Over at the Mail, Lib Dem deputy leader Vince Cable examines the “trickiest problem” facing Government: “to rein in public borrowing without making recession worse or damaging the useful things government does”. Here’s an excerpt:
The grim news that the economy is still in recession makes this dilemma more acute. It also reminds us that Britain is a deeply divided country. In the inflated metropolitan bubble of the City, there is a lot of excited talk about recovery based on a bounce-back in the stock market, city bonuses and rising house prices in posher parts of London.
This is a different world from the communities hit by the slump in manufacturing and construction; negative housing equity is widespread in the Midlands and the North and depressed shopping centres can’t rely on an investment banker or Arab sheik calling by. We are back to a two-nation Britain. …
The monetary steroids keeping the country alive – low interest rates and ‘quantitative easing’ – have to be continued. It is also becoming difficult to see how the Government is going to manage a smooth return to budget discipline. Next year, the Government will run the only country of any significance (apart from Argentina) with a negative fiscal stimulus. The VAT cut will go into reverse in the New Year and the drop in capital spending will make the construction recession worse. The Conservatives opposed even the limited stimulus we have had.
It is only too easy to see how any insipid economic recovery next year could be stopped in its tracks by premature tightening of the budget, which will have an impact on jobs, especially in places more dependent on public sector employment. How, then, do we now tackle the dangerous assumptions that the streets of London are paved with gold and that little can be done to redress the balance?
It is essential that the economically weaker parts of the UK become less dependent on Government and attract more job-creating private enterprise. But an entrepreneurial base does not spring out of nowhere, and some Government activities are essential to support it. …
Tax policy can also work to offset geographical divisions. Raising tax thresholds to £10,000 would benefit millions of low-paid workers (and pensioners) and reduce the burden for those on average pay. The tax cut would be paid for by closing loopholes enjoyed by the relatively wealthy and by taxing their mansions.
The economy is in deep trouble. Perversely, the people feeling the least pain are the bankers who brought on the crisis.
There is a danger that the necessary correction of the public finances will be done in ways which further disadvantage the parts of Britain which are worst hit in every recession. I worry that the country is being slowly torn apart by a yawning gap between a cosmopolitan, rich capital and the rest. Without spending and tax priorities that are clearly focused, that division will grow.
You can read Vince’s article in full here.