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.

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Brexit has opened up big rifts among the remaining EU countries

Other non-Euro countries will miss Britain's lobbying - and Germany and France won't be too keen to make up for our lost budget contributions.

Untangling 40 years of Britain at the core of the EU has been compared to putting scrambled eggs back into their shells. On the UK side, political, legal, economic, and, not least, administrative difficulties are piling up, ranging from the Great Repeal Bill to how to process lorries at customs. But what is less appreciated is that Brexit has opened some big rifts in the EU.

This is most visible in relations between euro and non-euro countries. The UK is the EU’s second biggest economy, and after its exit the combined GDP of the non-euro member states falls from 38% of the eurozone GDP to barely 16%, or 11% of EU’s total. Unsurprisingly then, non-euro countries in Eastern Europe are worried that future integration might focus exclusively on the "euro core", leaving others in a loose periphery. This is at the core of recent discussions about a multi-speed Europe.

Previously, Britain has been central to the balance between ‘ins’ and ‘outs’, often leading opposition to centralising eurozone impulses. Most recently, this was demonstrated by David Cameron’s renegotiation, in which he secured provisional guarantees for non-euro countries. British concerns were also among the reasons why the design of the European Banking Union was calibrated with the interests of the ‘outs’ in mind. Finally, the UK insisted that the euro crisis must not detract from the development of the Single Market through initiatives such as the capital markets union. With Britain gone, this relationship becomes increasingly lop-sided.

Another context in which Brexit opens a can of worms is discussions over the EU budget. For 2015, the UK’s net contribution to the EU budget, after its rebate and EU investments, accounted for about 10% of the total. Filling in this gap will require either higher contributions by other major states or cutting the benefits of recipient states. In the former scenario, this means increasing German and French contributions by roughly 2.8 and 2 billion euros respectively. In the latter, it means lower payments to net beneficiaries of EU cohesion funds - a country like Bulgaria, for example, might take a hit of up to 0.8% of GDP.

Beyond the financial impact, Brexit poses awkward questions about the strategy for EU spending in the future. The Union’s budgets are planned over seven-year timeframes, with the next cycle due to begin in 2020. This means discussions about how to compensate for the hole left by Britain will coincide with the initial discussions on the future budget framework that will start in 2018. Once again, this is particularly worrying for those receiving EU funds, which are now likely to either be cut or made conditional on what are likely to be more political requirements.

Brexit also upends the delicate institutional balance within EU structures. A lot of the most important EU decisions are taken by qualified majority voting, even if in practice unanimity is sought most of the time. Since November 2014, this has meant the support of 55% of member states representing at least 65% of the population is required to pass decisions in the Council of the EU. Britain’s exit will destroy the blocking minority of a northern liberal German-led coalition of states, and increase the potential for blocking minorities of southern Mediterranean countries. There is also the question of what to do with the 73 British MEP mandates, which currently form almost 10% of all European Parliament seats.

Finally, there is the ‘small’ matter of foreign and defence policy. Perhaps here there are more grounds for continuity given the history of ‘outsourcing’ key decisions to NATO, whose membership remains unchanged. Furthermore, Theresa May appears to have realised that turning defence cooperation into a bargaining chip to attract Eastern European countries would backfire. Yet, with Britain gone, the EU is currently abuzz with discussions about greater military cooperation, particularly in procurement and research, suggesting that Brexit can also offer opportunities for the EU.

So, whether it is the balance between euro ‘ins’ and ‘outs’, multi-speed Europe, the EU budget, voting blocs or foreign policy, Brexit is forcing EU leaders into a load of discussions that many of them would rather avoid. This helps explain why there is clear regret among countries, particularly in Eastern Europe, at seeing such a key partner leave. It also explains why the EU has turned inwards to deal with the consequences of Brexit and why, although they need to be managed, the actual negotiations with London rank fairly low on the list of priorities in Brussels. British politicians, negotiators, and the general public would do well to take note of this.

Ivaylo Iaydjiev is a former adviser to the Bulgarian government. He is currently a DPhil student at the Blavatnik School of Government at the University of Oxford

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