The Chancellor of the Exchequer was asked—
Banks (Rescue Package)
The measures that I announced in October have stabilised the banking system, and inter-bank lending rates have fallen. The three-month LIBOR rate halved to just over 3 per cent. this week.
In the present circumstances, a Government who intervene are far better than one who would sit on their hands, and the Government have been right to rescue the banks, get funds to small businesses and bring forward capital spending. Will they now consider creating more public sector jobs, providing funding for partnerships between public authorities and businesses, and taking a public stakeholding in businesses that need it and have a viability beyond the current downturn?
I agree that it is important for public expenditure to support the economy at this stage. As my hon. Friend says, we have brought forward spending in relation to housing, transport and other matters, and we will continue to do whatever is necessary to support our economy. The difference between the Government and the Opposition is that we believe that Government have a role here. We are prepared to increase expenditure to support the economy, as I announced in the pre-Budget report, and we will continue to do that.
Given the deputy governor’s warning yesterday and the evidence that credit is continuing to contract, will the Chancellor look again at the capital requirements applying to banks, and indeed the terms of his October rescue package for the Scottish banks, to ensure that spending really is getting through? Will he inject some urgency into this process to prevent hundreds of thousands of jobs from being lost unnecessarily?
The hon. Gentleman raises a very real issue relating to bank recapitalisation. In October, the Financial Services Authority, along with the Bank and ourselves, agreed that it was necessary to recapitalise the largest banks in the country. The FSA is considering that level of capitalisation, and, as part of the Basel process, it is also, along with others, considering the effect of the requirements of capitalisation in relation to the current economic circumstances—the procyclicality, as it is described. I agree with the hon. Gentleman that the issue needs to be looked at.
As for the two banks in which we have shareholdings, the House will know that there is a requirement for them to maintain the availability of lending at 2007 levels. Since the announcement, RBS in particular has said it will ensure that it treats its small business customers far better than in the past, and that they will benefit from the interest rates being offered.
There is a lot more to be done. The hon. Gentleman is right to speak of urgency, given the situation that we face at present. We—the Government, the FSA or the Bank—will continue to do what is necessary to help to ensure that sufficient lending comes into the economy, while at the same time ensuring that the banks are resilient enough for the future.
Is the Treasury tracking the behaviour of banks in Northern Ireland, including Ulster bank, a wholly owned subsidiary of the RBS, which is not offering business customers the standards, terms and rates offered by the RBS here? Can the Chancellor assure small businesses that they will not be caught in a vice between tax demanded and money unavailable for borrowing next month, which marks the beginning of a new VAT and PAYE quarter and the deadline for tax returns from those who are self-employed?
We monitor the lending of banks in every part of the United Kingdom. If the hon. Gentleman knows of specific instances in relation to the Ulster bank, I should be grateful if he would tell me about them. We have a lending panel that examines the concerns of small businesses, which is regularly chaired by my noble Friend the Secretary of State for Business, Enterprise and Regulatory Reform.
As for the problems relating to payment of tax, the hon. Gentleman will recall my announcement in the pre-Budget report that Her Majesty’s Revenue and Customs was introducing a scheme that would give people time to pay not just VAT, but corporation tax and income tax—indeed, all taxes. That facility is now available, enabling people to pay their bills over an extended period, and I am glad to say that it is being well used. We are aware of the problems that would otherwise be caused to small businesses’ cash flow.
Does it remain the Chancellor’s policy that it is better to use public resources to get the banks lending again than to use them to give direct support or subsidy to particular industries?
I do not favour what is sometimes termed a one-club approach. I think that it was right for us to use public money to recapitalise the banks where that was necessary—some of them had raised money privately—and we will continue to do that. As for direct lending, in the pre-Budget report I announced the provision of £1 billion to help small and medium-sized enterprises specifically. I also said that we would think about how we could implement the Crosby report and support mortgage lending.
A variety of measures are needed, but they are all doing the same thing: they are all aimed at supporting different parts of the economy. I must tell the hon. Gentleman, however, that if we are to do any of these things, it is also necessary to be prepared actually to spend the money. Otherwise this will become merely an empty promise, like the promises being made by his Front-Bench colleagues.
Does the Chancellor agree that one of the quickest ways to get people back into work is through the construction industry, and is he aware that a number of local authorities are ready, willing and able—and have got the land—to start building council houses again? Bolsover district council, for example, has made representations to replace some old bungalows and to build some more as well. Will he encourage these local authorities—Labour controlled—to get moving again?
I agree with my hon. Friend that it is important that the public sector supports the construction industry; if public money were not going into housing, and into schools, hospitals and other construction projects, the industry would be in a far worse position than it is in even now. That is why we have brought forward permission for local authorities and other public bodies to spend money. That is very important, and if councils are not doing that, people should ask them why not, because we have made it clear that we are prepared to allow spending to be brought forward in all parts of the country. We have also made it clear to the devolved Administrations that they, too, can bring forward their proposals, and we look forward to receiving them.
The Chancellor said he will do what is necessary to help the British economy, but it is now clear that we will have the worst recession of all the G7 countries. Does the Chancellor feel that it might be necessary to visit the IMF and ask for a financial bail-out?
Because of the sheer size of the financial services sector in this country and because the financial services sector is affected by a global recession right across the world, we are, of course, bound to be affected by that, but, as I said to the House at the time of the pre-Budget report, I am confident we will get through this. I have set out how I believe we can do that, and it involves the Government being prepared not just to borrow to support what are known as the automatic stabilisers—the rising benefit payments and so forth that we get in any downturn—but to do more than that by putting £20 billion more into the economy, as that is the right thing to do to support the economy and therefore to support jobs.
Following the revelation only this week that taxpayer-supported and guaranteed banks lost hundreds of millions of pounds in a pyramid selling scheme, I want to ask the Chancellor about curbing gambling activities. There is a certain amount of emotional appeal in the Conservative leader’s proposal that bankers should be rounded up and put behind bars, but is not a more practical and immediately useful suggestion that the banks should be required to divest themselves of their high-risk investment banking operations and concentrate on mainstream lending to British households and firms currently being deprived of credit?
I agree with the hon. Gentleman that there are serious questions to be asked in the United States about the particular matter to which he refers, and I think I am right in saying that the chairman of the American Securities and Exchange Commission has indicated that there needs to be a thorough investigation there. However, I also think it is important that all banks—the boards of all companies, in fact—should know and understand the risks to which they might become exposed. The evidence of the last year is that far too many banks were not fully aware of those risks or did not make sufficient provision against those risks turning bad. The hon. Gentleman is right that we need to learn the lessons of what has happened in the past, which is why I said I wanted to bring forward proposals in the spring to look at aspects of our regulatory system, but that must also be done across the world. The G20 group of leaders and Finance Ministers discussed that at the meeting in Washington in November, and we will discuss it again when we reconvene in London in April.
Now that the Government have accepted the recommendation that we have been making for some time to reduce the cost of inter-bank guarantees offered by the Government, will the Chancellor also now accept our advice to reduce the cost of the preference share capital offered to the banks?
In relation to the cost of the scheme, I said when we made the announcement that we would keep all the terms and conditions under review. We were the first into the field. Since then, other countries have come up with schemes of their own, and it is right that we keep these matters under review. As I said in the House when asked about preference shares on Monday, we will look at that, but I want to make sure that we balance the need to ensure that the banks lend to the business community and individuals with the fact that the taxpayer must get a fair deal. The Conservative Front Bench raised that in October, and it is right to do so again now as that concern has not gone away.
The pre-Budget report set out the Government’s projections for the level of Government borrowing and debt.
I note the Chancellor’s comments. Given the responses that we have had from him, the future looks bleak indeed. Does he agree with the German Finance Minister’s view that this Government’s policies will saddle the country with debt
“that will take a…generation to work off”?
No, I do not. I wish to say three things on that. First, Peer Steinbrück is an extremely charming man and I enjoy working with him very much. Secondly, I fully supported him when he introduced a fiscal stimulus into the German economy of about 1 per cent.—that is almost exactly the same as what we have done—some time ago. Thirdly, our debt levels are lower than Germany’s.
The business community in my constituency has emphasised to me that the Government’s priority must be to have measures to sustain our manufacturing base, so as to maintain our tax base for the future. Can my right hon. Friend assure me that he will not listen to the scaremongering and siren voices from Opposition Members, and that he will ensure that support for business is maintained as the Government’s priority during this economic downturn?
I agree with my hon. Friend that it is important that the Government support business. That can be done in a variety of ways, both indirectly and directly, as appropriate. Of course, we need to balance that with a need to ensure that we have proper regard to the public finances and the interests of the taxpayer. He is right to say that at a time such as this all the measures that the Government are examining are designed to help businesses get through what is undoubtedly a difficult period.
Despite the record levels of debt that the Chancellor is predicting for the next five years and beyond, he continues to assert that Britain is uniquely well placed to deal with this downturn. On what basis has he come to that conclusion?
The hon. Gentleman is right to say that our debt levels will rise over the next period. That is partly because it is inevitable in any downturn such as this that the Government’s revenues will fall and the unemployment benefit payments that we have to make will rise. The operation of the automatic stabilisers, to which I have referred, is supported on both sides of the House—indeed, the Leader of the Opposition said that he supported it—and it accounts for the major increase in the Government’s expenditure. As I said, it is also necessary for us to put more money into the economy. If we look ahead, we will see that during the next year we will have low interest rates and far lower inflation than in the past, and energy prices will continue to fall, which will help in relation to what people pay at the pump and must also affect the amount that people pay for gas and electricity. Of course, in addition, we reduced the amount of debt from the level that we inherited when we took office in 1997, and we will continue to do everything we can to support the economy.
Is this not rich coming from the Conservatives, who, as my right hon. Friend has said, support the automatic stabilisers, which account for the vast majority of the increase in debt and borrowing, and who have two major recessions behind them? Is it not outrageous that, as the official Opposition, the Conservative party is the only one in this House that does not support—
Although there is a great deal of risk in not doing anything, there is a certain amount of risk in what is taking place. Does my right hon. Friend agree that even a 1 per cent. financial stimulus in the economy may not be enough? Will he comment on the possibility of considering further financial stimulus in the new year because of the level of the global economic downturn and its effect in constituencies across this country?
The announcements that we made in the pre-Budget report were right. As my hon. Friend says, the risk of not doing anything was far outweighed by the advantages of taking action. In the current climate, there is no Government in the world who are not looking every day at what else they need to do, but while it is right to allow borrowing to rise now, we must ensure that we take the right action to ensure that borrowing falls and that we come back into current balance within a reasonable period. That is what I said in the pre-Budget report and that remains the Government’s position.
The Chancellor plans to increase taxes by £40 billion to reduce Government borrowing, but will not the planned £5 billion tax hike on jobs hamper our recovery? Does he not realise how much damage this borrow now, pay later policy will cause?
Assuming that the hon. Gentleman agrees with his party’s leader, he supports the decision to allow borrowing to rise through the operation of the automatic stabilisers, and that accounts for about £60 billion of the borrowing. I know that he does not agree that we should go further, but his approach is just plain wrong. We need to ensure that as the economy comes out of this period—as it recovers and starts to grow—we bring our borrowing back down. It is better that we should do that and I set out in the pre-Budget report a fair way of doing so.
The impact will be very strongly positive. The package addresses small businesses’ cash-flow problems, their access to credit and management of their tax liability. The fiscal stimulus will be crucial in encouraging economic recovery.
My constituency has a fair number of large multi-storey former cotton mills, the basements and upper floors of which are difficult to let. How temporary will the 70 per cent. relief on non-domestic properties be, and how will it affect a business man who owns one of those mills, pays the business rates and then sub-lets to a multitude of other smaller businesses?
My hon. Friend is right to draw attention to the benefits of this measure. It is a temporary increase, to £15,000, for next year only—2009-10—in the threshold at which empty property becomes liable for business rates. As he says, some 70 per cent. of empty properties will pay no rates next year as a result. He asked about subdivided properties. Their position will depend on the nature of the division and whether the property constitutes a separate, self-contained hereditament for ratings purposes. A landlord who is concerned should check the liability with the Valuation Office Agency.
Does the Minister accept that for small businesses this is a relatively small package compared with the overwhelming effect of the unwillingness of many banks to lend to them? Does he also accept that the Government mis-structured their huge package in such a way that the banks have an incentive to pay it off as quickly as possible and to get their loan books down rather than up? It is that circumstance that is driving the recession more than anything else.
No, that is not the case at all and the PBR package directly addresses those concerns. That is why the chairman of the Federation of Small Businesses said:
“This Pre-Budget Report is a sign of the importance of small businesses to the UK economy.”
It fully addresses their needs and that is why the package includes a £1 billion small business finance scheme, to encourage bank lending to small and medium enterprises, and an additional £1 billion facility to help smaller exporters. The range of measures is accurately targeted at the problems that small businesses are facing at the moment.
If the Government are to pump further taxpayers’ money through the banking system, can my right hon. Friend give the House an undertaking that that will be limited to the nationalised banking sector and specifically tied to extending loans to small and medium businesses?
Yes, I certainly do expect them to be able to access it. The full details of the new scheme will be set out at the beginning of the new year by my noble Friend the Secretary of State for Business, Enterprise and Regulatory Reform. Other measures that we have put in place are already effective, such as the small business support service for firms with a tax bill due that are facing temporary financial difficulty. They have been able for some weeks now to call up the HMRC hotline on 0845 302 1435, which is available seven days a week.
As well as Marston’s brewery, in my constituency there are many small businesses called pubs. They are extremely concerned about measures in the pre-Budget report relating to alcohol excise duty and the alcohol duty escalator. Would my right hon. Friend and his ministerial colleagues reconsider those measures because they are hurting pubs, which are vital to our communities?
The change in the VAT rate has been offset in the way that my hon. Friend describes. The position for the coming year is as my right hon. Friend the Chancellor has set out, and of course we will look at the future rates of alcohol duty in future Budgets in the normal way.
For the 1,500 people losing their jobs and the 60 small businesses going bust every single day, the Government are not tackling the recession. The Government’s small business loan guarantee scheme will not even be up and running until mid-January and even then it will not cover 99 per cent. of loans to companies. Does not the Minister agree that that is too little, too late, that he should get on with our national loan guarantee scheme and that Britain is facing the deepest recession of any G7 country because we have the most incompetent, ineffective Government?
The hon. Lady should have a word with some of her colleagues on her Front Bench. I agree with her that it is right for the Government to address these problems, but that contrasts with the policies of those on her Front Bench, which are the policies of do nothing. Those were the policies that we saw in the catastrophic recessions under the last Conservative Government and they are being repeated by Conservative Front Benchers now. The policies that we are putting in place are directly addressing precisely the challenges that small businesses are facing, and that is why such an ambitious and effective package was set out at the time of the pre-Budget report.
I have listened to my right hon. Friend’s response and to the questions from other hon. Members, but I want to inject a slightly more positive note into the discussion by flagging up the work of the Springboard Fund, an offshoot of Business Link based in Devon and Cornwall that resulted from the sale of Business Link. The fund has just had its 100th inquiry in the short time since it has been set up from a group of people who want to set up new businesses. There is real interest in setting up new businesses, despite the downturn. People are going to the Springboard Fund because the banks are not opening their doors—
Like my hon. Friend, I welcome and support the measures that the Government have in place and that the regional development agencies are supporting to encourage new enterprise. She is absolutely right that there are some very attractive opportunities for new businesses, even at this very difficult time. It is quite right that we should be working with those who are encouraging entrepreneurs to come forward and make a success of new businesses.
The pre-Budget report set out the Government’s latest economic forecast, based on all relevant factors.
There was not much Christmas cheer in that answer from the Chancellor. In just over 180 days, according to the pre-Budget report, growth is supposed to resume in the UK economy. Given the mounting and ever-greater tide of difficult news about the economy and even the prospect of deflation, does the Chancellor stand by the statement he gave in his answer? Secondly, can he cite anybody outside the Treasury who actually agrees with what he has just said?
Yes, and the forecasts that we set out were broadly the same as the Bank of England’s, which are entirely independent of ours. This country has a choice: we can either let the recession take its course, which is the policy that the Conservative party seems to advocate, or we can decide to take action to help people and businesses. That is the path that we have chosen.
Does my right hon. Friend agree that, although sterling’s depreciation against the euro in particular will result in an increase in some input costs, overall it should provide an environment for a substantial increase in agricultural production? That will result in increased investment in food processing and manufacturing, creating more jobs and displacing imports, which we will need in the next few years.
My right hon. Friend is right that depreciation can help our exporters, but we must ensure as well that countries right across the world also take action to support their economies so that there are markets to sell into. That is why I welcome what France, Germany and other European Governments have done to support their economies, as their actions will create the right conditions to encourage and support our exporters.
It is true that, right across the world, we are facing conditions that we have not seen for generations. The IMF has forecast that, for the first time since the second world war, all the major economies will move into recession in 2009. That is why it is all the more necessary for every country in the world to do everything that they can to support their economies. That is what underpinned my approach to the pre-Budget report, and I am sorry that the Conservatives do not share that view.
Does my right hon. Friend agree that a strong manufacturing sector will be vital when the economic recovery comes, and that the motor industry will be central to that? In addition to the welcome moves being made by the European Investment Bank, a number of European countries are offering additional lines of support to their motor industries. Will my right hon. Friend say what further plans he has for the British motor industry, to ensure that lines of credit and liquidity are kept open?
My hon. Friend knows more than many Members of the House the importance of the motor industry to this country. It is worth noting that, even in 2007, our automotive industry produced almost as many cars and vans as it did in the heyday of British car manufacturing in the 1970s, so there are many good success stories that we can point to.
The automotive industry is being affected by the downturn, as is to be expected. As my hon. Friend knows, my noble Friend the Secretary of State for Business, Enterprise and Regulatory Reform has been having discussions with some manufacturers. We will do everything we reasonably can to support the industry, but there are two things that I should like to say. First, the primary responsibility for financing a company lies with those who own it, and we must also be mindful, not only of the difficulties in the motor industry, but that other industries will be affected by the downturn. Secondly, we also have to have regard to the interests of the taxpayer. That is of critical importance, and people need to understand that.
In his answers, the Chancellor has quite rightly emphasised the economy’s exposure to the financial sector, and the role that that plays. Does he concur with the comments ascribed to Deputy Governor Bean on the front of the Financial Times today that there is a very high expectation of further capitalisation being required for the banks?
I did see the front of today’s Financial Times, and I read the full transcript of what the deputy governor said. He was musing on a number of different matters, and in the current climate it is sensible to keep under review the circumstances of the banks all the time, just as other countries are doing. The key thing is to make sure that the banks are strong enough to resume lending, and that we get them to make that lending. There has been huge public support for the recapitalisation of the banks, and for the guarantees on lending and the special liquidity scheme. That support is very substantial.
As I said earlier, we keep these matters under review all the time. I will continue to do whatever is necessary to maintain the banking system, because it is central to supporting the wider economy.
This recession is global and whenever the recovery occurs, a skilled work force will be extremely important. Will my right hon. Friend therefore keep under consideration the Train to Gain budget to ensure that our skills base has not been eroded when the recovery comes?
My hon. Friend is right about that. As we come through the recession and start to see growth and recovery, there will be tremendous opportunities, but most of them will go to countries that have highly skilled and motivated work forces. We lost out badly in the 1980s and 1990s because, when the economy slowed, the reaction of the then Government was to cut back on a lot of skills and training. There are now more apprenticeships, more people with skills, and more people going to universities. We are investing heavily in science, and in many other areas we are taking the right action to ensure that we have the right skills for the future. The World Bank estimates that the world economy will double in the next 20 years, and we need to be ready to take full advantage of that when it happens.
Income Support Mortgage Interest
The standard interest rate for support for mortgage interest has been frozen for six months at 6.08 per cent., rather than falling in line with Bank of England base rates as would normally be the case. We will review the position and consider what arrangements should apply beyond May 2009.
I thank the Minister and the Chancellor for the action taken on this issue in the pre-Budget report, but can she give me any assurances today that the help that the 62 per cent. of mortgage holders on fixed rate deals will get from the Government from May, if they lose their job, will reflect the amounts that they have to pay rather than be linked to the Bank of England base rate?
The hon. Gentleman has raised this important point before. The standard approach would be for the standard rate to fall with bank rates as bank rates are cut. However, we know that a lot of people are on fixed rates, and many have mortgages with banks that have not yet passed on the full rate cuts. Many have seen a reduction of about £100 per month in their mortgage payment as a result of base rate cuts, but others are not benefiting. We will certainly take those issues into account, but the hon. Gentleman will appreciate that it is hard to predict at this stage where base rates will be in May and where individual mortgage rates will be.
Labour has done a great deal for pensioners in recent years, but in these very difficult times, does the Minister have any plans to review the calculation that results in a 10 per cent. notional rate of interest being placed on pensioners’ savings before they can qualify for benefit? Pensioners find that difficult to understand, and I must say it is difficult for anyone to understand.
I know that my hon. Friend has raised this issue with the Department for Work and Pensions and he will also know that we are clear about the importance of supporting pensioners through difficult times. That is exactly why, as part of our fiscal stimulus, we are providing an extra £60 to every pensioner in the new year. That is the right thing to do. It is funded by additional borrowing to help support the economy, and sadly it is something that the Conservative party has opposed.
We are both freezing the rate and expanding eligibility, and we believe that that is the right approach to take, because by that means we are making relief available to those who have lost their job and been out of work for more than 13 weeks rather than for the full 39 weeks to which the relief used to apply. That is the right thing to do and the relief will apply to more people. We have set out costings as part of the approach to the pre-Budget report. It is certainly clear that this is about providing more support to people at a difficult time.
European Investment Bank
British small businesses should be able to benefit from around £4 billion of lending from the EIB between 2008 and 2011. As announced in the pre-Budget report last month, after negotiations between UK banks and the EIB, £1 billion of EIB funds will be available to British small firms by the end of the year. This has now been approved by the EIB.
I am grateful to my hon. Friend. Business people in Stafford are coming to me with ideas for modern, innovative new projects. When they ask the banks for funding, it is not that the banks say no; they just freeze and make no decision at all. Given that entrepreneurial spirit is the lifeblood of the country, and all the more vital in these difficult times, can I go back to those businesses and say that now they can go to their bank and get access to EIB funding?
Yes, he can. Loans are already being made by UK banks using EIB funds. I refer my hon. Friend to media coverage only yesterday; Barclays bank has been making funding available to companies through the European Investment Bank. The question now is for UK banks to disburse quickly and efficiently and pass on the full benefits associated with EIB funds to the small businesses that my hon. Friend was talking about—that are innovative and need those funds to help them to stabilise and grow for the future. That is exactly what is happening and more will be coming in the future.
As I explained, since the pre-Budget report and our agreement with the banks, approval processes have been going through the European Investment Bank. If the hon. Lady reads yesterday’s edition of The Daily Telegraph she will see that Barclays bank has £300 million available for lending to businesses. I encourage all small businesses to look to their bank managers and engage in conversation with them, and to make application for funding that is there at the moment and will continue to be available for the future. On top of that, early in the new year the small business finance scheme will also be available. That is real action being taken by the Government, not the gesturing of the Conservative party.
Balance of Payments
The pre-Budget report forecast the current account deficit of the UK balance of payments to narrow in the second half of 2008 and in 2009, with net trade forecast to add three quarters of a percentage point to gross domestic product growth next year.
Is that not an incredibly complacent reply? Is the Financial Secretary not ashamed that having inherited a trade surplus in 1997, our deficit last year was the worst since records began—when William of Orange was on the throne? Is it not a disgrace that the trade deficit in manufactured goods has grown from £7 billion in 1997 to a staggering £59 billion last year? Why do the right hon. Gentleman and the Chancellor never talk about the balance of trade? Is it any wonder that the pound is falling so sharply?
I remind the hon. Gentleman that there have actually been quite a few occasions in the past when the current account deficit was higher than it is now. To give him one example, it was 3.8 per cent. in the third quarter of 2007, but it was 4.9 per cent. in 1989 and it is more than 5 per cent. now in the United States. Our strategy is to ensure strong competition in every UK market by promoting openness to free trade, minimising product market regulation and ensuring that there are world-class competition authorities. That is the strategy we are pursuing and we will do so successfully.
The Minister is right: for the first time in a number of years the trade deficit will narrow to about £50 billion for each of the next three years and there will be a net benefit to GDP growth rather than the 0.25 to 0.5 per cent. suppression that we seen since 2000. However, the forecasts in the pre-Budget report were made before the continuing collapse of sterling which makes imports much more expensive. Will the Treasury commit to give a new assessment early in the new year based on the current sterling situation?
We have received representations covering a wide range of issues, including discussions with a series of national and international institutions which support the case for higher borrowing to support the economy.
Does the Chief Secretary accept a representation from me that, by the Treasury’s own figures, the national debt is set to double by 2012, to £1 trillion? Will she confirm that, for next year, Government borrowing as a proportion of our national income will be higher than when Denis Healey went to the International Monetary Fund?
I should perhaps point out to the hon. Gentleman that borrowing as a proportion of gross domestic product will be not dissimilar to the level that it reached in the early 1990s, when, in fact, the Conservative party doubled the national debt in the space of just five years in response to a home-grown recession, when it did not have an international, world financial crisis to deal with on a scale that we have not seen for many generations. We think that the right thing to do is to increase borrowing right now to support the economy, so that we can come through this faster and stronger.
The German Finance Minister, in talking about the borrowing that the Government are proposing, described the result as a complete failure of Labour policy. Will the Chief Secretary perhaps explain in what way that was an internal political comment in the German context?
As my right hon. Friend the Chancellor has already explained, the Germans have in fact increased their support for the economy with a fiscal stimulus earlier this year. We think that they were right to do that, and we will judge them on what they do, rather than on what they say. It is rather amusing that Conservative Members are now taking to quoting Europeans whom they would never have quoted before in support of their economic strategy, and they continue to be isolated—not just in Europe, but right across the world—in their opposition to action to help people through this and to support the economy right now.
The Department’s objectives remain the same as I said at the last Treasury questions.
Figures released yesterday show that unemployment has risen to its highest level since 1997, with a 7 per cent. increase in the past three months in the Yorkshire and Humber region alone—devastating news for people just before Christmas, as well as a huge burden on the taxpayer. The economist, George Buckley, has said that, because unemployment is normally a lagging indicator,
“to see so many job losses this early in the economic cycle is extremely worrying.”
Does the Chancellor agree with that? If he does, is the Government’s rescue package therefore simply not good enough?
No. I believe that it is necessary, though, for us to do everything that we can to help people who lose their jobs. That is why, in the pre-Budget report, I set aside a further £1.3 billion to help the Department for Work and Pensions and Jobcentre Plus in particular, so that if people lose their jobs, we can help to match them with vacancies. It is worth bearing in mind that, even during the past month, more than 200,000 people went into work—they found new jobs—and we need to ensure that we match those people who may lose their jobs with the vacancies currently in the economy. We are taking action, but, of course, the other action that we have taken to stabilise the banking system and provide wider support for business will help as well, but I am determined to do everything that we possibly can to ensure that we help people who lose their jobs.
My right hon. Friend is right that we have far more effective results not only if we work on prevention, rather than on simply ameliorating the problems later on, but if we can get better co-ordination between agencies. That is why we have been supporting the local area agreements between councils, the police and other local organisations and doing that more widely as well. We are keen to do more to ensure that funding works in that way and supports the kind of partnership action that can, as he says, deliver results.
The director general of the CBI has just sent a letter to all his members that says:
“Until this underlying issue—getting credit flowing around our economy—is resolved, economic activity cannot begin to recover”,
that the Government have failed to
“address the root of the problem”
and that, until they do,
“other government initiatives to mitigate the recession will be ineffective and expensive failures”.
When will the Prime Minister and the Chancellor swallow their pride, accept that the bank recapitalisation plan has not rescued the economy and introduce a national loan guarantee scheme, which we have proposed and which this country needs?
The purpose of the recapitalisation scheme, which was clearly stated when I set out the proposals in October, was to ensure that the banking system remained viable and to rescue it from imminent collapse. We did that, and other countries right across the world did the same. I said at the time, and I say again today, that we will continue to look at that scheme to see how it can be improved and further strengthened. The director general of the CBI, to whom I spoke last night, is quite right to say that we need to do more to ensure that banks lend in the wider economy. It is important that we ensure that banks are sufficiently strong to do that, but it is also important to make sure that lending takes place.
As for the hon. Gentleman’s proposal, it is an empty promise. He talks about a national scheme, yet he has quite explicitly said that the Conservative party would spend no more money; it would do absolutely nothing, so the promise that he makes is empty. Instead, he should perhaps pay greater heed to what the chairman of the CBI said—that although there might be a cost to the fiscal stimulus, the cost would be far greater if we did nothing.
The national loan guarantee scheme is supported by every single business organisation. It is exactly equivalent to the inter-bank guarantees that the Government have put in place, but does not add to public expenditure. It is consistent with what the Governor and deputy governor of the Bank of England have said this week. Is not the truth that the country has been in recession for six months, and Labour’s policies are not working? The Government said that they would get recapitalisation going to help start lending again, and lending is contracting. They said that their stamp duty holiday would restart the housing market, and it is plummeting. They said that they would pay bills to small businesses more quickly, and a survey today says that the situation is actually getting worse. They said that their massively expensive VAT cut would stimulate the economy, but their own former Minister, the right hon. Member for Birkenhead (Mr. Field), says that it is
“like spitting in the face of an economic hurricane.”—[Official Report, 17 December 2008; Vol. 485, c. 1139.]
Meanwhile, unemployment is soaring early in the cycle, and a Cabinet Minister says that Britain is facing the worst recession that we have ever known. Could the Chancellor explain why it is that all Labour Governments leave office with unemployment higher than when they entered office?
What the hon. Gentleman says might have more strength if he was prepared to do something to help the economy, businesses and people; he is not prepared to do so. He talks about a scheme for national lending, yet he has quite explicitly said that there will be no more money to support it. That is an empty promise. We are supporting the economy and are helping people. We have recapitalised the banks, which has prevented many banks from collapsing. We are taking steps to extend lending. The measures that we have taken in relation to VAT, to cutting income tax for basic rate taxpayers, and to helping businesses will all help in the face of a global downturn, the like of which we have not seen for generations. The Conservative party is making it quite clear that if it were in office, the choice that it would make is to do absolutely nothing to help people. [Interruption.] That is what the Conservatives did in the 1980s and the 1990s. They can shout and bawl all they like, but the fact remains that the Conservatives’ approach is wrong, muddled and would not help the British economy or the people of this country.
Earlier, the Chancellor said that the US regulatory authorities have some questions to answer about the Madoff $50 billion fraud, but at least over there they prosecute their fraudsters. Madoff was prosecuted, as was Conrad Black and the chief of Enron. The City of London has a lamentable record when it comes to investigating, prosecuting and convicting City fraudsters. Will the Chancellor or other Ministers look into that, and improve the situation, so that those associated with fraudulent activities that have led to the credit crunch here in the UK are prosecuted?
As the hon. Gentleman will know, and as the Public Accounts Committee will be aware, the Government have in fact achieved more than the original targets for the Gershon savings, which were more than £20 billion; there has been considerable independent examination of that. Furthermore, we are on course to deliver more than £30 billion in efficiency savings as part of the comprehensive spending review, and we have set these further targets now as part of the pre-Budget report. That contrasts with the approach of the hon. Gentleman’s party; his party leader said:
“It cannot and must not simply be about ‘efficiency savings’”—
presumably, his party prefers service cuts.
I agree with the hon. Lady that we want to keep investing to support green jobs. That is a great opportunity for us for the future; it is certainly an issue on which the new Department is working hard. We need to continue to invest in things such as the capital projects. That is why a major part of the fiscal stimulus was bringing forward capital programmes to support jobs. However, it is also right to put money into people’s pockets right now, very quickly, to help support the economy. Hon. Members on both sides should recognise that the scale of the economic challenges that face every single country in the world means that we have to take a whole range of measures. That is the best way to get the kind of action that we need and to help us come through this situation faster.
Despite the Chancellor’s efforts to recapitalise the banks—and he has done everything that he can in that direction—is it not the case that banks must not enter into a reckless round of lending, but look for good companies, which will be around at the other side of this recession, to take advantage of his generosity at this point? Is it not also the case that banks rightly recognise that too many boardrooms are stuffed with old Etonians who have no idea of how to deal with modern business, but allow themselves to be fooled by greed and avarice and go into schemes that lose billions for their country?
Speak for Loretto!
I do think that it is important—[Interruption.] Mr. Speaker, you have only to look at the behaviour of those on the Opposition Front Bench to see how fit they are to run anything. I agree with my hon. Friend. Although we want to encourage banks to lend into the wider economy, banks need to be certain that they engage in responsible lending and do not end up lending money to people who cannot repay the loans that they take out.
It is exactly because it is important to make sure that we pursue every avenue in tackling waste and inefficiencies that we have the Public Accounts Committee, the National Audit Office and the Audit Commission. It is right that there should be all those organisations and that they should do their jobs in pursuing such matters. It is also right that Departments need to take greater action to root out waste wherever they find it. That is why we have set the further target of another £5 billion of efficiency savings in 2010.
I had hoped that we would be able to make a statement on Equitable Life before the recess, and it is a matter of regret to me that we have not been able to do so. I apologise to the House and to the Prime Minister for the fact that it has taken a little bit longer than I would have liked to get the policy options to a stage where we can make a firm decision and issue a statement. My right hon. and learned Friend the Leader of the House has announced that a statement will be made when we come back after the Christmas recess, and I am sure that that will be the case.
I agree with the hon. Gentleman. We need to ensure that we support jobs in all parts of the country, including the highlands and islands of Scotland. The nationalist Administration could do far more than they are doing. For example, we have said that we want to bring forward public investment; they have said in principle that they are prepared to do that but have yet to come up with specific proposals. Moreover, their reforms of the private finance initiative have meant, in effect, that a lot of investment has been sterilised. It is high time that they realised the importance of getting on with supporting the whole Scottish economy as well as that of the highlands and islands.