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Volume 490: debated on Thursday 26 March 2009

The Chancellor of the Exchequer was asked—

Credit Insurance

1. What assessment he has made of the effect of the availability of credit insurance for industry on the prospects for economic recovery. (266523)

About 20 per cent. of lending between businesses is generally covered by trade credit insurance. There is evidence that credit insurers are withdrawing insurance as part of the credit crunch, which is increasing the risks for those companies that use it, and the Government are in discussion with trade credit insurance companies about ways to give business more support.

Welcome as it is to learn from the Chief Secretary that the Government are in dialogue about this subject, I ask her to consider the situation of a small company in my constituency. The premium for its trade credit insurance has risen from £7,000 to £21,000 a year, and that is unaffordable. It had hoped that in the light of the announcement by the Under-Secretary of State for Business, Enterprise and Regulatory Reform, the hon. Member for Dudley, South (Ian Pearson), that the Government were working on a scheme to underpin trade credit insurance, something would have been announced by now. When will the Government formally address this problem and provide these companies with the help they need?

We are looking at this issue, and the right hon. Gentleman is right to raise it. Much of the market is not covered by trade credit insurance, but this is a real pressure for those businesses that are, which includes many small businesses. He will be aware, however, that there is a private trade credit insurance market, and it is also important to ensure that we protect the taxpayers’ interests. He is calling for more action, and I respect that position and think it right that we try to do more, but he should also be prepared to put money behind that, and that is something that his party has persistently refused to do.

May I remind the Chief Secretary that in November I wrote a letter to the Chancellor and Lord Mandelson after discussions with Marsh insurers about credit insurance, and the situation is still precarious, so I think further negotiations need to take place in that area? Dare I also mention the remarks of the Governor of the Bank of England to the Treasury Committee the other day? He said that he would not rule out targeted measures, whether in terms of the labour market or corporate credit. I think targeted measures are still necessary in terms of corporate credit.

My right hon. Friend is correct to say it is right to support the economy at this difficult time. That means providing support for businesses to deal with the pressures they are facing as a result of the global credit crunch, and particularly also support for those who are losing their jobs. That is why we are putting more than £1 billion of additional funding into, for example, helping those who are losing their jobs—investment that, sadly, is continuously opposed by the Conservative party.

For many world-class textile businesses in my constituency, the lack of credit insurance is now a very serious issue. In addition to the monitoring that the Chief Secretary is doing, will she look at the increasing amount of information that we are getting to the effect that the banks are restricting their own facilities and their lending to these companies because there is no credit insurance, which means these businesses are now feeling a double whammy from which they are getting no relief at all?

The hon. Gentleman makes an important point, and that is exactly why we are in detailed discussions with the trade credit insurance companies, and also why we have been setting out a range of measures with the banks to support increased lending. The global credit crunch means there has been a big drop in foreign bank lending, for example, in the UK. Nevertheless, it is right to do everything we can to increase lending and support, which is why we now have legally binding commitments with the banks that have signed up to the asset protection scheme, in order to increase lending this year by tangible amounts.

Does my right hon. Friend agree that dialogue is not enough? There are good firms in our region that will be going out of business if we do not get help to them soon. The textile industry in Yorkshire particularly needs help, and it needs it now—if these businesses are supported for six to nine months, they will survive and flourish. We must do something quickly.

My hon. Friend will be aware of the range of additional support that we have already provided for businesses, because it is right to do so to get them through the credit crunch. For example, 90,000 businesses are now benefiting from being able to defer their tax payments to the tune of more than £1.7 billion. That has been opposed by the Conservatives, but also £350 million of loans—

Order. The right hon. Lady has made mention of what the Conservatives are doing in every one of her replies. I do not want that; what I am looking for is a ministerial reply.

Waste Disposal

2. What discussions he has had with the Secretary of State for Environment, Food and Rural Affairs on the implications of Government policy on the private finance initiative for contracts for waste disposal. (266524)

Government policy, as announced on 3 March, is to ensure that vital infrastructure projects proceed as planned, supporting jobs in the economy and preparing for full recovery. In total, £13 billion of public investment in procurement will be safeguarded by the Government’s action. That protection will ensure the future of a broad range of public infrastructure projects, including £3.5 billion of waste treatment and environmental projects.

But is this—a time of credit crunch and the most severe recession that this country has ever faced—the best time to be inviting private finance initiatives? Why are the Government hiding behind private finance and why are public authorities having to explain what the benefits of energy from waste and other forms of incineration are? Why cannot the Government come out fighting with their own financing of these initiatives and explain to the public what the benefits or disbenefits of these initiatives are?

The announcements we made on 3 March will ensure that temporary problems experienced in the debt market will not put at risk £13 billion of vital investment in infrastructure, which will lead to the building of new schools and new hospitals, as well as jobs in waste procurement. I am not sure whether the hon. Lady is arguing that we should just abandon that and lose all the economic activity, jobs and support that goes with it—it sounds as if she is.

Why are the Government not open about the level of public sector finance initiatives, which should now be included in the national debt? If they were more open about that, we could see exactly the extent to which they have mortgaged our future.

To the extent that public finance initiatives have helped to increase and renew our infrastructure, they are to be welcomed. The hon. Lady knows that that is about 10 per cent. of capital investment, and that it has created jobs and new buildings. In fact, we have mended not only the roof, but the whole inside of the building, which was crumbling when we inherited it in 1997. Public investment is a good thing. It has completely renewed our infrastructure, and that means that we have modern and more efficient, effective and productive infrastructure for the future. I would have thought that she would welcome that.

Is the Minister aware that there is a new waste disposal unit in Bolsover, on the old Coalite site? It is doing exceptionally well; there were queues there on Sunday. I propose that the shadow Business Secretary get hold of the Tories’ inheritance tax plan and dump it in the waste disposal unit at Bolsover.

Our ability to deal with the complex problems caused by waste gets ever more sophisticated; my hon. Friend has come up with an intriguing new way of recovering energy from waste.

Credit Provision

3. What further steps his Department plans to take to encourage banks to provide credit to businesses. (266525)

The Government will continue to take whatever action is needed to maintain the stability of the financial system and to kick-start credit in the economy.

There has now been a credit crunch in the economy for 18 months. The Government have introduced a great many measures, but is there any evidence that they are working? Has not all the extra liquidity that the Government have thrown at the banks been insulating them from the need to make the changes to and the clarifications of their balance sheets? Is it not the case that they will not start lending to each other until they trust each others’ balance sheets, and that the Government have not actually forced them to come clean about what is on their balance sheets?

The restoration of trust in the banking system is essential; it is a precondition of fixing the problems in the wider economy, here and across the world, and it is absolutely necessary. The second thing to say to the hon. Gentleman is that it was necessary, as I believe most people accept, for us to recapitalise the banks in October. It was also necessary to go further than that and to help to deal with the problem that we face of these banks having on their books assets for which there is no market or whose value has been much reduced. That is why we introduced the asset protection scheme—the United States Government have announced something similar in its intent earlier this week, and other countries are doing that too. We have to make sure that we fix the banking conditions, because that is a precondition of sorting out the wider problems in the economy. Our approach is having an effect and will continue to have an effect. There is no overnight fix, but we are doing the right things to get lending and credit flowing in the economy, as well as supporting the wider economy and protecting jobs.

Does the Chancellor accept that some people are finding a significant difference between the headline funds that the banks announce are available to support businesses and the amount of credit actually facilitated? We have banners in banks in Northern Ireland saying, “Lending isn’t ending”, but the message from business is, “Credit? We can’t get it!” That comes from sound, reliable businesses. Will the Chancellor seek a report from the lending panel on what exactly is happening with the banks in Northern Ireland in terms of support for business?

Yes, and we will continue to do that. I can understand the frustrations of businesses and individuals when they find that a credit line that was available is no longer available, or that the price being charged has increased. Our objective in everything we are doing to support the banking system is to get credit flowing in the economy again. As I said a moment ago, that is essential. We will continue to monitor what banks are doing. There is some evidence that in several cases credit is now available, although as we continue through one of the severest downturns we have seen—the House will have seen the figures from Japan and Germany earlier this week, which show a significant downturn—it is necessary that we maintain the course that we have set and do everything that we can to get credit flowing again. That is very important.

Nobody doubts the Chancellor’s commitment on this issue, but in drawing parallels with the US recapitalisation, will he accept that because their preference stock was at 5 per cent. while ours was at 12 per cent., US banks have an incentive to rebuild their businesses, whereas British banks have an incentive to minimise their exposure to Government recapitalisation?

I am not sure whether the hon. Gentleman has noticed, but in the past six weeks we have converted the preference shares that we held in the RBS Group and the Lloyds Group into ordinary shares, because they needed the additional capital. The Financial Services Authority’s requirements were quite clear about that. I welcome what the hon. Gentleman says about supporting the banks, but what we are doing in supporting the banking system is complemented by what we are doing to support the wider economy.

I know that there is a difference of view about whether there should be any fiscal stimulus, but a substantial amount of money has gone into the economy, on which the Governor of the Bank of England fully agrees with us. I also agree with the Governor that it is necessary to continue to take action to support our economy. In particular, it is necessary to do everything we can, when people face losing their jobs, to get them back into work. That is one of the big lessons that people should have learned from what happened in the 1980s and 1990s.

Will my right hon. Friend consider placing a cap on interest rate charges for credit? For some store cards, interest is 26 per cent. APR and some companies charge as much as 182 per cent. as legalised moneylenders. That is obscene at a time when interest rates are below 1 per cent.

I do not think that a generalised cap or Government regulation of interest rates would work. I have great sympathy with what my hon. Friend says about the very high interest rates imposed by some unscrupulous lenders, and I know that he has done a great deal to try to address those problems. People have to remember, however, that if we impose controls and try to restrict lending, it comes at a wider cost to individuals, businesses and the economy. It is important to tread the fine line between sufficient public regulation, supervision and controls to protect the public interest, and stopping the flow of credit on which everything in our economy depends.

The minutes from the Bank of Japan tell us that Japan’s quantitative easing programme was expected to encourage the banks to provide more credit to business, but the evidence is that bank lending reduced over the period of quantitative easing. What can the Chancellor say today to give us more confidence that the UK’s version of printing money will have the right result and encourage the banks to provide more credit?

Quite simply, in the 1990s Japan did not address the underlying problem in the banking system. It did not put in enough capital and did not deal with the assets that had gone bad, and until one addresses those problems anything else that one might do will not have the full effect that is hoped for. The Japanese are now quite clear about what went wrong in the previous decade and that is why most countries are now at pains to avoid it. The very fact that Japanese exports have gone down by nearly 50 per cent. demonstrates the extraordinary circumstances that we face. When a country such as Japan is facing such problems, there is all the more reason for us not only to take action to deal with the bank problem and to sort that out, but to take whatever action is necessary to support the economy through fiscal stimulus. We have given the Bank of England additional fire-power to put more money into the economy, because that is essential if we are to protect jobs in quite extraordinary conditions across the world.

I am quite clear that banks should not be lending to businesses when underlying weaknesses are not being properly addressed. However, it seems to me that in my constituency at least many decent businesses, without underlying weaknesses, are told when they apply for credit that they have to cover that advance many times over—sometimes twice—with securities. I believe that the banks have to take some of the risk themselves, rather than trying to transfer the whole amount to small business owners, who have wives, families and so on to keep. It is quite unrealistic to expect that level of cover from ordinary small businesses when advancing credit.

If my hon. Friend would let me have a note of some of the problems that his constituents have encountered, I would be happy to look at them. I agree that as part of the process of restoring trust in the banking system we have to be clear about banks’ responsibilities as well as the responsibilities of individuals and businesses. If someone takes out a loan, they have to be clear that they can repay it. Equally, banks have to be responsible in their lending and ensure that they are realistic and reasonable about the conditions that they impose. That is very important and it is all part of restoring trust in the system, which I regard as absolutely essential.

Does the Chancellor agree that with the declining prospect of growth in the economy, the banks are faced with an inevitable deterioration in the quality of their loan books, so that far from increasing their loans to businesses, they are likely to be seeking the whole time to increase their capital? How will that problem be overcome?

The hon. Gentleman raises a quite reasonable point. All over the world, we have this problem. We need to ensure that banks strengthen their capital position, because in the long term that is essential. Of course, if banks did that and there was no other intervention, there would be less credit in the economy and the economy would shrink further. The result would be that the bank assets that are currently impaired would become even worse. That is why we have not only taken action to recapitalise the banks—in the case of RBS and Lloyds Group we have put additional capital in—but put in place schemes such as the credit guarantee scheme, which is working very well, the special liquidity support system, which has provided liquidity for the banks, and, in addition, the asset protection scheme, which, as I have said, will go down a similar road to the scheme in the United States. I am sure that the hon. Gentleman recognises that, as he is in a minority in his party in that he sees the point and the reason behind Government intervention in such extraordinary circumstances. Government intervention is absolutely necessary to complement the process that he and I agree has to take place if we are to maintain credit in the economy.

The simple way to get the banks lending to business again is the Conservatives’ national loan guarantee scheme. Yesterday, in Prime Minister’s questions, the Leader of the House criticised the scheme, claiming that there was no money behind it. The Chief Secretary said much the same thing a few moments ago. For the record, will the Chancellor confirm what the Economic Secretary told the House about the Government’s guarantee schemes on 14 January? He said:

“We expect the measures to be run on a break-even basis”.—[Official Report, 14 January 2009; Vol. 486, c. 220.]

He said that for a very good reason, because the premiums that are being charged are expected to cover the losses. There will be no additional cost to public expenditure from those schemes. Is it not the truth that the Government’s only sustainable objection to the national loan guarantee scheme is that they did not think of it first? British businesses are suffering because the Prime Minister puts his political sensitivities ahead of their business needs.

With your forbearance, Mr. Speaker, I think that I can answer that quite shortly. When the loan guarantee scheme was announced by the shadow Chancellor, he said that

“it does not add to public expenditure” —[ Official Report, 18 December 2008; Vol. 485, c. 1228.]

On 11 March, the shadow Business Secretary said, with exemplary candour, that

“the taxpayer will take some of the hit.”

How on earth does one square the Conservatives’ position that they would spend nothing extra with the fact that this scheme, even if it were workable, would cost the taxpayer money? That just shows the nonsense of the Conservative position.

Equitable Life

Sir John Chadwick has begun the work that the Government asked him to undertake on aspects of the ex gratia payments scheme that was announced by the Chief Secretary to the Treasury on 15 January. The Government will keep the House updated and report back on progress at regular intervals.

The Government’s position has been described as

“shabby, constitutionally dubious and procedurally improper”.

It is clear that the parliamentary ombudsman does not think that injustices will be fully remedied. What assurances will the Government give that my constituents and other Equitable Life policyholders who have clearly suffered injustices will get justice delivered with speed, clarity and transparency?

I am very disappointed that the Public Administration Committee should choose to obscure the real help that it accepts the Government’s payments scheme will deliver under extreme headlines, seemingly driven by an uncritical acceptance of the findings of the ombudsman’s report and by its unjustifiable and irresponsible characterisation of the manner of the Government’s response. [Interruption.] As a Government, we do not depart lightly from any of the ombudsman’s findings, but—[Interruption.]

The Government do not depart lightly from any of the ombudsman’s findings, but in such an important and complex case we have a clear duty to the taxpayer to ensure that our response is informed by a proper and comprehensive consideration of her report. That is what we have done and, as I have indicated previously, we want to move forward with an ex gratia payment scheme just as quickly as possible. We are talking to Sir John Chadwick about the advice that he is providing.

Is the Minister aware that he has just made one of the most shameful statements to have been made from that Dispatch Box in many years? He has rubbished a Committee presided over by one of his own greatly respected colleagues, and discounted the unprecedented second letter from the ombudsman that we all received this week. He has had no support from the Benches behind him, as not a single Labour Member has risen to echo his words. He should be deeply ashamed of himself, because he is bringing the Government and the whole system into disrepute.

I have a lot of respect for the hon. Gentleman, who has a very long track record of upholding standards in this House, but we have departed from the ombudsman’s findings only where we have clear and cogent reasons for doing so. We have applied scrupulously the terms of the Parliamentary Commissioners Act 1967, as interpreted by the Court of Appeal in the Bradley judgment. For no other reasons have we departed from those findings. I have to say that I remain very disappointed indeed that the PAC does not appear to have understood some of the arguments that we have made to it.

May I associate myself entirely with the words of my hon. Friend the Member for South Staffordshire (Sir Patrick Cormack)? I think he speaks for many people in the House, including many of the silent Back Benchers behind the Minister. What is the Minister now saying to all of our constituents? They are not unreasonable, and do not necessarily expect to get a share of the £4 billion that is being proposed, but are the Government simply waiting for many constituents across the country who relied on Equitable Life literally to die before there is any chance of getting any money on their behalf? Does he not find that a disgraceful state of affairs?

No, we are not saying that. We are saying that we want to move forward with introducing an ex gratia payment scheme as quickly as possible to help those who have suffered disproportionate impact as a result of losses through Equitable Life. We shall continue to do that. The fact that we have a disagreement with the Public Administration Committee will not deflect the Government from moving forward with all speed and providing a remedy for Equitable Life policyholders who have suffered disproportionate impact.

Order. Condemning the Minister’s reply is not what this is about—it is about asking a supplementary on the subject. I am sure Sir Nicholas Winterton will be able to do that.

I hope, Mr. Speaker, I do not let you down.

Is the Minister not aware that the way that Equitable Life policyholders are being treated is viewed—by the public, and not just the policyholders themselves—as another example of the way the Government treat people who have been responsible and prudent? Here are people who have tried to save for their retirement. The reports produced by the ombudsman have, in a way sadly, been critical of the Government, so is it not time that the Government speeded up the process to help people such as those who are losing out from virtually negative interest on their savings under the credit crunch, and to give them the benefit of their prudence and responsibility?

The ombudsman herself admitted that the issue was not clear cut. The hon. Gentleman will be well aware of the findings of the Penrose report, which said that the company was largely responsible for the demise in the situation. We will continue to move ahead with all the speed we can. We have asked Sir John Chadwick to provide us with advice; we want to introduce a scheme and we want to make sure that we can offer a remedy to Equitable Life policyholders. There is a technical dispute between the Public Administration Committee and the Government, because we clearly do not agree with its report and we shall respond in due course.

That was an extraordinary attack on an Officer of the House and a Committee of the House, and the Minister’s comments will be noted across the country. They typify the Government’s approach to the whole issue. At every step on the way, the Government have sought to block, frustrate and delay justice for Equitable policyholders. On Saturday, The Daily Telegraph nailed them completely. An early draft of the Treasury response to the ombudsman’s report said:

“Sir John will aim to provide his final advice to Government by June 2010.”

Is it not time for the Government to stop their shabby treatment of policyholders and give them a clear timetable for justice?

I and the Government have every sympathy for Equitable Life policyholders who have suffered genuine losses as a result of the failure of regulation, for which we have apologised. I have still not heard an apology from the Opposition for the period when they were responsible with regard to public bodies. Let us be clear. We have said all along that it is not normal practice for the Government to compensate for regulatory failure, and that is not the response just of this Government—it has been the response of successive Governments.

With particular regard to the date the hon. Gentleman gave, let me be very clear in response: we have said that we want Sir John Chadwick to advise us as quickly as possible and we want to make sure that we can introduce a payment scheme and make payments as quickly as we have the evidence, but we are talking about spending taxpayers’ money, and we have to have regard for the public purse. We have to do the right thing in the right way, and we will do that as quickly as possible.

Economic Growth

Well, a lot of jobs will be lost between now and then. Over the last several weeks, since the recession began, 6,500 jobs in east Lancashire have gone, and the chamber of commerce predicts that another 5,000 jobs will go. In my constituency, between Fort Vale Engineering, Fraser Eagle and Ultraframe, 200 jobs have either gone or are under threat of the axe. Will the Chancellor tell us how many jobs he believes will go in east Lancashire simply because of the business rate increase now facing many small to medium-sized enterprises? Does he not see the absurdity of pumping huge sums of money into the banks that will then have to be borrowed by some of those small to medium-sized enterprises—if they can do so—simply to pay for the business rate increases he is imposing on them?

The hon. Gentleman said that he was concerned about people who lose their jobs, and he is right to be concerned about them. That is why we have allocated just over £1 billion to the Jobcentre Plus network to help people who lose their jobs to get back into work as quickly as possible. It is still the case that most people who lose their jobs manage to get back into work within three months. Of course, that means spending money—something that he and his colleagues are against. I am aware of the concerns that have been expressed about business rates, but again, what the hon. Gentleman is asking for involves spending money, and his Front-Bench colleagues give the distinct impression that they would not spend any more money at all.

The Chancellor mentioned unemployment; in my constituency, it has risen by 18 per cent., according to the last set of figures. There are very few jobs advertised in the jobcentre, and there are 21 jobseekers for every job that it advertises, so my constituents will be looking very closely at the Budget. Did the Governor of the Bank of England not let the cat out of the bag when he pointed out that our fiscal position is so bad, our debt so high, and the Chancellor’s inheritance from his predecessor so bad, that the Chancellor’s hands are tied, and he will not be able to deliver a substantial fiscal stimulus in that Budget?

That actually was not what the Governor said. Indeed, he made the point, in his evidence to the Treasury Committee, that he thought that measures to help people get back into work were a good thing, and ought to be supported. The point that I was making—I will make it to the hon. Gentleman as well—was that if we are to help people get back into work and retrain, and if we are to help them match with jobs in the economy, it will mean spending money. The lesson from the recessions of the 1980s and 1990s is that if we do not spend the money—if we do not intervene for two or three years—an entire generation will effectively be wiped out. We must avoid that at all costs. That is why the Governor and I are totally agreed that the stimulus that I announced last November was necessary. That is why both of us agreed, at the G20 meeting of Finance Ministers and central bank governors a couple of weeks ago, that we needed to do whatever was necessary, for as long as is necessary, to support the economy.

Of course, as I have said on many occasions, substantial sums of money are being put into the economy through the measures that I announced in the pre-Budget report, and through the additional fire-power that I have given the Bank of England to get credit going in the economy. Both those things are absolutely essential, and we have to make sure that they work their way through. As the Governor himself said—and I agree—we also have to make sure that, if it is necessary, we continue to do more when it comes to measures such as putting people back into work. It is nice to have the support of the hon. Members for Ribble Valley (Mr. Evans) and for Forest of Dean (Mr. Harper); perhaps they could have a word with their Front-Bench colleagues.

May I agree wholeheartedly with what the Chancellor said? I was on the Treasury Committee when the Governor said the words that my right hon. Friend has just repeated. May I commend to my right hon. Friend the submission produced by Professor “Danny” Blanchflower and David Bell of Stirling university, which puts forward suggestions to address youth unemployment? In the summer, 700,000 young people will leave school and university; we need to tackle those numbers. Will my right hon. Friend look at the report, because it suggests good ways of tackling the problem of growing youth unemployment?

I have indeed seen Professor “Danny” Blanchflower’s suggestions, and I have spoken to him as well. [Laughter.] Rather than laughing about the matter, most people in the House ought to be concerned, at a time when we can see that the unemployment figures have been rising, that we do everything possible to get people back into work. The lesson from the past is that that is necessary not just for the long-term unemployed. It is especially necessary for young people, to ensure that they get back into the workplace as quickly as possible. However, I repeat that it means that at some stage we have to be prepared to spend the money to back that up. My view is that it is money well spent, because the cost of doing nothing, which is what the Opposition urge us to do, would be far, far greater.

One consideration is the dramatic drop in world trade over the past six months. What action will my right hon. Friend be taking at the G20 to try to reassure the international community, so that we can get world trade moving again?

I agree with my hon. Friend. The fall in world trade is one reason why industrial production is falling. It is interesting that, in the exchange of letters that I had with the Governor of the Bank of England, he made the point that in 54 of the 57 countries for which we have data, falls in industrial output were seen over the last quarter of 2008. That has had a devastating effect on economies, particularly in the far east.

We need to make sure that we get world trade going, which is why the resumption and conclusion of the Doha round of trade talks is important—and that will feature next week at the G20. It is also necessary for countries around the world to do everything that they think is right and appropriate to boost their own economies. Nobody is saying that they need to turn up next Wednesday with a budget on the table, but we are saying that if countries act together the effect will be far greater. When recession is affecting or threatening countries across the world, the need for countries to act together is essential, which is why next week is an important step along the way.

Why did it take the Governor to warn the Prime Minister that this country simply cannot afford to borrow any more money? Why does the Chancellor not stand up for taxpayers’ interests, resist the banging on the wall from his neighbour next door, and start the long haul of getting our public finances under proper control?

I would say two things to the hon. Gentleman. First, the International Monetary Fund noted in its recent report that many countries entered this problem

“with greater fiscal space to expand”.

It noted that Canada, China, France, the UK and the US were such countries, so we are in a place where we can provide help for the economy. To put it another way, if we had not done so—if we had taken £20 billion out and withdrawn the power that we have given to the Bank of England to ease credit—the effect on the economy would have been absolutely harmful and very damaging, especially to jobs and the future prosperity of businesses.

I made the point in the pre-Budget statement last year that, just as it is necessary to support our economies now, all countries need to live within their means over the medium term. That is why I announced measures to raise money in the pre-Budget report. It is important—and no one should be in any doubt about this—that, yes, we need to take measures now, as I have said, as the Governor has said, as the Prime Minister has said, to support our economy, but all of three of us have also made the point that it is necessary to make sure that in the longer term we have a sustainable position and that all countries live within their means. That may mean making some hard choices, but it is necessary.

My right hon. Friend is well aware of the difficulties. He has heard about manufacturing in Lancashire, and we have just lost more jobs at Leyland Trucks. We ought to look at how we can protect manufacturing for when the economy goes into growth, and the best way of doing so is through a short-term working subsidy. Will he look at that, and if he is looking at how we can fund it, he can always end the VAT cut early so that that much-needed measure can put the impetus back into manufacturing?

I agree with my hon. Friend that we need to do whatever we can to protect jobs or, where jobs are lost, to get people back into work. I also agree that it is necessary as far as possible to do what we can to help where we think that businesses have a viable future. I do not agree with the point that he made in relation to VAT, but I do not think that he expected me to do so.

Earlier this week, the former Cabinet Minister, the right hon. Member for North Tyneside (Mr. Byers), said that the VAT cut had “run its course” and should be reversed. Does the Chancellor agree?

No, I do not, because I think that putting £12.5 billion into the economy and doing it immediately was necessary. We are also—and I am grateful to the hon. Gentleman for allowing me to say this—taking other steps that will help the wider economy. Basic rate taxpayers will see a reduction in their tax, starting on 6 April. We have increased child benefit for the oldest child, and for other children as well. We have brought forward, too, a payment of £60 for pensioners, and the state pension itself will go up in April, so we are taking a range of measures to help. As for VAT, perhaps the hon. Gentleman should have a word with the shadow Business Secretary, who supported the reduction in VAT. Increasingly we are hearing a lot more sense and a lot more experience from that direction than we are from the shadow Treasury Front Bench.

Automotive Industry

6. What recent discussions he has had with the Secretary of State for Business, Enterprise and Regulatory Reform on assistance for those on short-time working in the automotive industry. (266529)

The tax credit system is particularly effective in delivering immediate help to families whose income falls—for example, as a result of short-time working. We have worked closely with the Department for Business, Enterprise and Regulatory Reform on the Government’s automotive assistance programme.

In a previous exchange, my hon. Friend the Member for Chorley (Mr. Hoyle) mentioned the need for wage compensation for those on short-time working. In Stroud we have worked up quite a sophisticated training package with both Delphi and Renishaws, and I thank the South West of England Regional Development Agency, Gloucestershire First and Unite trade union for that. The missing link is the need to recognise that people are putting their own time and money into the training package. If the Government could provide some additional funding for that, that would be important. I know that there is a paper before the Cabinet. May we have some clarity and some progress on this?

I am grateful to my hon. Friend and he is right to draw attention to the range of measures that are in place to support the automotive industry. I point out to him again the benefits of the tax credit system—for example, for someone who is earning £400 a week, with two children. If their income falls by £40 a week, perhaps as a result of short-time working, the tax credit award could well go up by £15 a week. So there is real and immediate help from the tax credit system to people in the position that my hon. Friend describes. We are looking at other options. We are looking, for example, at the possibility of a wage subsidy scheme that we have seen elsewhere, to see whether that could add to the real help that we are already giving. The car industry is making good use of the Train to Gain support of up to £100 million, which my hon. Friend mentioned. We are giving the help that is needed.

Topical Questions

My right hon. Friend will be aware of the crisis that is facing pubs and clubs throughout the country. My constituency cannot be any different from anywhere else, and every week a pub or a club is put under pressure. When reviewing the Budget, will the Chancellor look into the duties placed on pubs, as opposed to the loss leaders in supermarkets, and consider the possibility of changing the duty on draught beers, ciders and lagers, which could help them? Will he also take a good kick at the breweries and tell them that they should reduce the rates that pubs have to pay?

My hon. Friend raises an understandable concern for pubs throughout the country. He will know that the number of pubs in this country has been declining pretty steadily over the past 20 years or so. He is right to say that there are many factors that influence the price of beer that the customer pays in the pub. That depends not just on duty but on charges made, in many cases, by brewers that are tied. I met representatives of the brewing industry and the industry generally fairly recently to discuss these matters and, as ever, I will keep them under review.

I notice that in previous answers the Chancellor has avoided directly addressing the comments of the Governor of the Bank of England to the Select Committee on Tuesday. The Governor said:

“the fiscal position in the UK is not one that would say, ‘Well, why don’t we just engage in another significant round of fiscal expansion?’”

In one word, will the Chancellor tell us whether he agrees with the Governor of the Bank of England—yes or no?

As I have said on a number of occasions this morning, the Governor and I are in complete agreement in relation to the fiscal stimulus that I announced in the pre-Budget report last year. We are in complete agreement about the declaration that we both signed up to at the G20 meeting in Horsham a couple of weeks ago, when we said that countries needed to do whatever was necessary for as long as necessary. I also agree with him when he says specifically in the same evidence to which the hon. Gentleman refers that he would not rule out targeted and selected measures that help people faced with unemployment, something that the hon. Gentleman has turned himself against. The difference is not between me and the Governor—far from it. It is between me and the hon. Gentleman, who opposes doing anything to help people in these unprecedentedly difficult conditions. It is he who has the problem, not us.

The Chancellor knows full well that the question is about a potential second fiscal stimulus in the Budget which the Governor of the Bank of England was warning against and on which the Chancellor has yet to express a view. Is it not a defining moment in the history of the Government’s handling of the recession when the Governor of the Bank of England pulls the rug on the entire fiscal approach pursued by this Government? We have the truly humiliating position of a Prime Minister lecturing Latin American economies about fiscal probity while the Governor of the Bank of England cuts up his credit card back home. Can I ask the Chancellor again, very specifically, does he agree with the Governor of the Bank of England that

“the fiscal position in the UK is not one that would say, ‘Well, why don’t we just engage in another significant round of fiscal expansion’”?

If there is no agreement between the Chancellor, the Governor of the Bank of England and the Prime Minister, what hope is there for any confidence that the Government can pull us out of this recession?

As ever, the hon. Gentleman is talking nonsense and he knows it. I have made it very clear—and the Governor and I have discussed this on many occasions—that it was and remains necessary for us to take the action necessary to protect jobs and get credit flowing again in the economy. The hon. Gentleman opposes that. I believe that it is right, because I believe that the Government should be in the business of helping people through what is an unprecedentedly difficult period.

In relation to this country’s position, the International Monetary Fund itself, as I said, has noted that we and other countries were able to put in place a stimulus. It called for countries to take action together. We have done that, but again it is something opposed by the hon. Gentleman. He has absolutely no policies, prescriptions or suggestions as to how we should deal with these things. Indeed, the only policy that he has, in relation to inheritance tax—a policy that he claimed was funded—was undermined yesterday when the shadow Business Secretary, someone who does have experience, said that he had no idea how much money could be raised by the proposals. Is that not another example of experience on the part of the Business Secretary triumphing over the youthful impetuousness that we see opposite?

T2. My right hon. Friend will be aware that the Financial Services Authority’s compensation scheme has refused to recompense the charitable scheme of the Christie cancer hospital in Manchester for the £6.5 million that it lost when the Icelandic banks crashed. Will it be possible to urge the FSA to look once again at the unique position of charities—not, I recognise, only one charity? They are not equivalent to local authorities or individuals, but represent the many small donations of thousands upon thousands of individuals. (266549)

I fully understand my hon. Friend’s point about the Christie hospital and a number of charities. Many people have spent hour after hour, day after day and week after week raising money for an extremely worthwhile cause. I want to say two things to my hon. Friend. The first is that clearly there are lessons to be drawn in relation to our ability to regulate branches of banks that are supervised in countries where the regime perhaps leaves something to be desired. The second is that we are very conscious of the position of charities. My right hon. Friend the Minister for the Cabinet Office has been looking at the matter, and charities—including, I think, representatives from the Christie hospital—met the Economic Secretary earlier this week. Indeed, they are also due to meet the Prime Minister shortly. We will continue to see what we can do. I understand my hon. Friend’s point about charities and the differentiation that can be made for at least some of them and the larger local authorities, which might reasonably be assumed to have greater knowledge of how the system operates.

Given the excitement over the Governor’s comments, yesterday was a very good day to bury bad news. Can the Chancellor explain the comments reported from a Treasury spokesman yesterday? The spokesman said:

“The asset protection scheme and the code of practice on taxation for the banking sector are separate issues.”

That completely undermined the original terms of that arrangement, which required the full disclosure of all tax opinions. It suggested that the private banks had now won their battle to obtain support from the taxpayer under the asset protection scheme while continuing arrangements of large-scale tax avoidance at the expense of the British Government and maintaining intact their tax avoidance departments.

I do not know the quote that the hon. Gentleman is referring to. There are two distinct issues here, are there not? First, there is the asset protection scheme, which is designed to get credit flowing again and to ensure bank assets. As I said earlier, it is similar to the sort of thing that America and other countries are doing. There is a separate issue about the payment of tax by all companies, but the banks in particular. Both are equally important, because it is important that people pay what is due. On the hon. Gentleman’s general points about yesterday, as I said to him before, I believe that what we are doing is absolutely right, not just for banking but more importantly for the wider economy.

T5. Now we know that the former directors of the Royal Bank of Scotland spent much of their last weekend in office plotting how to double the size of Sir Fred Goodwin’s pension, is there not a more powerful case for some fiscal tightening over Fred’s pension pot? Could the Chancellor give the House an update on the Government’s efforts to scrutinise in fine detail the nature of that pension? (266552)

I said some time ago that UK Financial Investments Ltd., which holds our shareholding, and RBS are investigating that matter, with the lawyers looking at the position, and I have nothing further to add.

It is important that we deal with the problems that we have inherited, but it is also important that, at all times, we look forward. We have to ensure that we put RBS and, indeed, the Lloyds Group and any other bank in which we have shareholdings, on a proper and firm footing—that we rebuild them with the eventual aim of returning them to full, proper commercial operation, because that remains our intention. It is important that we keep our eyes on that and recognise, in RBS’s case, that its new management are taking a different approach and doing what is necessary to repair the damage that has been done—and they will have our full support in doing that.

T3. Does the Chancellor recall that last November my right hon. Friend the Leader of the Opposition and my hon. Friend the shadow Chancellor warned that if the Government pursued reckless levels of borrowing, the question would stop being one of how much the Government want to borrow from the markets and become one of how much more are the markets prepared to lend to the Government? Is it not now clear that those warnings have been fully vindicated and that the Government have reached the limits of trying to borrow their way out of the recession? (266550)

I do not agree with the hon. Gentleman. As the Leader of the House said yesterday, the head of the Debt Management Office said a few weeks ago that one must always be careful about reading too much into one particular auction. The hon. Gentleman may not know this, but today’s gilt auction, which concluded less than an hour ago, was fully covered. I would be cautious before saying what he said, which suggests that there is something to be said for thinking before one speaks.

Will the Chancellor liaise with the Secretary of State for Work and Pensions to ensure that the hard-working staff at our Jobcentre Plus offices, who are delivering real support to people who are becoming unemployed, have the resources made available to enable them to continue to do the job that is needed and to work as hard as they are doing?

I support what my hon. Friend says and offer my congratulations on the superb work that Jobcentre Plus staff are doing. They not only have, unfortunately, a higher number of inquiries to deal with, but are getting their average time in dealing with them down and managing to ensure that more people return to the labour market faster. The rate of getting people back into jobs in the current recession is 60 per cent. after three months, whereas in the last recession, when Jobcentre Plus was not properly funded, it was 45 per cent. Jobcentre Plus staff are doing a magnificent job, and we are relying on them to get people back into work as quickly as possible. We will provide them with the resources to do that; the Conservatives voted against it.

T4. May I take the Chancellor back to his answer to my hon. Friend the Member for Hammersmith and Fulham (Mr. Hands), and draw his attention to a notice in the window of Lutterworth Motor Spares in my constituency that went up in December? It says:“Thanks Darling! The Chancellor has gifted the nation a reduction in…VAT…Hurrah!...Yippee!” That is the employment of something called irony, which entails a certain amount of ridicule. Could the Chancellor tell my constituent, Mr. Baxter, and all the other small traders who have seen no change or benefit to their sales, why the VAT reduction was not an extremely expensive waste of time? (266551)

I gathered that it was meant to be ironic—I think that I got there before the hon. Gentleman felt it necessary to make the point. It would be nice to be appreciated in his constituency, but that is clearly not the case in one part of the high street.

My decision to cut the rate of VAT, which puts about £12.5 billion into the economy, will have an effect. It is not just there for one month, and it was not just there for Christmas. It is there for a 13-month period, and it has to be seen alongside a range of other measures: reducing tax for basic rate taxpayers, help for families and pensioners, and measures to bring forward construction. The difference between the hon. Gentleman and me is that I believe that Government have a duty to help the economy—and should do so—through times such as this, and he does not think so. The country will judge, but the lesson from the ’80s and ’90s is that if you do nothing, you will pay a heavy price.

Can I ask the Treasury what is being done to encourage the Financial Services Compensation Scheme to redress the imbalance in contributions from the banks, at 5 per cent., and from the building societies, at 15 per cent.?

T7. The Chancellor of the Exchequer said in an earlier answer that he thought that the monetary policy being pursued would lower the cost of credit in the economy, but can I draw his attention to the fact that if, for example, someone wants to buy a motor vehicle, they will pay between 7 and 9 per cent. interest, while credit card rates are between 18 and 20 per cent. and mortgage rates, if one is lucky, are about 4 per cent.? When will the effect of the lower base rate reach the consumer in a way that will help to kick-start the economy? (266554)

The right hon. Gentleman should know, as he was a Treasury Minister during the last recession, that there is a difference between the Bank of England’s base rate, what is charged for lending and what banks offer savers. Some banks are trying to offer a higher rate to savers, which in turn has to be paid for by a higher rate for borrowers. In general, low interest rates benefit people, such as those on tracker mortgages and so on, and many are seeing the benefit of lower rates. However, as I said earlier, the key is to ensure that we have sufficient credit, and credit at a price that helps the economy, which is what our measures are geared to do.

The Government are helping small companies in the area of taxation by making it easier for them to have a credit arrangement for tax payments. Could my right hon. Friend consider extending that assistance into the area of the status of certain companies, such as gross payment status? A company in my constituency is about to lose that status, which will put a considerable financial burden on them in the credit crunch.

My hon. Friend is right to draw attention to the effectiveness of the time-to-pay arrangements that Her Majesty’s Revenue and Customs has put in place. With agreements reached very quickly, £1.7 billion of tax has been deferred so far, and a large number of businesses have been able to continue when they otherwise might not have done. I would be happy to talk to him about the issue in his constituency, and look at the idea that he suggested.

T6. Thank you, Mr. Speaker. I thought that I might have been too short to be noticed. The Chancellor is responsible for ensuring value for money in public services, so what lessons does he intend to learn from the £1.4 million that has been “completely wasted”, in the words of the principal of Dunstable college, on a new build project that was encouraged by the Learning and Skills Council over many years? That money could have been spent on students, and FE colleges up and down the country are in exactly the same position. (266553)

The hon. Gentleman will be aware that there have been problems with the Learning and Skills Council and the decisions that it has taken at regional and national level. That is why the Secretary of State for Innovation, Universities and Skills has asked for a detailed inquiry and has been taking action, and why he is looking at areas that have been put in the position of having to consider their local colleges. The hon. Gentleman will know also that we have substantially increased investment in FE colleges from a baseline of zero—there was previously no money allocated for such additional capital expenditure. We are very clear that we need to keep investing in new facilities for FE, and I will certainly pass on his concerns about that college to my right hon. Friend the Secretary of State.

I have made it clear on a number of occasions this morning that the difference is not between me or the Prime Minister and the Governor. The difference is between those of us who do and those of us who do not believe that we should be supporting our economy, jobs and increasing credit to businesses and individuals. The difference is that we are taking action; the Conservatives would do absolutely nothing.