What is Vince Cable's 'Plan V'?
So, what on earth did he mean by that?
Vince Cable's speech to the Lib Dem Conference appeared to back George Osborne's Plan A whilst echoing the warnings of Ed Balls that it is time for a Plan B.
First, the Business Secretary told his party:
"I have great personal sympathy for the Chancellor who is being attacked for borrowing too much, and borrowing too little, at the same time…When we came into government we had to balance competing risks: of aggravating the economic downturn through excessive cuts versus the risk of losing the confidence of lenders. I believe we struck the right balance and adopted a deficit reduction plan. I make no apology for my continued support for that fiscal discipline."
But then he spoke in words that could have been used by Osborne's bitterest political foe, the Shadow Chancellor Ed Balls:
"The need is for a demand stimulus… 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".
How can he believe both things at the same time?
The answer is that he continues to back the government's policy of refusing to borrow more to stimulate demand.
He mocked Ed Balls for talking of a big argument with ministers whilst, in fact, having a policy which is barely different. Cable said that Labour's policy amounted to saying:
"Workers of the world unite. We need a Plan B. We should not cut the deficit in six years but seven".
So if it's not extra borrowing where would the stimulus Cable talks of come from? He didn't say but here's what I sense he means:
- switching government priorities from current day to day spending to capital or investment spending. Standby for the government to curb planned inflation linked rises in benefit rates and to re-direct the money saved
- using the government's balance sheet to underwrite private sector investment - hence his (optimistic?) talk of building an extra 100,000 houses a year
- improving credit conditions via the Funding for Lending scheme. Ministers would like the Bank of England to go further by extending Quantitive Easing so that the Bank buys corporate debt
There will, though, surely have to be more than that to match Vince Cable's rhetoric.
What won't stimulate the economy in the short term is the creation of a Small Business Bank since that will take some time - perhaps 18 months - to set up.