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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Meet Anne Marie Waters - the Ukip politician too extreme for Nigel Farage

In January 2016, Waters launched Pegida UK with former EDL frontman Steven Yaxley-Lennon (aka Tommy Robinson). 

There are few people in British political life who can be attacked from the left by Nigel Farage. Yet that is where Anne Marie Waters has found herself. And by the end of September she could well be the new leader of Ukip, a party almost synonymous with its beer-swilling, chain-smoking former leader.

Waters’s political journey is a curious one. She started out on the political left, but like Oswald Mosley before her, has since veered dramatically to the right. That, however, is where the similarities end. Waters is Irish, agnostic, a lesbian and a self-proclaimed feminist.

But it is her politics – rather than who she is – that have caused a stir among Ukip’s old guard. Former leader Paul Nuttall has said that her views make him “uncomfortable” while Farage has claimed Ukip is “finished” if, under her leadership, it becomes an anti-Islam party.

In her rhetoric, Waters echoes groups such as the English Defence League (EDL) and Britain First. She has called Islam “evil” and her leadership manifesto claims that the religion has turned Britain into a “fearful and censorious society”. Waters wants the banning of the burqa, the closure of all sharia councils and a temporary freeze on all immigration.

She started life in Dublin before moving to Germany in her teens to work as an au pair. Waters also lived in the Netherlands before returning to Britain to study journalism at Nottingham Trent University, graduating in 2003. She subsequently gained a second degree in law. It was then, she says, that she first learnt about Islam, which she claims treats women “like absolute dirt”. Now 39, Waters is a full-time campaigner who lives in Essex with her two dogs and her partner who is an accountant.

Waters’s first spell of serious activism was with the campaign group One Law for All, a secularist organisation fronted by the Iranian feminist and human rights activist Maryam Namazie. Waters resigned in November 2013 after four years with the organisation. According to Namazie, Waters left due to political disagreements over whether the group should collaborate with members of far-right groups.

In April 2014, Waters founded Sharia Watch UK and, in January 2016, she launched Pegida UK with former EDL frontman Steven Yaxley-Lennon (aka Tommy Robinson). The group was established as a British chapter of the German-based organisation and was set up to counter what it called the “Islamisation of our countries”. By the summer of 2016, it had petered out.

Waters twice stood unsuccessfully to become a Labour parliamentary candidate. Today, she says she could not back Labour due to its “betrayal of women” and “betrayal of the country” over Islam. After joining Ukip in 2014, she first ran for political office in the Lambeth council election, where she finished in ninth place. At the 2015 general election, Waters stood as the party’s candidate in Lewisham East, finishing third with 9.1 per cent of the vote. She was chosen to stand again in the 2016 London Assembly elections but was deselected after her role in Pegida UK became public. Waters was also prevented from standing in Lewisham East at the 2017 general election after Ukip’s then-leader Nuttall publicly intervened.

The current favourite of the 11 candidates standing to succeed Nuttall is deputy leader Peter Whittle, with Waters in second. Some had hoped the party’s top brass would ban her from standing but last week its national executive approved her campaign.

Due to an expected low turnout, the leadership contest is unpredictable. Last November, Nuttall was elected with just 9,622 votes. More than 1,000 new members reportedly joined Ukip in a two-week period earlier this year, prompting fears of far-right entryism.

Mike Hookem MEP has resigned as Ukip’s deputy whip over Waters’ candidacy, saying he would not “turn a blind eye” to extremism. By contrast, chief whip, MEP Stuart Agnew, is a supporter and has likened her to Joan of Arc. Waters is also working closely on her campaign with Jack Buckby, a former BNP activist and one of the few candidates to run against Labour in the by-election for Jo Cox’s former seat of Batley and Spen. Robinson is another backer.

Peculiarly for someone running to be the leader of a party, Waters does not appear to relish public attention. “I’m not a limelight person,” she recently told the Times. “I don’t like being phoned all the time.”

The journalist Jamie Bartlett, who was invited to the initial launch of Pegida UK in Luton in 2015, said of Waters: “She failed to remember the date of the demo. Her head lolled, her words were slurred, and she appeared to almost fall asleep while Tommy [Robinson] was speaking. After 10 minutes it all ground to an uneasy halt.”

In an age when authenticity is everything, it would be a mistake to underestimate yet another unconventional politician. But perhaps British Muslims shouldn’t panic about Anne Marie Waters just yet.

James Bloodworth is editor of Left Foot Forward

This article first appeared in the 17 August 2017 issue of the New Statesman, Trump goes nuclear