The Chancellor of the Exchequer was asked—
Departmental Holdings (Banks)
Under the recapitalisation scheme that I announced on 8 October, the Government invested £19.97 billion in the Royal Bank of Scotland group and £16.96 billion in the Lloyds banking group, which was formerly Lloyds TSB and HBOS.
I think that the Chancellor forgot to answer the second half of the question; anyway, I will press on. What is the total exposure that British taxpayers face, both direct and contingent, as a result of the purchase of the bank shares, the provision of loans and the offer of guarantees? Chancellor, can we have a straight answer this time? Can we have the figure, and can you tell us how much of our children’s future you are gambling?
At each stage, I have set out to the House what the Government propose to do and what the cost is. In relation to the purchase of a shareholding, the Government purchased shares, and that came to a total of £37 billion. That was part of the recapitalisation process. I have to tell the hon. Gentleman that that part of the Government’s proposals over the past few months was supported by hon. Members on both sides of the House. It was recognised as being absolutely necessary to recapitalise the banks because we were within hours of the banking system collapsing last October; that is why we did it.
The hon. Gentleman asks about other measures that we have put in place—for example, the special liquidity scheme, which I announced in April last year and of which the Bank of England reported last week that about £185 billion has been taken up. That has been more than covered by the collateral lodged by banks, which is over £240 billion, and in addition the Government charge fees that total about £2 billion for that. That is just one example of where we have given guarantees that are just that—guarantees, not money that is being paid out at the moment. I believe that the range of measures that we have taken—other countries around the world have done the same or similar—was absolutely necessary. What I really find surprising is that having supported us last October the hon. Gentleman is now attempting to run away from the decisions that we all took then.
With taxpayers now holding a majority stake in Lloyds, which Her Majesty’s Revenue and Customs is investigating for double dipping and tax avoidance via Cayman islands companies—biting off the hand that feeds it comes to mind—will the Chancellor of the Exchequer say what access the Government had to Lloyds’ books before pumping in billions of pounds of public money and whether any condition, such as an end to all tax avoidance activity, were attached to our cash being used to save a bank that has so successfully shifted the tax burden from corporations on to small businesses and families?
Let me make a couple of points to my hon. Friend. First, as he is no doubt well aware, because this matter is currently before the courts there is a limit to what I can say. As a matter of general principle, Ministers do not normally comment on the individual circumstances of any taxpayer, corporate or individual, for perfectly good reasons. However, I can say to him that the so-called double dip scheme was shut down by the Government in 2005. In addition, anti-avoidance measures that we have introduced have saved the taxpayer about £11 billion over the past couple of years. On top of that, from 2004 schemes of this sort have had to be reported to HMRC to ensure that if there is abuse or if any measures that are being taken have unintended consequences that are harming the taxpayer, action can be taken very promptly. That will remain the case. At each Budget, I will ensure that if there are loopholes that need to be closed, we will take the action necessary.
Can it really be right that the body looking after the taxpayer’s interest in these two banks should be chaired by Mr. Moreno, who appears to have been heavily involved in tax-dodging in Liechtenstein? In the interests of getting a consensus behind United Kingdom Financial Investments, is the Chancellor wise to proceed with that appointment?
The hon. Gentleman will be aware that following Sir Philip Hampton’s appointment to chair the RBS board, I asked Mr. Moreno to take his place as acting chair. I will make a decision on the permanent replacement in the near future. I agree with the hon. Gentleman that we should take a firm hand on tax loopholes and on people not paying the tax they should, and I hope that he will have a word with one or two prominent Conservative donors who do not choose to pay their taxes in this country.
Is it not becoming increasingly clear to the Chancellor that the ferocious resistance of the management of these banks to the Government’s full takeover of them, albeit on a temporary basis, is motivated by a desire to protect bonuses and salaries, to resist write-downs and loss declarations and to protect cynical tax avoidance schemes? When will the Government avoid this farcical and completely ineffective arm’s length management arrangement?
I do not agree with everything that the hon. Gentleman says. First, I believe that it was necessary to take Northern Rock into public ownership on a temporary basis, but I do not believe that we should seek to take over banks as a matter of course. They are better being commercially run, and I think that the hon. Gentleman and I would both agree that the Government cannot be in the business of running these banks in the long term. However, disclosing the nature and the extent of losses, and providing a greater degree of transparency, is absolutely necessary and we will continue, especially as we work out the insurance scheme of the assets, to ensure that people completely understand the nature of the liabilities that the banks have entered into.
I think that the answer to my hon. Friend the Member for Sevenoaks (Mr. Fallon) means that the Government are about to lose their second key banking adviser, but may I ask about the resignation of the first? Are we really expected to believe that when the Prime Minister appointed Sir James Crosby to the board of the Financial Services Authority, and when the current Chancellor promoted him to the job of deputy chairman in 2007, neither of them had any idea that they were appointing someone whose business model at HBOS was being investigated by the regulator whose board they were appointing him to?
As the Prime Minister has just told the Liaison Committee, Sir James’s appointment in 2003 was made on the recommendation of a selection panel that followed an open competition, and that panel, which was chaired by the senior official then responsible for banking regulation, Sir James Sassoon, recommended the appointment of James Crosby. At that time, there was no reason to question that appointment. With the benefit of hindsight, many people now make claims about what they say they knew at that time, but the then Chancellor followed the proper procedures and followed the advice, and he had no reason not to make the appointment.
The FSA has said that in 2002, and subsequently, it drew attention to a number of concerns, as it did with several other organisations. In terms of the law, the way in which the FSA supervises any bank, let alone this one, is a matter for it. Neither the subsequent investigation into the allegations made against James Crosby, nor the concerns that it had, were reported to the Treasury. I would not expect them to have been, given the information that I have from the chief executive of the FSA at the moment.
Either the Chancellor knew what was going on and did nothing, or he was entirely ignorant, and neither is much of a defence. Is not the net closing in on the Prime Minister and the Chancellor? Their accomplices are resigning, their alibi that no one knew what was going on has been blown apart, and their fingerprints are all over the mistakes that were made during the age of irresponsibility.
Is there a coherent view in the Cabinet about how long this recession will last? We know what the Treasury’s forecasts are, and we know what the Chancellor says about the economy recovering halfway through this year, but today the Health Secretary has said that we need to be ready for two years of recession. Is the Health Secretary expressing the collective view of the Government on this issue?
In relation to the FSA, the hon. Gentleman’s claims are frankly ridiculous. Appointments were made in the normal way, which is a great deal more open than for some of the appointments that were made in the past. At the time, there was no reason not to accept the recommendations in relation to Sir James Crosby.
On the broader economic picture, as I have said to the House on a number of occasions, there has been an extremely sharp downturn not just in this country but in countries right across the world, and we can see the effects of that. I am clear, though, that if we had followed the hon. Gentleman’s advice and done absolutely nothing to prevent the full effects of the recession from being felt, the impact and the long-term damage to this country would have been substantial. I believe that the action that we have taken is not only justified but will ensure that this recession will be shorter and less painful than would otherwise be the case. I am sorry that the Conservative party continues to take the view that there is absolutely nothing that they are prepared to do to help people and businesses in this country.
Is the Chancellor aware that the most delightful thing about this episode is that most bankers naturally represent the Tory party? I am quite enjoying the spectacle of these Tories liaising with bankers one day and attacking them the next. As a socialist, I think that at the end of the day we might see a better banking system and, next time, put some socialists on the banks. The other thing that has emerged is that the Tories are complaining about tax avoidance, and they are people who, over the years, have been experts at it.
The UK tripartite authorities—the Treasury, the Bank of England and the Financial Services Authority—are working closely together to ensure the stability of the UK financial system. The FSA, as an independent regulator, reviewed its ban and decided not to maintain it. It stands ready to reintroduce the ban should circumstances require it.
I thank my hon. Friend for that answer, but the FSA has let the public and business down, and it acts like a toothless tiger. It is time that it got tough. The only time that it got tough was on short selling, and what did it do? It withdrew the ban. The time has come for the Minister to introduce strong regulation and make the FSA use it, because the people of this country would not forgive it if this were to happen again. Let us get tough and take action now.
I understand what my hon. Friend says about tough regulation, but I have to say that there is no evidence that hedge funds and speculators are short selling and driving down the stock of banks at the moment. There is a short selling disclosure regime in place, whereby if short selling transactions reach 0.25 per cent. they must be disclosed. All the evidence that we have at the moment shows that there is no significant short selling activity in bank stocks. Of course the FSA, as the independent regulator, will continue to monitor the situation and stands ready to reintroduce a ban if it is necessary to do so.
I am not distancing myself from it at all. I am just making it clear that the FSA is an independent regulator and takes its own decisions, although it works closely with the other tripartite authorities, the Bank of England and ourselves in Her Majesty’s Treasury. As the hon. Gentleman will know, in addition to the current temporary disclosure regime, the FSA is proposing greater transparency in short selling more generally. We believe that that is important and can help to protect all UK firms, not just those in the financial sector. A discussion document was issued just over a week ago on this issue.
In his discussions with the FSA, will my hon. Friend ask for an explanation of why the building societies pay 15 per cent. of their pre-tax profits into the Financial Services Compensation Scheme while the banks pay only 5 per cent.? Will my hon. Friend meet colleagues and representatives of the building societies?
My hon. Friend refers to the Financial Services Compensation Scheme. We consulted on the rules over a couple of years, and the scheme was introduced in April 2008. I remember that, at the time, the building societies said that they wanted to be in the same category as the banks for deciding the rate that they pay for their protected deposits. They might have changed their minds since, and they will want to take that up with the FSA as an independent regulator, but I am always happy to meet my hon. Friend to discuss any problems.
Perhaps we should demystify short selling a little. I do not know whether the hon. Gentleman buys goods over the internet, but if one buys books, hi-fi equipment and televisions, they are often bought from a supplier who does not have the goods, but makes a commitment to get them from a purchaser. That is short-selling activity. We believe—and the markets understand—that short selling can help facilitate price discovery, which is important for valuing companies fairly, price efficiency and liquidity in the market. However, we need to ensure great transparency about the matter. We do not want to go back to the days of George Soros, speculation, and major runs on companies and countries. That is why the disclosure regime is important.
The action we took in October prevented the collapse of the banking system. That, together with the measures that I announced in the pre-Budget report, continues to support businesses and families in this country.
I thank my right hon. Friend for that reply. Given the amount of toxic debt in the system, will he consider creating a public-private investment fund, designed to remove toxic debt from financial institutions’ balance sheets? Or perhaps he favours the Credit Suisse model of banks creating internal hedge funds in which they put their toxic debts to pay directors’ bonuses.
My hon. Friend is right that different solutions are being developed across the world to deal with the basic problem, which is that far too many banks have assets that either turn bad or have clearly reduced in value because of the economic downturn.
The new United States Administration have proposed the first suggestion that my hon. Friend made—a joint venture by Government and the private sector—although the details have still to be worked up. I said on 19 January that, in this country, we wanted to develop an insurance scheme, whereby the Government could provide back-stop insurance for some assets. That would remove some of the uncertainty in the system, which holds back banks’ ability to lend to businesses and people in this country. I also said that we have not closed our minds to the creation of a so-called bad bank. Indeed, we did precisely that in the case of Bradford & Bingley—we split the bank between the part that took deposits, which is still viable and was sold to Santander, and the long-term liabilities, which have been kept and run down. There are a variety of solutions to the problem.
The main problem, as I said in reply to the hon. Member for Twickenham (Dr. Cable), is that we need to get banks to realise and disclose the extent of the liabilities as soon as possible. Until that uncertainty comes out of the system, banks will continue to be reluctant to lend to each other and to their customers, not only here but throughout the world.
The proper test of the effectiveness of the recapitalisation scheme is the willingness of the banks to continue viable lending. Unfortunately, the failure of that willingness has led to a viable, profitable, long-term and well respected company in my constituency having to declare 1,000 job losses, 400 in my constituency and in that of the Health Secretary. That is a failure of the recapitalisation regime, of the credit guarantee regime and of the Treasury, in not intervening. Will the Chancellor undertake now to intervene in the case of the finance company Cattles, to ensure that the credit guarantee scheme underpins it?
There are two issues there. First, I do not agree with the right hon. Gentleman in relation to the recapitalisation scheme that I announced in October. It was there primarily to stop the banking system collapsing. That was the scheme’s purpose, and it was supported by all parties in the House at the time. I appreciate that since then it has been convenient for his party to run away from that, but that is why the scheme was there. In relation to his general point about lending, he is right that the crucial thing is for us to try to get lending going as quickly as possible. The recapitalisation was of course necessary, because if there were no banks, there could not be any lending. That was the first stage. The measures that I announced in January are designed to do more to get lending going.
In relation to Cattles, I am aware of the problem, which has been raised with me by other hon. Members in the House. In relation to the credit guarantee scheme, that is available to banks. That is what it was set up for and it has been run by the Bank of England. I am aware of the Cattle scheme and I will continue to keep the House informed on it.
Is my right hon. Friend aware that when the Conservative party was in power, unemployment in my constituency was 20 per cent.? Today it is less than 3 per cent. During that time we were told that high unemployment was a price worth paying and that if it was not hurting, it was not working. Is it not the case that today we are trying to prevent that scenario?
My hon. Friend is quite right. Yesterday’s unemployment figures surely demonstrate the need to do more, not less, to help people who lose their jobs. The lesson from the 1980s is that the Government waited almost two years before they started to introduce any help, and most of that help was aimed at people who had been out of the labour market for some considerable time. As a result of that delay and doing nothing at that time, a whole generation of people was written off, and many of them never went back to work again. My hon. Friend and, I suspect, hon. Members in most parts of the House will have personal experience of knowing people who were in precisely that position.
That is one of the reasons we set up Jobcentre Plus. We set it up in the good times, when unemployment was falling rapidly. We have given Jobcentre Plus more resources, in order to help people. Even today, the majority of people get back into work within six months of losing their jobs. We will continue to ensure that we put more money into the system to help people get back into work. There are nearly 500,000 vacancies in the economy. There are jobs; it is our job to match people up as soon as we can, preferably before they leave employment, in the event of being made redundant, and help them get back into work as quickly as possible. That is another example of where the Government can make a difference for the good.
A moment ago the Chancellor told my right hon. Friend the Member for Haltemprice and Howden (David Davis) that the primary purpose of the bank bail-out was to prop up the banks, but that is not how he described it when he made the announcement last October. He defined the criterion by which the effectiveness of that intervention was to be measured in these words:
“The purpose of these proposals is to get lending started again and to get the economy moving forward.”—[Official Report, 8 October 2008; Vol. 480, c. 280.]
Since then, survey after survey has shown that lending has dried up, and the published data show that the economy is shrinking. In the Chancellor’s own definition, has the bail-out not been a failure?
No, and the hon. Gentleman well knows that what he is saying is absolute nonsense. The primary purpose of our intervention last October was to stop the banking system collapsing. Indeed, that is why he and his hon. Friends on the Front Bench supported us, so it is no good their now saying that they were not in favour of it and would have done something different. Of course, if there are no banks in the first place, there will be no lending, so propping them up was a precondition of getting lending going again. That is no more than a statement of the obvious.
Since that time, there has been a substantial downturn of economies, not just here but in every country in the world. We can see that in all the forecasts and in all the figures that we know about at the present time. That is all the more reason for us to ensure that we get lending going again and help to fill the gap that has been left by foreign banks withdrawing from lending, not only in this country but in other parts of the world. It is also all the more reason for the Government to step in to help to support businesses and families.
That approach is supported right across the world, and the Conservatives are virtually isolated as far as that is concerned. It has been backed by the independent Institute for Fiscal Studies—which is often favourably cited by the Conservatives when it suits them—and, even yesterday, the Bank of England’s inflation report made the case that if Government support comes through, it will make a substantial difference to the position that would otherwise be the case. We are clear that supporting the banks and supporting our economy are absolutely essential, and I am sorry that the Conservative party cannot bring itself to give that support, because it is pretty essential for the future of our country.
The UK has already benefited to the tune of more than £5 billion in the 2000 to 2006 round of programmes. Final applications under the scheme are still being dealt with, and they are likely to increase that figure further.
In that case, why did Treasury Ministers turn down the offer of an extended package of European regional aid to all the UK’s poorest regions as part of an EU fiscal stimulus package? I note that Treasury Ministers accepted an extension to the regional aid package for Scotland, Northern Ireland and Wales, but failed to take up the offer of the package of support for the UK’s poorest region—Cornwall.
As the hon. Gentleman will be aware, the Department for Communities and Local Government looked in detail at the possibilities, to determine whether the package would have a beneficial impact on the UK, including Cornwall. Having looked at the offer from the EU, the Department concluded that it had come too late and that it was too inflexible, in practice, for many programmes to be able to qualify. It would also have incurred significant extra cost and diverted resources from other key programmes. However, there are still applications in the pipeline for Cornwall—including grant funding to support the transition of Newquay airport from military to civilian use—which, if agreed, would increase the European regional development funding awarded to Cornwall county council from £11.7 million to £14.4 million.
In the past, did not North Yorkshire and Yorkshire and Humberside get substantial amounts of money from EU regional development funds? That money is no longer available, yet we are now funding huge cohesion funds for other European countries. Will the Minister stand up for the regions of this country to ensure that we get our fair share?
The hon. Lady will be aware that we support substantial investment in the UK regions. Clearly, the criteria for EU help for particular regions changes over time, which reflects the changing positions in the regions, not only in the UK but across Europe. She will know, as a fellow Yorkshire MP, that we have seen substantial growth and investment in the Yorkshire economy, and that the Yorkshire regional development agency, which gets substantial investment from the Government, has been critical in helping to support Yorkshire businesses through the downturn and through the pressures that we face. That is the kind of investment in the regions that we never had in the past, and there is a substantial difference between the way in which we are responding to this downturn and the way in which the Conservative Government responded in the 1980s.
We believe that it is right to try to support everyone through the difficult times, and that includes looking at the different impact of problems on women and men through the recession. The £60 pensioners’ increase in January and the bringing forward of child benefit will particularly help women and families.
Like many seaside resorts, my constituency has an above-average number of women in employment. Sadly, a high proportion of them are the main breadwinner. That is why this is an important issue for my constituency. The TUC has said that “creative means” will be required to protect women’s jobs and to increase the opportunities for new vacancies. What creative means does the Minister have planned to ensure that jobs for women are protected or created?
The hon. Gentleman is right to say that we want to support jobs, and people, through this. That includes, for example, the fiscal stimulus—cutting VAT and putting billions of pounds into the economy to help us through. Had that been done by the then Government in the early ’90s, it could have helped to protect 300,000 jobs. The fiscal stimulus is hugely important, as recognised by Governments across the world. It is about helping to support jobs, and it is unfortunate that other parties have not supported it.
In looking at reports suggesting that the recession has impacted particularly on women’s employment, is my right hon. Friend concerned about the very many women who work, often part time, on the front line in the financial services industry and who do not get bonuses and are on modest salaries? I speak as a woman who has sat through many hours listening to male bankers talking about the crisis that they precipitated, so does she agree that a bit more diversity on the boards of these banks might actually help to improve the quality of the decision taking?
My hon. Friend is right. Investigations have been launched, as she will know, to look at issues around diversity in the City and the way in which men and women have been paid, including bonuses, in the financial services industry. It is also, I think, important to recognise that there may be differences in the impact on employment. So far, unemployment over the past 12 months has increased by less for women than for men at the national level, but there are very wide variations at the regional level. My hon. Friend is also right to highlight the importance of looking at part-time employment. It is also the case that the tax credit system might help some people who see a cut in their wages, for example, as it can help to cushion them from the impact of what might otherwise be difficult circumstances.
I received an e-mail on this issue this morning from a constituent who strongly suggested that the bonus culture in some financial institutions—I do not mean at the top, but much lower down—has an inherent tendency to discriminate against women who, as a result, tend to suffer from lower pay and are more likely to be chosen for redundancy. In looking at the bonus culture, will my right hon. Friend ensure that we focus not just on what happens at the top but on how it works down throughout these organisations? Changing the boards in the way my hon. Friend the Member for Northampton, North (Ms Keeble) suggested might provide a way of ensuring that this matter is taken seriously by the banks and other financial institutions.
My hon. Friend makes an interesting point about the way in which performance-related pay or different bonuses may be decided on and raises questions about whether there might be discrimination or unfairness as those decisions are taken. It is thus right that, in addition to looking at how to prevent an unfair bonus culture that overly rewards excessive risk across the financial sector, we should also look at whether any discrimination is taking place. My hon. Friend may be aware that my right hon. and learned Friend the Minister for Women and Equality has instigated work in this area.
Global Economic Situation
The talks on the economic crisis with my right hon. Friends the Prime Minister and the Chancellor addressed preparations for the London summit, avoiding protectionism, moving towards a low-carbon economy and reform of international financial institutions. Both countries aim to double UK exports to China over the next 18 months.
Given the importance of the relative slowdown of the Chinese economy, was the opportunity taken to discuss with China the scale and nature of its financial stimulus package and its likely speed of effect so that it improves the Chinese economy and, with it, that of the rest of the world?
Yes, that certainly was discussed. My hon. Friend knows China extremely well, so he will know that it recently became the world’s third largest economy. It is going to be one of the fastest growing this year, but it has been deeply affected by the crisis, and some 20 million migrant workers have returned home after losing their jobs on the east coast. I was in China last month for the G20 preparations and I discussed with officials and others in Beijing what was happening in the Chinese economy. I can say to my hon. Friend that China will be a key participant at the London summit—committed, with others, to a successful outcome, which is so important for China as it is for the rest of the world.
The Government tell us that their growth forecasts are dependent on international co-operation with China and elsewhere. They also claim that other countries are following the United Kingdom’s lead in economic policy. If that is the case, presumably the Minister will stand by the pre-Budget report’s forecasts on growth—or does he agree with most commentators, including the Governor of the Bank of England, the Secretary of State for Health and the Secretary of State for Children, Schools and Families, that the recession will be much deeper?
As the hon. Gentleman knows, we will publish updated forecasts at the time of the Budget, as normal. They will include a full assessment of developments and prospects for the United Kingdom and the global economy.
Just a couple of weeks ago, the Institute for Fiscal Studies said that
“our central forecast is that the UK will avoid deep and prolonged recession thanks to the enormous monetary and substantial fiscal stimuli already announced.”
We are taking the action that is needed domestically, which contrasts with the do nothing policies of the hon. Gentleman’s party.
The globalised neo-liberal economic model has proved to be inherently unstable, and has brought mass unemployment to China as well as elsewhere in the world. Did my right hon. Friend discuss with the Chinese the possibility of a fundamental reorganisation of the world economy, perhaps on Bretton Woods lines, and did he read Anatole Kaletsky’s article in The Times on Monday, calling for what he called a “paradigm shift” in economic arrangements?
There are lots of interesting ideas around at the moment. What I can tell my hon. Friend is that, as I indicated earlier, the reform of international financial institutions was one of the topics discussed by my right hon. Friend the Prime Minister with Premier Wen in London, and it is certainly one of the topics being considered in preparation for the London summit. I think that we shall need to see some significant changes.
What steps is the Minister taking to work closely with the Chinese businesses based here in England—both large and small—which will play an important part in ensuring that we retain the links between our two countries, not just now but in the decades ahead?
The hon. Gentleman has made an extremely good point. The United Kingdom economy benefits substantially from Chinese investment in the United Kingdom; I believe that we are the biggest recipient in the European Union. We also have the China-Britain Business Council, which does important work. The relationship is very important to us economically, and also, as Premier Wen emphasised, very important to China.
Internal risk models for United Kingdom banks are required to be approved for use by the Financial Services Authority. Internal risk rating is complemented in the Basel II framework—and, in EU law, the capital requirements directive—by a requirement for supervisors to undertake supervisory reviews of the banks’ risks and make appropriate adjustments as required. The framework also incorporates a third pillar: disclosure of key supervisory requirements of a bank to ensure market discipline.
Northern Rock’s banking practices were compliant with the Basel accords, so I think that this can be described as, in effect, a highway code written by boy racers. The system effectively hands all the risk assessment over to the banks themselves, and is fatally flawed as a result of being allied to a system of balkanised regulation. It does not need tweaking; it needs fundamentally changing. Will we try to get some proper, global banking regulation out of the G20 talks?
I think that the G10 regulators and people in the central banks who worked on Basel II will be surprised to hear themselves described as boy racers. They may be pleased to be regarded as so youthful. But I think the only boy racer when it comes to regulation is the shadow Chancellor, the hon. Member for Tatton (Mr. Osborne), given his earlier policy proposals in this context.
My hon. Friend has raised an important point about banks and their internal risk modelling, which must be approved by the Financial Services Authority. The Chancellor has been at the forefront of international discussions about future arrangements. We believe that improvements are needed to the Basel II process, and it will certainly be a major topic of conversation at the G20 Finance Ministers’ summit.
On two occasions, both the Prime Minister and the Chancellor have failed to express confidence in Glen Moreno, acting chairman of UK Financial Investments Ltd, the body entrusted with risk-managing our bank holdings. Can the Minister tell us when he will appoint a permanent chairman, and will he confirm that Mr. Moreno will not be a candidate?
The April 2007 Bank of England financial stability report documented a number of risk management weaknesses: weakened credit risk assessment; impaired risk monitoring; and over-reliance on risk assessments. It then glossed over those when it said that
“the growing use of credit risk transfer markets have increased the risk-bearing capacity of the system”.
That is incredible when one looks back at what has happened. Can the Minister instruct the Governor of the Bank of England to pay much more attention in future stability reports to explicit risks and far less attention to glossy commentary?
The hon. Gentleman served on the Banking Bill Committee, on which I led for the Government. Like me, he will be aware that statutory responsibilities are to be given to the Bank of England through the Banking Bill in just the areas that he is discussing.
The Department’s responsibilities remain as I set out last December. With your permission, Mr. Speaker, I can tell the House that, following the meeting of the G20 countries in April, this year’s Budget statement will be on 22 April, when the House will have returned after its Easter recess.
What I can tell the hon. Gentleman is that the measures we have put in place to support small businesses in relation to lending will help many businesses to deal with the costs they meet, in addition to helping them get through an extremely difficult situation—we will continue to do that. Other measures, for example, the empty property relief that I announced last November, will help people and businesses get through this difficult time. I will continue to keep under review, at the Budget and at other times, what else we can do to help small businesses.
My hon. Friend is right to mention the very good response that there has been to this initiative. More than 60,000 businesses have benefited from the time to pay arrangements, including 191 in Derbyshire. In total, those businesses have agreed arrangements to spread tax payments worth more than £1 billion, so the scheme has been very effective. I know from what businesses have said to me and from what a number of Members of the House have reported to me and to other Treasury Ministers on behalf of businesses in their areas how successful and highly welcomed this scheme has been.
I thought that my right hon. Friend the Financial Secretary had just indicated one of the benefits that the fiscal stimulus has been giving to businesses in this country—£1 billion of help has been given to businesses. That is one example of the difference between a Labour Government who are giving that help and a Conservative party that is absolutely opposed to it.
My hon. Friend is certainly right to say that bringing forward increased public sector capital investment can help to support jobs in every constituency across the country—we think that it will help to support thousands of additional jobs. I am happy to talk to her further about what additional information she would like either from the Treasury or from individual Departments, which are, of course, supporting the major capital investment, not just across the higher and further education sectors, but across transport and other areas of infrastructure—it is all, sadly, opposed by the Conservatives.
The hon. Lady is mistaken about what James Crosby actually proposed. He was not dealing with the question of the bad assets in the banks—that was being dealt with separately. He was asked to consider how to get mortgage lending going again—again, at the time, that was something that the Conservative party was in favour of. He suggested that the Government should underwrite some of that new lending. That has a great deal of merit, and it is something that I set out in the pre-Budget report. I am afraid that the hon. Lady was just plain wrong in what she said.
This week, one banker has described a salary of £1 million as “modest” and RBS has proposed obscene bonuses of £1 billion. Will the Chancellor now stand up for the taxpayers who own great chunks of the banks and demand a freeze on bankers’ bonuses?
The hon. Lady will be aware that when we recapitalised the banks in October, we imposed restrictions on the payment of cash bonuses to board members. I believe that bonuses should reward success, not failure, and many people who work for banks are not well paid in comparison with some of the people at the top. If the former work hard, they should be rewarded for doing so. I agree with the hon. Lady that people who are associated with the losses should not receive anything, and we must end the culture that has encouraged people to take reckless risks that the boards of the banks patently did not understand. It has had disastrous consequences for them, for this country and for the rest of the world.
This downturn affects the whole world, and does not that underline the importance of working with our partners in the European Union and other countries to stimulate demand? What action is being taken by EU members and other countries to address these pressing needs?
My hon. Friend is right. The co-ordinated European recovery plan, which was agreed by Finance Ministers and leaders in the EU, includes a fiscal stimulus of a similar size to the one that we pioneered in this country. Germany may have had a few words to say, but it has introduced the largest fiscal stimulus since the second world war, at €82 billion. The French have a €26 billion fiscal stimulus and the Spanish a €25 billion one. Even the Canadians, who used to be on the side of the do nothing party, have announced a $32 billion fiscal stimulus. Everyone is doing it but the Tories.
The right hon. Gentleman makes some interesting points, but it is also important to remember that we are pioneers in ensuring that the EU budget is spent appropriately. We always raise that point in all the meetings that we have. I also note that €30 billion of the EU fiscal stimulus—which the Tories oppose, but which will help to revive all of our economies—will come directly from the EU budget.
Given the dreadful price paid by this country in blood and treasure after the previous surge of troops in Afghanistan in 2006, may we have an assurance that, before another surge is contemplated, we will have before us a full financial appraisal?
My hon. Friend will know that the Government remain committed to supporting our troops, who are carrying out an extremely difficult and dangerous task in Afghanistan. We believe, of course, that our contribution should be made alongside contributions from other countries too. This must be an international effort, and the burden cannot lie on the shoulders of a few. Our commitment to ensuring that we see the matter through with other countries remains as strong as it ever was.
As the hon. Gentleman will know, we are increasing investment in transport and other infrastructure across the board. We are bringing forward capital spending on our transport infrastructure, and that is the right thing to do to support the economy at this time. The Opposition’s proposals would amount to a cut of £800 million in transport investment at a time when the economy needs it, in just two months’ time. I think that such a cut would be hugely bad for the economy.
On Monday, the Federation of Small Businesses said that the VAT cut had not worked. That is certainly what I am hearing from my local businesses. Denise Harrison, the owner of the small business Complete Image, pointed out that reprinting her price list would cost so much that lowering her prices would not be economic. When will the Chancellor admit that the cut was a gimmick? When will he come forward with proposals that would really help small businesses in my constituency and the rest of the country?
I do not agree with the hon. Gentleman. We cut VAT because that was the quickest way to put £12.5 billion into the economy. We are also reducing the amount of tax that basic rate taxpayers pay, and introducing measures to help families with children, and pensioners. It will all make a difference. The Institute for Fiscal Studies is independent of Government, but in its report a couple of weeks ago it said that the temporary cut in VAT that is now in place would be a more effective
“stimulus measure than its critics suggest.”
In addition, the forecasts in the inflation report that the Bank of England published yesterday made the point that the VAT reduction and the other stimulus that we have put in place, together with the effects of monetary policy and falling energy prices, will make a difference.
I know that many small businesses are finding it very difficult at the moment to make ends meet, and that many of their customers are cutting back on what they are doing. That is all the more reason, I would have thought, to support putting more money into the economy. We are putting something like £20 billion into the economy over the next year or so, and other countries right across the world are doing the same thing. It will make a difference. There is no quick fix or overnight solution, but the alternative—of doing nothing and letting the recession take its course—was tried in the 1980s and 1990s. It did not work then and it would not work now.
I believe that it is essential to have an independent regulator such as the FSA. Indeed, the hon. Gentleman might do well to remember that it replaced some seven or eight self-regulatory organisations that, for example, manifestly failed to prevent the mis-selling of pensions in the late 1980s. That is why we set it up. The FSA has a responsibility to regulate the financial services industry. It routinely raises concerns about firms from time to time. It would not routinely report those concerns to the Treasury unless at that time it felt that there was a major systemic risk. Clearly, it did not feel that such a risk was evident when it carried out its investigations, because it did not report any suspicions to the Treasury at any point. However, I do not think that one can argue from that that there should not be independent regulation of the financial services industry. That position is just patent nonsense.
Has the Treasury made an assessment of the role and influence of external credit agencies in the analysis of financial regulation for our financial services industry?
Yes, we have, and I agree with the point that I think that the hon. Gentleman is getting at. Credit rating agencies are a useful aid to decision making, but they cannot be a substitute for decision making on the part of boardrooms. People need to decide whether a risk is good or not or, if there is a risk, how they are going to price it. To do that, they should, of course, refer to credit rating agencies but that should not be the last word. Other issues are involved, such as the conflict of interest that arises when credit rating agencies certify products in which they have a financial interest. However, these are all issues that we have raised at the Financial Stability Forum, because the problems need to be dealt with at an international level. They cannot be dealt with in any one country alone.
My right hon. Friend the Minister for Local Government has recently announced to the House, following our announcement in the pre-Budget report, an unprecedented period of eight years to pay back these liabilities, which are properly and rightly assessed, as happens routinely with all business services. There is an eight-year pay-back period; it is interest free; and it should offer a great deal of help.
Returning to Mr. Glen Moreno, does the Chancellor of the Exchequer not understand that it was a gross error of judgment to appoint that Liechtenstein-based banker, who specialises in tax avoidance, to look after taxpayers’ interests in our banks?
As I said earlier, Mr. Moreno is taking that job on an acting basis until we can appoint someone on a permanent basis, but the right hon. Gentleman’s protestations about tax dodging and people not paying taxes in this country when they should would have far more credibility—[Interruption.]