Editorial: Vince Cable has a point, but debt is not the only way to pay for infrastructure

It would take only a small rise in interest rates to put an extra painful squeeze on households and businesses.

It was certainly unfortunate timing. The Liberal Democrat Business Secretary’s somewhat equivocal analysis of the Coalition’s tricky fiscal choices appeared – in an avowedly left-wing magazine no less – just one day before the Prime Minister was at a West Yorkshire factory to deliver a pre-Budget speech setting out why the Government should, and will, stick to its strategic guns. Another round of speculation about Coalition splits duly followed.

In fact, Vince Cable’s lengthy, rather technical exegesis of Britain’s economic woes was more nuanced than the breathless over-interpretations imply. What the Business Secretary did not do, however, was dismiss the calls for extra public borrowing, to build the UK out of stagnation, as vociferously as he might have. And his conclusion – that the trade-off between more economic torpor and a market panic provoked by broken debt rules is “a matter of judgement” – could never pass unremarked.

There is, though, little reason to conclude that Mr Cable’s musings were deliberately planned, and timed, to rock the boat – not least because their contents were signed off by the Treasury itself. Indeed, it is in the context of this weekend’s Liberal Democrat spring conference, and his long-running, will-he-won’t-he rivalry with Nick Clegg, that the Business Secretary’s mildest of heterodoxies is better understood.

Either way, the Coalition is not about to change course. David Cameron used his speech in Keighley yesterday not only to pour cold water on the Tory right’s demands for radical tax cuts, but also to stand up to Opposition calls for Britain to take advantage of historically low interest rates to splash out on an infrastructure-building programme. To do so, the Prime Minister warned, would “jeopardise the nation’s finances”.

He is right. Were the state able to separate out that borrowing which is for spending and that which is for investment, the case for debt-funded stimulus would be strong. In the absence of such a mechanism, the move would see the Government abandoning its central economic strategy. The bond market reaction to so fundamental a volte-face is difficult to predict. But the risks are clear. Even if the more apocalyptic threats of panic were not fulfilled, it would take only a small rise in interest rates to put an extra painful squeeze on households and businesses. Hardly a recipe for growth.

That is not to say that Britain does not have a problem. Far from it. Although the latest data suggests the economy expanded slightly in 2012 after all, the outlook is still grim. Few forecast growth much beyond a single percentage point this year and standards of living are back where they were a decade ago. There is also a crying need for capital spending – particularly to address the burgeoning housing crisis. But funds must be found within existing debt targets.

This newspaper has called repeatedly for an end to the benefits paid to wealthy pensioners. It is time, too, for the Chancellor to reconsider the ring fences around health, education and international aid. The rationale was always political, a pre-election promise to stamp out the last taint of the “nasty party”. When money was slightly less tight, the gross distortions created by protecting inefficiencies in one area, while cutting back hard elsewhere, was just about manageable. No longer.

The Prime Minister likes to talk of tough choices. He did so again yesterday. It is time he made one. Britain needs more than the long-term competitiveness and short-term monetary tweaks that his speech suggests will be the heart of the Budget. The flatlining economy needs a jolt, and it needs it now. There is money there; the question is how we choose to spend it.