It is encouraging to be part of a Lib Dem chorus from across the party denouncing Osborne’s damaging, ideologically inspired, proposals for further deep cuts in spending on public services throughout the next Parliament.
Being in coalition means that we have to go out of our way to differentiate ourselves clearly from the Tories on the central issue of economic policy. The Tories want to create an election narrative of Tory competence versus Labour incompetence (with the LibDems portrayed either as marginal to the story or cheering the Tories on). Next week’s parliamentary debate on a fiscal charter makes the issue of differentiation particularly topical.
There is a dilemma we face as a party in striking a balance between genuine pride in the current recovery, while also being frank with the public about where more needs to be done: preventing a potentially destabilising housing inflation and rebalancing the economy to emphasise exports. These must all be addressed if we are to see a genuinely sustainable long term recovery. We must also stress the successfully interventionist aspects of economic policy which would not have happened without the Lib Dems, although the Tories constantly try to claim joint parentage (the Regional Growth Fund; the British Business Bank and the Green Investment Bank; the revival of apprenticeships; bank reform and restructuring; industrial strategy and the success of advanced manufacturing; support for science and industrial innovation). We have a distinct economic narrative that must be heard above the din.
The real battleground is in the future, where Osborne and the Conservatives are departing most obviously from the positions taken in Government. Osborne has set out an agenda of continued cuts in public spending leading both to substantial tax cuts and huge budget surpluses in the next parliament. Anyone wanting to understand this vision of the future should read December’s Economic and Fiscal Outlook by the Office of Budget Responsibility, particularly Box 46. Its central forecast, based on Osborne’s assumptions, has drastic implications for government spending, especially on ‘unprotected’ areas (i.e. other than health and foreign aid). For the armed forces, the police service, funding for local government services, justice, student support, universities, further education and research spending is more than halved in real terms from the levels we inherited in 2010 with the bulk of the cuts in the next parliament. Day to day spending on government services reverts to levels last seen in the 1930s. We have been warned.
The immediate challenge to differentiate ourselves from the Tories is in relation to the next three years to 2017/18. Having roughly halved the structural budget deficit in four years, the party has committed itself to completing the job in the next three years, (i.e. by 2017/18) and to do so fairly. This commitment is to be enshrined in a fiscal compact being put before parliament in the next few days. The compact is sensibly and pragmatically couched in terms of a flexible “rolling programme” and so should attract cross-party support. But the debate is an opportunity for us to rehearse our deep differences from the Tories.
First, deficit reduction on this scale and at this speed cannot be accomplished without increasing the contribution of tax (some 20%in the current parliament). Otherwise public services will be cut in very damaging ways . Our party’s current proposals on tax are already better developed than the other parties (high value property; high earners’ tax reliefs). But, given the public’s understandable wish to improve living standards, there is little appetite for tax increase on consumption or incomes. We will therefore have to raise large sums from banks and other financial services (which have got off remarkably lightly). Another area for potential tax receipts is by curbing some of the tax reliefs and avoidance opportunities available to the corporate sector. Some are sensible incentives to promote investment and research and development; but others are questionable value for money.
Second, we have already parted company from the Tories on the need for a substantial boost by borrowing for public investment. At present a major opportunity is being missed for financing productive capital investment in our infrastructure, social housing, science, and innovation with the very cheap capital available to the government (long term interest rates are close to zero in real terms). Such investment also provides a big stimulus to UK employment and supply chains. Tories will object that ‘you can’t borrow your way out of debt’. But it depends what the borrowing is for: running an overdraft is quite different from borrowing to make productive investment – which can reduces the ratio of debt to GDP.
We can see the scope for clear political differentiation on economic policy. Labour is evasive in explaining what they could do in government after a chequered and damaging record in office. The Tories offer extreme, ideologically driven, policies which would seriously damage public services. That is a real opportunity here for our party to be radical and different.
* Sir Vince Cable is the former MP for Twickenham and was leader of the Liberal Democrats from 2017 until 2019. He also served in the Cabinet as Secretary of State for Business, Innovation and Skills from 2010 to 2015.
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35 Comments
but your leader wants a coalition – and to be realistic that is very much the best you ca hope for
So then Vince, who do you want to be in coalition with?
I thought Danny Alexander was Economics Spokes? Is this a sign of how the GE Campaign will be organised?
“Osborne has set out an agenda of continued cuts in public spending leading both to substantial tax cuts and huge budget surpluses in the next parliament.”
Is the really true, Vince? In the sense that this is news, and not merely the consequence of the last comprehensive spending review in 2012 signed up to by both the lib-dems as well as the tories:
http://www.theguardian.com/commentisfree/2012/oct/15/graph-cameron-wants-shrink-state
I agreed with most of this article. It is the basis of a sensible left of centre approach to reducing the deficit.
Dear Vince, I agree with most of what you say and it is important that we do not split hairs on views in the face of rising extremism and authoritarianism across the world.
However, I have an issue with singling out “other financial services” from other sectors of the economy as being ripe for tax increases. As far as I can see if anyone has got off too lightly, besides billionaires and companies with lots invested in the stock market, it is the banks. It is the banks who have been able to borrow at extremely low rates and sell at unusually high ones due to the artificial demand created by the central banks. The idea is that this will keep mortgages rates down and encourage lending, but it is trickle down economics 101 and people with tracker mortgages have been doing very well anyway.
Best regards
I agree with Vince about borrowing for public sector capital investment, but the missing policy here is one for Citizen’s Income, for which there are three very strong reasons.
1 Social justice (argued by Guy Standing in his book ‘The Precariat’)
2 Administrative efficiency, (argued by Malcolm Torry in his book ‘Money for All’ (which also eloquently quashes all fears about employment disincentives))
3 Economic necessity, which I have argued in many LDV posts, eg at https://www.libdemvoice.org/opinion-51-32053.html . In an advanced technology economy, the wage content of output reduces, real wages decline, and there is insufficient demand to purchase output GDP. This is the cause of the 2007 crisis and it’s still the case today. Citizen income is the only solution. It has to be funded by QE, ie not accounted as deficit. We have to also learn that deficits are inevitable in advanced technology economies and don’t matter, regardless that financial orthodoxy which Vince clearly subscribes to, says otherwise. All the empirical data, including flat lining of real wages, unstoppable deficit increase, supports this hypothesis. All the world cannot be net exporters – we have to fund domestic demand.
It should be core Lib Dem policy
I repeat – your leader wants a coalition. Based on what you know of the economic policies of the two parties who you will probably have to form one with then who would be the preferred partner
Or will you try to continue sitting on the fence
I cannot support any party that may go into coalition with the Tories, and based on what I see I cannot for the life of me see why you guys would want it either. Either you oppose being in coalition entirely (I can understand that) or you have a preference based on their policies
But a party which believes in PR must accept coalitions?
ermmmm……we don’t have PR as far as I know and Clegg made it clear that he feels that you should be in coalition this time round as well
Do you not think you should make it clearer to voters what your preference would be based on their policies?
‘believes in PR’ is different to having PR – my comment was about the principle.
Geoff
I understand that but I have just heard Osborne reiterate his commitment to these cuts and your leader has said that he wants to be in coalition after 2015
I cannot risk voting for any party that may support the Tories in Government committed to that
Agreed
A politician with such an understanding of economics is as rare as hens’ teeth. There are many things holding the Party back at the moment, but Dr Cable’s understanding of economics certainly isn’t one of them. I hope he can contribute towards the Party’s economic thinking for many many years to come. Needless to say it, but I very much agree with the ideas expressed in this piece.
Politicians don’t decide whether coalitions need to be formed, the voters do, by not voting outright for any one party. As such, it’s entirely right that Liberal Democrats, and none better than Vince Cable, should lay out a distinct and clear Liberal Democrat vision of economic policy.
Mark Blackburn
Nonsense – the politicians decide. No-one votes for a coalition
You will not win the next election and Clegg said he wants to be in coalition with someone – nobody on your side seems to want to answer the simple question – who do you prefer?
Remember Osborne has just confirmed this economic policy and do you think Cable has any influence over what your party does anymore?
@stuart moran
You have repeatedly said that Nick Clegg wants a coalition. How do you really know that?
Also, you give the impression that the question of a coalition is wholly one for the Leader of the Party. It isn’t.
@stuart moran:
“Do you not think you should make it clearer to voters what your preference would be based on their policies?”
Based upon their ‘policies’? Are these ‘policies’ what they actully do or what they say today that they want to do or will do?
The Labour Party today talks all sorts of stuff about greater fairness and equality. Yet every single year, for thirteen years when in government, the Labour Party bosses insisted on maintaining a higher level of disparity than there was between richest and poorest sections of society under Mrs Thatcher. The gap between the wealth and income of highest and lowest deciles is significantly lower under Osborne (tempered by Lib Dems) than it was year after year under Brown and Darling.
On the other side of things, the rate of deficit reduction brought in by the Coalition over the past four and a half years has been nowhere near as strict as the Tories promised before the last election. It has been closer to what Labour promised. The cuts which have been brought in by the Coalition have been opposed and derided by Labour but their promise for the future involve not overturning hardly any of them. Is not the obvious truth that Messrs Cameron, Clegg and Miliband (and their close camp followers) represent a political class who probably ,deep down, underneath all their pretended differences, voiced in the aim of their election, agree on far more than they disagree. A Labour-Tory Coalition may not be the best outcome for our country but would probably be relatively honest.
@Simon Shaw “You have repeatedly said that Nick Clegg wants a coalition. How do you really know that?”
Clegg certainly gives that impression, e.g.
Though to be honest, whether or not he “wants” coalition, I don’t suppose he has many alternative strategies. It’s all very well for commentators here to say that a spell in opposition is needed or that a coalition with anybody would be bad for the party, but the only way to guarantee that is to not vote Lib Dem and I can’t imagine any senior Lib Dem campaigning on that basis!
Simon Shaw
I know you are not in favour of continued coalition post-2015 – I too think a time reflecting in opposition and building up again sounds a good idea, but I doubt very much that is the aim of your leadership
Tony Dawson
Interesting what you say. So you admit that Labour were right before 2010 when they said that the Tory plans would not work and be damaging. Also, it shows that Clegg and Alexander were wrong when they changed their minds after that supposed meeting with King? The Alexander slapping Osborne on the back event came after he had committed to the ‘austerity’ policy that was later abandoned so you cannot say that it was only a Tory policy
Sort of calls into question the competence of the current team when they have actually tried, in reality, to follow Labour’s spending plans doesn’t it?
Also, I think it is a bit rich expecting Labour to commit to reversing all the cuts before they see the books. Balls said from the beginning that austerity was going to make the recovery from recession much longer and weaker, and he was right to an extent. The changed plans from Osborne only came into play after the damage was done. Also, if it is so easy to reverse policies of old Governments why haven’t you rescinded all the NuLabour laws on security etc that were voted against pre 2010?
Now, if we say the economy is the most important issue facing us post2010 – can you envisage working with Osborne again – who you have just suggested is not very competent, on his quest for even more draconian cuts. Cuts which are roundly condemned here? Is it still possible that despite these comments and the fact that Labour s actually proposing something far more similar to your policy that you pretend there is no difference between the other two parties?
I have one idea
Put Vince back as economic spokesman and Clegg tosay
‘The coalition was wrong to say that cutting the deficit as rapidly as foreseen would allow us to return the economy to health by 2015. We now see that the original plans advocated by Vince Cable prior to my meeting with Melvyn King were more in line with what we should have done and I admit my mistake. He has shown himself to be best person in all 3 parties at assessing the situation which is why we have brought him back to the heart of our policy team. I also admit that all the concerns about us following Greece and other countries who are part of the Euro was completely overblown as we had control of our own monetary policy which allowed us to use QE and devaluation as tools to help us reduce the effects of the recession. Looking forward to post 2015 we see again George Osborne advocating policies that will only do further damage to our infrastructure and long term health-. Looking at the policies of the two main parties we see that Labour are advocating similar plans to us, although there are differences in emphasis, as was the case pre 2010, and we feel we could work together better with them in implementing the best policies for the future with Vince Cable at the heart of the process’
Paul Pettinger 8th Jan ’15 – 9:00pm
” A politician with such an understanding of economics is as rare as hens’ teeth. ”
Paul Pettinger is clearly correct in this statement. He might have gone on to say that amongst Liberal Democrat ministers such an understanding of economics is not just rare but unique.
When it comes to the understanding of economics Vince Cable is in the Premier League.
Some other Liberal Democrat ministers might struggle to get a place in the reserves for Cairngorms United in Scotland’s third division.
Listening this morning to ‘Yesterday in Pariament’ there was a report on the subject of ageism and the appointment of the LIberal Democrat Economics chief for the General Election . So in the House of Commons the failure to appoint women to senior Liberal Democrat posts in Government is now linked with the reluctance to appoint anyone over the age of 48. If one were trying to make the party a laughing stock this would probably have been one way of doing it.
Think the unthinkable – Lib Dems as the largest party in a coalition. It helps. This is longer term thinking, but I’d like to see the Mirrlees Review brought into the frame. Consistent, fair and totally good for the country. Download it – and if short of time read the final proposals from page 478. Incidentally noone seems to give Ben Chu credit for exposing the implications of the Autumn Statement – i/Independent spotted it, Mail then reprinted (without acknowledgement of course). Would make an excellent expert recruit.
Tony Dawson
On the other side of things, the rate of deficit reduction brought in by the Coalition over the past four and a half years has been nowhere near as strict as the Tories promised before the last election. It has been closer to what Labour promised.
The reason for this is that many of the cuts have a knock-on effect which causes more emergency expenditure later. So it isn’t as if the current government has chosen to be more moderate in its spending cuts, it’s that its extreme cuts aren’t working.
Consider, if you cut the budget by 10% but that 10% has a knock-on effect which causes a 5% rise elsewhere. The overall effect is a 5% cut, but that’s NOT the same as a more carefully considered and less damaging 5% cut in the first place which doesn’t have those knock-on effects.
Just to add to my first post
Vince Cable set out the best of the plans for deficit reduction balanced by investment in the future. It was closer to the Darling Plan than Osborne’s but the decision to drop it was down to Clegg apparently
I think we could say that with reflection it would have been better for Cable to have had more input into the financial route taken. Obviously not easy with the balance of MPs but I am sure he would have been a more credible voice than Alexander
Why he is not at the heart of LD economical responsibility in unfathomable
All this Cable worship is a bit much for me, I’m afraid, given the gyrations in his own position and policy prescriptions over the past decade on all sorts of matters, including but not limited to:
– the top income tax rate: he spent years trying to convince the Lib Dems to drop their 50p top rate to 40p as part of a shift to ‘wealth’ taxes and green taxes, and when he finally succeeded seemed to get cold feet and now wants high taxes on both income flows and stocks of wealth
– central bank independence: when the crisis hit he said maintaining this was paramount to shore up market confidence and politicians should not interfere, but within weeks he was urging the Bank to slash interest rates by 2 percentage points
– rescuing the housing market: warned in a party conference speech that the government should not intervene but allow house prices to fall and find their own level, then changed tack when the political implications became clear
– the timing, pace and depth of austerity: wrote in a detailed Reform pamphlet that a larger and sharper adjustment than Labour planned was necessary, of the order of 8% of GDP over 5 years, then signed up to Labour plans by election time, then justified the coalition’s (slightly) accelerated deficit reduction timetable, then delighted in pointing out that Osborne has not followed his own original timetable but pragmatically adjusted (while presumably also being a nasty dogmatic Tory) implying that he had been consistent all along…
– the composition of austerity: argued in 2009 that tax rises would be a ‘soft option’ and the fiscal adjustment over the coming years should be spending-based; now large tax rises are apparently indispensible
– industrial policy: used to rail against industrial subsidies and called for the abolition of the old DTI/Business Department, but when the chance to get his hands on the levers came up he became an enthusiastic interventionist in the Heseltine mould
– tuition fees: the spectacular U-turn between the 2010 election platform and the policy he personally introduced in government: the key point here is not that he was forced to change his position by the compromises of coalition, but that (as he has since admitted) he never really believed in scrapping fees and indeed champions the new fee arrangements as an improvement
Against this, I would concede that he has been consistent on the mansion tax (his personal passion), higher capital gains tax, cutting back high-end pension tax relief, the need for higher capital spending, and a deep distaste for banks and the world of finance. But he is hardly the pillar of consistency and oracle that Lib Dems still seem fondly to imagine – though it seems his halo has slipped with the wider public.
Perhaps the biggest flaw in the argument that he foretold the crisis is that, while he did indeed make gloom-laden prophesies about the housing bubble in the 2003-07 period (though much less often about the banking system), arguing that much of the economic growth was built on sand, he didn’t draw the logical but uncomfortable conclusion that the tax receipts that the Labour government was relying on to finance its spending bonanza were also unsustainable and destined to float away when the tide came in. Thus the path to fiscal shipwreck continued with his acquiescence.
Vince writes above: “Osborne has set out an agenda of continued cuts to public spending leading both to substantial tax cuts and huge budget surpluses in the next parliament.”
The level of surplus projected by the OBR at the end of its forecasting horizon (2019-20) is £23 billion. This compares to projected national income for that year of £2.26 trillion. So this “huge” surplus Vince talks about represents 1% of GDP. If this is a huge surplus, youhave to wonder what superlatives he would muster for the present deficit of £100 billion and change. Context is important in any sensible discussion about the public finances.
In any case, as far as I’m aware this OBR projection makes a policy assumption which I’m not sure Osborne has endorsed. Certainly, his Financial Secretary David Gauke told Andrew Neil following the Budget that the Tories were committed to running some kind of surplus by the end of the next parliament, but not necessarily to the £23 billion target.
It strikes me that there is considerable ‘wiggle room’ here for pre-election tax cuts and spending increases should a Chancellor Osborne decide that the time for fiscal virtue had passed, and a return to more traditional electioneering was warranted…
In my view Osborne can more justly be criticised for being an overly political Chancellor (in the Brownite tinkering mould) rather than a dogmatic or doctrinaire one.
it is very clear the Dr Vince Cable is putting down a marker on the future economic policy of the Liberal Democrats .One where we tax excessive wealth and assets ,unearned income ,and windfall profits .Where we see that reveue stream funding strategic public services .Where w do not penalise the working poor. Do you know for example the increase in tax threasholds has been deemed as additional income by HRMC and deducted from entitlement for housing and council tax allowance .This means many low paid working families have not fully benefitted from the changes in threasholds and some have been hit by large amounts of over payments .Surelythereshould have been an additional disregard built into the housing and council tax allowances.Osbourne is going OTT and has already undermined many of our reforms.
@stuart moran
“Clegg to say
‘The coalition was wrong to say. . . . . ”
Stop right now. Thank you very much. You’re talking ’bout a Leader with an honest touch.
Your suggestion is about as likely (that Nick Clegg will issue a genuine apology) as that Ed Miliband will demonstrate competence in anything. Ed was a bag carrier to Gordon Brown when he was busy cuddling up to the big bankers and offering them deregulation. And the sum of his achievements after that. . . . . ? Making the hopeless and lightweight David Cameron appear competent in comparison to most people.
I note that you have failed to address Labour’s s obsession with increasing inequality every year that they were in government.
As for Osborne, I am not convinced he is that incompetent. In order so to be he would need to have been more honest.
@Tony Dawson – Osborne has missed every target he set himself: AAA rating, deficit in 1 parliament to name 2. How isthis not incompetent.
do we imagine anyone else might have done significantly better, and how would they have achieved this triumph?
Tony Dawson
Well you have your view and I have mine
Just mine was put with a bit less insult and complacency
Your belief that Osborne is not incompetent says it all
so Tony dawson has made it clear then
Post 2015 Coalition to be with the Tories
so far
Tories 1
Labour 0
On the topical subject of satire, am I the only contributor who thinks the image is crying out for a caption?
“For God’s sake, where are they? I do hope they send Danny and not that Cable bloke”
Stephen
I think from the look on his face Cable has just walked into the room
On 4/1/2016 Vince Cable is reported as saying that “practical co-operation” with elements of the Labour Party weas possible. Well yes, we saw that happen over tax credits, although crossbenchers and bishops were also involved.
Labour MP Stephen Kinnock is reported as saying that “Our hopelessly undemocratic first-past-the-post electoral system would strangle any split at birth, … .” Not at birth Mr Kinnock, the general election for the House of Commons would be in May 2020 under the Fixed Term Parliament Act.
So what about elections which are not first-past-the-post? such as the London Mayor and Assembly? the Scottish Parliament? the Welsh Assembly? the Police and Crime Commissioner elelctions in England and Wales? any councils in England or Wales which have all-up council elections first, second and third-past-the-post?
There is plenty of room for doubt. For instance what would the launch of the SDP have looked like if Roy Jenkins, Shirley Williams, Bill Rodgers and David Owen had not taken part?
Even then Roy Hattersley did not join.