit that there have been economic consequences to deep cuts to capital investment. But he has consistently supported a failing economic policy which has led to stagnation, falling living standards, slashed investment in infrastructure and rising borrowing to pay for the mounting costs of economic failure. | |
| "Now is the right time to bring forward infrastructure investment and build thousands more affordable homes. It would kickstart our flatlining economy, create jobs and in the long-term strengthen our economy and help get the deficit down. | |
| "Labour, business groups and even the IMF have spent the last two years making the case for this. If Vince Cable is finally coming round to that view he needs to start winning the argument round the cabinet table, but his words today read like they have been written by a secretary of state who, despite being in office, is not in power." |