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Economic Recovery

Volume 485: debated on Thursday 18 December 2008

4. Which sector of the economy he expects to lead economic recovery following the economic downturn; and when he expects such a recovery to begin. (244633)

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.

Does the Chancellor agree with his Cabinet colleague the Olympics Minister, who said this week that this is the worst recession that any of us have ever experienced?

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.