Brian Monteith: Tories toiling to find credible economic answers

Published on 30/07/2012 02:32

A Cabinet reshuffle will certainly not mean Vince Cable moving to the UK’s second most important job, writes Brian Monteith

WHILE the eyes of the nation are currently looking towards the London Olympics, another sport is being played out in the metropolis – predicting the outcome of the coalition Cabinet reshuffle expected later this summer.

There is a great deal of pressure on Prime Minister Cameron to move Chancellor George Osborne away from the Treasury, and none other than Liberal Democrat Vince Cable is being touted – by Cable’s supporter, Lord Oakshott and, with predictable immodesty, Cable himself.

Although Cable dismissed the notion when he said last week: “I would probably make a good Chancellor” it was a rather cumbersome bluff, just like Michael Heseltine suggesting he could not foresee a circumstance where he would replace Margaret Thatcher (until he was convinced by others that he should challenge her).

It was also part of the jockeying for position to become future leader of what would be a rump of the remaining Liberal Democrats were they to be eviscerated by the electorate when the next general election comes. If Nick Clegg’s coalition gamble delivers then there will be no need for a change and Cable will remain as an openly sceptical supporter, but were it to fail then Clegg would need to be replaced, and who better than the regular critic of the decision to get into harness with the Tories?

The idea that Cable would even be considered for the post by David Cameron is laughable. There are three reasons for this: First, if Osborne is to be replaced the job will go to another Conservative, not a Liberal Democrat; for to give the government’s second most important post that will influence Britain’s economic fortune and with it the political future of Conservative MPs to a member of a competing party would be reckless in the extreme and provoke revolt.

Second, Cable’s judgment is highly suspect – as reflected by his constant changing of opinion. It is claimed by his adherents, spuriously, that Vince Cable predicted the recession but he did no such thing. He criticised the IMF in 2003 when it warned Gordon Brown against high public spending and inflating property prices – yet later he argued that such policies caused the 2008 recession and the growing debt mountain. He then backed the Labour government’s plan for Lloyds TSB taking over Halifax Bank of Scotland but four months later was saying it was a mistake.

In 2008 Cable told a Liberal Democrat conference that “the government must not compromise the independence of the Bank of England by telling it to slash interest rates”, but only a few weeks later was urging the Chancellor to do just that. By January 2009 Cable attacked the government for printing more money to jump-start the economy – through the Bank of England’s “quantitative easing” – but by October was arguing that it was the right thing to do, and is now part of a coalition government that continues to expand the money supply in its desperate hope that it will work this time round.

Vince Cable should feel right at home in this coalition government with its record for u-turns, for no member of its cabinet has changed his mind so often.

The third reason appointing Vince Cable as chancellor would be a mistake is that his policies would worsen an already deteriorating economic position. Cable’s preference for greater state action, direction and investment would be bad for any economy – but especially one that already suffers from horrendous economic indicators that come as a result of too much state activity.

Just this week Ewen Stewart, a strategist at a major UK-based investment bank, pointed out the structural weaknesses of the British economy which makes a return to meaningful growth in the short and medium term most unlikely. Reasons include welfare spending rising by 7 per cent in 2012 at a time when unemployment is relatively stable, the private sector being crowded out by a public sector that has grown from 36 to 48 per cent in the last ten years, the state share of GDP being greater than 50 per cent in seven out of 12 regions – and more than 60 per cent in three regions.

Underlying borrowing of £43 billion in the first three months of 2012 has been the worst on record and an increase in the cost of benefits of over four and a half percent on average is a much higher rate of growth than that enjoyed by the working population. In truth we are still living way beyond our means, meaning the Osborne description of austerity is nothing short of risible.

As I wrote last week, the Conservative problems in formulating a credible economic policy stem from an inherent intellectual weakness at the heart of David Cameron’s new model party. There are enough brains on its benches that understand economics, such as John Redwood, who could be called upon to provide a rational and believable route to economic salvation – but they are viewed by Cameron as counter to the party’s modernisation and a threat to his own philosophically-light preference for following rather than creating political trends.

In the circumstances, and with heavy irony, the best that can be hoped for is that Liberal Democrat David Laws returns to the Treasury and stiffens the government’s resolve to control public spending and adopt radical tax reform to revive economic activity.

To borrow from an old phrase, if Vince Cable is the answer then people are asking the wrong question. David Cameron has to ask who in my party can help my Chancellor to win the battle of ideas and deliver the economic revival that will make a second term a possibility again.

The Olympic hype is now cranking up. Nevertheless the reshuffle will, when it is finally announced, be far more important to the country’s future than any cluster of medals or individual performances that entertain us in the next few weeks.


• Brian Monteith is policy director of ThinkScotland.org