Cameron in Yorkshire: No U-turn on the economy

DAVID Cameron dismissed calls for a borrowing-fuelled capital spending drive today, warning it would leave families facing devastating interest rate hikes.

By Jack Blanchard Political Editor Thursday, 7th March 2013, 4:12 pm

Prime Minister David Cameron

The Prime Minister, giving a pre-Budget speech in West Yorkshire, insisted the coalition would stick to its economic strategy despite Business Secretary Vince Cable suggesting it was time for a rethink.

Writing for the New Statesman, the Liberal Democrat suggested “the balance of risk” had changed between deficit reduction and growth.

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He questioned whether the Government should “borrow more, at current very low interest rates, in order to finance more capital spending: building of schools and colleges; small road and rail projects; more prudential borrowing by councils for house-building”.

Prime Minister David Cameron

But Mr Cameron said there was no “magic money tree” that allowed the Government to spend and borrow more.

“There are some people who think we don’t have to take all these tough decisions to deal with our debts,” he said.

“They say that our focus on deficit reduction is damaging growth. And what we need to do is to spend more and borrow more.

“It’s as if they think there’s some magic money tree. Well, let me tell you a plain truth: there isn’t.”

The premier said the loss of the UK’s prized AAA credit rating last month had been “the starkest possible reminder of the debt problem we face”.

“If we don’t deal with it, interest rates will rise, homes will be repossessed and businesses will go bust, and more and more taxpayers’ money will be spent just paying off the interest on our debts.

“Even just a 1% rise in mortgage interest rates would cost the average family £1,000 in extra debt service payments.

“So, there’s not some choice between dealing with our debts and planning for growth.”

Mr Cameron said the Office for Budget Responsibility (OBR) had made clear the financial crisis, eurozone woes and high oil prices were largely to blame for the economy stalling.

“Tackling the deficit is the first essential step for growth. And if we don’t do it, we’ll end up facing even greater austerity,” he said.

“So, those who think we can afford to slow down the rate of fiscal consolidation by borrowing and spending more are jeopardising the nation’s finances, and they are putting at risk the livelihoods of families up and down the country.”

Mr Cameron said the Government was not “laissez-faire”, highlighting the Bank of England’s Funding for Lending scheme and Treasury guarantees for infrastructure projects.

He said ministers were determined to back industrial sectors where Britain has a “global comparative advantage”.

The Prime Minister said he was ready to “fight for” measures to improve competitiveness, such as planning reform, road building and high speed rail.

He argued there were “signs that our plan is beginning to work”, with jobs being created and the economy rebalancing.

“Of course, these signs of progress are just the beginning of a long, hard road to a better Britain,” he said.

“But the very moment when we’re just getting some signs that we can turn our economy round and make our country a success is the very moment to hold firm to the path we have set.”

He added: “This month’s Budget will be about sticking to the course, because there is no alternative that can secure our country’s future.”

The premier went on: “I know some people think it is being stubborn to stick to a plan, that somehow this is just about making the numbers add up with no care whatsoever for what it means for people affected by the changes we make.

“But nothing could be further from the truth.

“My motives for sticking to the plan are exactly about doing the right thing to help families and business up and down the country.”

Mr Cameron’s visit to West Yorkshire coincided with an announcement by BT that it is creating more than 1,000 engineering jobs in its Openreach business.

Asked about Mr Cable’s intervention, he said: “The article he wrote in the New Statesman was cleared and approved by the Treasury.

“He backs the measures we are taking on dealing with the budget deficit and also he is playing a very key role in making sure we deliver this agenda of backing the fastest growing areas of our economy that have real potential for the future.

“I work very closely with him in doing that.”

Earlier, Mr Cable also played down the idea that his comments represented a shift in policy, telling the BBC: “We just need to pursue what I’ve often called Plan A-plus. That is financial discipline and getting down the deficit and at the same time pursuing growth. That’s what we are doing and will continue to do.”

However, Labour said it appeared the Business Secretary was “at last seeing sense”.

And one of Mr Cable’s closest allies, Lib Dem Lord Oakeshott, endorsed the argument for debt-backed capital spending.

The peer told the BBC Radio 4 Today programme: “This is what Liberal Democrats like me have been saying for at least six months, since it became clear that the economy was stuck and it was flat and it wasn’t growing.

“That’s the problem. We made a good start in our coalition Government in getting the deficit down and getting the economy to grow, but in the last six or nine months it’s got stuck again and the deficit is going up and that, I think, is why we’ve all got to look very hard at being much tougher.”

In his regular radio phone-in on LBC 97.3, Mr Clegg confirmed that he, the Prime Minister and Chancellor George Osborne had seen the article before it was published.

The Lib Dem leader said he sympathised with Mr Cable’s concern the Treasury’s investment guarantee schemes seemed to take a “long time” to have an impact - but insisted that no-one thought the Government should borrow “pots of money”.

“Everybody agrees with the critical importance of capital investment,” Mr Clegg said.

“I sign up to very much Vince’s frustration at some of the capital investments schemes. They take so long... some of the schemes the Treasury set up they have offered lots of guarantees for infrastructure projects. They do seem to take a long time going.

“The question is not ‘Is capital investment a good thing?’ I think everyone agrees on that in the Coalition.

“The question is ‘How do you pay for it?’. Vince is not actually saying ‘We should borrow pots of money tomorrow’. He is saying this is where the balance of judgment is.

“This is where we need to balance the risks.

“The question everybody needs to ask - and Vince would be the first to acknowledge this - is that, if you do decide to say to hell with it, let’s blow £40 billion, £20 billion, huge amounts of money - because the only point in doing this is if you do it in on a big scale - the risk, of course, and I know Vince acknowledges this, is that unwittingly, of course, you then make it more difficult for everyone else because interest rates might then go up.”