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| Clegg fails to back Cable's call for more borrowing to fund capital investment | Clegg fails to back Cable's call for more borrowing to fund capital investment |
| (about 2 hours later) | |
| Nick Clegg has poured cold water on Vince Cable's plans for extra capital investment, saying it would require a £20bn to £40bn expenditure and would risk pushing up interest rates. | Nick Clegg has poured cold water on Vince Cable's plans for extra capital investment, saying it would require a £20bn to £40bn expenditure and would risk pushing up interest rates. |
| Speaking on LBC radio he said everyone supported extra capital investment, but added: "I am afraid there is no cost-free, risk-free, magic-wand solution to this." | Speaking on LBC radio he said everyone supported extra capital investment, but added: "I am afraid there is no cost-free, risk-free, magic-wand solution to this." |
| Cable, the business secretary, 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. | Cable, the business secretary, 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. |
| Cable's comments came as David Cameron prepared to deliver a major speech on the economy on Thursday in which he is expected to criticise Labour for demanding increased borrowing. | Cable's comments came as David Cameron prepared to deliver a major speech on the economy on Thursday in which he is expected to criticise Labour for demanding increased borrowing. |
| Clegg's reaction on his weekly Call Clegg phone-in programme suggests that he backs the prime minister and is at best sceptical about Cable's ideas for extra borrowing to build houses and infrastructure. | Clegg's reaction on his weekly Call Clegg phone-in programme suggests that he backs the prime minister and is at best sceptical about Cable's ideas for extra borrowing to build houses and infrastructure. |
| He said: "If you do decide to say: 'to hell with it, let's borrow £40bn-£20bn' – huge amounts of money – because there is no point doing it unless you do it on a big scale – there are risks of course, and I know Vince acknowledges it, you unwittingly make it more difficult for everyone else because interest rates might then go up." | |
| He said a 1% increase in interest rates would cost the average family paying off a mortgage an extra £1,000 a year. | He said a 1% increase in interest rates would cost the average family paying off a mortgage an extra £1,000 a year. |
| Cable had called for extra capital spending in an article in the New Statesman. Clegg disclosed that Cable had shown him, Osborne and Cameron the article in advance of publication. | Cable had called for extra capital spending in an article in the New Statesman. Clegg disclosed that Cable had shown him, Osborne and Cameron the article in advance of publication. |
| Trying not to reject Cable's ideas outright, he said: "Everybody agrees on the crucial importance of capital investment – money to housing, energy and transport to get the wheels of the economy going," adding that he shared Cable's "frustration that some of the capital investment schemes takes so long". | |
| "The question is not whether capital investment is a good thing – everyone in the coalition agrees that – but how do you pay for it? This is where the balance of judgment is; you need to balance the risk." | |
| He admitted: "Some of the schemes the Treasury has set up – they have offered a lot of guarantee for infrastructure projects – do seem to take a long time to get going, and I am probably more outspoken than Vince in saying I wish Labour had not made these dramatic cuts in capital investment budgets that we inherited." | He admitted: "Some of the schemes the Treasury has set up – they have offered a lot of guarantee for infrastructure projects – do seem to take a long time to get going, and I am probably more outspoken than Vince in saying I wish Labour had not made these dramatic cuts in capital investment budgets that we inherited." |
| 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. | 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. 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. 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. | 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. |
| 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. |
| 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. | 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. | "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." | "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." |