Liberal Democrat Conference: What 'Optimistic' Cable and Alexander said on UK Economy and Business

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Despite the Liberal Democrats' annual party conference in Brighton being flatter than the British economy, there were some nuggets of insight into their mind-set on how the yellow bellies intend to drag us back to recovery as an ever-darkening macroeconomic cloud looms over the globe.

With a mixture of fresh announcements and reaffirming old commitments - though notably no more pledges to be embarrassingly retracted at a later date - the Lib Dems outlined their priorities for the economy and its eventual recovery from the longest double-dip recession since World War Two.

"This is no time for the state to be stepping back," said Vince Cable, business secretary, in a speech to his party brethren, a remark that draws a clear line in the sand between himself and the vociferous Tory backbenchers who make up the other half of the coalition government.

"We need a new British business bank with a clean balance sheet and an ability to expand lending rapidly to the manufacturers, exporters and high growth companies that power our economy."

And so Cable launched the new state investment bank, which will see £1bn of taxpayer cash go towards small business lending.

"This will apply leverage through guarantees to support up to ten billion pounds of finance to small and mid-sized business - a significant portion of all the lending currently available," he said.

Challenger banks, the smaller lenders that have emerged since the financial crisis as new market competitors against the big beasts who used to dominate business loans, may be used to filter this cash through to small businesses as a way of helping boost their balance sheets and negate strict state aid laws from European regulators.

Keeping his gaze on banks, Cable reinforced the Lib Dem position on the urgency of reforming the financial sector.

"Our leading banks are often anti-business especially anti small business. They threw traditional relationship banking over the side and sold useless insurance and dodgy derivatives instead," he said.

"Public anger at the greed and stupidity in this industry will continue for a long time. But I am looking forward to and I want to work with the new generation of sensible bankers to support the real economy.

"We must now implement the 'pioneering' coalition policy of splitting the investment bank casinos from mainstream personal and business banking, as in the Vickers report."

He also said that the troubled big bank RBS, which is 82 percent owned by the taxpayer after a bailout stopped it going bust during the financial crisis, must be used by the state to "lend more to support British business".

"Two years ago there was talk of an early sell off. That is history. It has been a drifting, rudderless hulk but is now getting more shipshape," said Cable.

Austerity and 'Plan A'

At the heart of the government's deficit reduction strategy is a period of painful austerity for the public sector, which sees departmental budget cuts of around 25 percent, leading to job losses and the disappearing of some key services that the most vulnerable in society rely on as local authorities in particular rein in their spending.

As the economy has worsened along with declining global output, many are telling the government it must soften from its stubborn stance that the "Plan A" of austerity to defeat the deficit and instead borrow cheaply from the markets, given gilts' record-low yields, and launch a fiscal push to stimulate growth.

To some extent the government has heeded this advice, as it uses taxpayer cash to underwrite infrastructure projects, invest in the railways, and set up an investment bank.

At conference the Lib Dems insisted that they are committed to austerity, but their words made it clear that they are having to deviate from the original plan and hints that unless the British economy improves soon that they will have to come up with a fresh strategy to pull the country out of the mire.

"Actually it is not a matter of Plan A versus Plan B or Plan C or even Plan V. Plan A+ is okay by me, or plan A++ if you prefer," said Cable.

"When we came into government we had to balance competing risks: of aggravating the economic downturn through excessive cuts versus the risk of losing the confidence of lenders.

"I believe we struck the right balance and adopted a deficit reduction plan. I make no apology for my continued support for that fiscal discipline.

"But right now we are fighting recession. The need is for a demand stimulus. And that does not just mean pumping more money into the banks.

"That great Liberal Keynes had exactly the right analysis of the problem we now have - not enough spending power in the economy. And not only him - but also the International Monetary Fund, who no one could accuse of financial irresponsibility and the coalition understands this very well."

Danny Alexander, the Lib Dem chief secretary to the Treasury who bears an uncanny and unfortunate resemblance to Beaker from The Muppets, echoed this mixed message of sticking to the plan, but changing it a bit.

"There could not be a worse time to argue that we should abandon our plan ... It is the foundation for everything else. It is the foundation for jobs and prosperity in the future," said Alexander.

"Last autumn, we were faced with a worsening forecast from the independent Office of Budget Responsibility. Rather than add more cuts now, we decided to take another two years to do the job.

"That was the right, pragmatic response to things getting worse."

He warned that this means making more "tough choices" that will impact the first years of the next parliament, when the deficit reduction plan had originally been expected to have concluded.

"Let me be absolutely clear: I will not sacrifice this party's independence by binding us to detailed spending plans deep into the next parliament," said Alexander.

"But there is one thing we must do. We have to set a detailed budget for government for the year 2015-16 because we will be in government for the first 5 weeks of it, at least.

"That means setting out specific plans for the £16bn of savings that are needed in that year. And it means setting out how we, as Liberal Democrats, would make the further tough choices needed beyond that."

Infrastructure imperative for UK economy

Since the economy fell back into recession at the end of 2011, the government has faced an increasing amount of calls to invest and stimulate infrastructure work to cure the malady.

So it answered with a £9.4bn fiscal boost for the rail network and a scheme has been introduced that sees taxpayers underwrite the finances of major infrastructure projects so they can access credit and move forward.

"One major project we are funding is London's Crossrail," said Alexander.

"It is the biggest infrastructure project in Europe right now. But we need to ensure the rolling stock is delivered on time.

"Right now, difficulties raising the necessary private funding in the market could delay their delivery. So I can announce to you today that the train contract for Crossrail will be the first project to qualify for a new government guarantee.

"And it will be the first of many across Britain, I am sure."

A shortage of housing has kept prices artificially high and left those who need social accommodation often in inadequate living spaces.

Building homes is something the Lib Dems reiterated their commitment to at conference, not only to ease the pressures in the housing market but to help soothe the aches of a crippled construction sector.

"One big step will be carrying out our commitment this month to get more houses built. The numbers of houses completed are currently the lowest in peacetime since the 1920s. Millions of families are in housing need," said Cable.

"There is distress in the construction industry. The private market will only heal slowly. Because mortgages are scarce, what we need is an aggressive programme of house building by housing associations and local councils, with government providing guarantees so they can build, in large numbers, now.

"We need an extra 100,000 houses a year to meet demand. That would create half a million new jobs."

Tax avoidance

Public ire at corporations and the moneyed elite who dodge taxes while most of Britain scrabbles around for sustenance amid swingeing austerity cuts to key services - plebs, as Tory chief whip Andrew Mitchell likes to call them - has never been greater.

Alexander talked tough on making tax avoiders pay their fair share.

"Fairer taxes in tough times, means everyone playing by the same rule book, and everyone paying their fair share," he told conference delegates in Brighton.

He cited the taxman's new affluent unit at HMRC and claims it has raised an additional £44m from those with the most wealth in British society.

"And so I can announce that we will build on that success and expand its remit to the wealthiest 500,000 people in the country, those with net wealth over a million pounds," said Alexander.

"The vast majority of taxpayers in this wealth bracket pay their fair share. We have this message to the small minority of wealthy people who don't play by the rules: we are coming to get you and you will pay your fair share."

Alexander boasted of his work to stop senior civil servants being paid via service companies, which allowed them to pay corporation and capital gains taxes rather than income tax, producing a smaller tax bill.

"Rules are now in place to stop that happening - based on the simple principle that if you're being paid public money, you should pay your taxes," he said.

"But it cannot be right that similar rules don't apply to companies doing business with the government too.

"There are thousands of large firms that receive taxpayers' money to deliver a service - they do a good job helping to deliver public services. But I have discovered that there is nothing that prevents the very small minority of firms that don't play by the rules from winning government contracts.

"That is not right. That is not fair. And I am determined that it comes to an end."

Cable injected his own rhetoric on tax avoidance.

"We want the costs of our current crisis to be fairly shared. 'We are all in it together' is a good slogan. Forget the Tory messengers; let's apply the message," he said.

"Cracking down hard, not just on criminal tax evasion but on abusive tax avoidance. Working with our allies to close down tax havens.

"No one keeps their cash in tax havens for the quality of investment advice; these are sunny places for shady people."

Wealth tax lives on

Much like the T-1000 robot sent to kill John Connor in Terminator 2, no matter how many times the Tories shoot at the Lib Dem policy of a wealth tax it just will not go away.

Lib Dems want a mansion tax on property worth over £2m. Tory Chancellor George Osborne thought he had terminated the idea ahead of his Budget in March, but the Lib Dems had other ideas.

"I know some of you hanker after a Hollande-style assault on top incomes. But we know that very high marginal rates of income tax are counter-productive," said Cable.

"If I were advising Monsieur Hollande, I would recommend a 'chateau tax' - for those of us who never even managed a dumbed-down GCSE in French, that means a 'mansion tax'. Core Lib Dem policy. A first step to the proper taxation of wealth and land.

"It horrifies the Tory backwoodsmen but it is popular and right. The super-rich can't move their chateaux to Monaco or Switzerland so let's get on with it and tax them here."

Lib Dems are desperate to paint themselves as different to the Tories. They want to be seen as a moderating influence making the nasty party nicer, not the junior partner in the political relationship, being domineered.

Pseudo battle lines were drawn, such as over the mansion tax, but these are well rehearsed and comfortable conflicts, not new ones, that will do little to convince the public that the Lib Dems are a party that sticks rigidly to principles.

Industry focus

Inevitably, as the scale of the financial sector is eroded by reform and reproach, somewhere business must advance to plug the gap in GDP.

Cable is eyeing manufacturing, science and creative sectors as having the potential to flourish.

"We must get behind successful British-based firms in vehicles, aerospace, life sciences and creative industries and our world-class scientists and universities," said Cable.

"Despite spending cuts, we have increased apprenticeships by over 60 percent. We launched German-style innovation centres so that British industry can access the newest technologies in advanced manufacturing, bioscience, sustainable energy, and digital.

"We are bringing lost supply chains back to Britain. The Green Investment Bank is now up and running, financing the green industries of the future."

There have been some successes in this ambition, such as the retention of threatened jobs at carmaker Vauxhall in the north west of England and the decision by pharmaceutical giant Glaxosmithkline to invest £500m in expanding its UK operations.

However Cable set out yet another clear division between his party and their coalition partners, who want the state to be shredded and to leave markets alone.

"There are some common threads: understanding that markets fail and that governments can and should sensibly intervene and support enterprise; and a will to fight the British curse of short-termism - both in the corporate world and in government," said Cable.

Corporate and business reforms

As well as bemoaning the greedy bankers in the City of London, corporate fat cat executives have been the target of reform and political point scoring.

With massive pay packets and bonuses still being handed out among the biggest firms, while redundancies and cutbacks blight the lower echelons of the business, there have been loudening calls for a reform to the way remuneration is set - with a view of giving shareholders more power.

A recent example of a backlash over pay include Aviva's Andrew Moss after shareholders revolted against his multi-million pay package despite the company's poor performance.

Cable acknowledged that legislation to make shareholder votes on executive pay is working its way through the parliamentary process.

His party's leader Nick Clegg has praised staff co-operatives like retailer John Lewis as a model for the future of business, with workers being a part of the firm and benefitting directly from its performance rather than being merely an employee.

Cable hit out at proposals, supported by some in the Conservative party, to make it easier to fire staff with the introduction of "no fault" dismissals, and reflected on how the Lib Dems want to support Clegg's favoured model for businesses.

"We have seen off the 'head bangers' who want a hire and fire culture and seem to find sacking people an aphrodisiac: totally irrelevant in a country with flexible labour markets which have created over a million private sector jobs in the last two years," said Cable.

"Instead, we have concentrated on practical tribunal reform and supported progressive firms who want worker participation and share ownership."

'Optimism'

Despite being a part of the coalition, seen by parts of the electorate as the arbiters of doom, there was a clear effort to put a positive spin on the overwhelmingly negative economic outlook for the country.

"I am fundamentally optimistic for the future. Because there are brilliant businesses, talented and hard-working people in every corner of this country who make this one of the best places to do business in the world," said Alexander.

Cable, in an uncontrived coincidence, is also optimistic for Britain.

"I am at heart a realist, and deep down, an optimist. We can't recreate the fool's paradise of the pre-crisis era; but we are perfectly capable of sustainable growth in this country," he said.
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