Anything less than a £30bn injection of public spending and tax cuts in Monday's mini-budget will smack of "tokenism" by the government, according to Vince Cable.
Anything less than a £30bn injection of public spending and tax cuts in Monday's mini-budget will smack of "tokenism" by the government, according to Vince Cable.
The LibDem Treasury spokesman, who has been a political weathervane on the unfolding financial crisis, warned that a massive tax and spending package, equivalent to 2% of GDP, will be needed to prevent the recession moving into a slump.
Even then Mr Cable claimed that unless the recapitalised banks resume lending to each other and consumers the recession will deepen and the government could be forced to borrow more to prop up the economy.
Mr Cable said there was no "objective evidence" to show that the economy would recover in 2010 after the "short, sharp" recession predicted by Mr Darling.
Outlining the options for what he described as a "wartime" economy, Mr Cable said that the worst-case scenario involved a partial recovery "with the economy bucking along at the bottom of the graph". In that situation the government might be forced to borrow from its own central bank as other sources of finance became too expensive - effectively the Bank of England "printing money".
Mr Cable's dark predictions came amid reports of tensions between Downing Street and the Treasury over the size of the "fiscal stimulus" to be unveiled on Monday, with the Prime Minister pushing for a maximum boost to the economy and Mr Darling holding the corner for expenditure that can be repaid over the medium term.
The Conservatives have accused the government of paving the way for unfunded tax cuts.
In his pre-Budget report briefing for journalists, Mr Cable called for swingeing tax cuts equivalent to 4p in the pound, to raise between £16bn and £18bn, coupled with a massive increase in public spending on housing, transport and environmental works such as home insulation. The Green New Deal would also involve £3bn of green taxes on air travel and the closure of tax loopholes and tax relief enjoyed by the wealthy.
As Mr Cable spoke, figures were issued showing tax receipts for October were the worst for 14 years. The public sector borrowed a net £1.4bn last month, compared to a net repayment of £1.8bn a year earlier, according to the Office for National Statistics.
October is usually a strong month for tax receipts, but this year was the first time since 1994 that net borrowing was recorded. The figures showed net borrowing since April soaring to £37bn - almost double the £20bn seen in the same period last year.
In the pre-Budget report Mr Darling will reveal his new forecast for the Budget deficit which could be at least £60bn for public sector borrowing figure this year, as rising unemployment and a slowing economy squeeze tax revenues. Adding the borrowing required for the fiscal stimulus package, anything up to £30bn, would send it much higher.
John Swinney, the Scottish Government Finance Secretary, wrote to Mr Darling yesterday urging him to produce a balanced package of tax cuts and increased spending.
John McFall, the West Dunbartonshire MP and chairman of the influential Treasury Select Committee, joined calls for the recapitalised banks to start lending to small businesses - or face public pressure for nationalisation to increase. Yvette Cooper, the Treasury Chief Secretary also warned that the recession would be "longer and deeper" without urgent government action.
