Cable will force British banks to start lending again
IN HIS first major speech as UK Business Secretary, Vince Cable has warned that Britain still faces a "very fragile" recovery that is being held back by the crisis in the eurozone, the "massive" budget deficit and a "dysfunctional banking system".
Mr Cable denied that he was "some sort of socialist" attempting to frustrate the Treasury. He pledged to tackle "an economy that is seriously unbalanced both in its sectoral mix and in its regions".
The banks, he said, would be forced to lend: "I will redouble our efforts to ensure that bank lending agreements from banks that have benefited from taxpayer subsidy are being honoured, especially for small and medium enterprises. We do not expect to see viable businesses deprived of credit or working capital by banks that are largely owned by the taxpayer, or the general beneficiaries of wider public support.
"The banks claim that there is no demand. That is not right. If the bar is set too high, of course no one is willing to jump. The current risk aversion by banks in the small- and medium-enterprise sector will stifle recovery and, if it does, will actually rebound on the banks through bad debt."
Mr Cable said he had been persuaded of the need for immediate cuts, but stressed the dangers of slashing too much too quickly, hinting at arguments going on within the government.
And while pushing his department as "the department for economic growth", he was careful not to challenge the Treasury's authority directly: "It is, in any event, a major economic department, complementary to the Treasury. A key measure of the success of this government is that both succeed. We cannot have sustainable growth without fiscal stabilisation. And fiscal stabilisation will only be successful if it leads to growth.
"There is a critically important issue of timing. If deficit reduction comes too rapidly there is a danger of deeper recession and even bigger deficits. But like the governor of the Bank of England, and like the OECD, I have been persuaded that early action on the deficit is essential. Going forward, policy must be driven always by the same rational calculation of economic risk and benefit."
Mr Cable's idea of a "department for economic growth" has resonance with the "department for economic affairs", a failed experiment to boost UK growth rates made by Harold Wilson's government in the 1960s. It failed, not least because of Treasury hostility.