‘A sharp cut back would drive us deeper into a recession’

Former Liberal Democrat leader Sir Vince Cable was part of the Government that introduced austerity. With a devastating recession on the horizon, he tells Geraldine Scott that wide-ranging cuts will not save the economy this time.

AS A member of the Cabinet when austerity was pushed through, former Liberal Democrat leader Sir Vince Cable has often defended the decisions made between 2010 and 2015 by the coalition Government.

But the York-born former Business Secretary, who stepped down as an MP in 2019, feels the approach must be different to pull the country out of the recession caused by coronavirus. Speaking to The Yorkshire

Post this week, Sir Vince said ambitious and creative programmes would need to be launched to help the economy recover.

He also said he was “optimistic” about the future of his party, as he felt new leadership for Labour would bolster voters to move away from the Tories.

As figures emerged which showed Britain’s economy is set to plunge by 10.2 per cent in 2020, Sir Vince, 77, said: “Obviously there has to be some discipline over public spending, the Government can’t just manufacture spending out of nothing. But what we should be avoiding is a sharp cut back, which drives us into deeper recession, creates a lot of misery and hardship on top of what already exists.”

He said the solution would be a “long-term plan” and compared the situation to the financial crash.

“(With) the financial crisis, I think Gordon Brown did the right thing, there was a very big expansion in the economy, pumping money in through the central bank and tax to create a very big budget deficit. That was the right thing to do.

“I then came in with the coalition which had to stabilise things subsequently and we had a plan which we inherited from Gordon Brown and Alistair Darling.

“They wanted to deal with the accumulated deficit over seven years and we tried to do it over five years, it finished up over seven years, and that also was the right thing to do.

“I think this time, we are going to have to take a much longerterm horizon to get the budget back to normal, partly because the crisis is much more serious.”

Sir Vince warned the economic crisis brought about by coronavirus would be “much bigger than it was 10 years ago” but also said “the whole world is in a slump, last time we had China and India and other countries pulling us out of recession.”

He added: “So I think we should take a relaxed view about the very large deficit in the budget, accept that spending has got to continue, maybe continuing the furlough scheme in a different way, together with tax cuts, things like National Insurance on employers to be cut to encourage employment.”

He also said work creation schemes should be on the table, and added: “A lot of very imaginative and expensive things are going to have to happen. But the Government also needs a long-term plan. It could be 20 years for getting the deficit and debt levels back to what would be regarded as sustainable comfortable levels.”

Sir Vince said it was his understanding that there was a battle inside Downing Street between the Prime Minister, who “wants to keep the economy going flat out, a lot more public spending” and the Chancellor who “is worried stiff about the budget, and is already preparing plans for a new round of cuts”.

But he said Boris Johnson faced issues with new MPs if he sided with Rishi Sunak, as “particularly in the North of

England, the so-called Red Wall seats, they feel they will suffer real political damage if they don’t deliver on those promises”.

Some of the cuts that had already been suggested would be palatable, Sir Vince said, such as scraping the triple lock on pensions, adding: “I’m a pensioner and I’ve benefited like everybody else (who is) over pension age from the fact that we haven’t had to take a cut in real terms after inflation in our pensions, we’ve done pretty well. We sailed through the last decade very comfortably, but that can’t continue. It’s very expensive, and the Government is going to abandon that but there will be a lot of other unpleasant things as well if the Treasury get their way.”

And he hinted the so-called Mansion Tax, which he first proposed in 2009 and which was adopted in 2015 by Ed Miliband, could also be a way to bring in extra revenue.

Asked whether there was an appetite in the country for a rebalancing where those with more contribute more, Sir Vince said: “I think there should be, and there may be. But I’m a bit burnt by experience.

“It’s one thing to have a general belief that we should all pay a bit more tax to have better services or to create a fairer society, but when the Government actually comes up with something that hits your own pocket, people tend to scream in protest.”

For now, he said: “We’ve got to get the economy moving again, growing, generating more tax revenue, and when that happens, we can also think of restructuring the tax system to make it fair.”

He added: “When the furlough system ends how much support the Government will continue to give to the economy, and whether we will deal with the big accumulation of debts over a sensible period, or whether the Government will try to do with it over two or three years and crashes back into very severe cuts in spending, austerity, (is) the choice that’s looming up in the autumn.”