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.