Speech by Vince Cable MP, Liberal Democrat Shadow Chancellor

4 March 2006

Dr Cable says that obsessive government meddling and over-centralisation are not achieving a fairer society and set out an alternative economic agenda.


I would like to start by saying a few warm words about the Chancellor on the eve of his tenth budget.

Gordon Brown is rarely out of the news.

Dressed up as a fighter pilot or tank commander.

Or giving us the benefit of his opinions on terrorism, national identity and Britishness, climate change, world poverty or AIDs.

Anything but the British economy.

I think he wants us to believe that the British economy is now such a brilliant success that it steers itself on autopilot while the captain goes off on a training course to be Admiral of the Fleet.

The problem is that the ship is sailing in dangerous waters and serious leaks are appearing.

What has happened is that a decade of steady growth has helped the Chancellor to conceal a growing number of costly policy errors.

Many are directly attributable to his weakness for overcentalised control and his lack of knowledge of, or interest in, the way businesses and markets actually work.

In recent months there has been the fiasco of tax credits: an essentially progressive idea undermined by over complexity and administrative incompetence.

The Inland Revenue generally is in a state of chaos with malfunctioning computer systems, a quarter of PAYE codes calculated incorrectly and £3bn a year lost from incorrect tax returns.

There have been u-turns over Self Invested Personal Pensions - where the Lib Dems led the opposition to tax breaks for investors in second homes and luxury yachts - and a double u-turn over tax breaks for company incorporation.

I can see another U-turn coming with the spiralling costs of baby bonds.

Perhaps that's why this week Gordon announced he was scrapping VAT on condoms. Then hundreds of millions of  taxpayers money were  wasted in scams generated  by a badly thought out  scheme to help out the film  industry; just as a  comparable amount was lost  to fraudsters from another of  Gordon's brainwaves, the  Individual Learning Account.

But these sums are small change compared with the  costs of the dogmatic  Treasury insistence on PFI  even when, as with the  London Underground, this  has been undertaken  against expert advice,  ignoring cheaper  alternatives, and has gifted  fortunes to an army of legal  advisers, merchant bankers,  accountants and  consultants.

Looking at this story I am puzzled by the insistence of the Tory Press  that Gordon Brown is a left  wing bogey man, a kind of  Scottish Pol Pot waiting to descend on the hapless  middle classes of the SE of  England, confiscating their  homes and imposing  compulsory re-education  classes in endogenous  growth theory.

They should relax.  This is a Chancellor who has invented more tax breaks for the rich than their accountants to keep up with.

This is a Chancellor whose enthusiasm to privatise the few remaining publicly owned assets led him to insist on selling shares in Qinetiq, at a knock down price, to a company packed with Bush administration cronies.

This is a Chancellor who has presided over a widening, not a narrowing, of inequalities of personal wealth.

The top 1% now own over a third of the nation's wealth as against a quarter at the end of 18 years of Tory rule.

Landowning dukes and property speculators have been the biggest beneficiaries of Labour rule.

The chances of Britain embracing socialism under Gordon Brown are about as big as Saudi Arabia embracing binge drinking.

The nearest thing we are likely to get to a shift in the tectonic plates is the shift from red to pink ties, or renaming his party from New Labour to Very New Labour.

The endless government meddling and obsessive over-centralisation is not achieving a fairer society but is designed to satisfy the leadership's demand for control.

Blair and Brown are as one.

They are the joint creators of this system of management, not so much democratic socialism as Democratic centralism that the late Leonid Brezhnev once described it.

This obsession with central control freakery has consequences which go far beyond economic policy.

It is crippling the NHS.

There are dozens of hospital  managers quaking in their  boots, a bit like Soviet  factory managers, waiting to  be despatched to our well -  upholstered equivalent of  Siberian salt mines, either  because they haven't met  Whitehall health targets or  because they have met them  and are running deficits as a  consequence.

The apogee of control freakery is of course the ID card which, if compulsory, seriously threatens civil liberties, serves no clear purpose and is a financial white elephant of mammoth- like proportions.

It speaks volumes about the Chancellor's priorities that he is happy to sign open-ended cheques for 10, 20 billion - who knows - just as he was happy to sign the open ended cheques.

I would scrap it and use the money more productively.

The Government's, and the Chancellor's, biggest failure is complacency: blindness to new and dangerous problems.

Looming large amongst these is the growing mountain of personal debt.

When I first warned of the dangers three years ago I was a voice in the wilderness.

Now even the most conservative member of the financial establishment recognises that there is a problem.

Consider the evidence:

* British employees are now paying out 19% of their take home pay in servicing debt - almost £1 in every £5.

We are almost back to the precarious position before the Tory `boom' collapsed in the early 1990s.

* This personal debt is increasing by more than £1 million every five minutes.

* Home repossession has soared, by 70% over the last year, as families discover that the banks that are so eager to lend them money will foreclose if they get sick or lose their jobs.

* There has been a big increase in bank bad debts.

Yet even now some banks, who recklessness is as gross as their greed, are lending at 6 times people's income.

With unemployment rising - in every month bar one of the last year - more families will face repossession and the risk of personal bankruptcy.

The Chancellor no doubt assumes that the Bank of England will, again, come to the rescue with a tweak to interest rates.

They may, for a while.

But there are deeper, systemic problems.

As a society we are not saving enough; hence the long term pension problem.

There are wags who say the solution to the savings problem is for us all to invest in those new Tessa accounts: put a bung in the bank and it just grows without your needing to know anything about it.

The current lack of savings and investment means that Gordon's claims to have produced the most successful period of economic growth for three centuries will look pretty hollow in a few years time.

I have put forward a ten point plan to address the specific problems around personal debt.

For example, there must be action to stop banks extending overdrafts and credit limits without borrower consent or of mortgages advanced without verifying income.

Customers should be protected from misselling mortgage payment protection insurance with excessive charges and damaging disclaimers.

These policies are the only safety net many borrowers have.

The Government has responsibility too.

It cannot expect individuals  to manage their finances  responsibly when it is  virtually impossible to get  independent financial advice  and the Citizens Advice  Bureaux which can provide it  are threaten with deep cuts.

Complacency about debt is matched by complacency about the environment.

Environment isn't just a special interest issue to be subcontracted to experts.

Sustainable development must be at the heart of economic policy.

But Brown's, like Blair's, commitment could be charitably described as episodic.

They tick the box and move on.

If the Chancellor really cares  about environmental issues,  why has the Treasury not  blown the whistle on new  nuclear power which has  already cost the taxpayer  £56bn in decommissioning  liabilities alone and which  can only proceed with  expensive subsidies or  guarantees?

Why has nothing been done to tax the aviation industry in a way that reflects and deters its massive and growing contribution to global warming?

These sins of commission and omission create for a wider opportunity for Liberal Democrats to develop a serious critique of New Labour economic policy and produce alternatives.

Much rests on the work of our Tax Commission.

I cannot anticipate the findings.

But I am sure we shall come  up with popular policies of  fair taxation which will lift  large numbers of low paid  workers out of tax and offer  pensioners the hope of an  end to the cruel burdens of  council tax.

We have to do more: be credible as well as popular.

That means recognising that the tax system has to create incentives for wealth creation as well as redistribution.

It has to reward savings and investments in productive activity - not speculation in land and property.

It means not promising more than we can pay for.

It means confronting the public with the painful reality that, if environmentally unsustainable trends are to be reversed, energy and travel will become more expensive.

I suspect that the public is in a mood to listen to home truths rather than banalities.

And the home truths are more believable from us than David Cameron's Conservatives.

Some of us have been receiving "Chummy" emails from a guy called Dave who describes himself as a fellow liberal.

When I was pondering his  invitation to me to join his  Shadow Cabinet I  concluded that I couldn't  belong to an organisation  that had abandoned ties.

They've also abandoned their principals and policies.

But, more seriously, the idea  of the Conservatives  reinventing themselves as a  liberal party is on a par with  UKIP becoming a Euro  federalist party advocating  that we adopt Deutschland  Uber Alles as our national  anthem.

The Tories have an identity  crisis and it will take a great  deal more than Dave's  sweet smile to persuade the  British people that  Thatcher's children are really  a party of warm, cuddly,  caring human beings.

We, therefore, have a golden opportunity to present our politically attractive and intellectually coherent alternative to New Labour.

Unlike the Conservatives, we  start with a advantage of  clear and constant  philosophy linking fairness -  fairer taxes and fair access  to public services; freedom -  the liberalism which allows  individual enterprise and  competition to flourish;  localism - local government  which means something  because it can raise its own  resources; and  environmental sustainability.

All of that has to be underpinned by financial discipline and a willingness to make tough choices.

I am confident we can meet that challenge.

It means confronting the public with the painful reality that, if environmentally unsustainable trends are to be reversed, energy and travel will become more expensive.