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G20 Summit

Volume 483: debated on Monday 17 November 2008

I am sure that the whole House will join me in sending our profound condolences to the family and friends of the three servicemen killed in Afghanistan in the past few days. They were Marines Neil Dunstan and Robert McKibben from the UK Landing Force Command Support Group, and Colour Sergeant Dura of the 2nd Battalion of the Royal Gurkha Rifles. We owe them and all those who have given their lives in conflict a huge debt of gratitude.

I should like to make a statement on the Washington summit on financial markets and the world economy. This was the first ever G20 leaders’ summit, which I attended this weekend with the Chancellor of the Exchequer. In just over six months, the world has seen a 40 per cent. collapse in global share values, while global financial institutions have written off losses approaching $1,000 billion and world oil prices have peaked at nearly $150 a barrel and then sunk 60 per cent. We have seen a fall in global expectations for growth in the world’s industrialised countries from 2.5 per cent. in 2007 to below zero for 2009, with all the impact that that has on families and businesses and all the worries about mortgages, jobs and family security in Britain and around the world.

What is making this a fully worldwide crisis is that in recent weeks a problem that started in America has extended to emerging markets and developing countries, some of which are facing bankruptcy. These unprecedented global events call for unprecedented global action. While the economic problems of the 1970s created the G5 and then the G7, it is right that for the first time leaders from developed, emerging and developing economies, which are responsible for 85 per cent. of global growth, met and agreed on the urgency of common and concerted, and where appropriate co-ordinated, actions to address the financial and economic crisis.

To put the long-term challenge in context, in the next 20 years it is expected that the world economy will double in size. This will mean a doubling of opportunities for British business and new opportunities for British workers and families. However, to make the transition to, and secure the benefits of, an open and inclusive globalisation, we have to deal with three other consequences that that brings. Those are, first, the need for restructuring of industries and services, not least resulting from the rise of Asia; secondly, increased competition for resources as long-term demand for oil, food and commodities from the newly emerging economies threatens to outstrip supply; and, thirdly, now that we have global flows of capital, the need to ensure a global framework for financial services as a precondition for prosperity and security.

As epitomised by the sub-prime crisis, which started in America, at the root of the banking crisis was a failure by banks to manage risk, to understand increasingly opaque and complex financial products and to make transparent a developing shadow banking system—[Interruption.]

Order. I am always on the record as saying that I want Ministers, including the Prime Minister, to come to the House to make statements. That does not give hon. Members, including hon. Ladies, a licence to shout anyone down.

Thank you, Mr. Speaker.

In Washington, we agreed first of all fundamental reform of the way the financial system is supervised around the principles that Britain has been promoting. They are greater transparency, responsibility, integrity—to avoid conflicts of interest—better banking practice and international co-operation. That includes establishing international colleges of regulators; bringing transparency to tax havens by including them within the scope of the financial system; convergence of accounting standards; reviewing executive compensation schemes that encourage excessive and irresponsible risk-taking; full disclosure of toxic assets; and reform to end conflicts of interest in credit-rating agencies. We set a clear timetable, tasking our Finance Ministers to prepare immediate measures for implementation by 31 March, and to report back on progress with the full action plan at the next meeting.

The summit also agreed that the recapitalisation of the banking system was the right course of action. The action that we have taken in the United Kingdom to buy shares in banks has now been followed in every continent of the world, and guarantees have been introduced to allow banks to raise the money needed to continue to support the real economy, as they must, through lending to businesses and families.

We agreed that, against the background of economic conditions worldwide, a broader policy response was needed immediately, based on closer macro-economic co-operation. Importantly, we made it clear that, within our commitment to fiscal sustainability, the broad and international policy response would need to encompass both monetary and fiscal policy action. Although it is for independent central banks to make their own decisions, we recognised the importance of monetary policy to the restoration of growth. Some contended that it was impossible to cut interest rates in Britain for fiscal reasons, but, in fact, the Bank has now, in two successive months, made two cuts worth in total 2 per cent. and the Government have stated clearly that there is scope for further action. A measure of the level of international co-operation that has already resulted is the extensive currency swaps put in place between central banks and the co-ordinated cut in interest rates across Europe, Asia and America a few weeks ago.

Crucially, and for the first time, our Washington statement agreed a broad and concerted international macro-economic policy response in fiscal policy, meaning measures to support families and businesses now. First, we agreed that fiscal policy has an essential role to play alongside monetary policy in sustaining demand, with quick-acting measures to encourage a rapid impact with help for households and businesses. Secondly, we agreed that the benefits of fiscal policy action will be greater for each country if all countries can act in a concerted way.

This imperative is shared internationally. In recent days China, South Korea, Australia and Germany have joined other European countries, including Spain and France, in considering new fiscal stimulus packages. The European Union has already said that the flexibility in the stability and growth pact to recognise exceptional and temporary conditions will be used. President-elect Obama has already stated that a new fiscal stimulus package in the United States is both necessary and urgent. Most previously published forecasts have assumed the absence of co-ordinated fiscal action, but the downturn can be shorter and less deep if Britain takes action, and if that action is matched elsewhere.

It is for individual countries to make their own announcements, as we will do in due course, but the more co-ordinated the action, the greater the benefit to each country will be. I believe that the emerging consensus across the world—from the International Monetary Fund itself, from Governments of left and right, and from political parties, with only a few exceptions, in developed and developing countries—is that we should take rapid, co-ordinated and concerted action through the use of budgetary measures.

Over the past year, the central problem facing the global economy and the UK economy was inflation, driven by a sharp rise in international commodity prices and allied to a credit crunch, which left fewer options for Governments. This year, the reality is the sharp falls in commodity prices that are now taking place, while the credit crunch is leading to contractions in bank lending. The risk in this new environment is not stagflation but the impact on the economy of close-to-zero inflation at the time of a downturn, so it makes sense for Governments to support interest rate cuts with fiscal action. That is giving real help to families and businesses now, and I believe that, in addition to the announcements already made, we will see in the next few weeks many countries following with expansionary measures founded on that agreed international position.

The third central message of the summit is that in taking action, we must resist all forms of protectionism. These threaten to slow down and eventually to stall world trade, thus denying us the benefits of one of the great engines of new growth. So, uniquely, all nations signed an agreement that over the next 12 months they will resist pressure and refrain from raising new barriers to investment and trade. The key to confidence in open trade is, of course, the signing of the world trade agreement, on which talks have stalled since the summer. We cannot allow that impasse to continue, and I welcome today’s new agreement—following Saturday’s summit—to work towards a ministerial meeting in December. To ensure that the trade round is truly a development round that benefits the poorest countries, it will be accompanied by an agreed $4 billion aid-for-trade programme for infrastructure in developing countries. In discussing the issues facing poorer countries, the summit reaffirmed the importance of meeting the millennium development goals—an importance of applying the same common purpose to the challenge of alleviating poverty.

Some have argued that as long as the trade talks remain deadlocked on specific issues, no deal can be agreed, but the G20 was explicit about the action that we have to take: for the first time we have instructed our Trade Ministers to agree, by the end of the year, the outlines needed for a successful conclusion to the Doha agreement.

Finally, the G20 leaders have also agreed that the next summit will allow us to review, and to make decisions on, the wholesale reform of the international economic architecture—built in 1945 but no longer adequate for the challenges of 2008. In agreeing on the need for reform, we also set down the agreed changes that we believe are already essential: a greater voice and representation for emerging and developing countries; an urgent expansion, with broader membership, of the Financial Stability Forum; and, better identification of vulnerabilities and anticipation of potential stresses, with swifter action in crisis response.

The International Monetary Fund’s ability to assist countries facing problems as a result of the current shock depends on its reserves of $250 billion. We welcome the announcement from Japan to lend up to $100 billion, but that may not be enough, and we agreed to review the IMF’s facilities to ensure that it has the flexibility to give countries the help that they need. The World Bank agreed that it would make new commitments of up to $100 billion over the next three years to protect the newest, the poorest and most vulnerable countries, and $30 billion-worth of new facilities specifically to help address the problems faced by the private sector, including recapitalising banks and providing trade finance.

At this unique moment in our economic history, we are seeing the world come together to find global solutions to what are the global problems that we face. Over the next few weeks and following consultation, Britain, as the incoming chair of the G20, will lead the preparations for the next summit, working alongside past and future chairs. We will set out the schedule of events, meetings and papers that will take us to the next conference, the date and venue of which will be announced next week. In the run-up to the conference, we will monitor, following the recapitalisation of banks, the barriers to the resumption of funding, because this summit and the meetings that will follow are about the real challenges of everyday life: the need for people to have confidence in the banks that hold their savings and their mortgages; and the need to know that everything possible is being done to help them in their jobs. We pledge that with national and international action together—real help in difficult times—we will take people fairly through this downturn. I commend this statement to the House.

I join the Prime Minister in paying tribute to Colour Sergeant Dura and to Marines Neil Dunstan and Robert McKibben, who were all killed in Afghanistan. As the Prime Minister said, they were serving our country, and we honour their memory.

Everyone welcomes the fact that the summit was of the full G20, involving countries such as Brazil, India and China. It discussed the immediate response to the recession and proposals for the longer term. I shall start with the longer-term reforms. On trade, after so many false dawns, does the Prime Minister believe that this time there is a real prospect of agreement on Doha? On financial reform, there are the Basel accords, which govern bank lending. For a year, we have been arguing that the rules should be made counter-cyclical, but does the Prime Minister agree with me that international action should be combined with action at home, such as the debt responsibility mechanism that we have proposed for the Bank of England to call time on debt? On international institutions such as the IMF, does the Prime Minister agree with me that genuinely sharing global leadership with countries such as India and China means giving them a larger say in how these organisations are run?

The section in the communiqué on the IMF includes talk of early warnings. Is it not also vital that countries listen to the warnings that they are given? The IMF warned Britain last year that household debt was rising rapidly, that our financial institutions were vulnerable and that, as a result, we faced a potentially severe impact. In future, will the Prime Minister listen to these warnings?

Next there is the failure of the regulatory system, particularly concerning credit rating agencies and complex derivatives. The G20 rightly talks about the importance of co-operation, but can the Prime Minister be clear about what is actually proposed? It does not mean detailed international regulation, but international co-operation over regulation. The G20 communiqué rightly states explicitly:

“Regulation is first and foremost the responsibility of national regulators”.

It is quite damning about national failure. It says—this is the communiqué that the Prime Minister signed up to—that

“some policy makers did not adequately appreciate and address the risks building up in financial markets, keep pace with financial innovation, or take into account the systemic ramifications of domestic regulatory actions.”

For the past 10 years, the Prime Minister was the economic policy maker in Britain, so what responsibility does he take for those failings here?

I turn to the recession, about which the Prime Minister makes two claims. The first claim is that Britain’s economic situation is all imported from abroad. He has said that it started in America so many times that it is starting to sound ridiculous. Can he answer this—[Hon. Members: “It’s true.”] If it is true, he is going to have to answer this question. If Britain is so well prepared, can he explain why the IMF believes that the British economy will shrink faster next year than any major economy in the world? Can he explain why the European Commission says that we face a deeper recession next year than anywhere in the EU except for Estonia and Latvia? Far from being well prepared, Britain faces a deep recession. Is that not why in the past few months our currency has fallen more sharply than any major currency and more sharply than ever before in our recent history?

“A weak currency arises from a weak economy which in turn is the result of a weak Government”—

[Interruption.] I do not know why the hon. Gentleman is pointing at me; that was not my hon. Friend the Member for Tatton (Mr. Osborne) this week, but the Prime Minister when he was shadow Chancellor. As the hon. Gentleman was talking, I shall read the quote again. It says that

“a weak currency arises from a weak economy which in turn is the result of a weak Government”—

[Interruption.] I am so pleased to have made the Prime Minister smile.

The Prime Minister’s second claim is that there is universal support for a fiscal stimulus paid for by additional borrowing. Yet of the 3,500 words in the G20 communiqué, just 21 were about the fiscal stimulus, and they included the condition that the stimulus should be “appropriate” and “conducive to fiscal sustainability”. The real international consensus is that only the countries that have been fiscally responsible are best placed to act now. Is that not why the OECD recommended a fiscal stimulus for those countries that had consolidated their public finances? Is that not why the European Central Bank said that if a country has borrowed more than 3 per cent.—as we have done—it should not borrow even more? Even this weekend, what the head of the IMF actually said is that a fiscal stimulus should take place only

“where it is possible…where you have some room concerning debt sustainability.”

How can our Government claim that our debt is sustainable when our borrowing this year, before the recession has properly started, is among the highest in the developed world, and when we have just spent £40 billion on a bank rescue?

The Prime Minister keeps citing China, but China, like Spain, the Netherlands, and Australia—like half the OECD, in fact—has a budget surplus. In Britain, our Prime Minister used the good years to build up the biggest budget deficit in the industrialised world. Is that not why, in Britain, more discretionary borrowing now, without knowing where the money is coming from, is bound to mean higher taxes later? Is that not what the Employment Minister admitted last Tuesday? Is that not what the Chancellor admitted last Wednesday? Is that not what the Business Secretary, not known for admitting anything, admitted this morning, when he talked about

“a medium term adjustment some years ahead”

and a

“structural adjustment later on”.

Translated into English, does that not mean higher taxes under Labour?

Is it not the case that Labour’s borrowing bombshell will soon become a tax bombshell? Let us be absolutely clear about what this means: borrowing £30 billion now will mean an income tax bill for the average earner of nearly £1,500 later. Everyone knows the Prime Minister is planning a Christmas tax giveaway, but tax cuts should be for life, not just for Christmas. We need real tax cuts, not Labour tax cons.

Just two years ago, the Prime Minister said:

“No political party will be trusted if it promises stability in one breath and unfunded tax cuts in the next”.

Let me remind him of what he said. He pledged solemnly:

“To make unfunded promises, to play fast and loose with stability… is… something I will never do and the British people will not accept.”

So now that he has broken that promise—now that he is promising a borrowing bombshell—will he start his response by being straight with the British people? Will he admit that by borrowing more now, he will have to tax more later? Just for once in his life, can he give us a straight answer—do not his borrowing plans today mean higher taxes tomorrow?

Let me start with a quote from the Leader of the Opposition:

“I always think Leaders of the Opposition have to be careful not to… talk down the economy. You know there are some strong fundamentals in the British economy and we should celebrate those and point them out.”

That was his position a few months ago. He has changed his position today. A week ago, he said he favoured borrowing out of the crisis. Now he is against it altogether. Even the Americans agree that the financial crisis started in America. As for the regulation of banks, mortgages and pensions, it was his financial competitiveness working party that recommended the deregulation of pensions and mortgages only some time ago.

I have listened on many occasions to the Leader of the Opposition and to the shadow Chancellor, and I have come to the conclusion that they do not understand what is happening in the world economy. I do not think that the Leader of the Opposition realises that while last year, and in the last few months, the problem has been inflation—we have had inflation combined with a credit crunch—in the next year, the problem is deflation and the problem—[Interruption.] Inflation close to zero.

The answer is, as everybody has said at this international conference, that we combine monetary policy with fiscal action so that we have the best impact on growth in the economy. The Conservative party seems to be the only party that is now standing against what is a consensus developing across Europe and across the world: unless we take the fiscal action that is necessary now, and help businesses and families now, we will be undoing any benefit that can come from monetary policy and cuts in interest rates. I hope that the Conservatives will think again.

The right hon. Gentleman sometimes quotes Canada. The Prime Minister of Canada has just said, at the end of the meeting—[Interruption.] The Prime Minister— [Interruption.]

Order. I expect better from you, Mr. Soames, than shouting across the Chamber. [Interruption.] Order. The hon. Gentleman should be setting a good example.

The Prime Minister of Canada said:

“There’s a view coming out of this meeting, very strongly I can tell you… that monetary policy alone will not be sufficient to take the global economy through this crisis. There will have to be fiscal action, and there will have to be additional fiscal action.”

That is what almost every country is now saying as a result of what is happening around the world. It is the Conservative party that is out of touch. Then, there is Mr. Dominique Strauss-Kahn, the managing director of the International Monetary Fund, who said:

“What countries do you think should have it?”—

that is, the fiscal stimulus.

“I want to answer your question candidly. Everywhere where it’s possible. Everywhere where you have some room concerning debt sustainability. Everywhere where inflation is low enough not to risk having some kind of return of inflation, this effort has to be made.”

Let us also be clear about debt comparisons: France 55 per cent. of GDP; Germany 56 per cent.; Italy 101 per cent.; Japan 94 per cent.; the USA 46 per cent; the United Kingdom 37 per cent.

The Opposition have been wrong on every single matter concerning this downturn: they were wrong to oppose the nationalisation of Northern Rock; they were wrong to say that we should not act against shares speculation; they were wrong to say that we could not cut interest rates because the fiscal position was in a bad state; they were wrong to say on Sunday that we could not persuade the rest of the world of the need for a fiscal stimulus; they were wrong with their fuel duty stabiliser that would put fuel duty up by 5p now; they were wrong with the employment policy last week, which was dismissed by the Small Business Federation not as an incentive to employment but, after spending £2.5 billion, as a disincentive to employment. They have been wrong on every single occasion when they have turned their minds to economic policy. They are not only outside the national consensus, but outside the international consensus as well.

What, then, is the answer of the Leader of the Opposition? It is to bring back the right hon. Member for West Dorset (Mr. Letwin). That is what he means by “time for a change”. Everyone is tested by the economic circumstances we face: Governments are tested and Oppositions are tested. This Opposition have been tested and found wanting.

Order. Mr. Luff, you should calm down—[Interruption.] Order. The hon. Gentleman should calm himself, or is he telling me that I am not chairing the proceedings properly? I do not think that he would want to do that.

I would like to add my own expressions of sympathy and condolence to the family and friends of Colour Sergeant Dura and Marines Neil Dunstan and Robert McKibben who tragically lost their lives in Afghanistan this week.

I thank the Prime Minister for his statement. I, too, think that it was good that this was a G20 summit, which included new powers such as India, China, Brazil and others. I hope that that will be a precedent for the future because global governance can no longer be a stitch-up of the old powers alone.

I also strongly agree with the Prime Minister’s words on the danger of protectionism. The lesson from the 1930s is indeed that narrow nationalism and trade barriers will only make matters worse. Speaking as one who was at the inception of the Doha development round in 2001, I feel strongly that we must seek to trade our way out of this recession.

British exports, of course, will be boosted after the recent fall in the value of the pound after a long period of over-valuation. In my opinion, the shadow Chancellor was well within his own rights to talk about the falling pound, even if he made almost no sense at all. Does the Prime Minister agree that this sudden desire for currency stability is a bizarre U-turn from a party that once referred to the euro as a “toilet paper currency”?

The Prime Minister spoke a great deal today about a fiscal stimulus, and it is rumoured that he wants to borrow money for a temporary tax rebate. In my view, it is right to give money back to people on low and middle incomes who are more likely to spend some of that money, but instead of borrowing for a one-off tax cut, the Prime Minister could pay for a big permanent tax cut by ending unfair loopholes for the very wealthy. Would not that be fair? The right thing to borrow for is not short-term cash bribes, but long-term capital investment in infrastructure which the country needs in any case. Does he agree that extra borrowing can be justified only to fund green energy, sustainable transport and the homes we need for a sustainable economic recovery?

The Prime Minister still seems incapable of differentiating between good public spending and bad public spending. Why in the teeth of this recession, does he still want to waste £13 billion of the public’s money on an NHS computer system that will not work, £12 billion of it on a surveillance database that no one wants and £5 billion on ID cards that no one needs?

I know that in the past the Prime Minister has struggled to distinguish between cutting public spending and redirecting it as we want, but does he now accept that my party’s plans to redirect wasteful spending to things that people really need in a recession—such as homes, child care, education, training and fairer taxes—are the right thing to do?

The Prime Minister has spent several weeks jetting around the world. Will he now focus on three key steps that will help people here at home: permanent fairer taxes, borrowing only for long-term investment, and redirecting public spending towards the things that people really need in a recession?

The first thing that I should say to the right hon. Gentleman is that it is important that we do not cut capital investment at this time. The capital investment that we are making in homes, education, the health service and the environmental technologies of this country is capital investment that we will continue. I hope that the right hon. Gentleman will be able to support us when we say that it would be totally wrong, at a time when we are preparing for the next stage of the world economy, to cut capital investment in those areas.

I must also say to the right hon. Gentleman that we have removed tax loopholes in every Budget since 1997, including the loopholes removed by the Chancellor in the last Budget. I see no evidence from my reading of the Liberal Democrats’ policy document that they can find the billions that they say are to be found in the cutting of tax loopholes, and I believe that, when subjected to rigorous examination, their policy once again does not stand up.

I have to tell the right hon. Gentleman that if he cuts public expenditure and says that that constitutes savings, as he is doing, he is still cutting public expenditure by £20 billion.

I welcome my right hon. Friend’s statement, and particularly welcome the international backing for the actions that he has taken. I think we all recognise that he has a difficult task to perform in ensuring that sustained public expenditure maintains our economy at an appropriate level and, at the same time, helps hard-working families. Can he assure me that he will resist the siren voices on the Opposition Benches calling for the introduction of a fuel duty stabiliser?

In the heat of the summer, to gain a bit of publicity, the shadow Chancellor announced that he had a fuel duty stabiliser. The problem with the fuel duty stabiliser is that the minute petrol prices fell to 97p a litre, the right hon. Gentleman would have been bound to put the price up by 5p a litre. I do not think that, even with his bluster, he can deny that that is the case.

This is just one of the Conservative ideas that were launched in the morning, were found wanting in the afternoon, and are never talked about now. The right hon. Gentleman had exactly the same problem with his proposed employment measures last week. His proposal to spend £2.5 billion on employment, one of the biggest outlays of public expenditure, was rejected by the Federation of Small Businesses as a disincentive. I think that the Conservatives will have to go back to the drawing board, but I do not think that the right hon. Member for West Dorset (Mr. Letwin), who lost them the 2001 and 2005 elections, will be of much help to them.

Will the Prime Minister not confess that he went to the summit to obtain cover for the short-term borrowing on which he intends to embark as much for electoral as for economic reasons? Does he not accept that the summit statement stresses debt sustainability, which he noticeably omitted from all his own statements, and that if he goes ahead with adding to the level of debt that will, I hope, be revealed in full next Monday, he will merely build up impossible problems for the Government who must follow, and must sort out the mess that he has created over the 10 years of his stewardship?

When the right hon. and learned Gentleman was Chancellor, debt was 44 per cent. of GDP. At the moment, according to the IMF, it is 37 per cent. of GDP. That is debt sustainability: it means that we can build on a level of debt that is lower than the 1997 level to take the action that is necessary.

I went to the summit because, unlike the Conservatives, I believe that co-ordinated international action is possible. I believe that we can work with the rest of Europe and the rest of the world to take specific and decisive action to deal with the financial crisis, and I believe that we can work together not just on financial sector reform but on fiscal policy.

Despite saying a few weeks ago that borrowing was necessary, the Leader of the Opposition has today set his face against the fiscal stimulus that is necessary in this economy and other economies. He will find himself outnumbered by every major country in the world. He will find that America will have a fiscal stimulus in the next few months; he will find that the rest of the European Union will also agree to a fiscal stimulus; and he will find that the rest of the world will want that to happen. But if the Conservative party has not woken up to the fact that we have near-to-zero inflation coming up next year, and that fiscal stimulus is the necessary way in which to get around it, I do not think that the party will ever begin to understand the modern economy.

Will my right hon. Friend stick to the policies he has been outlining and give the fiscal stimulus that is necessary, and ignore the juvenile approach of those on the Tory Front Bench, whose Members apparently believe that borrowing is all right for bailing out bankers, but that when it is intended to make sure that people and small businesses all over the country have jobs and stay in business it is not acceptable?

Yes, if we had taken the Conservative party’s advice, the price of petrol would be going up by 5p per litre. It cannot deny that; that is the policy it announced a few months ago. Is this the right time for us to be increasing the price of petrol by imposing a 5p per litre rise? That is the Opposition’s policy, and it would harm people at this time. The Conservatives seem to be unable to understand that if inflation is falling substantially and there is a downturn and a credit crunch, we need the power of Government action to give a fiscal stimulus to the economy. I suspect that, under the influence of the right hon. Member for West Dorset, the Conservatives are lurching back to a monetarist policy such as that which failed in the past.

I welcome the G20 declaration, especially the section stating that its

“work will be guided by a shared belief”

in

“economic growth, employment, and poverty reduction.”

Given that tens of thousands of people employed in the financial sector around the UK are fearing for their jobs, not least in HBOS, is the Prime Minister confident that mistakes in regulation are not now being repeated with the abandonment of competition rules?

The hon. Gentleman opposes the action we took on competition rules in relation to HBOS and Lloyds TSB, but if we had not taken that action HBOS would have collapsed as a banking institution. The idea that the Scottish National party is putting around Scotland about HBOS being basically a healthy institution that came under fire because of London speculators is complete nonsense. It had a bad business model and it lost a great deal of money because of that bad business model. That has to be corrected, which is why Lloyds TSB has been given the support of Government with the share issue for the new HBOS-Lloyds TSB. The hon. Gentleman should stop peddling myths around Scotland about the viability of HBOS in its present form.

Will the Prime Minister ignore the bumbling opportunism of “boy George” and the Conservatives, and instead learn the lessons from Keynes that they have clearly failed to learn, by recognising that to avoid a 1930s-type slump it is necessary to borrow to invest and to cut taxes of the kind he is advocating? The alternative advocated by the Conservatives would result in a prolonged slump in Britain.

I fear that the shadow Chancellor said on Sunday:

“Gordon Brown told us before going to Washington that it was all about getting a global agreement for a fiscal stimulus package. He has not done that.”

How out of touch are the Opposition.

Does the right hon. Gentleman agree that the trigger for all of this was a catastrophic failure of regulation of the financial services sector in the United States, but does he also agree that as London had become the world financial centre, it had an even greater need for competent regulation of the financial sector, and that the regulatory regime he put in place has failed abysmally?

First, I am pleased that the hon. Gentleman has acknowledged what the Leader of the Opposition has failed to understand: that the problems started in the United States of America. As long as the Conservatives do not understand how the problem started, they will never begin to understand how to solve it. When even the Americans agree that the problem started in America, it ill befits the Leader of the Opposition to try to mislead people about how the problem started. On regulation, we created the Financial Services Authority; we brought together all the different regulators to do so. The only policy the Conservative party has put forward on regulation in the last year or two is a policy to deregulate pensions, mortgages and the financial system. It should be ashamed of that policy.

The Prime Minister may recall that when he was in opposition he used to say that the strength of a currency was a reflection of the strength of its economy. Notwithstanding the fact that the world is going into recession, does he not think that the precipitant fall in sterling is down to the fact that the international community believes that we enter this recession in a worse state than almost anybody else?

First, I think that the former Leader of the Opposition should think twice about what he says about the currency at this stage. I have never, whether in opposition or government, given a running commentary on the currency, as the Opposition seem to want to do. I think that it is highly irresponsible for them to do that in the present circumstances. May I say that, in 1989, Lady Thatcher complained—[Interruption.] They have no respect, even when it comes to listening to the words of Lady Thatcher now. She complained of people

“trying to help the speculators and talks sterling down in the most unBritish way.”—[Official Report, 15 June 1989; Vol. 154, c. 1119.]

Can my right hon. Friend assure the House that any fiscal action he takes in the next few weeks will be to fight the problems that our constituents face, whether on homes and mortgages or in the workplace, and not fight the next general election?

We are trying to help people in difficult situations with their mortgages. That is why we are bringing in changes from 1 January to help people who are unemployed pay for their mortgages. We are trying to speed up social housing provision, so that we can replace the loss of private house building in the economy. On jobs, my right hon. Friend will note that we have enhanced the new deal that is available to help people moving from one job to another, and we have enhanced the ability to launch a rapid response in communities that are facing redundancies—that is how to help people in difficult situations. The way ahead is not to abolish the new deal, as the Opposition would do, but to enhance it.

As the Prime Minister considers his approach to dealing with all these issues, will he instruct Her Majesty’s Revenue and Customs to be as sympathetic as possible to those employers who are temporarily experiencing problems with cash flow, in the hope that jobs that will be crucial to the future recovery of the economy can be safeguarded for the future?

That is what we would try to do in these circumstances, and I assure the hon. Gentleman that HMRC will do what it can.

Relative to the fiscal stimuli throughout Europe, is it not a fact that Germany is in recession, the eurozone is in recession and, come January, the United States may be in recession? Following on from the point made by the Leader of the Opposition, may I say that even the G20’s communiqué referred to fiscal stimulus? Should that fiscal stimulus cover tax cuts, interest rate cuts above the 2 per cent. and spending plans, such as those for Crossrail? Is that not what the British people wish—or do they wish for the woeful and curmudgeonly approach of the Opposition?

I am surprised that the Opposition think that they have such genius that they can stand out against the opinion that is being expressed by right-wing and left-wing Governments and right-wing and left-wing economists. If the Opposition put themselves in a situation in which, facing a world downturn and the prospect of inflation reducing—as it will over the next year—and when we have interest rate cuts, they are unprepared to use the fiscal weapon, people will believe, as they will then conclude, that the Conservatives see no role for government in sorting out those problems. That is a big mistake that the Conservative party is making.

May I assure the Prime Minister, putting aside for one moment his heavy personal responsibility for the very serious situation in which we find ourselves, that I think he is right to continue here in Britain the overdue reduction in interest rates—as I am sure he intends to do—to boost consumer demand, which I hope will be done by a serious cut in VAT, and to increase investment in public works? More controversially on the Conservative Benches, and speaking as a Keynesian, may I say that he is right to fund that by further borrowing and to watch, as I am sure he hopes to do, the next two Governments trying to pay off the bills from an office in the International Monetary Fund?

Here we have a voice from the Conservative party saying that there should be a fiscal stimulus—[Interruption.] The Leader of the Opposition suggests that the hon. Member for Louth and Horncastle (Sir Peter Tapsell) was joking, but I think that he was serious. He wants to see a fiscal stimulus because he understands what Conservative Front Benchers have decided they do not want to understand—that fiscal action is necessary in the circumstances that we face. Indeed, two weeks ago the Leader of the Opposition said that there had to be more borrowing: now he says that there should not be more borrowing. The Opposition cannot make up their mind in any given circumstances. The only change they represent is that they change their mind every week.

Will my right hon. Friend take no lessons from those who talk the pound down today and who sent the pound down 16 years ago with a disastrous exit from the exchange rate mechanism, which caused a record number of bankruptcies, a record number of people losing their homes, and record unemployment? Some people never learn.

I hope that the Opposition will reflect on what they have said about sterling. It is one thing to get a cheap and quick headline: it is another thing to take responsible action on behalf of the British economy. These are the people who said at their party conference, when they were in another particular predicament, that they would work with the Government and we would have all-party agreement on economic policy—[Interruption.] Does the Leader of the Opposition deny saying that? That is what they said then, but now they want to change their mind every week on policy, simply to get a headline. As one of their documents said a few days ago, the most important thing is getting a headline and it does not really matter what is said.

A year ago, the dollar was at a low level. This year, the pound is at a lower level. Currencies change—[Interruption.] If Conservatives want to give a running commentary on sterling, they are not even responsible enough to be in opposition.

I welcome my right hon. Friend’s commitment to the introduction of international regulation for the credit ratings agencies next March. However, I urge him not to listen to the Opposition about light-touch, or even no-touch regulation, and ensure that the proposals are robust and provide real confidence for institutions and individual investors.

Is it not often the case that in a major conflagration the arsonist is spotted in the crowd watching the fire brigade at work? Does the Prime Minister still not accept any responsibility for the fact that five of our 10 biggest banks were allowed to over-lend under a system of supervision that he set up, and that the public finances were hopelessly over-borrowed under his chancellorship?

This is the Conservative party that was saying a few months ago that it wanted less regulation in our banking system. This is the Conservative party that produced a document saying that it was time for deregulation of mortgages. This is the Conservative party that cannot now claim that it has the answers to a crisis that it has no idea what to do about.

My right hon. Friend will know that Members’ memories tend to be very short. Perhaps he can jog our memories and tell us whether any one of the leaders at the conference suggested that they thought that it was inappropriate to borrow to provide a fiscal stimulus in their country or in any other country of the G20.

My hon. Friend is absolutely right: a consensus is developing across the world. The G20 is a group of emerging markets and developed countries. It represents every continent in the world and a consensus is developing, from China to the US, to Canada, across Europe and over to Asia, that the way through this period of unique circumstances—a downturn, a credit crunch and falling inflation—is a fiscal stimulus. I do not think that, on reflection, many Conservatives would disagree. This is the right thing to do, and I hope that they will go back to the drawing board and think again.

Why did the Prime Minister ignore the strong advice that we gave him in the economic policy review, which he often quotes, to give powers back to the Bank of England and to concentrate regulation on capital adequacy because there was a credit boom under way? He should not in any way imply that we were ignorant of that fact. We warned him before Northern Rock went down, and if he had taken our advice we would not have had to nationalise a single bank.

Because in his document he said that it was time to deregulate the mortgage market. He must face up to the fact that that was his recommendation.

My constituents understand that doing nothing is not an option. They know what a depression is because they lived through one 18 years ago, and so they welcome intervention in the market. When my right hon. Friend chairs the G20, does he intend eventually to wrap the G8 into the G20? If the G20 is to become a financial regulator, what will happen to the IMF and the World Bank?

The reform of the international institutions that include the International Monetary Fund, the World Bank, the G8 and the G20 will be very much the subject of discussion at the next meeting of the G20. We have put forward our proposals for reform and other countries will put forward theirs. I believe that we will come to recognise that in the new world economy decisions cannot be made about the future unless the Asian countries and a wider spectrum of representation are included in discussions about the big macro-economic decisions. That is why I think that there will be general agreement about the need for change and I hope, on this occasion, that we will have support from all parties in the House when that change happens.

The Chancellor, I mean the Prime Minister—he is doing both jobs, I think—is talking as though the economy is not already receiving a huge fiscal boost. The Government will run a deficit this year of £50 billion or £60 billion. If we add all those American banks that went wrong, such as Northern Rock and Halifax Bank of Scotland, it must come to well over £100 billion. The recession has to take its course—[Interruption.] Just listen. Bad debts have to be written off, bad investments have to be written off and people and businesses need to repair their balance sheets. The Prime Minister knows that, even if some of his Back Benchers do not. If that does not happen, there will not be a solid base for recovery. He risks endangering that base for recovery with a massive increase in Government borrowing that will leave a legacy of debt and taxes into the future.

Now we have a new position from the Conservative party, which I think people will reflect on: the recession has to take its course and nothing can be done about it. We have heard three positions from the Conservative party: the hon. Member for Louth and Horncastle (Sir Peter Tapsell) says that there has to be fiscal action; the hon. Member for Stratford-on-Avon (Mr. Maples) says that nothing can be done; and those on the Front Bench are dreaming up initiatives every day, all of which fail before they even reach the scrutiny of the afternoon. The Conservative party will have to think about whether it has a responsible economic policy at all.

I congratulate my right hon. Friend on the leadership that he has shown in trying to deal with this worldwide economic crisis. Will he tell the House whether anyone was prepared to argue the case for deregulation at the G20 summit? Is there anybody of any note, other than the Opposition, who is arguing that line?

Well, because the Conservative Front Bench was not represented at the G20 conference, nobody was arguing the case for deregulation. I suspect that if Conservative Front Benchers continue to argue the case for deregulation, they will not be at any other conference for a very long time.

The Conservative party wants to deny the truth that this was a downturn started in America with the financial sector problems, as acknowledged by one Conservative Member, the hon. Member for Bournemouth, West (Sir John Butterfill) and that it cannot be sorted out by national action alone and needs international action, including that action within Europe that the Conservative party would not support. The international downturn needs monetary policy to be allied to fiscal action, and the Conservative party cannot contemplate that. On every major issue it is out of touch not just with national opinion but with international opinion, too.

The G20 will no doubt have considered how to restore public confidence in political and financial institutions and how to reassure the public that they are not simply being offered a false prospectus of jam today and pain tomorrow. In view of that, and bearing in mind the pain and trouble that has already been caused, will the Prime Minister assure us that he is leading international consensus to ban from use anywhere the phrase, “No return to boom and bust”?

This country had 10 years of economic growth under a Labour Government and 3 million more jobs—something the Conservative party never achieved. Given that we now know that the Conservative party does not even have a policy to deal with the downturn, people will understand that they are better off with the leadership they have.

Many people around the world know that the measures being taken today are to defend their jobs and ensure that they have a future. For small businesses in the UK, that is incredibly important, so will my right hon. Friend in his leadership of the G20 take to them the message that small businesses in the UK and around the world are the backbone of our economies and need to be supported? What will he do to support them around the world?

My hon. Friend is absolutely right. Working with small businesses in her constituency, she does a great deal to promote the local economy. Interest rates have come down to 3 per cent., which will help small businesses. Having recapitalised the banks we have to persuade them that it is necessary to lend, and to remove the aversion to risk that exists in many banking institutions. Those who have been recapitalised by the Government signed up to stringent procedures—that they will make capital available for small businesses at 2007 levels—and we intend to work with them to ensure that happens. I hope that there will be all-party support for these things, but I am afraid that we cannot see it in the Conservative party today.

We are looking at that very issue through the Financial Stability Forum and it will be one of the issues addressed in the report on 31 March.

My friend mentioned tax havens. Is there anything we can do unilaterally or perhaps at EU level, or must it await multilateral action?

I believe there is now a genuine desire for international action to deal with the problems of offshore centres that do not respond to the normal regulatory rules that exist in the rest of the world. We can see from the communiqué that there is a determination to take action where it is necessary. Again, that is one of the subjects for debate after the recommendations on 31 March.

The Prime Minister noticeably did not answer the question that was just put about action at EU level. He answered only in the international context. During the statement, he repeatedly used the word “co-ordination” when in fact the declaration on the summit repeatedly uses the word “co-operation”. He knows perfectly well what the difference is—at least I think he does—so will he please tell us?

I am referring to the statement made after the summit by the President of the European Union, President Sarkozy, when he called for concerted action and coordination. There is general agreement that Europe must work together to deal with these problems. Unfortunately, the policy that I think the Conservative party is trying to put forward is a rigid form of the growth and stability pact. The Conservatives oppose it in Europe but seem to want to apply it in Britain.

Is it not the case that in previous recessions the bulk of Government borrowing had to go on funding a massive bill for unemployment benefit? Will my right hon. Friend join me in rejecting the Pontius Pilate approach of Opposition Members who want to wash their hands of responsibility for tackling the problems, and will he make sure that we have fiscal stimulus that will protect our constituents from the misery that mass unemployment would cause?

Last week, the Conservative party announced a proposal for employment that would cut employers’ national insurance and spend £2.5 billion on it. It was immediately—[Interruption.] The right hon. Gentleman says he knows that we have been looking at it. It was immediately rejected by the chambers of commerce and by the national Federation of Small Businesses because as usual—[Interruption.] The CBI welcomed it, but it was designed to help small businesses and the national Federation of Small Businesses says not only that it is a bad policy but that it would be counter-productive. The Conservatives spent £2.5 billion on that great initiative and got all their figures wrong as usual. It was confused, contradictory and ill thought out, and I predict we will not hear much about it from the Conservatives again.

The Prime Minister talks about jobs in this country, yet over 11 years he has added £66 billion to the burden for businesses in this country through regulation and additional costs. That is the burden that business is facing and that is what he can do something about, but he fails to do so. I challenge him today not to go ahead with the 1 per cent. increase in corporation tax due to come into effect next April, on the basis that business needs all the money it can get to protect the jobs it is providing at this very moment.

When we came to power, corporation tax was 33 per cent.; it is now 28 per cent. I fear that the hon. Gentleman is reading from the old script when he complains about regulation. I think that everybody understands the necessity for regulation in the financial sector to protect small businesses and savers.

Did my right hon. Friend have any discussions in the United States with his colleagues about the motor vehicle industry? Does he agree that we need sustained investment in that industry, particularly in newer technologies? That will have a much more positive effect than talking down the economy, which is what some people believe in doing.

That is why we have already made available additional money for investment in new technology for cars, to allow different motor manufacturers to adapt to new technology.

Conservative Members ask about car tax; if they had their way, they would put up fuel duty by 5p in the pound. That is the Conservatives’ policy for fuel duty. That is what they call the fuel duty stabiliser. It would mean an extra 5p, and they cannot deny that that is their policy.

The Prime Minister will know that interest rates are a double-edged sword, because low interest rates mean cuts in the value of savings, of pension funds, and of annuity rates. In his pre-Budget statement, will he take action to help at least elderly people, who may be the most vulnerable, by suspending the present annuity rules that can lock people into a punishingly low rate of return as they grow older?

There is more than one alternative for pensioners at the age at which the question of an annuity arises, but I have to say to the right hon. Gentleman that as far as pensioners are concerned, the winter allowance is going up to £250 for all households of people over 60, and to £400 for households of people over 80. We recognise that for the vast majority of pensioners, the issue is their heating bills over the winter months. That is why we have raised the winter allowance.