Vince Cable letter reveals cabinet unease over pace of economic recovery

Business secretary warns that the government lacks a ‘compelling vision’ beyond tackling Britain’s record fiscal deficit Cabinet unease over the slow pace of economic recovery burst into the open on Tuesday with the leaking of a letter by business secretary, Vince Cable, in which he warned that the government lacks a “compelling vision” beyond tackling Britain’s record fiscal deficit. To the irritation of chancellor, George Osborne, who warned that Britain should prepare for an austerity budget on 21 March, the business secretary told the prime minister in his letter that the government cannot rely on markets alone to revive the economy. Contents of the letter, sent to the prime minister and Nick Clegg on 8 February, were first leaked to the FT on 12 February. But the full version of the highly sensitive letter, in which Cable called on No 10 to accept that the Royal Bank of Scotland will have to be broken up, was published on Tuesday afternoon by the BBC. In the most sensitive section, Cable wrote: “I sense … that there is still something important missing: a compelling vision of where the country is heading beyond sorting out the fiscal mess; and a clear and confident message abut how we will earn our living in future … We can be more strategic and the economic backdrop will increase demands that we are ambitious.” Cable highlighted Lib Dem unease over a central plank of the chancellor’s economic strategy – that the private sector will pick up the slack as the public sector shrinks – as he warned that there are limits to what markets can achieve. “Market forces are insufficient for creating the long term industrial capabilities we need. Despite the biggest devaluation since the war, improvement in the UK’s trade balance has been disappointing. The Labour boom and bust hollowed out the supply chains on which exporters and inward investors depend. “And while controversy rages over bankers’ bonuses, the much bigger problem is the lack of confidence businesses have in their ability to find affordable financing for future investment. All in all, we must law out a strategic vision for where our future industrial capabilities should lie, and how to deliver it.” The letter was leaked hours after the business secretary said the Lib Dems were prepared to drop their opposition to scrapping the 50p top rate of tax if a tax on wealth, with a “mansion tax” on properties with more than £2m their preferred option. Cable told Radio 4′s Today programme: “If the 50p rate were to go – and I and my colleagues are not ideologically wedded to the 50p tax rate – if that were to go, it should be replaced by taxation of wealth, because the wealthy people of the country have got to pay their share, particularly at a time of economic difficulty. How exactly that is configured is a detailed matter for negotiation, but that principle must be upheld, and the mansion tax is actually a very economically sensible way of doing it. But there are different ways of approaching it.” The intervention by Cable caused some irritation in the Treasury which is bracing itself for a tough round of negotiations before the budget in the “quad”, the coterie of the cabinet’s most senior ministers. This group comprises of the prime minister, the chancellor, the deputy prime minister Nick Clegg and Danny Alexander, Osborne’s number two at the Treasury. Osborne is more open to the idea of a tax on wealth than the prime minister who is highly suspicious of increasing tax on property. The chancellor believes that the best bet is close down loopholes on stamp duty which allow millionaires to register new properties in the name of overseas companies. This means they pay 0.5% in stamp duty on properties worth more than £1m rather than the standard 5%. Osborne warned on Tuesday that there would be no “unfunded giveaways” in the budget. In a speech to the annual dinner of the EEF manufacturers’ organisation, he said: “By facing difficult decisions head on, we have won the credibility which will allow us to constrain inflationary pressure, support long term low interest rates and provided the stability that creates the space for private sector investment. I have a budget in two weeks’ time, I can tell you: we are not going to put that credibility and stability and low interest rates at risk. “The days of unfunded giveaways are over – and they’re not coming back in this budget. Everything has to be paid for.” Osborne risked a row with his coalition partners by calling on Britain’s industrialists to campaign in favour of one of the recommendations in the controversial Beecroft report on employment law. The venture capitalist argued in his report, commissioned by the Downing Street policy guru Steve Hilton, in favour of “compensated no fault-dismissal” for small businesses. The Lib Dems, who were wary of the Beecroft report, agreed to a consultation. Osborne said: “Plenty of trade unions and others will be submitting their evidence for why we shouldn’t do this. If you think we should, and it will increase employment, then don’t wait for someone else to send in the evidence. Send it in yourself.” The negotiations on the budget, in which the Treasury is expected to meet its forecast for a £127bn deficit in 2011-12 with a few billion pounds to spare, have highlighted divisions between the coalition partners and among the Tories. Vince Cable Economic policy George Osborne Liberal-Conservative coalition Tax and spending Conservatives Budget 2012 Budget Nicholas Watt Heather Stewart guardian.co.uk

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