Vince Cable has admitted that the Coalition lacks a "compelling vision" beyond its deep spending cuts and revealed a split with the Chancellor George Osborne over the future of the state-owned Royal Bank of Scotland (RBS).
In a private letter to David Cameron and Nick Clegg, the Liberal Democrat Business Secretary is highly critical of the Government's economic and industrial policies.
"There is still something important missing: a compelling vision of where the country is heading beyond sorting out the fiscal mess; and a clear and confident message about how we will earn our living in future," he said.
"We can be more strategic and the economic backdrop will increase demands that we are ambitious."
Mr Cable criticised government initiatives as "piecemeal", "not followed through systematically", "missing valuable opportunities", lacking "a clear strategy for how to address the pressing issues" and showing "no connected approach across Government". He admitted that he was also being "self-critical"; his own Business, Innovation and Skills Department plays a key role in many of the policies.
"We need a more strategic and proactive approach using all of the Government's policy levers – rather than simply responding to crises after they have developed, or waiting to see what the market dictates," Mr Cable said.
He blamed a "lack of strategic pro-growth thinking in previous administrations" and warned "market forces are insufficient for creating the long-term industrial capacities we need".
His letter was leaked to the BBC on the day that Ed Miliband, the Labour leader, called for a more active and patriotic industrial policy and a Government-led "made in Britain" campaign.
Parts of the 8 February letter were disclosed last month. Yesterday's leak showed that Mr Cable is campaigning for RBS, which is 82 per cent owned by taxpayers, to be broken up to create "a British business bank, a clean balance sheet and a mandate to expand lending rapidly to sound business", supporting exports and strategically important industrial sectors. The idea is similar to Labour's plan for a British Investment Bank but it is strongly opposed by the Treasury, which wants RBS to be sold as soon as possible so the taxpayers' money can be recouped.
The leak will anger Tory ministers, some of whom have accused Mr Cable of being a roadblock to growth because he has opposed plans backed by Mr Cameron to make it easier for firms to hire and fire by eroding workplace rights.
Chuka Umunna, the shadow Business Secretary, said: "It is becoming increasingly clear that David Cameron and George Osborne have become roadblocks to the modernisation and reform needed to create a more productive economy... the simple truth is that this Government has no proper growth strategy and is ideologically opposed to the active-government approach needed to help bring it about."
Liberal Democrat allies dismissed the leak. Last night, Mr Cable insisted his letter "certainly wasn't a comprehensive attack on the Government's economic policies". He added: "This is an enormous storm made out of something much less. I think a great deal about what the Government is doing, and what my department is doing."
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