Vince Cable’s speech to the Institute of Directors

This is what Liberal Democrat Shadow Chancellor Vince Cable said earlier today:

This building commemorates Britain at the peak of its economic power and glory. We are still an important country with much to be proud of. But that power and the glory have faded. And we are currently in a serious economic mess.

The current economic model is broken. It relied on consumer spending, financed by heavy borrowing and low savings; investment in property rather than production; rapidly expanding public spending based on temporary windfalls from oil, then financial speculation; and growth over-dependent on the fickle fortunes of the banking industry. Any party which does not face up to the scale of the problem, and the parallel crisis in our political system, does not deserve to win. And will not succeed if they do win.

The Liberal Democrats have received credit for warning about the looming crisis and saying what needed to be done in an emergency. But the issue now is: how does the country get back into balance and make a living in future? Good, successful, profitable, business must be a large part of the answer to that question.

Personally, I am proud of the fact that I worked in industry for one of our top companies, alongside world-class directors and managers. I have spent much of my time in this campaign meeting and supporting entrepreneurs: especially the small and medium sized companies which are the backbone of the economy and which will provide future jobs. I am a friend but also a critical friend of business and I have no intention of pulling my punches when they are needed.

For example, I have no time for billionaire tax dodgers who step off the plane from their tax havens into the country where they make their money and have the effrontery to tell us how to vote and how to run our tax policies.  If some of them came onshore and paid their taxes it would make a useful dent in the budget deficit.

Let me be clear, I have no quarrel with the IOD. I expect the IOD to lobby for lower taxes which affect its membership. You would want your membership fees back if it didn’t. In the same way I expect dairy farmers to lobby for milk subsidies, high tech companies to lobby for special tax breaks and my old friends in the oil industry to lobby for tax relief on oil exploration. I actually agree with you that a tax on payrolls is not a good way to raise revenue. But none of that excuses politicians who are too weak to take into account the needs of the whole economy and say ‘no, sorry we simply can’t afford what you ask’.

We are told that it will be paid for by increased ‘efficiency’. I am all in favour of increased efficiency and less waste. But efficiency has become the new politically correct word for sacking people and cutting services. Some of the wisest words on this subject were uttered by Mr David Cameron. Let me commend them to you. ‘The government ‘efficiency drive’’ – he said – ‘is one of the oldest tricks in the book. The trouble is, it’s nearly always just that – a trick’. And indeed he is not alone, the IFS was happy to endorse this criticism of our opponents just yesterday.

But I want to concentrate on what the Lib Dems would do to turn things round. Starting with the banks that were the focus of the financial earthquake and the subsequent recession. The banks that were rescued by the taxpayer are hoarding not lending capital. They must now be required by the government, which has a controlling stake, to act in the wider interest of UK PLC. That means lending to good, solvent small and medium-sized, UK, companies – like many of you in the audience – who are currently being starved of working and investment capital on reasonable terms and as a consequence cannot expand and employ people. Fees are often extortionate and what used to be business lending has become mortgage lending on directors’ homes.

The banks must also be made safe, since Britain is exceptionally exposed to crises in banking because assets as a share of the economy are much higher than in the US, France or Germany. That is why we want to act on the Governor of the Bank of England’s advice to split the big banks so that the traditional business and personal lending is not dominated and potentially undermined by so called ‘casino’ activities.

Then, equally crucial, we recognise the need for government financial discipline and for a serious plan to cut the public sector deficit which has grown to unsustainable levels. Nick Clegg and I have been arguing for months that the next government will have to make serious spending cuts and we have been specific – more specific than our competitors – in spelling out what some of these should be. We are not afraid to tackle taboo subjects: we question some welfare payments – like Winter Fuel Payments for pensioners under 65, tax credits and the Child Trust Fund; public sector pensions, which are running out of control, particularly at the top; not ring fencing spending by government departments which will merely ensure that some really useful spending is cut deeply to protect bureaucrats in other, higher profile, departments.

We have made it clear that we are fully committed to the country’s financial stability whatever the outcome of the election and the markets appear to understand and respect our seriousness.

The deficit problem is easier to solve if there is growth. That is why the next government has to recognise the fragility of the economy and not take action which would precipitate a double dip recession leading to more unemployment and even bigger budget deficits.

But in the longer term, growth will happen when you feel confident enough to expand. So we recognise an obligation to get rid of intrusive red tape; we have for example been consistently opposed to the Working Time Directive. The role of government is not to supplant business or tell it what to produce but to provide a platform of educated manpower and functioning modern infrastructure to rebuild our national competitiveness. That is why we believe a part of the savings we make in government spending should be channelled back into ensuring that the schools produce people who are numerate and literate and trainable by business. It is also why we have been talking to the insurance and pension industry – which has hundreds of billions of investments looking for a safe outlet providing a decent return – and the engineering professional groups about how best to channel long term institutional finance into infrastructure. We led the way in arguing the case for a UK Infrastructure Bank.

We Liberal Democrats recognise the sheer scale of the challenge ahead. Our political system and parliament in particular have lost their credibility, reputation and effectiveness. The economy also requires rebalancing and transforming. We are the only party with a plan to do just that and we are ready to begin that massive undertaking.