Cable: Government lacks 'compelling vision'

In the letter Cable calls for RBS to be broken up

Vince Cable says in a private letter to the prime minister and the deputy prime minister that the government lacks "a compelling vision of where the country is heading beyond sorting out the fiscal mess" and also does not have a "clear and confident message about how we will earn our living in future".

In a brutally frank analysis of what he sees as the shortcomings in the government's industrial and economic policies, the business secretary describes a whole raft of 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".

Perhaps his most radical suggestion is for a break-up of Royal Bank of Scotland, the giant bank 82% owned by taxpayers, to create a "British Business Bank with a clean balance sheet and a mandate to expand lending rapidly to sound business".

The letter, dated 8 February, comes on the day that both Mr Cable and the Labour leader, Ed Miliband, are setting out competing visions for the regeneration of British manufacturing and the British economy.

In a speech this morning to the manufacturers' lobby group, the EEF, Mr Miliband called for the creation of a "British Investment Bank", to provide a new source of finance for small and medium size businesses, and for a more active and patriotic industrial policy (see my earlier note).

But although Mr Cable today hailed the decision of Nissan to launch a new model from its Sunderland plant, with the potential to create 2,000 new jobs, it is clear from his letter that he has profound concerns about the shortcomings of his own government's industrial regeneration plans.

What may be seen as extraordinary is that he appears to be criticising in part the work of his own department.

He writes to David Cameron and Nick Clegg that he supports the economic strategy of cutting the deficit, keeping interest rates low, trying to promote exports to emerging markets and so on. But he continues:

"I sense however that 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 abut how we will earn our living in future… We can be more strategic and the economic backdrop will increase demands that we are ambitious".

He blames a "lack of strategic pro-growth thinking in previous administrations" and says that "market forces are insufficient for creating the long term industrial capacities we need". He then warns that "despite the biggest devaluation since the War, the improvement in the UK's trade balance has been disappointing".

Cable's recommendations

What follows is five broad policy suggestions.

First he says government "can show more leadership in identifying and supporting key technologies". In this area, he says:

"Our actions are, frankly, rather piecemeal. There are lots of individual funding decisions that lack support in other policy areas, or are not followed through systematically… There are gaps in the UK innovation system, notably a lack of support for large scale demonstration of new technologies".

Second, he calls for the government to "be willing to identify British success stories, as identified through success in trade, and explicitly get behind them at the highest political level". He is particularly worried at the potential damage to the UK's manufacturing capability because of "overcapacity in the European car industry and the potential retreat of BAE and EADS from UK production".

He says: "we need to plan how to develop a proper strategic partnership that retains capabilities in this country".

Mr Cable sees trade services - such as law, accountancy, architechture and education - as "crucial to rebalancing the economy towards exports". But he warns that "the government does not yet have a clear strategy for how to address the pressing issues, such as how to design our immigration cap for rapid global growth or improve future language skills".

The business secretary is also concerned that the government is not using its vast procurement budget effectively enough to encourage valuable new wealth-creating capacity in the UK, especially in supply chains (or the raft of companies that supply services and components to manufacturers and infrastructure companies). He warns there is "no connected approach across government".

Mr Cable also reveals that two business leaders, Ratan Tata - whose conglomerate owns Jaguar Land Rover - and Vincent de Rivaz, who runs EDF in the UK and is building a new generation of nuclear power plants in Britain, have expressed "great frustration about lack of joined up thinking in this area."

A plan for RBS

But perhaps inevitably it is Mr Cable's views on the much criticised banking sector which may attract the greatest attention. He says:

"My suggestion is that we recognise that RBS will not return to the market in its current shape and use its time as ward of state to carve out of it a British Business Bank with a clean balance sheet and a mandate to expand lending rapidly to sound business. We should be willing to use such an institution to support our other industrial objectives, such as supporting exports and sectors identified as of strategic importance".

This stress on supporting strategically important sectors sounds a good deal like the putative "active" industrial policy Mr Miliband has been demanding.

Here is Mr Cable's big point: "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".

Whether his colleagues, especially his Conservative colleagues, will welcome the implication that the government is the slave of events, rather than the master of them, is questionable.

UPDATE 17:00 GMT

A helpful colleague has pointed out to me that the FT obviously had sight of some of the letter, because on 12 Feb its political editor wrote a story including the quote about the government lacking a "compelling vision".

But there are few other quotes from the letter in the FT story. And curiously the FT does not appear to have had knowledge of Mr Cable's proposal that RBS should be broken up, to create a British Business Bank.