Andrew Marr interviews Vincent Cable

1.47.10pm GMT Sun 23rd Nov 2008

• ' . . WE prefer a different approach, which is more targeted on people who really need it, and we believe that people on low incomes, low wages should get an income tax cut, . . '

Andrew Marr: . . I just wonder whether you think there's going to be a further twist in the banking cycle where the Government . . gets more control of our banks?

Vince Cable: Well the Government must use the levers that it's got. It's already put £37 billion of taxpayers' money into the banks, and yet the money isn't coming out at the other end. I mean just to give some indication of the magnitude: Barclays, one bank, has a balance sheet which is twice as big as the whole of government debt, so a small cut in their lending swamps anything that the Chancellor was going to do tomorrow in terms of tax cuts and government has to get control over this.

Andrew Marr: And Barclays has desperately tried to stay out of the government clutches and put themselves into terrible trouble with their own shareholders.

Vince Cable: Yes, indeed, and they're borrowing money from the Arabs at 16 % - 14 % plus 2 % commission. I mean how are British customers going to pay that? It's going to have a disastrous effect on British industry. So you know the Government really does have to exercise effective control over the banks. I don't mean you know controlling every individual loan - it's not the job of ministers to decide whether Bob the Builder gets a loan - but they must get there on the boards, setting the strategy for the banks and making sure that the economy moves forward.

Andrew Marr: So there should actually be government representatives on the boards of the banks?

Vince Cable: Absolutely and I don't understand why they walked away from their responsibilities in that respect.

Andrew Marr: Coming onto tomorrow, if the Government announces 2.5 % off VAT, will the Liberal Democrats support that?

Vince Cable: We would prefer to do tax cuts in a different way. A big tax cut's desirable - that's certainly the case - and a VAT cut would act very quickly, which is positive. But we prefer a different approach, which is more targeted on people who really need it, and we believe that people on low incomes, low wages should get an income tax cut, lifting thresholds or reducing the rate, and that's a much better way of concentrating resources where it needs it. And it would also be sustainable because we've identified how we would pay for it.

Andrew Marr: Sure.

Vince Cable: It wouldn't just be a temporary handout.

Andrew Marr: You've had to live for some time in an imperfect world where the Liberal Democrats are not in power. You have to look at what the Government does. So I ask again, if the VAT cut is what is on offer, it seems to be, will you vote for it or against it?

Vince Cable: I don't think it's put to the vote, but certainly we would support a tax cut but we have alternative proposals which we think are better, which are fairer and more sustainable and have a better way of introducing spending into the economy over the long-term, so that the tax isn't clawed back. And we've said you cut taxes on people on low pay and people who are very well off should pay for it, so it's a funded tax cut.

Andrew Marr: Given that people are looking ahead and can see the likelihood of quite sharp tax rises in the middle term, isn't it going to be impossible to persuade people to actually go out there and spend more? Lots and lots of people, as we were hearing earlier on in the paper review, are already over borrowed. Now politicians are going to them, saying "Go on, spend a bit more."

Vince Cable: Well, there is a danger of any tax cut that it's not perceived as permanent. That's why we want a tax cut that is permanent. But that's why the stimulus to the economy can't just come through that route. In many ways, something much more important I think has to happen tomorrow; is that we've got to see significant government investment and the classic area is social housing.

The construction industry's on its back, tens of thousands of people are being laid off, houses are not being built. The Government has a massive opportunity here to acquire land at very cheap prices that are going at the moment, building very substantial numbers of social houses for people on waiting lists. It can actually do something proactive. Of course it has to be financed in the short-run from government borrowing, but this is a major way in which the Government can actually get the productive economy going forward and we get an asset in the form of housing.

Andrew Marr: I'm going to be talking to David Cameron later on, but he has clearly repositioned the Conservative Party in a more traditional Conservative place, if you like. The Government is doing quite a traditional Labour thing. Looking at the opinion polls - and I know they're only opinion polls - the danger for your party is that you're going to be crushed in the middle again, having a very hard time. Interesting commentators, but a commentator's party, not a party vying for power.

Vince Cable: Well I think there's a poll this morning that has us on 19 %. We'd like to be more than that, but that's perfectly respectable. And I think people have acknowledged that in this big debate about the economy, we were there first in terms of analysing what was going on and coming up with constructive solutions and we shall continue to do that. The Tories have been all over the place. I mean they didn't see this crisis coming. They had no response to it. They've got nothing constructive to suggest and they're simply hoping for economic peacetime with these eventual tax cuts that they're proposing in the long-term, and they're not facing up to the fact that we have an emergency.

Andrew Marr: Now it is an emergency, but as you huddle together in the Lib Dem camp and talk about it, are you also talking and thinking about the possibility of an early election on the back of it?

Vince Cable: I don't think it's likely, but, yes, we're ready for an election at any time.

Andrew Marr: Vince Cable, thank you very much indeed for coming in.

Vince Cable: Thank you.