Vince Cable’s view of the financial future

Extracts from the letter from Business Secretary Vince Cable

My suggestion is that we recognise that RBS will not return to the market in its current shape and use its time as ward of state to carve out of it a British Business Bank with a clean balance sheet and a mandate to expand lending rapidly to sound businesses.

The term “industry policy” has acquired a bad reputation in the UK as a result of misguided and clumsy interventionism in the 1970s: “picking winners” (often, losers); state subsidies; “economic planning. One of the messages I hear from business … is that we have swung too far in the oppposite direction.

I sense 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 about how we earn our living in future.

The banking crisis casts a long shadow. Not only does there remain a considerable pro-cyclical behaviour but we also inherited from Labour a banking industy structurally ill-placed to serve the needs of productive businesses.

Market forces are insufficient for creating the long-term industrial capacities 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 depended.

We should be bold; in the private sector it is normal to pilot schemes and not be afraid to risk failure; we need to adopt a similar apporach in how we launch innovative policy experiments to find effective alternatives to banking as a source of credit.

In recent years the oil and gas exploration industry feels it has been taken for granted, despite generating vast investment and supporting impressive supply chains with unexploited potential (shale gas). We need to remain sensitive to the Scottish dimension with the perception that Alex Salmond cares and London doesn’t.

While we are making moves to promote the next generation of renewables (nuclear and offshore wind) there is as yet little attention given to supply chain issues.