Industry (Government Support)

Debate between Vince Cable and Rachel Reeves

Wednesday 16th June 2010 Commons Chamber

[Vince Cable]

That was starting to morph from an intervention into a speech. It did not require a great genius to see the fallacies in the bubble economy that was being created, and I was one of many people who saw the problem. However, the hon. Gentleman is getting to the issue of my position, which was also raised from the Opposition Front Bench, so let me deal with the question of cuts, the timing and what the sensible response is. The motion refers to a

“critical moment in the…cycle,”

and talks about recovery being fragile, and it is fragile. There are risks in both directions. If there are rapid cuts in public spending, they of course run the risk of having an impact on growth; we all understand that, but there is the risk on the other side that if we did nothing or delayed taking action, there would be a serious crisis of confidence in the economy because of the sovereign risk crisis that is rolling around Europe.

I was specifically challenged to say why I had changed my mind on the subject, and I will tell the hon. Gentleman when I changed my mind. Before I entered this Government, I spoke at some length to some of the key decision makers in the UK, including the head of the Treasury, and we also had advice from the Governor of the Bank of England. Their advice was unequivocal: in the circumstances that we entered, we had absolutely no alternative but to act decisively and quickly. I always made it clear in opposition that we had to act rationally. We had to take account of growth on the one hand and sovereign risk on the other. Those factors had to be balanced. We have balanced them, and we came to the decision that early action was essential in the light of the circumstances that exist. That was objectively based on the evidence in the economy.

[Rachel Reeves (Leeds West) (Lab)]

The right hon. Gentleman also met the permanent secretary at the Treasury and the Governor of the Bank of England before the election, so I am still not clear how his mind was changed between the election campaign and when he became the Secretary of State. Can he clarify what it was between those dates that made him change his mind?

[Vince Cable]

I do not know whether the hon. Lady was reading the newspapers when she was campaigning for election to this House, but there was a major sovereign debt crisis emerging in Europe. [Hon. Members: “Oh, come on!”] Well, I am sorry, but the gasps from Opposition Members suggest how utterly and completely out of touch they are with the realities of financial markets. We are talking about a very serious crisis, and the Government had to respond to it, as other Governments are doing now.

I congratulate the Opposition spokesman on being honest enough to acknowledge, in a rare departure from tradition, that he had been forward in accepting the need for cuts. Those on the Benches behind him who are so anxious about early cuts need to be aware—the Institute for Fiscal Studies pointed this out—that the previous Government were already engaged in a fiscal tightening of £23 billion for this financial year. We are now being accused of making cuts in the current circumstances, but the previous Government were planning that too.

That was on the record, and it was not just a theoretical abstraction; rather, many of us saw it happening. It happened in the Department for Business, Innovation and Skills, which the right hon. Member for Wolverhampton South East was responsible for. Lord Mandelson was the first Minister to put his Department forward for early cuts, which was why, in the run-up to the election, I attended a meeting of further education college lecturers in my constituency, 70 of whom were going to be made redundant. The reason for that was that those early cuts, introduced by the right hon. Gentleman, were working their way through to the front line of teaching. I then went to one of the leading science laboratories in my constituency, where 40 members of staff were being made redundant because of cuts made by the right hon. Gentleman and Lord Mandelson this financial year, so please let us not have any more of this pious nonsense about early cuts.