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G20 Finance Ministers’ Meeting

Volume 489: debated on Monday 16 March 2009

With permission, Mr. Speaker, I wish to make a statement about the meeting of G20 Finance Ministers and central bank governors held on Friday and Saturday, to prepare for the meeting of leaders and Finance Ministers in London next month.

Since November, when the G20 last met in Washington, we have seen a collapse in international trade—a much deeper and more widespread economic downturn—with every country in the world affected. In October, the International Monetary Fund was forecasting world growth this year of 3 per cent. Now it is predicting negative global growth for the first time in 60 years.

At the meetings, it was clear that every G20 country was determined to act together to restore growth and take steps to restore bank lending, as well as prepare for recovery. There was unanimous recognition, too, that we must take action to help emerging and developing economies deal with this global downturn. We agreed on the following.

First, to support our economies, we agreed that we must take whatever action is necessary, for as long as it is necessary, to boost demand and support jobs. Many countries have already taken substantial steps to support their economies. The IMF calculates that, in the United States, this year’s fiscal stimulus is worth 3.5 per cent. of GDP; in Germany, 3.2 per cent.; in China and France 2.6 per cent.; and here too, our fiscal stimulus is 3.4 per cent. of the economy. We agreed that we should be ready to do more if necessary—not all countries in the same way or at the same time, but whatever is needed to deal with today’s problems and prepare for recovery.

Secondly, to support people and businesses, it was recognised that it is essential to restore bank lending. It was agreed that countries need to consider the full range of options available, including liquidity support, recapitalisation, and dealing with assets for which there is no market or whose value has fallen significantly. On dealing with these assets—something that we, America and other countries are already doing—while there is no single solution or overnight fix, we developed a common framework, so that countries can use the full range of options when dealing with the immediate problems in their banking systems.

Thirdly, on monetary policy, we welcomed recent reductions in interest rates, and G20 central bank governors made a commitment to maintain lower rates for as long as is needed. That is important, as it sends a clear signal that central banks all over the world will keep interest rates low to support economic recovery. It was agreed that central banks can also use measures other than interest rates, and that is why the Bank of England, the US Federal Reserve and the Swiss Central Bank are currently putting money into the economy through their credit easing programmes.

It was also agreed that the financial supervisory and regulatory regimes need to be strengthened, both nationally and internationally. There is significant consensus emerging, here and across the world, that we need to reform the system of banking regulation. That is why I asked Lord Turner, when he became chairman of the Financial Services Authority in the autumn, to come forward with recommendations on how to strengthen our regulatory regime. He will publish his proposals this week. I expect his overview of the system to cover four broad themes: first, capital and liquidity rules; secondly, remuneration and the links to risk management; thirdly, how better to anticipate risks to the wider economy presented by problems in the financial sector; and, fourthly, rather than our abolishing our single regulator, how the FSA can be strengthened to regulate large complex institutions.

It was clear at the G20 meeting that financial regulation in most countries needs strengthening. In particular, all important financial institutions should be regulated, including those hedge funds that are systemically important. Wider regulation must be complemented by strengthening prudential oversight in looking not only at individual banks, but at how they contribute to wider risks to the economy. In future, banks throughout the world must have sufficient reserves at all times, and regulators need powers to ensure that banks do not over-extend themselves.

We must also improve international co-operation, building on the 25 supervisory colleges set up since last year to supervise banks that trade across the world. We also need a joint international early warning system that will enable us to deal with emerging problems sooner. That means working within the European Union and recognising the need for co-operation, which we have been demanding for some time, while recognising the essential role of national regulators.

We also agreed a range of other measures on international banking supervision. All credit rating agencies need to be regulated. There needs to be full transparency of off-balance sheet exposures. Accounting standards need to improve. Regulation will cover payment and bonus systems. We agreed that tax havens must be opened up, and we welcomed recent announcements by Switzerland, Hong Kong, Andorra and Singapore that they will share tax information according to OECD guidelines. Here at home, we expect banks to comply fully with their tax obligations, and I can tell the House that I have asked Her Majesty’s Revenue and Customs to publish shortly a draft code of practice on taxation for the banking sector, so that banks comply with not just the letter but the spirit of the law.

The World Bank currently estimates that 129 developing countries, many of them in sub-Saharan Africa, are facing financial shortfalls, and up to 90 million more people could fall into poverty as a result of this global crisis. We agreed that we must minimise the impact of the crisis on developing and emerging economies, many of which—they include India, Indonesia, Turkey and South Africa, for example—were represented at the G20. We agreed that that would require a very substantial increase in resources for the IMF, and that the development banks have the capital that they need. Agreement on total levels of support will need to be reached next month.

We remain committed to fighting protectionism and maintaining open trade and investment. That is essential if we are to avoid a prolonged downturn. It is also imperative that the international institutions reflect the reality of the day; the IMF and the World Bank were set up 60 years ago. Once when we talked about the global economy, we meant the west and Japan, but not any more. For example, China is already the world’s third-largest economy. Emerging and developing countries need to be at the top table too, so we agreed that the next review of IMF representation should be concluded by January 2011, while World Bank reforms must be completed by next spring. We welcomed the recent decision to extend the Financial Stability Forum to cover all G20 member countries.

The G20 leaders and Finance Ministers will meet again in three weeks’ time. We must seize the moment to make a real difference, supporting our economies, dealing with the banks’ problems, and preparing for recovery. Ours must be a time for renewal to tackle the downturn and build a more sustainable future. I commend this statement to the House.

I thank the Chancellor for his statement, and we look forward to the Prime Minister giving a similar statement on the day after his G20 meeting. The meetings are an important opportunity to work together to tackle the financial crisis, and to try to prevent it from happening again. Of course we must send the clearest possible signal that globalisation is not on the retreat, but surely the Chancellor must share some of the quite widely felt disappointment about the fact that the Finance Ministers’ meeting this weekend did not produce more concrete proposals and ducked some of the most difficult issues.

Let us take international trade first. The communiqué says—the Chancellor repeated this—that all countries

“commit to fight all forms of protectionism and maintain open trade”,

but I am sure that he remembers that in the last G20 meeting in November, something almost identical was said. Since then, of course, the US Congress has introduced the “Buy American” programme, the Indians have increased agricultural tariffs, and our own Prime Minister has gone around talking about British jobs for British workers. Has the rest of the G20 given up on the prospect of putting further pressure on America and India in particular to try to conclude the Doha trade round this spring, which would provide the greatest stimulus of all? If completing Doha is out of their reach, what about at least trying to freeze tariffs at their existing level, rather than allowing them to increase, as current trade rules allow.

On the reform and financing of international institutions, again I fear that the communiqué ducked some of the toughest issues. For example—again, the Chancellor repeated this—it says that IMF resources should be increased “very substantially”. The communiqué issued after last November’s G20 meeting said almost exactly the same thing. Perhaps the Chancellor could say something about how much the increase should be, and who exactly is going to pay for it. Would it not help if western powers such as Britain had the courage to give up some of the power that we have at the IMF so that countries such as China, Brazil, India and South Africa have a much greater say, instead of putting it off until 2011? Did he note that the Brazilian Finance Minister said this weekend that his country

“will only agree to increase capital to the IMF after reform is carried out because there is still an imbalance in our participation”?

Should that imbalance not be resolved?

We see the same fudge on future financial regulation. I am delighted that there is now growing agreement on the need for counter-cyclical capital requirements, which I am sure the Chancellor remembers we proposed more than a year ago. Promised future action on the credit rating agencies, off-balance sheet vehicles, stronger macro-prudential regulation, tax havens and bankers’ bonuses is all welcome if it actually takes place. Indeed, the British Government can provide unique advice on off-balance sheet accounting. It is a shame that the Prime Minister, in the 10 years in which he turned up to G20 Finance Ministers’ meetings and other such meetings never proposed any of those things. It is striking that the Chancellor still defends the system of regulation that his predecessor put in place in 1997, as it has so palpably failed.

One thing that I concede that the Prime Minister talked about during those years was an early warning system. Given that the early warnings issued in 2003, 2005, twice in 2006, and early in 2007 by the IMF about Britain’s housing bubble and Government debt levels were completely ignored by the previous Chancellor, how does the current Chancellor plan to make sure that his early warning system is listened to in the Treasury?

Finally, I am pleased that the communiqué talks about the need to constrain leverage and the need for fiscal sustainability. I just wish that we could have some of that in Britain. The outspoken comments of various European Finance Ministers and the German Chancellor this weekend exposed the transparent attempt by the Prime Minister to secure some international cover from the G20 for his attempt to create domestic political dividing lines. It turns out that they do not all agree with the Prime Minister that countries such as Britain that are running huge budget deficits can afford yet another round of debt-funded spending splurges. Indeed, the Chancellor is busy briefing newspapers such as the Financial Times that he does not agree with the Prime Minister on this, either, which should make putting together next month’s Budget quite a challenge.

It would help if we started with a consistent Treasury definition of the size of the existing fiscal stimulus that he put in place. Today, he said that it was 3.4 per cent. of our economy, but in his pre-Budget report speech to the House he said that it was around 1 per cent. of our economy. Will he clear up exactly what the definition of the fiscal stimulus is in the Treasury? Did not Chancellor Merkel sum up the choice facing the Government when she said this weekend:

“If we want to make a real impact, you really must implement the package first before you talk about the next step”?

That is spot on. Months after Government schemes have been announced in a blaze of publicity and cheered by that lot on the Labour Benches, almost none of them has been implemented. The working capital scheme has not provided credit to a single business; the homeowners mortgage support scheme has not helped a single home owner; the Department for Business, Enterprise and Regulatory Reform is blaming the Treasury and the Bank of England for the fact that the car manufacturers scheme is not up and running; and no one has ever heard again of the national internship scheme. We will return to those issues when we debate the wider economy later this week, and I urge the Chancellor to turn up to that debate so that he does not just do statements and debates on international issues, but answers for his policies on the domestic economy as well.

We want the G20 to take action, but that means confronting the difficult decisions on trade and finance, not ducking them. I sincerely hope a great deal more progress is made in the next couple of weeks. If it is not, the Prime Minister’s claim that he is fashioning a “grand bargain” will look a little over-ambitious, and he will have to return to the real world and confront his failures here at home.

I look forward to debating the economy with the hon. Gentleman when we debate these matters on a Government motion at the end of the month and no doubt on many occasions in between times.

The hon. Gentleman raises a number of points that it is important that we deal with. First, I welcome what he says about resisting protectionism. I agree that we would very much like to see the Doha round completed. We have raised the matter with both the Americans and the Indian Government. We believe that a deal is within our reach, but it is important that countries engage in that. That would send a powerful signal to the whole world that Governments are serious about resisting protectionist calls at present and breaking down barriers in the future. We have raised—I personally have raised it with my US counterpart—the need to make sure in everything we do that we do not end up, intentionally or unintentionally, with protectionist measures, which would be hugely damaging, as we have seen in the past.

The hon. Gentleman is right to raise the question of the IMF resources. He asked why we agreed that the conclusion should be reached by 2011, which is two years away, as he said. The reason is practical experience. Simply to reach the agreement arrived at last year took several years of negotiation. What I want to avoid—what we want to avoid—is any delay in giving the IMF extra resources to intervene early and decisively when necessary. If we hold that up while we have arguments about the constitution and representation, people will not forgive us. When we realise that the countries badly affected by the downturn include many emerging economies, the urgent need for the IMF to have additional resources becomes clear. The hon. Gentleman asks who will contribute. Those discussions are continuing.

On financial regulation, I agree that we all need to learn from what has happened. It is important not only that we have a financial regulatory system that deals with institutions that have not been regulated up to now, such as hedge funds and credit rating agencies, but that we ensure that the system takes account of what is happening internationally. It is important that individual national institutions react when they detect that things are going wrong. That is one of the reasons why, for example, I want our regulators and other regulators to have back-stop powers to stop banks that are overreaching themselves exposing to risk not only the bank itself, but the wider system.

It is necessary, as I pointed out in the pre-Budget report, that we support our economy now, but it is also necessary to ensure that what we do is sustainable and that in the medium term all countries live within their means. There was a recognition at the weekend that that is necessary.

I disagree with the hon. Gentleman in his conclusion, which seems to be very much the conclusion that he reached last November. Faced with a choice between doing everything we possibly can to support our economy now or standing back and letting recession take its toll, he still believes that the do nothing approach is right. I think he is wrong on that and out of touch, especially when we consider that in the United States, Germany, France, Japan, China and countries across the world, there is a commitment and an acknowledgement that those countries cannot stand by, as Governments did in the 1930s, do nothing and let recession take its toll. That is a price that we are not prepared to see paid.

I thank the Chancellor for sending me his statement.

I represent an party that is internationalist, so I naturally welcome efforts to save the world, but saving the world does start here. Many of the activities discussed at the summit could be much better dealt with at a UK level. First, may I ask the Chancellor about tax avoidance and tax havens? The Government have had 12 years to identify many of the problems in this area, especially as many tax havens are in British dependent territories. Why did they not move on that problem earlier?

I welcome the Chancellor’s comment in his statement that he will produce a code of conduct on tax payments by British banks, but why can the Government not simply stop tax avoidance in banks that are being helped by the British taxpayer? Can he confirm that RBS has stopped its tax avoidance activities? Can he answer the question that I put to his Financial Secretary last week, which is whether Lloyds, now it has been rescued, has agreed to stop some publicly identified tax avoidance devices carried out on a large scale? Since the Chancellor is negotiating with Barclays on its tax avoidance activities, some of which I put into the public domain—indeed, I sent details to the Inland Revenue—can he make it clear that any assistance under that insurance scheme will be made absolutely conditional on Barclays stopping its tax avoidance activities?

There are clearly international regulatory issues, but the most important of them should surely be dealt with domestically. The Chancellor identified the most important issue in his statement: what he calls the regulation of large, complex organisations. Is not Britain in a unique position among the other countries at the G20 summit, in that three of the five largest banks in the world are British and are becoming the responsibility of the British taxpayer? They are so large because they combine British retail, high street operations with what have come to be called the large international casino operations, much of which are centred on investment banking.

There is a fairly wide cross-party consensus on this matter. It has been expressed in the Chancellor’s party by the Chairman of the Select Committee on Treasury, and Lord Lawson made a good statement for the Conservatives this morning on the problem, advocating a reform that splits the banks into their respective component parts. Why is it then that the Prime Minister, two weeks ago, quite specifically ruled out reforms of this kind—the so-called Glass-Steagall reforms? Why cannot the Government have a more open mind? Are they over-dependent on the advice of investment bankers?

Will the Chancellor follow up his comments on monetary easing and the joint approach to credit expansion? Why is it that in Britain, the Government and the Bank of England are following a pattern of buying up gilts, which drives down the yields on gilts and causes serious problems for pension funds and pensioners trapped in compulsory annuities, while in the United States corporate bonds are being bought up? Why is there such a big divergence in how these two important countries are pursuing the same policy? Is there some reason for it, or has it just happened by accident?

My final point relates to the wider global picture. I totally endorse the comments that the Chancellor and the shadow Chancellor made about the future of world trade and trade negotiations, but can I ask the Chancellor what was done at the summit about the collapse of trade credit, which is the counterpart of the collapse of credit insurance in our own economy? That, rather more than protectionist measures, explains the downward spiral in world trade.

The hon. Gentleman raises five separate questions, and I shall try to deal with them.

In each of the Budgets since 1997, we have introduced measures to cut tax avoidance. By its very nature, tax avoidance must be dealt with all the time. As we close one loophole, there are those who will seek to find others, which need to be closed down. It is important to have a code of conduct partly, as the hon. Gentleman says, because of the very complexity of banking and the way in which investment banks and others have sometimes sought to develop instruments in order to avoid paying taxes. That has, in itself, posed a systemic threat to the system, which is one of the reasons we need a code, so that people abide by the letter and the spirit of the law. That is very important. I cannot talk about individual institutions because the principle of taxpayer confidentiality is important, but I think that given that the public are supporting the bank system, they would expect banks to be prepared to abide by that code. Our intention is to produce a draft code, probably at the time of the Budget, and then to consult with a view to getting it introduced as soon as possible.

The hon. Gentleman asked about regulation, and he is absolutely right that there is now a consensus. Ironically, there was a consensus 10 years ago, when he himself was also talking about light-touch regulation. It is important now that people see that our regulatory system recognises the reality of the fact that we are the home regulator to some very large institutions, which could bring a lot of wealth into this country; they certainly provide a lot of employment. However, it is important that the regulatory system should be up to the mark and take account of developments today and in the future.

The hon. Gentleman asked about the Glass-Steagall split. The last time that he raised the issue, I said that it would have more strength if the problem had simply been confined to the investment banks. It was not: retail banks in this country and others got into trouble as well. There are arguments for what the hon. Gentleman said, and they need to be looked at, but I am not sure whether a 1930s-style solution is readily transmissible into what is needed in the early part of the 21st century.

In relation to quantitative easing and what the Bank of England is doing, I should say that the Bank is also buying corporate bonds, which we regard as important. The hon. Gentleman will know that in the letter that I sent to the Governor of the Bank of England earlier this month authorising him to undertake these activities for monetary purposes, I said that I wanted us to maintain the purchase of corporate bonds.

Finally, yes, the question of trade credit was raised at the weekend. It is an increasing problem, although I suspect that it will have to be dealt with country by country rather than our trying to find a simply international solution. The hon. Gentleman is absolutely right: trade credit is a problem not just for large companies but for small ones as well. That is why we are seeing what we can do in this country to try to get that insurance in place.

I assure my right hon. Friend that on this side of the House we congratulate him on the leadership that he has shown in these matters. Furthermore, we commend his stamina and cool in the face of the diabolically difficult and complicated problems that confront the whole world economy at this point in time. That all stands in marked contradistinction to the do nothing approach of the Conservative party.

The Chancellor mentioned Lord Turner’s report, which is awaited with great anticipation on both sides of the House. Will my right hon. Friend pay particular attention to part 2, which deals with bonuses and remuneration linked to risk management? Might there be a chance of our finding in the report a solution to the Sir Fred Goodwin pension issue?

In relation to RBS, I said that UK Financial Investments, which holds shares on behalf of the bank, is discussing with RBS how that problem might be dealt with. I also said that there was widespread agreement in the discussions at the weekend. In the past, a lot of Governments said that the payment of bonuses and incentives was a matter for the individual banks. There is now a recognition that in many cases that distorted the activities of the banks so that they got into more and more risky areas, and the staff involved were very heavily rewarded. That did not just bring down one or two banks, but had very severe and substantial effects on the wider economy. As the Financial Services Authority recognised last year, and as other countries increasingly recognise, as they did this weekend, we need to make sure that we take action so that such distortion of behaviour does not happen again.

Is the Chancellor working towards a pan-European banking regulatory regime, with statutory authority within the United Kingdom?

The hon. Gentleman will be aware that Jacques de Larosière has prepared a report for the Commission. It raises a number of issues that we need to discuss, because we recognise that most of our banks will trade across the European Union, just as many EU-based banks such as Banco Santander and Deutsche Bank trade in this country. Therefore increased co-operation and making sure that there are similar rules within the European Union is important.

However, as I said in my statement, we have to be clear about who is responsible for the regulation of individual institutions. I therefore think that national regulators will continue to have a very important role. My view is a pragmatic one—what works and is effective is important, and we should not get too hung up on the theology of these things. It is important that we continue to talk and see where we need to co-operate and concentrate within the home state.

It was reported in The Independent on Sunday, and possibly elsewhere, that there were quite serious differences of view with Chancellor Merkel about the fiscal stimulus. My right hon. Friend read out the figures for the proportions of GDP that different countries are committing, but if wide differences did open up, that would be very unfair, particularly on those countries that had a bigger fiscal stimulus and took more of the burden of reflation. Could he elaborate a bit on what differences there were?

The agreement that we reached was signed up to by all 20 Governments, including the German Government, who were well represented at the meeting at the weekend and signed up to the same communiqué as everybody else. It is perfectly fair to say that whatever Governments do, they should ensure that they do it quickly and that it is implemented. However, it is also important that we recognise that as the situation continues to develop—remember that we have seen over the past few months a series of figures which show that there is a continuing deterioration in Germany, and in other countries too—it is absolutely necessary that each and every one of us should not only sign up to ensuring that we implement what we have announced but do whatever is necessary to ensure that we support our economies, come through this and get into recovery far more quickly than would otherwise be the case.

The Chancellor talked about everyone essentially agreeing on the same plate about all the proposals. However, is not the reality that many other countries—Germany, Canada, and others besides—believe that Britain is entering this in a worse state than any of them and do not wish to be driven by the British to give them cover for a panic set of measures? Does he not accept that that is why the Germans are critical and he has to make a very bland statement at the Dispatch Box?

I never cease to be amazed at how the right hon. Gentleman, who has spent most of his career here getting about as far away from Europe as he possibly can, seeks to pray in aid the Germans when he wants to make an opposite case. The answer to his question is no, he is not right at all.

I welcome what my right hon. Friend has said about the emerging consensus on the reform of banking regulations. Does that consensus extend to abandoning the old Basel approach to banking regulations—in particular, the internal risk-based approach? On lessons being learned, is there a sense that aspects of the wholesale abolition of credit controls and the big bang in the City in the 1980s might have been unwise?

I think that there are lessons to be learned in respect of a whole lot of reforms that have been made over the past 20-odd years. In relation to the Basel process, I would say two things. First, the models that we have adopted in relation to how banks are regulated obviously need to be looked at again. Secondly, the Basel process, which, among other things, governs the amount of capital that banks need to hold, should certainly be looked at, because the rules tend to exacerbate an already difficult situation, and that needs to be dealt with urgently. It is unfortunate that the Basel process took 10 years to reach fruition, and the year in which it was implemented was probably the worst possible year in which that could have happened. Therefore, this needs to be looked at again, and urgently, and it is not altogether clear that the Basel process is capable of doing that at the present time.

If banks can be criticised for taking over other banks without undertaking due diligence, how much more culpable are the Government, who spent a vast amount of public money undertaking commitments that they do not fully understand? Will the Chancellor undertake that no further public money will be spent unless there is first a careful analysis of the assets and liabilities to be taken over?

If I had followed that advice last October, when I was confronted with the imminent collapse of the banking system, and said, “No, I’m not going to do anything for several months while I carry out some due diligence”, we would have been left in absolute chaos. I agree with the hon. Gentleman that when we take on guarantees, as we have done in relation to RBS and the Lloyds group, which we announced a couple of weeks ago, there needs to be proper diligence. Perhaps he will understand that that is why there was a gap between my announcing the principles of the scheme on 19 January and its implementation. That delay was condemned by many of his hon. Friends. If he is saying, “Yes, you’re right—it is necessary to carry out due diligence”, then I agree with him on that point.

Was there any discussion of capping interest rate charges, as they do in France and Germany? It is a waste of time for us to put money into people’s pockets when there are store cards and bank cards and when National Provident is charging interest in excess of 183 per cent. and rising, even though the Bank rate is 0.5 per cent. That is a big issue, and I wonder whether there was any discussion of it.

Individual credit cards and store cards were not discussed, but of course the general problem of credit and the burdens faced by people in all the countries that were represented were discussed. We need to ensure that when people take on obligations they are treated fairly, that they can afford to meet those obligations and that the repayment rate is realistic and fully understood.

I noticed that the Chancellor said in his statement that we should ensure that banks do not over-extend themselves. Will he now accept that the big mistake that Lloyds TSB made was to over-extend itself when it took over HBOS?

As I have said before, that decision was taken by the shareholders of both Lloyds and HBOS—[Interruption.] Opposition Members can groan, but I was recently reminded of the fact that the shadow Chancellor made his position clear last October, which I had forgotten. He said:

“I spoke to both of the chief executives today of the two institutions and made it clear the Conservatives support what they’re trying to put together”.

Obviously, as on so many other things that the Tories have said, they changed their mind when it became inconvenient. In response to the hon. Member for Glasgow, East (John Mason), that decision was taken by the shareholders of both institutions.

The Conservative party is, of course, in government—in Canada, which is a member of the G7 as well as of the G20. In relation to the question asked by the right hon. Member for Chingford and Woodford Green (Mr. Duncan Smith), can my right hon. Friend confirm that Jim Flaherty, in his federal budget in Canada on 21 January, announced plans for a fiscal stimulus amounting to 3.2 per cent. of GDP in the next two years? That comes from a Conservative Government, unlike the do nothing Conservatives here.

My hon. Friend is quite right that Jim Flaherty and Mark Carney, the governor of the central bank in Canada, were very clear that Governments have a duty to support their economies. But then I have always found that the knowledge of the right hon. Member for Chingford and Woodford Green (Mr. Duncan Smith) of things beyond the shores of this country is somewhat hazy.

Will the Chancellor now answer the shadow Chancellor’s point about all these new initiatives? Could he give us one example of a scheme announced since Christmas that is actually helping businesses in our constituencies—a scheme that has been announced and is actually working?

Yes, I am very happy to. For example, the scheme to allow businesses time to pay their tax is now helping about 85,000 companies. There are other examples: the VAT reduction is in place, the reduction in basic rate income tax will come in in April, and many schemes have been implemented and are helping people. When the hon. Gentleman asks about such proposals, he must reflect on the fact that he opposes each and every one of them. If the Conservatives had had their way, not one of them would have been in place, because they were not prepared to put a single penny piece towards ensuring help for people and businesses in this country.

I very much welcome my right hon. Friend’s statement, especially the recognition of the impact of the recession on developing countries, where 7 per cent. year-on-year growth is needed to make any inroads into poverty. What concrete commitments were given by the G20 partners to support developing countries and to follow the notable lead that this country has given in tackling world poverty?

My hon. Friend is right that that is important. That is why we got a commitment to increase the IMF’s resources substantially. I do not think that that commitment would have been readily forthcoming a few weeks ago. It has taken some time not only to persuade countries that we need to increase those resources substantially, but to gain recognition that that means that people need to step up to the plate and produce the means of doing so. I am hopeful that we will be able to complete that process in the fairly near future. It is totally unacceptable simply to stand by and see maybe 90 million people go into poverty because of what is happening. That is another example of why countries need to do something, and why doing nothing is morally wrong in this case.

What, if any, should be the limit on the amount that the UK Government print and borrow to avoid a run on the pound, a debt crisis or a trip to the international moneylenders?

If the right hon. Gentleman is referring to quantitative easing, he knows that I set out limits in the publicly available exchange of letters between me and the Governor of the Bank of England the week before last.

I managed, with impeccable timing, to leave the Treasury Committee just when things started to get interesting. However, when I served on it, I asked regulators whether they could analyse and measure the risk in a system—not only systemic, but institutional risk. They assured me that they did that, but it is now obvious that they did not. How can we ensure, when people with PhDs in mathematics—the rocket scientists—devise new derivative instruments and other products, that some of the regulators can do the same and know what they are up to?

I am not sure whether we need more rocket scientists; sometimes we need to apply plain common sense. Adair Turner’s recommendations will be published on Wednesday, and I hope that they will provide a firm basis on which we can build. As I have said previously, we will publish a White Paper, setting out the Government’s intentions for legislation and other matters, at the time of the Budget.

To revert to what my hon. Friend the Member for Tatton (Mr. Osborne) said about reform beginning at home, when the Chancellor lectured his colleagues on the evils of the off-balance-sheet mentality, did not the slightest blush colour his cheek as he remembered how the Government treated the private finance initiative? What sort of moral example does he think that that set financial institutions?

If I were the hon. Gentleman, I would not make too much of that. I think that he was in government when PFI was invented.

The Chancellor mentioned quantitative easing in his statement. What steps is he taking to ensure that banks that are beneficiaries of that scheme make additional liquidity available to Britain’s businesses at, importantly, a price they can afford?

As the right hon. Gentleman knows, the lending agreements into which we have entered are either those in which we have put more capital or those to which we have made more money available through the insurance scheme. The Bank of England’s scheme for credit easing is part of its monetary policy and does not, therefore, have direct lending agreements tied to it. Of course, if that much more money is in the system, it should help with the amount of money that is available for lending.

In view of the universal criticism of the expensive VAT cut in this country, will the Chancellor say how many other members of the G20 have followed or plan to follow the Government’s path in that direction?

As I have said many times—I said it again on Saturday—we have not sought to tell each country that they must do one specific thing. Each country must make its own decision. We have a range of measures, including VAT reduction, cutting the basic rate of income tax and introducing infrastructure projects such as home insulation, as well as measures to help business. Each country must do what is right, but it is important that they do something. The hon. Gentleman is entitled to make his criticism as a debating point, but he should remember that his party is against all the measures—it would do nothing.

Will the Chancellor add to his earlier comments about the regulation of credit rating agencies? Standard & Poor’s and Moody’s have a stranglehold on the rating business and freely gave triple A ratings to sub-prime debt structures. Has any consideration been given to promoting a European champion on credit rating agencies, or perhaps even to introducing a public sector provision on rating agencies?

I have to tell the hon. Gentleman that there was not a discussion about the creation of a European credit rating agency. However, his general point about the need to supervise properly those agencies that already exist is important, not only because their determination can be pretty important, but because we need to deal with conflicts of interest where agencies approve a scheme in which they have a direct financial interest. That is clearly unsatisfactory, given the importance and the nature of such agencies.

May I reinforce the point made from the Liberal Benches about the desirability of separating the functions of an investment bank from those of a retail bank, which is also a point that the noble Lord Lawson made this morning in the Financial Times? The Chancellor was, I thought, not very enthusiastic about that, but would he consider publishing a Green Paper setting out the arguments on both sides? Alternatively, perhaps he could appoint a royal commission to look into the matter, because it is a matter of major importance and the arguments need to be properly articulated.

I agree with the right hon. and learned Gentleman: there is an argument to be had. I made the point to the hon. Member for Twickenham (Dr. Cable) that it is not the case that deposit-taking institutions here have avoided trouble, and investment banks are the sole source of it. It is rather more complex than that. There are arguments about whether we need separate degrees of regulation within institutions that might be involved in both deposit-taking and investment activities. Indeed, I suspect that there are also arguments about what the capital adequacy ought to be in relation to both of those.

I certainly do not want to stifle argument. All I was saying to the hon. Member for Twickenham (Dr. Cable) was that I am not yet persuaded that what has been proposed is the right thing to do. The situation is rather more complex than it was when Glass and Steagall sat down to draw up their Act. However, it is important that we use this opportunity to have a debate. My only caveat is that we do not have an unlimited time to do that. Given the length of time that it takes to change the law here or anywhere else, people would want the confidence that we were dealing with the problems and that we had a clear way forward.

Does the Chancellor accept that the system whereby everybody urges ever bigger bail-outs from everybody else is regarded by the public with some bemusement as well as fear, because they know that they are going to have to pay everything back? Does he understand that in the real economy, firms—particularly small firms—are on the receiving end of a completely inappropriate degree of interference from the public sector, by way of regulations, rules, taxes and directives, which prevent the real economy from earning its way out of this recession? Did he discuss that with his colleagues at the G20 or does he have a do nothing policy on that aspect of the economy?

While we are in humility mode, the right hon. Gentleman will no doubt remember that throughout the passage of the Financial Services and Markets Act 2000, hardly a speech went by when he did not call for light-touch regulation. Like everybody else, I think that we can learn from experience. We are intervening to support the banking system not to help the banks, but because businesses and individuals would have lost substantial sums of money if we had not done so. People would have lost their savings and businesses could not have accessed money, which would have been disastrous for our economy. As for the smaller businesses sector, it is important that we think long and hard before imposing regulations and that, if we do impose them, we are clear that there is a clear economic or social benefit arising from them.

It seems that Lord Turner may have started his review of the regulatory structure with one hand tied behind his back by the present Chancellor and the other tied by his predecessor. Would that be because the Chancellor, as architect of the existing Financial Services Authority, does not want to recognise that any of the plans were perhaps at fault? The regulator has acknowledged that it fell down in its first review of a high-impact firm. Why, therefore, has the Chancellor told Lord Turner not to look afresh at regulation, but just to bolster up failed plans?

I do not think that I said anything of the sort to Lord Turner. Knowing Lord Turner, I do not think that he is the sort of person who is ever likely to do anything if he feels that his hands are tied. He had a free hand. He was asked to look at what he thought needed to be put right. When we see his recommendations, I am sure that the hon. Gentleman and others will find that.

Does the Chancellor of the Exchequer understand the remoteness of the G20 process to the average British taxpayer? Last week the Government-financed regeneration of Kettering town centre ground to a complete halt because the Royal Bank of Scotland, which is now 70 per cent. owned by the taxpayer, pulled the plug on a local construction firm, which put loads of people out of work and meant that construction came to end. Does grand summitry not stand in sad and sorry contrast to the inappropriate banking decisions taken every day by now almost nationalised banks?

As the hon. Gentleman will appreciate, I am not aware of the circumstances of the construction company to which he refers. If he writes to me about it, I will certainly look at it, but he will appreciate that whether or not the state owns a significant shareholding in it, a bank has to reach a judgment about whether something is a good risk on a commercial basis. I am in no position to pass comment on the particular case, as he knows. Banks have to make commercial decisions and evaluate the risks to which they might be exposed irrespective of whether they are in public or private hands.

The public will welcome the fact that the Chancellor went to the G20 meeting, but they will find it very strange that he is unable to attend the House of Commons this Wednesday, when we have the first full-scale debate on the economy—and only because Her Majesty’s Opposition have called for it. Would the public be right in thinking that the Chancellor is running scared?

I may be wrong, but I believe that I have given more statements to this House as Chancellor than many of my predecessors. I am always happy to engage with the Opposition, not least because I am engaging with a blank sheet of paper.