Extracts from the speech of Liberal Democrat Shadow Chancellor, Vince Cable to Scottish Liberal Democrat Spring Conference in Perth:

There is great potential for growth in Scotland for the Liberal democrats – we are the alternative to Labour in many constituencies and can reasonably expect 4 new MPs in Scotland at the next election, in addition to the 12 we already have.

Vince Cable MP

At Westminster, we have a very strong working relationship with Tavish Scott and the MSPs, as shown on our work together over the HBoS issue.

I did start off in Scotland, undertaking my political education overlooking the Clyde, as a councilor in Glasgow. In some ways Scotland was very different then – there was a two-party Labour-Tory system – but many things haven’t changed. Parts of Glasgow are still among the poorest places in Europe. And there is the same staggering disparity between the city’s deprived areas and its wealthier suburbs. Too little has been done to eradicate this poverty gap – that must be one of our central concerns as a party.

We are now in one of the most spectacular economic busts in history, in a recession triggered by a massive collapse in the banking system, both in London and Edinburgh.

Banks took enormous risks, and the system has collapsed like an enormous pyramid scheme. It was not necessarily criminal, except in its stupidity and in its reach.

There have been failures of regulation, which allowed banks like RBS and HBoS to engage in reckless lending; failures by the bankers themselves – the greed and stupidity of the Fred Goodwins of this world; failures by central bankers; but there was a political failure too.

David Cameron has acknowledged the Conservatives’ failure to see this coming in the past. This is to his credit, but it would have been rather bigger of him if he’d mentioned that the Liberal Democrats did see this coming, and warned about it.

Meanwhile, the Labour Government made a pact with the devil. It embraced the banking community, turning a blind eye to tax avoidance and excessive bonuses. In return, the bankers patted the Government on the head and said how well it was doing. This was a cosy relationship until it broke, destroying the Government’s reputation for competence and integrity.

I have never heard Alex Salmond set out what really would have happened had a bank on the scale of RBS collapsed in an independent Scotland. Scotland is an important country, but RBS is a colossal bank. Were Scotland independent, RBS would in effect be a very large bank with a country attached. RBS’ balance sheet is fifteen times Scotland’s GNP. The loss of corporation tax would have wiped out Scotland’s social spending. The cost of putting in capital to RBS would have been the same as the Scottish budget.

This is what a debate about nationalism should address in the present climate.

Labour has avoided its responsibilities since bailing out the banks. Those institutions that have been effectively nationalized must be run in the public interest; they must be required to lend to sound business, of which Scotland has many; bad debts must be separated out, and tax avoidance stopped. And there needs to be an end to grotesque remuneration practices. Ultimately, the banks should be sold off to the benefit of the taxpayer as they were after the Swedish banking crisis in the 1980s.

In a recession, Governments will have to run substantial deficits. If the Government did what the Conservatives argue and balanced the budget the whole time, it would only lead to more unemployment and a deeper recession. But the Government’s VAT cut has been a spectacular mistake; rather than wasting billions in this way, it should have been invested in social housing and environmental projects. In the Scottish budget negotiations, the Scottish Liberal Democrats pushed exactly the right priority in insisting on investment in schools.

Public spending is going to have to be very tightly managed in future. The Government should not be spending on ID cards and guaranteeing new nuclear power. But they also need to challenge spending in other areas which will be controversial – such as tax credits which are given to people earning up to £50,000. And there are greater priorities for spending than the Child Trust Fund.

There is an opportunity emerging from this crisis. Many will reexamine their allegiances. Traditional Labour supporters will ask if that movement has anything left for them. In Scotland, I know people will not look towards the Conservatives. And unlike the SNP, we are an outward-looking party. We are the only party with a set of values aligned to the needs of the time.