07/03/2013 06:46 GMT | Updated 07/03/2013 11:35 GMT

Nick Clegg Distances Himself From Vince Cable On Borrowing, Warns Of Interest Rate Spike

Nick Clegg has distanced himself from Vince Cable's call for George Osborne to consider abandoning his economic Plan A in favour of increased borrowing to stimulate growth in the economy.

Asked about the business secretary's suggestion the "balance of risks has changed" against tight fiscal discipline in favour of more borrowing, the deputy prime minister said: "I am afraid there is no cost-free, risk-free, magic-wand solution to this."

Writing in the New Statesman yesterday, Cable suggested the chancellor needed to borrow more in order to finance more capital spending such as the building of schools, rail projects and housing.

He said this would "not undermine the central objective of reducing the structural deficit, and may assist it by reviving growth".

Speaking on his weekly LBC radio call-in show, Clegg said he shared Cable's "frustrations" that many capital spending schemes were taking a long time to get going.

"I have been more outspoken than Vince in that I wished labour hadn't made dramatic cuts in capital investment that we inherited from them," he said.


"The question is not is capital investment a good thing, I think everyone agrees it is, it's how do you pay for it?"

Clegg said he was sure Cable "would be the first to acknowledge" that if the government said "to hell with it" and borrowed up to £40bn to invest it could "unwittingly make it more difficult for everyone else as interests rates would go up".

He added: "I am afraid there is no cost-free, risk-free, magic-wand solution to this."

Cable's intervention moves him close to the position held by Ed Balls - who has frequently argued in favour of increased borrowing in order to invest in the economy.

SEE ALSO: Vince Cable Tells Osborne To Change Course

Osborne has resolutely refused to change economic course, arguing that abandoning the "fiscal discipline" of spending cuts would panic the markets and risk increasing borrowing costs.

And in a speech today David Cameron will vow he is "sticking to the plan" on the economy. The prime minister will pledge to "hold firm" despite a turbulent few weeks that has seen loss of Britain's AAA credit rating and a by-election drubbing.

On Wednesday morning Downing Street said the prime minister believed changing economic direction would abandon "fiscal credibility" and risked unsettling the markets leading to rise in borrowing costs.

"You see through that the borrowing costs that feed through to small businesses being near historic lows, that is result of the government's fiscal credibility," the prime minister's spokesperson said.