The business secretary, Vince Cable, on Monday evening infuriated his Conservative coalition colleagues when he chose the eve of the publication of the latest GDP figures to warn that Britain was experiencing the wrong sort of economic recovery and said his party was not wedded to the pace and scale of deficit cuts after 2015 set out by George Osborne.
He said: "There are different ways of finishing the job … not all require the pace and scale of cuts set out by the chancellor. And they could allow public spending to stabilise or grow in the next parliament, whilst still getting the debt burden down."
His remarks can be interpreted as putting him closer to the position set out by the shadow chancellor, Ed Balls, at the weekend.
Cable warned that weak exports and a hoarding of cash by businesses meant "the shape of the recovery has not been all that we might have hoped for".
The business secretary said the recovery was under way, but stressed that the UK should avoid another damaging boom-bust in the housing market by building more homes.
In a significant political move, he signalled his clearest parting of the ways with the Conservatives over deficit reduction when he opposed the chancellor's plan to save an additional £30bn in the next parliament.
"It is a case which he [Osborne] is perfectly entitled to make in a party capacity; but let us all be quite clear that this is a political and ideological commitment," Cable said in a lecture to the Royal Economic Society. "The Liberal Democrats will reduce the debt burden but ensure this isn't done at the expense of public services and the most vulnerable in society."
Cable argued that the additional £30bn austerity proposed by the chancellor after 2015 went beyond the joint coalition commitment to eradicate the structural part of the UK's current budget deficit – the part of non-investment spending that will not disappear even when the economy has fully emerged from the recession of 2008-09.
His remarks suggest the Liberal Democrats will not necessarily vote for the deficit reduction plan Osborne intends to put to MPs this autumn in an updated charter for fiscal responsibility.
Osborne originally conceived the vote as a way of isolating Labour. But Cable stressed: "The Liberal Democrats differ on ways of finishing the job – we want to ensure this isn't done at the expense of public services and the most vulnerable in society. It does not necessarily require the pace and scale of cuts set out by the chancellor.
"Undoubtedly some on the Conservative side of the coalition see fiscal consolidation as a cover for an ideologically driven 'small state' agenda. Indeed, it is one thing to respond to a record deficit after a long period of rising public spending, as we have since 2010. It is quite another to continue cutting hard from a position where the debt burden is falling and when spending has been under pressure for half a decade."
Noting that there was a case for the state to exploit record low interest rates to boost public investment, Cable said: "Some of the proposals to extend deep spending cuts on departments and welfare far into the next parliament have more than a whiff of ideology: slashing for its own sake."
Cable said the immediate outlook for the economy was encouraging – a view likely to be underlined when the Office for National Statistics publishes its first estimate of growth for the fourth quarter of 2013. The City expects expansion of 0.8% in each of the second and third quarters to be followed by a 0.7% increase in activity in the three months to December.
"A real recovery is taking place," Cable said. "The big question now is whether and how recent growth and optimism can be translated into long-term sustainable, balanced recovery without repeating the mistakes of the past. We cannot risk another property-linked boom-bust cycle which has done so much damage before, notably in the financial crash in 2008."
Cable said it was "disappointing" that a 25% devaluation of sterling had done little to improve Britain's trade performance and said the political uncertainty caused by the Conservative pledge to hold a referendum on Britain's membership of the EU was "deeply unsettling" for firms operating in the single market.
Cable said a third of mortgage debt was held by households who had borrowed more than our times their income. "The US subprime mortgage crisis and its British equivalent were built on the shaky foundations of encouraging mass home purchase in inflating markets and we know where that led. It must not happen again."
He warned: "Unless our government put long term rebalancing at the heart of economic decision-making I believe the recovery could prove to be short-lived."
