There was a time when Vince Cable could do no wrong. He was the voice of reason; unafraid to tell the truth and someone who understood public anger. Now, a year into the coalition, his halo has well and truly slipped. Can he restore his reputation?

What a difference a year makes. Last May Vince Cable could do no wrong. Of course, this was in the context of a crisis; of course, he was the prophet of doom – but such a straight-talking one, who understood the public's anger at the banks and sense of betrayal by their politicians, and articulated it in plain terms. "How we need him as our prime minister!" gushed one (Tory) commentator.

And now? Now he gets picketed when he goes to open ports. Now he is – nearly – just another Lib Dem, tarred with the disappointments of their first year in office: not just the retaining of tuition fees, but their increase, often to £9,000 (he, of course, is in the especially invidious position of being in charge of the department required to steward the change); the failure of the alternative vote; the budget cuts that in their disproportionate effect on the poor and vulnerable seem to put the lie to Lib Dem claims of social liberalism.

Compromise after compromise, and, most distressingly of all, for many, a muzzling of St Vince. Knowing that circumspection and compromise are the necessary price of power doesn't seem to make a difference. They still find it depressing. To be fair, Cable, particularly recently, has sometimes allowed frustration to get the better of him: "Some of us never had many illusions about the Conservatives anyway," he told the BBC in the run-up to the AV referendum. "They have emerged as ruthless, calculating and thoroughly tribal." But on the whole, the spontaneity and the prospect of a well-aimed, heartfelt (and often witty) kick seems to have gone, and are sorely missed.

Cable, now 68, once said that what he inherited from his father was the addiction of workaholism (adding, interestingly, that he got from his "mother, until I lost it, self-effacing modesty") and one can see that it would come in useful in his new role. When we meet, in standard class on the 9:23 to Birmingham, he has already done the Today programme, which meant being picked up from Twickenham, where he lives, well before 6am; in Birmingham he will tour a laboratory and be interviewed by ITV and the BBC, take a press conference at the grand Birmingham Council House, then do a meet and greet with civic leaders, give a speech to a grand room full of suited men having lunch, to help launch the Business Growth Fund, visit a factory before returning to London and, unusually, home. He would often follow this with more meetings at his department, or going to the House, before speaking at a business function in the evening, and ending with red boxes, often after 11pm.

Part of it is, of course, a function of being a minister of state, but he often seems quite alone in the buzz of minders and organisers and local dignitaries and media; focussing on each request, each question, absolutely but when not speaking, detached and still; friendly, but not so much glad-handing as enduring. Apparently you do at least one of these visits a week, I ask, at one point. "It's good to get out of Whitehall," is the reply, in much the same tone in which one might say, "it's good to eat your greens" – a fact, but not necessarily a commitment. He is strikingly fit-looking for his age, with healthy skin and clear, pale blue eyes set off by a tie in muted blue checks, but, for a man who has reached the highest level in ballroom dancing (the International Supreme Award), not as at home in his body as one might expect. In brief unguarded moments he stoops slightly – a tendency he has in the past admitted tends to betray nerves. When he gets into the people carrier after his lab tour he leans forward, exhausted, and glazes over, going somewhere altogether elsewhere. A wave across his line of vision brings him back. "I'm a bit zonked."

His speech about the Business Growth Fund is short, to the point, and hits all the right notes: "It's a good day for business, and a good day for Birmingham [where the fund will be based]"; the companies the fund will target – those with an annual turnover of £10-100m – "are the real drivers of growth"; "all wisdom does not reside in London".

But there is an obvious question: why aren't individual banks doing this as a matter of course? Hasn't that been one of the fundamental things Cable, especially, has been demanding all along – that they should support growth rather than looking instead to bolstering salaries and their own bottom lines?

Bankers sometimes seem to be the only people in the country whose wages are increasing in real terms, while Cable would be the first to point out that not only are the rest of us seeing our wages falling, and basic services being gutted all around us, but we do not understand the coming scale of the squeeze on living standards. "I think it is not understood that the British economy has declined by 6 or 7% – it is now 10% below trend." The three deep grooves at the corners of his eyes give a sense of an incipient smile belied by the rest of his face. "We are actually a poorer country, mainly because of the banking crash, the recession that followed it, and partly due to the squeeze we are under due to the changing balance of the world economy. Britain is no longer one of the world's price setters. It is painful. It is a challenge to us in government to explain all that, and it is a pity that the political class is not preparing the public for it to understand how massive the problem is."

He lays a lot of that blame with Labour's two Eds, whom he sees as regressing to comforting – but entirely unhelpful – tribal politics. "They are in a state of denial that there is a big structural problem with the UK economy. So we stick to this short term, tit for tat; why has the growth in this quarter been slower, the scale of the cuts should be slower – there is a genuine debate we should be having about how radical the reforms of the financial sector should be – but there is not from the progressive wing of politics a sustained critique or pressure and argument. Ultimately, it comes back to this defensiveness and an unwillingness to accept that Britain was operating a model that failed." It is a strikingly frank assessment – a reversion, up to a point, to his role before the election.

The size of the cuts is, for Cable, not the issue. He always warned there would have to be deep cuts and agrees, largely, with the Tories on their scale (the thing many on the left forgot, in their rush to canonise him, was that he is fiscally liberal, an Orange Book Lib Dem; many described him as moving his party, economically, at least, to the right). But surely he is uncomfortable that he now finds himself standing over cuts that, as one Tory minister put it recently: "Margaret Thatcher in the 1980s could only have dreamt of"? "Well, I don't accept the language of that. I don't think it has anything to do with Thatcher. We're not actually, at the moment, cutting government spending any more than Alistair Darling would have done." But surely a man who has also said, to a meeting of Lib Dems during the coalition talks last May, that his "heart beats on the left" must feel deeply uncomfortable seeing disabled people protesting in the streets – "I feel that, and I engage with it because I am very conscious. As it happens, last week [after a meeting with disabled groups] I fired off letters to ministers, in my constituency MP capacity, saying there's a problem here, how are we going to deal with it?"

It has been distinctly unedifying, in recent weeks, to see the systematic and undisguisedly political targeting of prominent Lib Dems: David Laws, Chris Huhne, Nick Clegg, and, just before Christmas, the secret taping, by Daily Telegraph journalists pretending to be constituents, of unguarded comments from Cable. Although the Press Complaints Commission has since upheld the Lib Dems' objection to their methods the damage was done: Cable, boasting that he had "declared war" on Rupert Murdoch and that he had the "nuclear option" of resigning from government.

Although he still has that option, now arguably more nuclear than ever – with Huhne and Clegg so weakened, his exit could really bring down the coalition – being taped saying it just made him look vain and naive, not to mention removing him as a possible bulwark against Murdoch's territorial ambitions and arguably inflaming the rightwing press in their attacks on AV. "It depends what you mean by naive," he says, sharply. "If you believe that we live in a reasonably open society and that you can talk to people without having your telephone bugged and your conversation recorded, maybe that was naive. I like to think that I do live in that kind of society."

But he does admit, later, that the whole episode took a real toll. Did he think of resigning? "Well, it was difficult. It churned up all sorts of thoughts. And there were one or two key people who were absolutely solid and said, 'Just keep on with what you're doing,'" one of whom was his daughter Aida, whom he has spoken of in the past as a possible successor in politics. One of the things that voters have always found attractive about Cable is his obvious pride in and commitment to his family. When he did Desert Island Discs, a couple of years ago, every piece of music he chose had a family connection: it was sung by his eldest son, a semi-professional opera singer (possessed, incidentally, of a beautiful voice); had been played by his daughter (as well as being a partner in a shipping law firm, she is a concert-level pianist), or reminded him of one of his two wives: Olympia Rebelo, whom he "adored", and to whom he was married for more than 30 years until she died of breast cancer in 2001; and Rachel Wenban Smith, whom he met four months later, causing initial and distinct upset among his children. He wears both wedding rings on the same finger: one gold and one silver, they give off a complex and rather moving light.

Some of the pride, one suspects, comes from the achievement of having made the opposite kind of family to the one he came from, where as he once said, there was "no emotional warmth and quite a lot of tension". His father, a Tory obsessed with moving up the rungs of respectability and class – he began in the factories at 15, progressed to teaching in technical colleges, and died delivering leaflets for Thatcher in a snowstorm – was also puritan and doctrinaire, intolerant of anything "arty-farty", even when studying poetry and philosophy turned out to be the saving of his wife. When Vince was 11 his mother had a nervous breakdown and had to be hospitalised for months. Cable, who wanted to write, was banned from studying arts subjects at Cambridge; his first major rebellion was to switch from natural sciences to economics; his second to marry Olympia, a Goan from Kenya, where he worked as a treasury finance officer in the government of Jomo Kenyatta, wielding an outsize amount of responsibility for a man of 23.

He and Olympia moved to Glasgow the year Enoch Powell made his "rivers of blood" speech; both, but she, in particular, came in for much casual racism in shops and the streets. "But there was a funny side to it, because the question they always asked her: 'are you a Catholic or are you a Protestant?' was the question that really mattered." But there was also much happiness, and music, and, later, the dancing, and his political ambitions finally – on the fifth attempt – taking off, though Olympia did not live to see his great successes as acting leader of the Lib Dems, or his emergence as sage of the credit crunch.

Does he miss the freedom of speaking his mind? "Well yeah – it's obviously fun, being able to go round book festivals and sounding off, as I used to do." He laughs, slightly. Do you think you might achieve more if you went back to doing that from the backbenches? "No, I don't think so. I think it's more important to be doing what I'm doing. But I think what I did then, which has enduring relevance, is describing the big picture. Setting out the framework and the terms of reference. So I went into government with a clear mind about what the problems were, and what needed to be done."

But that's just the point, for many who voted Lib Dem, the reason why they feel so betrayed and feel the party looks so damaged. "All three major parties have had their brand damaged in the last year. The Labour party has suffered I think probably worse – its reputation for economic competence has been destroyed. The Tories spent years trying to progress from being nasty to nice, and that was being reversed by the attacks in the AV campaign. We lost trust by the fact that we're in government and haven't been able to deliver all that was expected. The challenge is to get on with the positive things." Right now, it seems like quite a challenge.