Exclusive: Vince Cable calls on Osborne to change direction

Business Secretary argues in the New Statesman for "greatly expanded" capital spending and suggests that the Chancellor should borrow for growth.

In recent months, as the economy has continued to shrink and as borrowing has continued to rise, Vince Cable has become increasingly convinced of the need for a change of economic policy. With the Budget now just two weeks away, the Business Secretary has made his boldest intervention yet. In a 3,800 word essay for the New Statesman, Cable calls for "greatly expanded" capital spending and suggests that any increase should be funded through borrowing, not greater cuts elsewhere.

Ahead of a speech by David Cameron on the economy tomorrow, in which the Prime Minister will defend the government's strategy, he warns that Osborne's cuts to capital spending have had "economic consequences" and that the £5bn increase in last year's Autumn Statement was too "modest" to have any major effect. He adds: "one obvious question is why capital investment cannot now be greatly expanded. Pessimists say that government is incapable of mobilising capital investment quickly. But that is absurd: only five years ago the government was managing to build infrastructure, schools and hospitals at a level £20bn or more in 2009/10 than last year."

Cable then takes a significant step towards Labour's position by implying that the government should now borrow to invest.

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.

While maintaining that the coalition was right to adopt an aggressive deficit reduction plan in June 2010, he suggests that the "balance of risks" may have changed. 

When the government was formed it was in the context of febrile markets and worries about sovereign risk, at that stage in Greece but with the potential for contagion. As the country arguably most damaged by the banking crisis and with the largest fiscal deficit in the G20 there were good reasons to worry that the UK could lose the confidence of creditors without a credible plan for deficit reduction including an early demonstration of commitment. The main international agencies (the IMF, European Commission and OECD) and business groups stated that it judged the balance of risks correctly.

Almost three years later the question is whether the balance of risks has changed. 

He points to IMF research showing that the risk of losing market confidence as a result of higher borrowing may now be outweighed, in his words, by "the risk of public finances deteriorating as a consequence of continued lack of growth."

Osborne has consistently rejected calls to loosen fiscal policy but Cable argues that borrowing for growth "would not undermine the central objective of reducing the structural deficit" and may even assist it "by reviving growth". He notes that Britain's long-term debt maturity means it suffers "less from the risks of a debt spiral where refinancing maturing debt rapidly becomes impossible" and argues that "the effect on our fiscal situation of higher interest rates is in fact nowhere near as bad as having weak growth."

Constrained by collective ministerial responsibility, Cable ultimately concludes that the balance of risks remains "a matter of judgement", "which incorporates a political assessment of which risk is the least palatable". But his decision to reopen a debate long regarded as closed by Osborne shows his willingness to dissent from the Treasury line. With government unity already frayed ahead of next summer's Spending Review, the intervention will be viewed with hostility by Cable's cabinet colleagues. 

In a further act of provocation, the Business Secretary uses the essay to launch a withering dismissal of those Conservatives demanding greater deregulation of the labour market and a reduction in workers' rights. 

This bastardised ‘supply side’ economics often degenerates into a saloon bar whine about HSE inspectors, newts and birds which block new development, bloody minded workers, equalities and Eurocrats who dream up regulations for square tomatoes and straight bananas. Philosophical cover is provided by the belief that the private sector can always fill the space left by a retreating state.

In advance of Mark Carney's arrival as governor of the Bank of England in July, Cable also calls for more creative monetary policy, including the expansion of the Bank's quantitative easing programme to include private sector assets. He writes: "There is currently a pause in QE in the UK and two related ideas are being developed to sustain loose monetary policy. The first is for the Central Bank to acquire a wider range of assets from corporate loans to infrastructure project bonds. By taking risk off the private sector balance sheet, we encourage it to find new investments. This is surely sensible."

Cable says the Bank is right to consider targeting growth as well as inflation but adds that the stability provided by the current regime means "the bar for any change must be high."

Osborne, who characterises himself as a "fiscal conservative" but a "monetary activist", is likely to welcome Cable's intervention on this subject. But with the Chancellor already under pressure from Tory MPs to cut taxes, the Business Secretary's call for higher spending, potentially funded by higher borrowing, means he now faces a war on two fronts. 

Update: Shadow financial secretary to the Treasury Chris Leslie has responded for Labour. He said that Cable "may at last be seeing sense" but added: "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."

"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."

Business Secretary Vince Cable addresses delegates at the annual CBI conference in London on November 19, 2012. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

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I am special and I am worthless: inside the mind of a narcissist

There's been a lot of discussion about narcissists this week. But what does the term actually mean?

Since the rise of Donald Trump, the term “narcissistic” has been cropping up with great regularity in certain sections of the media, including the pages of this journal. I wouldn’t want to comment about an individual I’ve never met, but I thought it would be interesting to look at the troubling psychological health problem of narcissistic personality disorder (NPD).

People with NPD (which is estimated to affect about 1 per cent of the population) have a characteristic set of personality traits. First, they have a deeply held sense of specialness and entitlement. Male NPD sufferers frequently present as highly egotistical, with an unshakeable sense of their superiority and importance; female sufferers commonly present as eternal victims on whom the world repeatedly inflicts terrible injustices. In both cases, the affected person believes he or she is deserving of privileged treatment, and expects it as a right from those around them.

Second, NPD sufferers have little or no capacity for empathy, and usually relate to other people as objects (as opposed to thinking, feeling beings) whose sole function is to meet the narcissist’s need for special treatment and admiration – known as “supply”. In order to recruit supply, NPD sufferers become highly skilled at manipulating people’s perceptions of them, acting out what is called a “false self” – the glittering high achiever, the indefatigable do-gooder, the pitiable victim.

The third characteristic is termed “splitting”, where the world is experienced in terms of two rigid categories – either Good or Bad – with no areas of grey. As long as others are meeting the narcissist’s need for supply, they are Good, and they find themselves idealised and showered with reciprocal positive affirmation – a process called “love-bombing”. However, if someone criticises or questions the narcissist’s false self, that person becomes Bad, and is subjected to implacable hostility.

It is not known for certain what triggers the disorder. There is likely to be a genetic component, but in many cases early life experiences are the primary cause. Narcissism is a natural phase of child development (as the parents of many teenagers will testify) and its persistence as adult NPD frequently reflects chronic trauma during childhood. Paradoxically for a condition that often manifests as apparent egotism, all NPD sufferers have virtually non-existent self-esteem. This may arise from ongoing emotional neglect on the part of parents or caregivers, or from sustained psychological or sexual abuse.

The common factor is a failure in the development of a healthy sense of self-worth. It is likely that narcissism becomes entrenched as a defence against the deep-seated shame associated with these experiences of being unworthy and valueless.

When surrounded by supply, the NPD sufferer can anaesthetise this horrible sense of shame with the waves of positive regard washing over them. Equally, when another person destabilises that supply (by criticising or questioning the narcissist’s false self) this is highly threatening, and the NPD sufferer will go to practically any lengths to prevent a destabiliser adversely influencing other people’s perceptions of the narcissist.

One of the many tragic aspects of NPD is the invariable lack of insight. A narcissist’s experience of the world is essentially: “I am special; some people love me for this, and are Good; some people hate me for it, and are Bad.” If people with NPD do present to health services, it is usually because of the negative impacts Bad people are having on their life, rather than because they are able to recognise that they have a psychological health problem.

Far more commonly, health professionals end up helping those who have had the misfortune to enter into a supply relationship with an NPD sufferer. Narcissism is one of the most frequent factors in intimate partner and child abuse, as well as workplace bullying. The narcissist depends on the positive affirmation of others to neutralise their own sense of unworthiness. They use others to shore themselves up, and lash out at those who threaten this precarious balance. And they leave a trail of damaged people in their wake. 

This article first appeared in the 16 February 2017 issue of the New Statesman, The New Times