Vince Cable: Proud of our record, and our programme

I was a late convert, but now I have to convince the Liberal Democrat conference that the cuts are right and will be fair

(AFP/Getty Images)

The coalition enters its first party conference season intact, with a real sense of political momentum and an agenda packed with radical – and liberal – reform.

In both parties there are, of course, people with doubts and reservations and Liberal Democrats will not be bashful in expressing them. Almost by definition, a coalition dilutes the purity of party doctrine since it rests in compromise. The glass is bound to be half empty as well as half full and there are those who can spot a half empty glass at 100 yards. But I think they are a minority. Most will celebrate a substantial political achievement.

The biggest achievement is that, at a moment of national crisis and extreme uncertainty, politicians who have long been opposed – often bitterly – have set aside their differences and short-term tactical interests to work together in the wider national interest. For the public who inhabit the world outside the Westminster bubble, that is a refreshing and surprising outcome. There has always been a disconnect between the insiders who revel in the feuding, point scoring and verbal warfare of party politics and the wider public who want to see politicians rising above tribal conflict. At a time of crisis a careful and difficult balance has been struck. Our parties remain totally independent and will compete in future national and local elections but we have agreed to cooperate on a specific agenda in government.

A bigger achievement is to have united behind a difficult economic programme: to deal with the enormous budget deficit which we inherited, and is the legacy of the banking collapse and recession. The decision to make early cuts, on top of the big fiscal tightening which Alistair Darling had initiated, was controversial and I, for one, was a late convert. But it has been vindicated by the restoration of international confidence. Britain is now ranked with France and Germany rather than Spain, Italy and Ireland which may prove crucial if there is another alarm over sovereign debt.

The bigger task is to deal with the deficit as quickly as possible, through the spending review. None of us relish the prospect of cuts to services or measures affecting the livelihoods of public servants but there is no alternative to making some painful choices. Any responsible government would have had to face up to the truth that money does not grow on trees. There are however, especially in the Labour leadership, devotees of the Tree Theory of Money and we shall have a political battle to get unpopular measures accepted.

I am quite clear that we have to take the necessary measures to achieve credible deficit reduction. I am also clear that it must be done in a way that supports economic recovery since without growth it will not be possible to absorb the unemployed or, for that matter, to reduce the deficit in a timely manner.

So far the more alarmist predictions of double-dip recession have been confounded by evidence of private-sector recovery, particularly in manufacturing and exports. But growth will not miraculously appear. There will have to be flexibility in monetary and fiscal policy, to ensure that aggregate demand supports growth alongside supply-side measures of deregulation and competitive business taxation. And nothing is more important than sorting out the banking sector. One crucial step will be to ensure a flow of bank credit to business, especially small and medium sized enterprises, on affordable terms and conditions.

Mervyn King, the governor of the Bank of England, reminded us last week when speaking at the TUC, that this industry, which was the epicentre of the economic shock that hit the UK economy, is highly dysfunctional and needs structural reform. There will have to be ambitious reform across the board and some of the measures we are committed to in my own department – radical reform of higher and further education, bringing private capital into the Royal Mail, boosting scientific innovation, promoting "green" investment – will matter, in the end, far more than painful short-term cuts.

This appetite for reform is what marks this coalition government out. We could have settled for a minimalist programme, but haven't. Many of the reforms bear the imprint of the Liberal Democrats, a point which our party conference will appreciate. There is now a realistic prospect, for the first time in 80 years, for reform of the voting system as well as a badly needed clean up of party funding. The tide of centralisation is being reversed. There is a strong commitment to civil liberties and reform of the prison system. The environmental agenda is strong.

What will matter for my party and the country at large is whether fiscal discipline and wider reforms are carried through in a spirit of fairness. Within a few months, some key steps have been taken in that direction. The first has been to lift income tax thresholds, taking low earners out of tax and cutting direct taxes for those on low and middle incomes. The state pension, which was allowed to wither under Conservative and Labour governments, has been linked to earnings. Tax avoidance via low capital gains tax has been curbed. It is my department's responsibility to ensure that higher graduate contributions are more progressive: related to graduate earnings. A key test of our proposed radical and overdue reforms of the welfare system is that they are fair, providing protection for the vulnerable as well as incentives to work for those who can.

The spirit of my own party conference will, I predict, be upbeat with a sense of satisfaction about what has been achieved. But I expect searching questioning and a few brickbats. That is the way we are.

Vince Cable is a leading Liberal Democrat and Secretary of State for Business, Innovation and Skills