Business secretary accused of failing to know difference between acting like a politician and an economics commentator
Measures to galvanise investment spending, as well as reforms to the funding for lending scheme aimed at helping small businesses, are to be included in next week's budget, but unfunded increases in borrowing proposed by the business secretary, Vince Cable, have been ruled out, senior Liberal Democrats said.
Some senior Lib Dems are furious with Cable, accusing him of failing to know the difference between acting like a politician and an economics commentator. One cabinet minister said: "The trust of the markets takes years to establish, and can be lost very quickly. We are going to stick to our plans."
In two interventions last week, including a Guardian interview, Cable said the balance of risk had shifted in favour of a direct government capital injection into housebuilding of the order of 1 % of GDP. Treasury ministers responded: "The budget will contain no unfunded extra tax cuts and no extra borrowing."
In an oblique riposte to Cable's call for a multibillion-pound direct investment, Nick Clegg on Sunday said: "We will and must do more to mobilise investment into our long-term infrastructure needs." The Lib Dem leader said that Cable and the Liberal Democrat Treasury secretary, Danny Alexander, were agreed on this point. But he also warned that there were "no cost-free, risk-free ways of finding such huge sums of money. Not at a time when Labour left the cupboard bare and we still have the second highest deficit in Europe, behind only Greece."
He continued: "Balancing the books is a judgment, not a science. And our plan has always allowed room for manoeuvre."
The budget will instead provide another modest switch from current to capital spending, as well as efforts to make the existing funding for lending scheme more effective. Funding for lending, a form of government guarantee to the banks to encourage them to lend, has helped increase cash for mortgages but has had little impact on lending to small and medium sized businesses.
Shadow chancellor Ed Balls said the scheme should be reformed so that banks can access the lowest rates of funding only if they increase lending to businesses as well as overall lending. It is likely the government will introduce a reform of this kind.
Treasury ministers also says cabinet colleagues who continue to increase public pressure over cuts to their departmental budget in the separate summer spending review will find out disruptive public lobbying will make them the biggest losers. The Treasury was praising the home secretary, Theresa May, for making her demands in private, unlike the defence secretary, Philip Hammond, and Cable.
Specific proposed departmental budgets have not been sent out by the Treasury, but the "Quad" of senior ministers –David Cameron, Clegg, Alexander and George Osborne – were looking for an extra £10bn in cuts, and were certain the savings could be found in the small number of departments that have unprotected budgets. Defence and the police service remain targets, as does ending the duplication of public services through the introduction of so-called community budgets.
Cabinet sources defend the ringfencing of both health and schools on grounds of the demographic pressures both services are facing.
The Quad is due to meet on Monday with a package on housing to be considered for possible announcement before the budget. A large-scale subsidy on child care is also expected around the time of the budget, and is deemed to be the single biggest vote winner in the proposals.
Clegg has advised Osborne that the budget should be a relatively no-frills event, since it comes close to what was effectively a mini-budget in his December autumn statement.
But with the economy flatlining, Osborne is under pressure to produce measures to boost growth.
Ministers in the Department of Communities and Local Government are arguing that rules on public borrowing could be changed to allow them to borrow to build houses without the amount appearing on government books. Local authorities are also lobbying for the existing borrowing caps to be dropped.
A Labour attempt to cajole the Lib Dems into voting together to defeat the government on the so-called "mansion tax" in the Commons on Wednesday is set to fail.
Lib Dems said no formal decision had been made, but the schools minister, David Laws, revealed his party's disdain for Labour's parliamentary tactics.
He said: "If we flounced off every time an opposition party for opportunistic reasons put down motions in the House of Commons that either backed the Tory position or the Lib Dem position we'd end up in a complete shambles, so we have to agree policy for each budget with our coalition partners."
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