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Could Coalition splits on growth push Vince Cable to ‘bring the government down’?

Could growth be the issue that pushes Vince Cable too far and prompts him – in the words printed in the Telegraph today – to “bring the government down”?

Yesterday we got budgets for eight other agencies that fund hi-tech research, but not one for the politically potent Technology Strategy Board. In other words, the concrete spending decisions that will encapsulate the coalitions policy are being put off. A white paper on growth, first promised for the autumn, has been deferred at least twice and now languishes in the long grass. And Conservative and Lib Dem rhetoric on the issue is poles apart. All the signs are that the question of how to get the economy growing again is the most bitterly contested fault line in the Coalition.

The delays seem to result from a triangular tug-of-war. In one corner we have Cable. Cable, for reasons that seem a bit clearer since he bared his soul in the Telegraph, often speaks in riddles. He tends to raise issues without committing to them – his dabbling with a graduate tax for students being a classic example. But whats pretty clear is that he believes there is a strong case for public spending to create growth.

In early June, he had warm words for post neo-classical endogenous growth theory, the school of economics favoured by Ed Balls and Gordon Brown. This, he said happily, was the foundation of his Department of Business Innovation and Skills.

Later that month he made a speech on finding growth while cutting the deficit. Here he argued: “But there are other areas where we do have to recognize that some forms of public investment are key to rising productivity and growth. One of the realities of globalisation is that the UK cannot compete internationally without high levels of private and public investment in sophisticated skills, knowledge, technology and innovation.” These words could have come staright from Labours lexicon.

Indeed, in some respects he has gone further than Labour, treading into the politically treacherous territory of picking winners. “The debate about industrial policy always raises the spectre of ‘picking winners’,” he said. “But in a globalised economy its time to move this debate on a bit – be clear about what this means. Because in some ways we have to be picking winners.”

In a second corner is George Osborne. When he talks about post neo-classical endogenous growth theory, it is only to trash the concept as one of the foundations of Britains crippling deficit. Heres what he thinks the government needs to do:

“We can work with the private sector to identify the impediments to growth. We can do this by asking ourselves how to go about:

  • Providing macroeconomic stability;
  • Removing uncertainty from the tax system and making business taxes more competitive;
  • Ensuring the banking system works for the good of the whole economy;
  • Enabling product markets to work efficiently;
  • Improving the planning system and the housing market;
  • And supporting the most economically productive investment.”

Spending by the government creeps in there, arguably, at the tail of a long list.

Between these two, we have an argument over economic philosophy. How serious is it? Conservatives sometimes pat themselves on the back for their brilliance in tricking Cable into taking on the department with the tuition fees bomb in its hands. But the downside of handing BIS to Cable is that they have installed a professional economist in a department that can seriously fight with the Treasury over economic policy. And one who, appraently, believes he has political “nuclear weapons” at his disposal.

But growth is not only an economic issue for the Coalition. Its also a political issue. As unemployment rises and salaries stagnate, it needs to convince the public that it has a credible plan for getting the economy growing again. This puts David Cameron in a third corner. He doesnt have to care what economic policy Osborne and Cable come up with. He does need a good story to tell the voters. In October, he promised, “you’re going to see the most pro-business, pro-growth, pro-jobs agenda ever unleashed by a government”, but his big speech subsequently failed to provide the substance to back up the vaulting claim. He wont get away with such shallowness again.

At the moment, we have a stand off. The growth white paper is in limbo. The budget and four-year strategy of the Technology Strategy Board, accepted now by Conservatives such as David Willetts as the vehicle for investing in hi-tech growth, remain unpublished. “Sometime early in the New Year” is the current timing. Plans for a new network of Technology and Innovation Centres, due in December, remain unfinished and are now promised for the first half of January. These hi-tech investments of course are not crucial to actually creating jobs before the next election. But they have a symbolic value that makes them crucial to the Coalitions political destiny. And for those of us outside the loop, all the delays suggest substantive disagreements at the political level.

[Update 26 January 2011 – On 12 January, Willetts told MPs: “We hope to publish in the next few weeks a grant letter for the TSB.” That sounds like March probably, which is just days before the financial year begins – obviously way, way late. In effect, it looks as though the TSBs budget has been dragged into the grand negotiations over the March Budget for the entire country. The indecision is final.]

Is Cable going to see any of this as an issue worth resigning over and triggering the “nuclear” walk out of the Lib Dem left that would destroy Nick Clegg and the Coalition? Only if the other politicians in the game get it very, very wrong.