Cameron tries to steady the ship after Cable fires a rocket

After the Business Secretary's dramatic suggestion that the government should borrow for growth, the PM will denounce those who would "plunge us back into the abyss".

Vince Cable's dramatic suggestion in his New Statesman essay that the government should borrow for growth has raised the stakes for David Cameron's speech on the economy today. The central message of the Prime Minister's address in Keighley will be the diameterical opposite of Cable's: there must be no change of course; plan A is here to stay. 

Cameron will say: 

The very moment when we're just getting some signs that we can turn our economy round and make our country a success is the very moment to hold firm to the path we have set.

And yes the path ahead is tough but be in no doubt, the decisions we make now will set the course of our economic future for years to come.

And while some would falter and plunge us back into the abyss we will stick to the course.

Contrast that with Cable's argument that the government should consider whether to "borrow more" in order to fund "greatly expanded" capital spending.

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.

This, he wrote, would not undermine George Osborne's defining objective of eliminating the current structural deficit (which excludes capital spending) and may even assist it "by reviving growth". In other words, higher borrowing and deficit reduction can go hand-in-hand (call it Keynesianism). It is precisely this argument, long made by Ed Balls, that Cameron and Osborne have exerted so much political energy in rebutting. Yet here is a member of the cabinet echoing Labour's logic. 

Doorstepped by the BBC this morning, Cable sought to play down his intervention. "We just need to pursue what I’ve often called Plan A+," he said. "That’s financial discipline and getting down the deficit, and at the same time pursuing growth. That’s what we’re doing and will continue to do." But, however much he seeks to deny it, the suggestion that the government can and should borrow to invest is a significant advance on his previous call for higher capital spending (so far funded by greater cuts in current spending). 

Downing Street (which signed off on the article) has responded by seeking to paint the Business Secretary as a lone maverick, who lacks even the support of his Lib Dem colleagues. No. 10 is aided in this task by Labour, which welcomed Cable's piece as evidence that he "may at last be seeing sense" but added that his words "read like they have been written by a Secretary of State who despite being in office, is not in power." The Business Secretary, it said, "needs to start winning the argument round the Cabinet table". 

The chances of that look slim. With the general election just two years away, Cameron and Osborne believe there is little to be gained from changing course now. Indeed, they regard their commitment to deficit reduction (albeit more in theory than practice; Osborne is set to borrow more in five years than Labour did in 13) as the Tories' strongest political suit. The electorate continues to regard the government's austerity measures as a necessary corrective to years of profligacy by Labour and wearily accepts Osborne's claim that there is no "magic wand". While the Chancellor's deficit reduction plan has stalled (borrowing so far this year is higher than last year), Osborne believes this could yet work to the Tories' advantage. If the next election is again fought over austerity, his hope is that voters will put their faith in the original axeman. 

But Cable's heretical suggestion that the government should "borrow more" will make it harder for Cameron to argue that "there is no alternative". If the economy fails to show signs of improvement, or even falls into a third recession, the Business Secretary may soon become a less isolated figure. 

Business Secretary Vince Cable sits with David Cameron in 10 Downing Street. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

Photo:Getty
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Why isn't Labour putting forward Corbynite candidates?

Despite his successes as a candidate, the organisational victories have gone the way of Corbyn's opponents. 

The contest changes, but the result remains the same: Jeremy Corbyn’s preferred candidate defeated in a parliamentary selection. Afzhal Khan is Labour’s candidate in the Manchester Gorton by-election and the overwhelming favourite to be the seat’s next MP.

Although Khan, an MEP, was one of  the minority of Labour’s European MPs to dissent from a letter from the European parliamentary Labour party calling for Jeremy Corbyn to go in the summer of 2016, he backed Andy Burnham and Tom Watson in 2015, and it is widely believed, fairly or unfairly, that Khan had, as one local activist put it, “the brains to know which way the wind was blowing” rather than being a pukka Corbynite.

For the leader’s office, it was a double defeat;  their preferred candidate, Sam Wheeler, was kept off the longlist, when the party’s Corbynsceptics allied with the party’s BAME leadership to draw up an all ethnic minority shortlist, and Yasmine Dar, their back-up option, was narrowly defeated by Khan among members in Manchester Gorton.

But even when the leadership has got its preferred candidate to the contest, they have been defeated. That even happened in Copeland, where the shortlist was drawn up by Corbynites and designed to advantage Rachel Holliday, the leader’s office preferred candidate.

Why does the Labour left keep losing? Supporters combination of bad luck and bad decisions for the defeat.

In Oldham West, where Michael Meacher, a committed supporter of Jeremy Corbyn’s, was succeeded by Jim McMahon, who voted for Liz Kendall, McMahon was seen to be so far ahead that they had no credible chance of stopping him. Rosena Allin-Khan was a near-perfect candidate to hold the seat of Tooting: a doctor at the local hospital, the seat’s largest employer, with links to both the Polish and Pakistani communities that make up the seat’s biggest minority blocs.  Gillian Troughton, who won the Copeland selection, is a respected local councillor.

But the leadership has also made bad decisions, some claim.  The failure to get a candidate in Manchester Gorton was particularly egregious, as one trade unionist puts it: “We all knew that Gerald was not going to make it [until 2020], they had a local boy with good connections to the trade unions, that contest should have been theirs for the taking”. Instead, they lost control of the selection panel because Jeremy Corbyn missed an NEC meeting – the NEC is hung at present as the Corbynsceptics sacrificed their majority of one to retain the chair – and with it their best chance of taking the seat.

Others close to the leadership point out that for the first year of Corbyn’s leadership, the leader’s office was more preoccupied with the struggle for survival than it was with getting more of its people in. Decisions in by-elections were taken on the hop and often in a way that led to problems later down the line. It made sense to keep Mo Azam, from the party’s left, off the shortlist in Oldham West when Labour MPs were worried for their own seats and about the Ukip effect if Labour selected a minority candidate. But that enraged the party’s minority politicians and led directly to the all-ethnic-minority shortlist in Manchester Gorton.

They also point out that the party's councillor base, from where many candidates are drawn, is still largely Corbynsceptic, though they hope that this will change in the next round of local government selections. (Councillors must go through a reselection process at every election.)

But the biggest shift has very little to do with the Labour leadership. The big victories for the Labour left in internal battles under Ed Miliband were the result of Unite and the GMB working together. Now they are, for various reasons, at odds and the GMB has proven significantly better at working shortlists and campaigning for its members to become MPs.  That helps Corbynsceptics. “The reason why so many of the unions supported Jeremy the first time,” one senior Corbynite argues, “Is they wanted to move the Labour party a little bit to the left. They didn’t want a socialist transformation of the Labour party. And actually if you look at the people getting selected they are not Corbynites, but they are not Blairites either, and that’s what the unions wanted.”

Regardless of why, it means that, two years into Corbyn’s leadership, the Labour left finds itself smaller in parliament than it was at the beginning.  

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to British politics.