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Lord Oakeshott says leader must show more independence if autumn statement is not bold enough on economic growth
Supporters of Vince Cable, the business secretary, have urged Nick Clegg to show greater independence from his Conservative coalition partners if this week's autumn statement fails to set out a big enough package to lift the UK economy out of its current stagnant state.
Lord Oakeshott, the Liberal Democrats' former Treasury spokesman in the Lords, said he wanted Clegg to show the same vigour and forthrightness as he had demonstrated over his response to the Leveson report.
He suggested that if his party did not collectively raise its game it was "heading for relegation from the Premiership". He said the party's byelection results last week had been disastrous.
The warning from Lord Oakeshott reflects wider fears among senior Liberal Democrats that the focus in the runup to the autumn statement on how to distribute the pain of further deficit reduction between pensions reliefs for the rich and cutting welfare misses the deeper fundamental failing over the absence of growth.
Some in the cabinet now fear that the economy will either slip back into a third recession or at best continue with growth stuck at 1% or 1.5% for the rest of the parliament.
They believe the scope for further quantitative easing is over and the best option now is a large-scale direct government capital injection for a housebuilding programme, something the Treasury resists.
Cable has openly argued for a 100,000-a-year housebuilding programme, creating 500,000 jobs. Faced by the continued slowdown, he has in essence shifted his emphasis in the past few months away from focusing on deficit reduction to a Keynesian demand boost.
His allies believe that spending could be undertaken without breaching the government fiscal rules on the current deficit or leading to a negative reaction from the credit rating agencies. It is expected that George Osborne, the chancellor, will reverse some of the cuts in capital spending in the autumn statement, but not as much as the Liberal Democrats want.
The scale of unease over the direction of economic policy in the Liberal Democrats has been masked by an order from Nick Clegg to colleagues not to repeat the leaks that undermined the budget earlier this year and angered Osborne. But there is growing concern in the party at the imminence of the general election and the threat the party faces.
Oakeshott told the BBC's Sunday Politics: "The problem we have got is the economy outside London is going backwards. We did start cutting the deficit and now it is slipping back again, and the government must be much bolder in getting the economy growing. The two black holes are banking and building.
"We need to have a much more vigorous strategy and fight much harder to get the economy growing. We need to up our game, change radically and we need to start Thursday and if the autumn statement does not do the things that need to be done to get the economy growing I hope Nick Clegg – he has been very forthright on Leveson – will say the same on the autumn statement because many of us Liberal Democrats certainly will."
The dearth of housebuilding, he said, was not about planning permission. "There are half a million housing permissions out there. It is about making the banks lend and letting housing associations and councils build." He described the Royal Bank of Scotland as a zombie bank failing to lend to business.
In his conference speech, Cable started to mark out distinctive ground, sympathising with Osborne's dilemma over the deficit but saying "right now we are fighting recession. The need is for a demand stimulus. And that does not just mean pumping more money into the banks. That great liberal Keynes had exactly the right analysis of the problem we now have – not enough spending power in the economy. And not only him but also the International Monetary Fund, who no one could accuse of financial irresponsibility."
He added: "The central point is that the country must not get stuck on a downward escalator where slow or no growth means bigger deficits leading to more cuts and even slower growth. That is the way to economic disaster and political oblivion. We will not let that happen."