Economy�s had a massive heart attack

On Sunday 02 August Stephanie Flanders interviewed Vince Cable MP, Lib Dem Treasury spokesman

Please note 'The Andrew Marr Show' must be credited if any part of this transcript is used.

Public spending has to be "very severely disciplined"

STEPHANIE FLANDERS:

Vince Cable MP, Lib Dem Treasury spokesman

Well the economy is mired in recession, the UK deep in debt, and every day of course we hear stories of firms going under and more people losing their jobs.

And yet during the week came news that house prices might be going up again, and so is the stock market.

So is it all over? Can we relax, or should we continue to be depressed?

Well the Liberal Democrat Treasury Spokesman Vince Cable has earned himself a reputation for being something of a sage in this economic crisis. You're with me now.

Thanks, Vince Cable. How should we read just at the moment what's going on? Are you one of those who thinks now the worst is over?

Are we looking at this dreaded W-shaped double dip recession? What do you think's happening?

VINCE CABLE:

Well I think the way I interpret it is that the economy's had a massive heart attack in effect. The banking system collapsed. It's done a great deal of damage and it's going to be very difficult to recover from it because even though the economy is clearly picking up, it's stabilised in some respects, we're running into all kinds of new problems.

The banks are still not functioning properly, they're not lending even to sound companies. The monetary steroids that the economy's going on - cheap credit and so on - that will have to be phased out.

And then we're running into this enormous structural problem with the budget. I mean quite apart from the ups and downs of the economy, there's a very, very big budget deficit underlying everything - maybe 5, 10% of GDP that's going to have to be dealt with.

STEPHANIE FLANDERS:

Well we should go onto that. I mean this question of spending cuts. Throughout the last few months, there's been a debate about whether the government was being honest about the need for spending cuts.

You've had, you've talked a lot about needing to be more honest, and I'd yet I'd say I mean you're only just beginning, the Liberal Democrats seem to be just beginning to sort of back off spending pledges. Are you really at the point now where you're being honest about what's going to be cut?

VINCE CABLE:

Yes I think so, and I've made it very clear that if I were the Liberal Democrats' Chancellor of the Exchequer what I would do. I think it's partly an issue of timing.

When you're in the middle of a recession, which we are now, this is the worst possible time to start slashing public spending because you then compound the recession and then in turn you make the budget deficit worse. So it is an issue of timing.

Once the economy's clearly recovering, public spending is going to have to be very, very severely disciplined, and I accept that.

STEPHANIE FLANDERS:

(over) Okay, so what's off the agenda? I mean sort of "a bonfire of previous pledges" was how your Leader Nick Clegg talked about it. What are we no longer going to get from the Lib Dems?

VINCE CABLE:

(over) Well I think … Well what Nick Clegg was saying is that there are a lot of things which any progressive party would love to spend money on - you know universities, improving the health system and so on - and we're saying a lot of this has to be aspiration. There are a few things that we have to give priority to. One of them is going to be to do with unemployment as we move out of recession. We're getting up to 3 million, and any government which is responsible is going to have to target resources on that or … and also the next generation, education.

STEPHANIE FLANDERS:

So you're still talking about spending more on some things. I guess a lot of people would say we've gone past that. Now we're at the point of what are you going to spend less on?

VINCE CABLE:

(over) In overall, in overall terms there has to be severe discipline, and I think there are various ways of doing this. I think there will have to be severe discipline in terms of public sector pay, particularly at the top end. I broke the taboo on behalf of the Liberal Democrats raising this whole issue about the long-term public sector pensions, which are unaffordable on their present basis.

STEPHANIE FLANDERS:

But that's a long-term issue. That's not going to help … You're not going to actually cut pensions for civil servants in the next five years …

VINCE CABLE:

(over) No, of course, we're not …

STEPHANIE FLANDERS:

(over) … so it doesn't help with the deficit.

VINCE CABLE:

… we're not cutting the pensions of existing public sector pensioners, but the issue of contribution rates and early retirement will have to be raised. We've raised other big issues like entitlements under the tax credit system, which is you know a very enlightened system that goes right up to £50,000. I noticed the Tories have followed us on that.

STEPHANIE FLANDERS:

(over) Which is pretty much what the Tories have said.

VINCE CABLE:

We've argued about big defence commitments. Trident is an obvious one, but there are others.

STEPHANIE FLANDERS:

Okay, but even Trident - that's about … I mean it goes … It's a lot of money. It's 20 billion, but it's over a lot of years, so it's about a billion pounds a year. We're going to be borrowing £175 billion next year …

VINCE CABLE:

That's right.

STEPHANIE FLANDERS:

… so there's going to be a lot more than just backing off some of these commitments that you're going to need.

VINCE CABLE:

I think that's right and, as I say, we've just begun the process and there are some things which we've argued already should be cut in order to finance priorities or in order to deal with the budget.

STEPHANIE FLANDERS:

Will we know more about this before the election from you?

VINCE CABLE:

(over) Yes. Let me just take one or two examples. Before the last General Election, we weren't given credit for this, but we set out very clearly some of the things even then that ought to be cut - things like the baby bond scheme, scrapping the Eurofighter project and others. And certainly at party conference time, I will be setting out in much more detail how we would fund any priorities, but certainly how we would approach this massive deficit which, as you quite rightly point out, is not sustainable at present levels.

STEPHANIE FLANDERS:

But at the last election - I mean just in terms of the positioning of the Lib Dems, you were the party that was going to spend a bit more. You were going to spend on giving free social care for the elderly, on getting rid of university tuition fees. If you have to be very sensible and get rid of all those things, what is going to be different about you next year?

VINCE CABLE:

Well I think all parties are just going to have to accept the realities of the situation. What will be different, certainly different from the Tories, is that in our tax policies we will be arguing for greater fairness, redistribution from the very wealthy to people less well off. We don't argue for an overall tax increase. We argue that taxes …

STEPHANIE FLANDERS:

(over) You think we can do this without raising taxes?

VINCE CABLE:

I think so. You could have a tax system which involves not higher taxes but fairer taxes - being absolutely clear that any tax cuts directed at the low paid have got to be paid for by people higher up. It may well be, it may well be in a few years time the position with the budget is so extreme that we are going to have to look at additional tax measures, but …

STEPHANIE FLANDERS:

(over) You don't rule out higher taxes?

VINCE CABLE:

I don't rule it out.

STEPHANIE FLANDERS:

But for example the tuition fees. I mean people were looking for you to … You might have well have voted Liberal Democrat to get rid of tuition fees. Chances are the cap's going to be removed next year. You might see tuition fees up to £10,000. Will you oppose that?

VINCE CABLE:

Well I'm pretty certain we would oppose lifting the fee cap indefinitely. But the issue that I've been pointing out indeed on this programme last time I was here - that we do have to be realistic about higher education. We can't simultaneously promise free education to everybody and then have unrestricted access. One has to choose. One has wide access to which there's co-financing, or else you can have free tuition but for a limited pool of students.

STEPHANIE FLANDERS:

And the elderly, free social care for the elderly - that's off the table for the indefinite future?

VINCE CABLE:

Well it remains an aspiration, but I think frankly on the current financial position it's not something any realistic Liberal Democrat Chancellor, which I would hope to be, would be able to promise.

STEPHANIE FLANDERS:

I mean just the final question I sort of have is that I mean I've seen … There's a press release I got from your office last week actually that said we need to have 'an honest debate about how we can cut the budget deficit without squeezing key public services', but a lot of people would say that was a dishonest statement in itself; that you can't cut the deficit, you can't balance the books without cutting key public services. Do you think maybe you've had a bit of an easy ride on this, that you haven't actually had to be honest about this?

VINCE CABLE:

I've made it very clear that some key areas of public spending would have to be cut and they would be difficult. And that's why we went out in front and argued about the tax credit system, which is progressive. I mean it is actually about helping people at the bottom end of the income scale, but it's simply become unaffordable and too big.

The fact that we are now looking in an open minded way at higher education, which as you say breaks taboos from the past, if you like - that we are facing those very difficult issues and to raise the issue of public sector pensions is not easy.

And I've already been attacked across the board for having raised it as an issue, but it is not affordable and we're going to have to say that in a very disciplined environment for public spending these things will have to be dealt with and there will have to be difficult, painful measures.

STEPHANIE FLANDERS:

Okay. Well Vince Cable, I think even if the recession goes away, we know the question of high borrowing and how to cut it isn't. But thanks very much for coming in.

INTERVIEW ENDS

Please note "The Andrew Marr Show" must be credited if any part of this transcript is used.

NB: This transcript was typed from a recording and not copied from an original script.

Because of the possibility of mis-hearing and the difficulty, in some cases, of identifying individual speakers, the BBC cannot vouch for its accuracy

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