March 6, 2013 / 7:38 PM / 5 years ago

Cable questions emphasis on austerity

LONDON (Reuters) - The business secretary questioned the coalition government’s focus on debt cutting on Wednesday in the most explicit terms he has used so far, saying it may be time to borrow to invest in infrastructure.

Vince Cable’s intervention, in an article for the New Statesman magazine, potentially puts the Lib Dem at odds with his Conservative coalition partner and Chancellor George Osborne, who has championed deficit reduction.

The opposition Labour party, who say austerity policies are damaging the economy, said Cable was “seeing sense”.

Osborne will present his annual budget statement on March 20 under heavy pressure to revive an economy that risks sinking into its third recession in four years.

Nonetheless, most economists do not expect him to approve any significant extra investment, because the government is already two years behind on its original plan to largely eliminate Britain’s budget deficit by the next election in 2015.

Cable said the higher interest rates that extra borrowing might bring would be justified by improvements to growth.

He asked whether “the balance of risks” had changed since the two parties formed their governing alliance in 2010, at the height of fears about sovereign default and at a time when the budget deficit exceeded 11 percent of gross domestic product.

The “question is whether the government ... should borrow more, at current very low interest rates, in order to finance more capital spending,” he said.

“Such a strategy does not undermine the central objective of reducing the structural deficit, and may assist it by reviving growth,” Cable added.

Because British sovereign borrowing has a long maturity, the risk of a debt spiral where refinancing becomes impossible was relatively low, he said.

“The effect on our fiscal situation of higher interest rates is in fact nowhere near as bad as having weak growth,” he said.

Cable and other Liberal Democrat ministers have been pushing for more capital spending, particularly in house building.

“Such a programme would ... target two significant bottlenecks to growth, infrastructure and housing,” Cable said.

Reporting by Tim Castle; editing by David Milliken/Ruth Pitchford

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