Isabel Hardman Isabel Hardman

Vince Cable’s borrowing bombshell

It is only towards the tail end of his lengthy New Statesman essay on ‘the long economic stagnation of post-crisis Britain’ that Vince Cable lets off one of his bombshells. He’s clearly freelancing, and not at a bad time, either, given it’s his party’s Spring Conference this weekend. Although it’s possibly not enormously helpful for the Prime Minister, who is giving a major speech on the economy tomorrow. The Business Secretary examines misinterpretations of Keynesianism and the effect of the government’s deficit reduction programme on the economy before dropping this:

‘Nevertheless, one obvious question is why capital investment cannot now be greatly expanded. Pessimists say that the central government is incapable of mobilising capital investment quickly. But that is absurd: only five years ago the government was managing to build infrastructure, schools and hospitals at a level £20bn higher than last year. Businesses are forward-thinking and react to a future pipe – line of activity, regardless of how ‘shovelready’ it may be: we have seen that in energy investment, where the major firms need certainty over decades.

‘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 housebuilding. 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.

‘Yet nobody knows how the markets might respond. While low interest rates are often an encouragement to invest more, they are also an indication of great uncertainty.

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