Vince Cable attacks 'ideological' cuts and says UK's recovery is wrong kind

Vince Cable said 'the shape of the recovery has not been all that we might have hoped for'. Photograph: Danny Lawson/PA

The business secretary, Vince Cable, put himself at odds with his Conservative coalition colleagues on Monday evening when he attacked George Osborne's "ideological" plans to cut welfare and warned Britain was experiencing the wrong sort of economic recovery.

On the eve of growth figures expected to show that the pick-up in output remained strong in late 2013, Cable said 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 stressed that the UK must avoid another damaging boom-bust in the housing market by building more homes, and signalled a 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. He added: "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 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.

"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 added: "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."

Giving a lecture to the Royal Economic Society, the business secretary 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. 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.

"The actual risks of leaving may be small but one of the most useful contributions to recovery our coalition partners could make, in the national interest, would be to do more to remove this unnecessary risk."

The early stages of the UK's recovery from its deepest postwar slump have been dominated by rising house prices and consumers running down their savings to support their spending patterns. Cable said a third of mortgage debt was held by households who had borrowed more than four 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."