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.