Business secretary Vince Cable this week raised his head above the coalition parapet to challenge the Chancellor's economic strategy. He's also angry about further cuts to government departments, and has clashed with fellow Lib Dems …
Vince Cable is in full flow on banking reform, Keynesianism and the changing balance of risk, when an aide bursts in and demands he leaves his Victoria Street office and get to Westminster to vote on the secret courts bill. Cable in a moment of abrupt frustration says he won't go. It takes seven minutes to get there and seven minutes to get back, and he'll probably miss it. He is told he has to go. Democracy demands it. He relents, rushing down from the headquarters of the business department only to be accosted outside by a reporter from ITN. She is demanding he comment on claims made in court by his department's former chief economist Vicky Pryce that he long knew she had taken speeding points on behalf of his former cabinet colleague Chris Huhne. Cable, a pensioner, runs towards the Commons, as the reporter jogs alongside, persisting with her questions. Cable, a speech to be delivered in two hours to the Mansion House on the economy in his head, finally gets there. He is too late, and misses the vote. The government scrapes by with a majority of more than 200.
The conflicting demands on the modern cabinet member are such that it is very hard for them to carve out space or time to think. Yet Cable has clearly been thinking, deeply. He has just written an elegant 4,000-word essay for the New Statesman in the form of a reply to the historian Robert Skidelsky on the relevance of Keynesianism to modern-day economics. It covers Hyman Minsky, Charles Kindleberger, Milton Friedman and Irving Fisher. The conclusion of the essay, handed to David Cameron, Nick Clegg and George Osborne for pre-publication approval, is deliberately elusive. But the theme is clear enough. The economy is still in a state of torpor, and new measures are required. It feels like a turning point in politics, even if in truth it is a development of arguments he has been making in private and public for a year. By coincidence, his essay appears on the day Cameron delivered a speech invoking Thatcher to insist that there is no alternative to the current course. Down in the bear pit of politics, Cameron's Plan A is now ranged against Cable's Plan A-plus and a call for more borrowing to build houses.
So is Cable changing his thinking or simply becoming more bold? "I was saying there is a balance of risk and the balance of risk is changing. It is very clear where the logic was heading. I just wanted also to acknowledge there is not a straightforward answer," he says.
Clegg has opposed his call for extra borrowing, saying it would require a £20‑40bn expenditure to have any impact, and that would frighten the markets in what is a beauty contest for competing funds, thus pushing up UK interest rates.
Cable replies: "It partly depends on the scale. If you are talking about under 1% of GDP [roughly £14bn], that is hardly going to shake the world. It depends on how you do it – giving local authorities powers to build council houses seems to be a bit of a no-brainer. It can be done quickly. There is the capacity there and it directly helps the sector of the economy that faces the greatest weakness, which is construction, glass, cement, bricks, many of which are in serious trouble. That is quite different from spending vast sums of money on new infrastructure."
He accepts that nothing is without risk. "As long as there is nervousness around the place people will worry because there is this confidence effect. Animal spirits are very difficult to quantify. You have to respect colleagues in the treasury who worry about these things, but objectively it's very difficult to see what the problem is.
"By saying the balance of risk has changed, I meant we are now in a position where the economy is not growing in the way it had been expected. The big effects of the banking crisis and lost overseas markets on deficit and debt is a good deal more serious than the impact of doing a bit more to keep the economy going."
But a fatalism is creeping into government. "That," he says, "is what we have to stop. We must not get into that static assumption that your public-sector financing position deteriorates, and that is what happens when you have a flat economy that is not growing."
He urges the Quad, the four most senior ministers running government, to show flexibility. "We have shown flexibility in other areas – we have allowed the deficit reduction objective to creep back in time from five years to seven years, the length of time set out by Alistair Darling. The pace of consolidation has changed and this is something that George Osborne is not given enough credit for, but we need to do more."
He says he expects the new governor of the Bank of England Mark Carney in particular to be more creative. "I have always supported the argument that the big bazooka is monetary policy, and the big problem has been that the way monetary policy has been operating has been very conservative. Just buying government securities does not take you as far as you should, and so what we need is a much more creative monetary policy. He favours ideas put forward by former monetary policy committee member Adam Posen for the bank to purchase bundles of small business loans in an effort to boost the supply of credit, and end an 'investors' strike'."
The bank, he adds, does not need just an inflation objective, but also a growth objective. "How it does it is a technical issue. I don't want to get into silly arguments of cabinet ministers dictating whether nominal GDP targets are better than something else. The bank clearly should have and must have an objective to support growth and should be flexible in the kinds of things that they do.
"The basic point is that we are in a very difficult position, we are facing an economy that is not growing, or only a bit. We have got to try things. We don't want to be Japan with a decade of no growth."
But his challenge to his fellow coalition members extends beyond growth. He is fundamentally unhappy with the parameters in which the spending review, due for completion this summer, is being conducted. Osborne had wanted the two coalition parties to agree departmental spending totals for the years 2015-2016, and 2016-2017. But the Liberal Democrats said they would only agree spending and cuts for 2015‑16. This is highly sensitive territory since it binds the two parties into a joint cuts programme beyond the election.
But Cable is angry that so much spending has been deemed protected – the budgets of schools, health, aid and defence equipment will not be cut. "In opposition I did not think that was a sensible way to approach public spending. I have gone along with it in government in coalition, as part of the team and all that, and we did that in the first wave of public spending cuts."
But he will not allow his department to be targeted again. "We have delivered in the first spending round big spending cuts – not too many people give us credit for it but the administrative cuts have been 50%. We have lost a lot of civil servants – it is a much more efficient department. We have done 'brave things' in quotes like student fees, privatising the Royal Mail – radical things – but we have now got to the point where further significant cuts would do enormous damage to things that really do matter, like science and skills and innovation and universities.
"Obviously, that is not very sensible given that the overall objective of the government is to achieve extra growth. I am always up for efficiency and quite brave reforms, so I am not just sticking my head in the sand, but you get to a point where the kind of cuts that are being considered will do serious damage to things that are essential for growth and the industrial strategy. I think we know there are large, alarming sums being sought."
In cabinet he has formed an unlikely alliance with the heads of other large departments, notably the rightwing home secretary Theresa May and Philip Hammond, the defence secretary. He described himself as the shop steward of this national union of ministers. "There is a certain amount of camaraderie among the ministers concerned even if we do not have picket lines yet."
He even springs to the defence of the work and pensions secretary Iain Duncan Smith. "We have all these Tory rightwingers who go around saying 'let's go for welfare' and when you ask them what they are precisely proposing to do there is a long silence. Cuts to disability and housing benefit is difficult enough, so where does the next lot come from? Dumping on Iain Duncan Smith does not help the problem either – he is a humane guy trying to manage a budget. Raiding his budget does not strike me either as an easy or creditable option."
Cables's defence of the Business, Innovation and Skills budget has led to accusations by the Treasury chief secretary Danny Alexander of fiscal nimbyism. It is at this point that the temperature in the room starts rising. "When people start saying that investment in education, skills and science is nimbyism, I think that they have a got a problem with language rather than that I have got a problem with the way I approach government. It is completely absurd to express it in these terms. If you keep going back to the same department taking more than proportional cuts, you do disproportional damage. It is not my job to defend the police force or the army but there are perfectly legitimate issues raised. Do you keep going back to the police because they happen to be an unprotected department? However much efficiency you get out, you start to do serious damage. To call that nimbyism is a very strange use of words.
"All our departments should be doing their bit for efficiency and reform," but, he says, "there is another choice here. The proposals for the one-year spending review, as we understand it, is for 85% spending cuts versus 15% tax rises. Certainly as a Liberal Democrat I would question that. There should be a better balance." He raises the mansion tax and doing something on non-doms. He also questions whether it is wise for pensioner benefits to remain sacrosanct. "I have been getting the winter fuel payment for five years, it has been keeping me warm in Twickenham. I actually give it away. If we are in the realm of tough choices, why did we feel that this area is a sacred cow?"
For the first time he admits it may not be possible, and might even be better, not to reach agreement with the Tories, and that anyway the two parties will be in government for only six weeks of 2015-16 before the general election. "That is an option," he says. "There are two problems with it – civil servants need some framework so they can plan and not just over six weeks. Secondly, looking at the overall narrative of the government – which is getting the public finances in order and the structural deficit down – we have to be able to show how this process continues. But you are right, there is no absolute reason why we have to have a spending review – you could still have a general path to fiscal consolidation."
So is all this building to the great break? The moment when his differences become too great to carry on, or he even challenges Clegg for the leadership? "I am not in resigning territory. I am not in that mood. We all have our highs and lows. The victory in Eastleigh was massive. A defeat by one vote would have been a disaster, and a victory by one vote is a triumph. But I am very confident we can win this battle in government." The question is whether the battle is no longer just with the Conservatives, but with some on his own side.