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Vince Cable calls for urgent economic stimulus package

Business secretary proposes New Deal-style programme involving tax cuts and infrastructure investment

Vince Cable, the Liberal Democrat business secretary, called on Friday for an urgent New Deal-style stimulus package involving funded tax cuts and a major capital investment programme including tolls for a roadbuilding programme.

Insisting his proposals amounted to a radical Keynesian package – using language and ideology not shared with the chancellor, George Osborne – he said that in the face of a stagnating economy ministers had to “pull all the levers available to government. We are not powerless.”

In an interview on the eve of the Liberal Democrats’ party conference in Birmingham, Cable urged the Bank of England to start another round of quantitative easing “quite soon”. “I am going as far as I can legitimately go in saying this is a problem.”

It was perfectly sensible economics, he said, to allow spending to rise in the wake of higher unemployment and lower revenues. He added: “The danger of not acting is that you get a vicious downward spiral.” Cable also tried to change the terms of the public debate on the economy, saying absolute distinctions between plan A and a plan B were “proving very unhelpful”. He suggested plan A plus, but said it was better to move on to new language.

Without backing down on the goal of eradicating the deficit in this parliament, he said: “The government has got to act, has got to deal with these very negative forces. The big new element is this demand problem.”

Setting out the case for toll roads as a way of boosting capital investment, he said: “The important priority is that we get our infrastructure improved. I don’t see people protesting about the M6 toll. It’s popular. Ireland uses this. It seems to be accepted as a rational way of doing this.” Parts of England, including the east, were not properly connected to the rest of the economy, he said.

The idea appears to have coalition support, with a government source saying that next year it hoped to include in legislation the ability for drivers to pay a road toll much like the congestion charge in London, which it thinks will make the idea more appealing. It is expected to be used in traffic “pinch-points” around the country when bypasses are constructed.

Cable said: “I’m tiptoeing around the coalition agreement here, which says that existing roads [will not be tolled] but there is no reason why new roads shouldn’t be financed that way.”

“The important priority is that we get our infrastructure improved … and that’s a sensible way of doing it.” A government source said the idea was in the pipeline should private consortiums come forward with bids. The source said legislation was hoped for next year on the use of technology that could see drivers pay their toll in much the same way as the London congestion charge is currently paid – electronically or by telephone.

Cable repeatedly stressed the “flexibility” in the government’s fiscal plan, which targets the underlying structural deficit and a falling debt to GDP ratio. He insisted the chancellor would not have to cut even deeper – or raise taxes – if economic growth were lower than expected and the deficit in the short term fell less quickly than planned.

But he said it was too early to say whether the deficit targets would be met, adding that higher inflation also made tax revenue more buoyant. Asked if the government could meet its targets in 2014-15, he said: “We don’t know what is going to happen in the next two or three years. We are not at the moment revisiting the objectives and we are sticking to them.”

Cable also put on the record that he would accept a shelving of the 50p tax rate only if it were replaced by some kind of property tax.

He said: “It is clearly understood there is a tradeoff. If my colleagues will buy the idea of a mansion tax or some variation of that tax, and I hope they will, well, we can look at the 50p rate. If they are not willing to look at it, the 50p rate stays.” He dismissed as “voodoo economics” the idea that cutting taxes for wealthy people would generate more revenue.

Though others in his party have rejected the idea of an annual mansion tax, Cable said he was sticking to his original policy. “The mansion tax was suggested to have a ceiling of £2m. There are ways you can deal with the cashflow problem, you can have a rollover system or find other ways of generating income such as equity release or rent out a room. There are a few elderly people who get anxious about this, but it’s not a fundamental problem.”

When asked whether the time had come for the third round of quantitative easing, Cable said: “Yes, but it’s a question of how you do it. It is quite tricky as a government minister trying to weigh in on this as a purely Bank of England matter. I’m pushing quite hard on it.”

He said he would also back a suggestion by his Lib Dem colleague Lord Newby that the tax relief on pensions for higher rate tax payers be ended.

Cable explained his new ideas after the publication of a new pamphlet by him – an unusual thing for a serving cabinet minister to do – containing his plan to galvanise the economy.

“I am setting out a comprehensive approach to how we deal with a crisis in demand in an economic context when we have undoubtedly fiscal constraints. We have fiscal rules that we have to observe or else we will be sucked into this dreadful financial crisis with the southern Europeans. We cannot afford that.”

Drawing a link with the New Deal brought in by Franklin D Roosevelt in 1933, which sought to stimulate the US economy by galvanising private investment, Cable said: “It was four years after the Great Crash that Roosevelt came in and several years before they could do anything. Dams started being built 10 years after the Great Crash. What I have set out is a Keynesian approach to a demand crisis, but operating in a new world in which government are highly constrained by these very febrile international financial markets. We constantly have to pay attention to them.

“I make the general case, the Keynesian case, for public investment. The actual decision about how much is spent … it’s up the chancellor’s statement for him to set that out. The other point I am trying to make is that if we get the policies right then most of this growth is going to come from the private sector.”

Without some shoots of growth, Cable acknowledged, there could be a shift in the political landscape allowing the far right to come through if mainstream politicians did not act.

“There is a real risk throughout the western world of a move to the right if governments and the states, here and in western Europe, don’t get this right. And what you call the movement to the right has two embryonic forms – one is the Tea Party, which is anti-state and has a ‘we all deserve punishment’ kind of philosophy, and the other is nationalism, which has been latent and could well resurface.

“The lack of European-ness in this country is very worrying and so there could be a shift to the right in both those two ways, and certainly this government is not part of those things. That’s why I think one of our key roles in government is not just doing the financial government and economic discipline.”

But he reminded activists that there were intellectual antecedents for what their party was doing in government. “We are acting very much in the tradition of … of Stafford Cripps, [Denis] Healey and [Roy] Jenkins, who have had this problem before. You have to have a sensible budgetary policy, and overseas you have the Canadian Liberals, the Clinton Democrats and the Scandinavian democrats. All run a tight ship and they make choices and they make cuts and so on. This is unavoidable and totally consistent with having a centre-left position on politics.” © 2011 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds