Britain could be hit by a second financial crisis or face years of stagnation similar to that suffered by Japan, the Business Secretary Vince Cable warned last night as he painted a grim picture of the nation's economic health.
He told The Independent fringe meeting that the ingredients were still in place for an economic "perfect storm".
Dr Cable admitted the gloomiest scenario is that Britain could plunge into a new financial crisis prompted by the collapse of the Greek and other eurozone economies. He also warned that Britain could suffer years of weak growth similar to the stagnation endured by Japan in the 1990s.
Speaking to a packed hall he said: "It is very serious. We have several different problems converging at the same time. Britain's consumer boom has come to an end. On top of that you had a financial system that got out of control with a lot of greed and stupidity. Then you've got a long-term shift in the world economy to India and China and all three of these things have coincided."
Mr Cable defended the Government's austerity package to cut the deficit, but confessed to suffering sleepless nights over the impact of his decisions. "I don't have any doubt we have to do this," he said. "But I stay up all night worrying about the decisions I have to make. We are on very dangerous terrain."
Mr Cable also revealed that it had been his decision to refer News Corp's bid for BSkyB to Ofcom last year, which ensured that the bid had not already gone through by the time the Milly Dowler phone-hacking revelations became public.
To applause from activists he said: "There was certainly strong advice against it [referring the bid]. However, I insisted. I wanted to look at the whole issue of plurality."
Mr Cable, who ruled out ever making a bid for his party's leadership, admitted that he felt "uncomfortable" about going into Government with the Conservatives but insisted he that he had a good working relationship with the Tories in his department.
"I spent 30 years fighting the Conservatives at grass-roots level [so] I am certainly not going to to be 'palsy-walsy' with them. But I do have good working relationships."
He was lukewarm about calls from the Tory right to cut the 50p rate of income tax for top earners, arguing it would be the wrong priority at a time of economic pain. But he added: "The top rate could go providing there is an alternative." He cited the party's backing for a "mansion tax" on properties worth more than £2m – a move he said could raise £2bn a year.
Dr Cable's downbeat tone reflects growing anxiety within the Cabinet that the country's faltering recovery could be wrecked by the eurozone crisis and the state of the US economy. The worries were heightened yesterday by analysis that indicates Britain's structural deficit could be £12bn larger than previously believed. He told the conference: "We now face a crisis that is the economic equivalent of war. This is not a time for business as usual, or politics as usual."
Unlike ministers at last year's Conservative conference, he refused to promise relief from the nation's economic woes. "When my staff saw my draft of this speech, they asked: 'We can see the grey skies, but where are the sunny uplands?' I am sorry – I can only tell it as I see it. There are difficult times ahead ... but we can turn the economy around."
In the first of a series of crowd-pleasing swipes at the Conservatives, he dismissed calls for a cut in the 50p top rate of income tax. "Some believe that if taxes on the wealthy are cut, new revenue will miraculously appear. I think their reasoning is this – all those British billionaires who demonstrate their patriotism by hiding from the taxman in Monaco or some Caribbean bolt-hole will rush back to pay more tax, but at a lower rate. Pull the other one!" He mocked Steve Hilton, the Downing Street director of strategy, who last month floated the idea of abolishing maternity leave. Dr Cable said: "What I will not do is provide cover for ideological descendants of those who sent children up chimneys. Panic in financial markets won't be stopped by scrapping maternity rights."
Cheer up, Vince
Cable on... the economic outlook
"When my staff saw my draft of this speech, they asked: 'We can see the grey skies, but where are the sunny uplands?' I am sorry – I can only tell it as I see it. People are not thinking about 10 years ahead when they are worrying about how to survive the next 10 days to pay day."
Cable on... conflict and strife
"We now face a crisis that is the economic equivalent of war. This is not a time for business as usual, or politics as usual."
Cable on... the global malaise
"The financial crisis is still with us – it never went away. And we can see that recovery is stalled in the US and the position in the Eurozone is dire."
Cable on... ever-decreasing living standards
"There are difficult times ahead – Britain's post-war pattern of ever-rising living standards has been broken. But we can turn the economy around."
Listen to the podcast of Steve Richards in conversation with Vince Cable at independent.co.uk/live