Tax pensioner perks and ease spending cuts to achieve growth, says Business Secretary Vince Cable, as austerity tactics continue to divide

By Harry Glass


The Government's frugal fiscal policy of austerity caused cracks to widen between the Coalition parties yesterday as business secretary Vince Cable warned of 'significant damage' to British industry from further spending cuts.

Disagreements over spending plans have been so intense that the planned Coalition spending review for 2015-16 may not be completed this year, Cable suggested to the Guardian today.

'We have done very brave things in the first spending round, but we have now got to the point where further significant cuts [to his Department for Business, Innovation and Skills] will do enormous damage to the things that really do matter like science, skills, innovation and universities,' he said in the interview.

United or divided? David Cameron giving his speech on the economy on Thursday, and Vince Cable at the Lib Dem Spring conference yesterday; the latter said disagreements over spending plans have been intense
United or divided? David Cameron giving his speech on the economy on Thursday, and Vince Cable; the latter said disagreements over spending plans have been intense

United or divided? David Cameron giving his speech on the economy on Thursday, and Business Secretary Vince Cable; the latter said disagreements over spending plans have been intense

The Liberal Democrat disagreed with an assumption that deficit reduction would be reaped largely from further cuts - 85 per cent - rather than tax hikes, and called for pensioner perks such as winter fuel payments, travel passes, prescriptions, and free TV licences to be taxed.

'I have been getting the winter fuel payment for five years, it has been keeping me warm in Twickenham,' the Business secretary said in the Guardian. 'I actually give it away. If we are in the realm of tough choices, why did we feel this area is a sacred cow?'

He is angered that some sectors of the nation's budget - including money for schools, health, defence and foreign aid - remain ring-fenced from cuts, while other departments are hammered.

Cable did publicly back the Prime Minister David Cameron after he was rebuked by Britain's independent fiscal watchdog yesterday.


In a speech on Thursday, the Prime Minister had said the economy was harmed not by spending cuts and tax rises, but by soaring oil prices and problems in the eurozone.

He said this view was backed by the Office for Budget Responsibility (OBR), which he claimed was ‘absolutely clear that the deficit reduction plan is not responsible [for low growth], in fact, quite the opposite’.

But in an unprecedented rebuff, Robert Chote, the OBR’s chairman, said it has always argued that spending cuts and tax rises would impact on economic growth.

Mr Chote wrote: ‘For the avoidance of doubt, I think it is important to point out that every forecast published by the OBR since the June 2010 Budget has incorporated the widely-held assumption that tax increases and spending cuts reduce economic growth in the short term.

‘To summarise, we believe that fiscal consolidation measures have reduced economic growth over the past couple of years.’

Mr Chote did agree however that the 2008 financial crisis, chaos in the eurozone and high oil prices were ‘more likely explanations’ for why growth had been even weaker than expected.

And Cable backed the PM, saying the squeeze on British living standards was not ‘primarily due to the impact of the Government’s measures’.

‘We’re doing what we have to do, getting the economy right. The evidence is very clear that the squeeze on living standards that took place, which was very painful, was not primarily due to the impact of the Government’s measures and the Government had to take action on the budget,’ he told Sky.

‘We inherited at that time the largest deficit in the developed world. We had to do something about it. We’re going to continue to do something about it.’

Cable has been openly calling for a more relaxed approach to borrowing to allow more spending on infrastructure to boost growth, despite the coalition’s focus on trying to reduce the deficit.

And he proposes up to 15billion of capital spending on house building, the Guardian reported, less than two weeks before the budget is due to be unveiled.

His remarks came amid a deepening row over austerity cuts in the wake of the loss of the UK's AAA credit rating.

Cameron and Chancellor George Osborne remain adamant that there is 'no alternative' to the government's economic and fiscal policy.

But former Cabinet minister Liam Fox, a leading figure on the Right of the Conservatives, is expected to call for bolder tax cuts and pro-growth measures in a speech on Monday.

Rebel MPs claim they set the Prime Minister ‘five tests’ at the start of 2013: Britain keeping its AAA credit status, winning the Eastleigh by-election, a good Budget, avoiding heavy defeat in the local elections and preventing a triple-dip recession.

Two – the credit rating and the Eastleigh poll – have already been failed.