I beg to move,
That this House has considered the matter of the economy: supporting business.
British businesses are fundamental to our success and prosperity as a nation and supporting businesses through these tough times has been, is and will continue to be a priority for the Government. As many commentators have said, what makes this downturn different from those seen in the past is the fact that it is not a domestic problem, or a problem restricted to a small number of countries, but global.
World gross domestic product is forecast to contract by around 1.25 per cent. this year—the first full-year shrinkage since the second world war—and many of our international partners are in recession. In the first quarter of this year, the UK economy shrank by 1.9 per cent. Across the EU, the fall was 2.4 per cent. Germany saw a contraction of twice that in the UK in the first quarter, and the Japanese economy contracted by 4 per cent.
This downturn is hurting people and businesses, but the Government are not ducking the hard questions. We led the world in taking action to stabilise the banking system. We have put in place a £20 billion fiscal stimulus package to boost the economy. We have introduced a range of targeted measures to provide real help to businesses, individuals and families.
As the International Monetary Fund noted in its annual statement on the UK economy, our response has been bold and wide ranging, and it has helped to contain the impact of the global crisis on the country. The fact that this downturn is global means that we need global action as well as action on the home front. That is why the Prime Minister and the Chancellor have worked with our international partners to ensure that we have a co-ordinated global response to the economic crisis.
In April at the G20 summit meeting in London, agreement was reached on collective action that is necessary to mitigate the risk of an even more severe downturn while reshaping the financial system, preserving the world trading system and laying the foundations for a sustainable recovery.
The London summit was an important step in the journey towards restored stability and economic growth globally, and the Government are committed to ensuring that further progress is made between now and the next meeting of leaders to be held in the US in September.
Here at home, we have taken decisive steps to support the UK’s financial system, given its fundamental importance to the basic functioning of our economy, and to provide real help for people and businesses.
I hope that the Minister will still be in post this time next week so that he can give evidence to my Committee on the automotive assistance programme. Is he aware of concern in the automotive supply chain that the French and German Governments are giving much more direct help to that supply chain to protect it? Will he tell the House what grants and sums have been disbursed under the automotive assistance programme, and how many companies have been assisted by it?
I will come to the automotive assistance programme in a moment as part of the wider context of measures that the Government are taking, but I want to make the point to the hon. Gentleman and to the House that, through the fiscal stimulus announced in the pre-Budget report and the actions we took in October and January to support the banking system, we are helping businesses by beginning to replace the lending capacity lost due to the withdrawal from the UK economy of foreign banks and other institutions.
This year’s Budget went further in providing a stimulus to the economy as a whole, and in total we will provide fiscal support worth 4 per cent. of GDP in 2009-10. All in all, the UK has one of the largest programmes of fiscal support in the G20 in 2009.
To help small businesses in particular, which are suffering a recession through no fault of their own, could not the Government take away, or at least suspend, some of the regulatory burdens to enable businesses to come out the other side? If they do not do that, they will be strangling those businesses, which will never have an opportunity to recover.
The Government have a strong track record in better regulation. At the moment, small businesses really want help with their cash flow, new customers and the economy to get moving again. The actions that the Government are taking are all designed to achieve that.
Taking the Minister back to his point about boosting lending, surely he must have seen the figures released earlier this week showing that lending to consumers and businesses in the economy is at a low not seen since 1997.
Let me come on to lending directly. Although we have taken action, which has been opposed by the Conservative party, at a macro-economic level to provide a stimulus to the economy, it takes time to have effect. In addition, the Bank of England has reduced interest rates to the lowest level in our history, at 0.5 per cent., £125 billion of quantitative easing has been provided, and the current sterling exchange rate is highly competitive internationally. Those measures take time to filter through to the real economy, which is why help is needed now.
If the hon. Gentleman wants to question me further about lending, I would be happy to take a further intervention. As he will be aware, a number of banks have announced plans to increase lending to households and businesses this year. HSBC will make £15 billion in mortgages available in 2009, and is allocating £1 billion in extra loans to small and medium-sized enterprises in the UK. Barclays recently said it would lend a further £5.5 billion to businesses this year, on top of a similar amount to individuals, and Northern Rock and several other lenders are following similar courses.
As the hon. Gentleman will be aware, we have ensured that banks that have received Government support commit to freeing up credit as part of the contractual terms. As part of their participation in the asset protection scheme, Lloyds Banking Group and RBS have been required to sign legally binding agreements. Lloyds will lend about £11 billion extra to businesses this year and next and RBS about £16 billion, at commercial terms. That represents a significant pool of new lending available to business.
The Minister is being most generous in giving way. A little earlier, he was claiming the credit for the independent Bank of England’s cut in interest rates, yet most businesses will not borrow at 0.5 per cent. on account of the continuing large credit spreads in the economy. What does he think about long-term interest rates at 4.5 per cent., which is nine times the short-term interest rates? The rates available for businesses to borrow at, assuming that they can find a bank willing to lend the money, are far higher than the 0.5 per cent. he quoted.
I was not seeking to take credit for the actions of the Bank of England, which, as the hon. Gentleman is aware, is independent from Government. I was merely noting that on top of the fiscal stimulus introduced by the Government, the aggressive actions taken by the Bank, and the level of interest rates, are all big macro-economic factors supporting the economy at the moment.
The hon. Gentleman is right to point out that interest rates are historically low, but small businesses in particular still find it difficult to access credit on terms that they find acceptable. We continue to have discussions with banks about not only the quantum of lending but the rates of interest charged. Banks must make commercial decisions according to their assessment of risk and creditworthiness, and a market adjustment has been occurring throughout the UK economy. I do not think what is going on in the UK economy is at all different from what is going on in other advanced nations currently.
I want to mention the European Investment Bank and the onward lending to the small business community successfully negotiated by the Government. The UK’s share of overall EIB lending to small and medium-sized enterprises has already increased from 2.2 per cent. in 2007 to 12.3 per cent. in 2008, as part of a four-year deal that has been negotiated. It is also worth noting the Government’s enterprise finance guarantee scheme, which a number of Opposition Members criticised for being slow to spend, is proving extremely popular with businesses, and we are confident that it will support about £1.3 billion of bank lending to smaller firms this year. The most recent figures I have suggest that about £420 million of eligible applications from more than 3,800 firms have been granted or are being processed or assessed. More than 2,650 businesses have been offered loans totalling more than £250 million. The scheme is therefore popular.
On top of that, the Government introduced the trade credit insurance scheme in the Budget. From May 2009 until the end of the year, suppliers are being given the chance to purchase six months’ top-up insurance from private insurers, who are providing it on the Government’s behalf up to an aggregate limit of £5 billion. That is real help being provided to business.
If I may, I will mention the support for the automotive industry, which the hon. Gentleman raised. I will happily appear before the Business and Enterprise Committee next week to discuss the automotive assistance programme. As he will be aware, it has two parts, one of which is linked to guaranteeing loans from the European Investment Bank, and the other is a separate guarantee package. As he knows, Jaguar Land Rover has successfully applied to the European Investment Bank, and we will have discussions about the Government guarantee as part of that package. We are also in discussions with a number of automotive companies about assisting them through the automotive assistance programme. Given that the Government are providing guarantees, it is naturally up to the companies to reach agreements with the banks providing the loans, which the Government will guarantee. I hope to make announcements shortly about the AAP, but he will be aware that such deals can take a significant amount of time. When we are spending taxpayers’ money, it is right that we take precautions. The team in place in the Department for Business, Enterprise and Regulatory Reform is working hard with a number of companies in the supply chain, and we can make a real difference to some of those companies.
The Government have also recognised that many businesses are worried about being able to meet their tax, national insurance, VAT and other payments owed to Her Majesty’s Revenue and Customs. Those businesses can call the business payment support line that we have we set up. About 131,000 businesses have now been given the leeway to defer tax payments worth more than £2.3 billion, giving them a significant breathing space during difficult times. On top of that, the Government and their agencies, as major customers for good and services that UK businesses provide, have taken steps to help to ease the cash-flow problems of suppliers, by committing to pay bills within 10 days, bringing forward an extra £8 billion of payments on top of the £58 billion already paid within 10 days.
I think the Minister said he was worried about whether businesses would be able to meet their obligations to pay national insurance. Will he therefore tell us why he is hiking national insurance up by 0.5 per cent. from next year, for employers and those employees earning more than £19,000—a tax on the many, not the few?
The hon. Gentleman knows very well what we said in the Budget about the need to provide real help to businesses and the economy now, and to provide a fiscal stimulus, but also to take a sustainable approach to the public finances. That is why we have made announcements on national insurance, top rates of income tax and pensions. The Government must make a balanced judgment on the economy and its future and ensure that we put public finances on a sustainable path. That is what we did in the Budget: taking actions now that will help people and businesses get through difficult times, while ensuring a prudent and sustainable approach to the public finances over the medium term. That, Mr. Speaker, is exactly what you would expect Government to do.
We are also setting out a strategic vision about how to provide more support to companies in the future, through our White Paper, “New Industry, New Jobs” and our industrial activism approach. That is important. We will continue to develop it, and I commend it to the House.
What extraordinary scenes! The Government have called a debate on the economy, and the Chamber is practically empty. The Minister arrived only just in time to present the Government’s case. I thought for a moment that he might have packed his bags in anticipation of the official announcement, and taken part in the DIY reshuffle that seems to have started earlier in the week. There appear to be no other Labour Members present to contribute to the debate. The Labour Benches are almost entirely empty: I see only the Whip and the Minister. There is no sign of anyone else wishing to make a speech in support of the Government’s policy on the economy.
The debate takes place in unhappy circumstances. I commend in advance all the members of my own party who are hoping to speak today, but it cannot be right for the Government to try to meet the widespread demand, in the House and the country, for significant time in which we can debate the economy by presenting us with a debate lasting only an hour and a half on election day, when an empty Chamber can be almost guaranteed.
That would indeed have been very helpful. The Government have been running away from any debate of substance on the economy for many months. It was only a full Opposition day debate on the subject in March that finally prompted the Government to call their own debate in the week before Easter. Apart from allowing the usual scheduled debates on the Budget and the Finance Bill, the Government have been running away from being scrutinised on the economy for the past six months.
The Minister tried to talk about green shoots. It is true that the rate of decline in the UK economy appears to have abated in some areas. Manufacturing industry and the service sector are not as downbeat as they were a few months ago. Nevertheless, we have already experienced the longest recession in decades, and if there is joy at seeing light at the end of the tunnel, it is mainly because we have been underground for so long.
We welcome any signs of improvement in the economy. After four quarters of no growth or negative growth, we desperately need some signs that improvement will come. We have always thought and said that growth would return in 2009, although we have questioned, and continue to question, the Government’s growth forecasts for the years ahead. However, there are conflicting signs in the real economy. The Minister presented some of the highlights, which we welcome, but we should be realistic about the complete picture. Lending to companies and households fell in April for the first time since 1997. Earlier this week, the Financial Times commented:
“The slowdown in lending serves as a warning that while some ‘green shoots’ are emerging in the economy, constrained access to credit and weak demand for loans in the private sector could yet kill them off.’
Unemployment continues to rise inexorably, and at its fastest rate since the second world war. The Minister’s optimistic tone will not be echoed by the additional hundreds of thousands who are joining the dole queues each quarter. In March, the level of unemployment had already surpassed the forecasts for the whole of 2009 that had been made in the 2008 pre-Budget report. The Budget predicted that the claimant count would rise to 2.44 million by the end of 2010, a figure that had already exceeded by 1 million the one predicted only six months earlier in the pre-Budget report. The British Chambers of Commerce have predicted that it will reach 3.2 million by the end of 2010, and the CBI has made a similar prediction. It seems that the age-old adage—that all Labour Governments leave office with unemployment higher than when they took over—will prove to be true yet again.
If I were the Minister, I would go easy on trumpeting claims for the success of Government schemes to help people and businesses through the recession. It emerged earlier this week that just two home owners had been helped by the Government’s flagship initiative to help families avoid repossession. The mortgage rescue scheme has been running since January, during which time nearly 20,000 homes are thought to have been seized, but only two households have been helped.
Let us consider two of the Government’s schemes for business. I do not know whether the Government can provide more up-to-date figures, but the most recent publicly available figures suggest that the capital for enterprise fund announced in November 2008 has yet to invest a single pound in any business. Furthermore, according to the Minister for Employment Relations and Postal Affairs the £1.3 billion enterprise finance guarantee scheme has loaned just £92.6 million to industry, despite also being announced last November. That represents just 7 per cent. of the funds available. Meanwhile—and I hear this across the country—big Government rises in business rates continue to hurt.
One easy way of helping small and medium-sized enterprises would be to make small business rate relief automatic. Why did the Government oppose the private Member’s Bill presented recently by my hon. Friend the Member for Mid-Worcestershire (Peter Luff), which would have done precisely that? As I said earlier, however, the way in which the Government could really help business is by sorting out the public finances. Unfortunately for the Government and the country, the position is going from bad to worse. We are still deep in the tunnel, with no chinks of light to be seen. Government borrowing in April—in just one month—was an incredible £8.5 billion. That is a record, and it is five times as much as was borrowed in the same month last year.
Even according to the Government’s own highly questionable statistical basis, net debt has already risen from the mid-40s to 53.2 per cent. of GDP. It is at its highest level since the 53.8 per cent. that we saw when the country was shamefully bailed out by the IMF in 1976. The United Kingdom has been publicly downgraded by Standard and Poor’s for the first time ever, or at least since its credit was rated for the first time in 1978. Our credit prospects are negative. That will add yet further to our borrowing costs, especially the costs of any non-domestic borrowings. It will also shrink the investor base for our debt products, as some investors are not able to hold anything less than AAA-rated assets.
Thanks to the public finances, borrowing rates for businesses are far higher than they should be in this recession. As I said earlier, long-term interest rates are an incredible nine times higher than short-term interest rates. Credit spreads on variable-rate borrowings are still too wide. Whether we look at variable or fixed-rate funding, it is clear that the long-term funding needed by businesses is still far too expensive. Moreover, the Government are crowding out business borrowers from the capital markets with their huge gilt auctions
It seems that no one believes the Government’s forecasts of a trampoline recovery. We hope and expect there to be some growth in the economy before the end of the year, but it is difficult to share the Government’s optimism that there will be a 3.5 per cent. rate of growth next year. Of course we would love that to be true, but we suspect some political massaging of the figures. Indeed, I read that the Prime Minister wanted the figures to be even more fixed than those that I have cited. On Tuesday, The Times reported that
“the Prime Minister tried to upgrade the growth forecasts to make the economic outlook appear rosier than it was; the Chancellor refused.”
We urgently need to hear from the Minister what really happened. Are the growth forecasts in the Red Book from No. 10, or are they from the Treasury? Did the Prime Minister try to intervene, as The Times claimed? Perhaps he intervened successfully, and those growth forecasts are the result of his intervention.
It would also be helpful to hear the Minister’s response to the harsh criticisms of the Government’s quantitative easing programme made earlier this week by the German Chancellor, Angela Merkel. She said:
“What other central banks have been doing must be reversed. I am very sceptical about the extent of the Fed’s actions and the way the bank of England has carved its own little line in Europe”.
That is another extraordinary attack from a foreign leader on the Government’s economic policy. May I ask the Minister whether, at the G20 summit and at last month’s ECOFIN meeting, Germany raised its opposition to the quantitative easing programme with the Prime Minister or the Chancellor?
Although no Labour Members except the Minister are present for it, this may well end up being an historic debate. It may well be the last debate on the economy to take place while the Chancellor of the Exchequer, the right hon. Member for Edinburgh, South-West (Mr. Darling) is Chancellor. This could be how it all finished: a dead-end debate slot on European election day with virtually no one present to witness the end of it all. The Chancellor would be like a modern-day Eleanor Rigby.
Instead of coming here to talk about the economy, the Chancellor is somewhere else fighting for his political survival. Britain deserves better than this, and that is why we are calling for a general election. I thank my hon. Friends in advance for participating in this debate, but the whole Conservative party wants to debate the economy, and for longer than an hour and a half; we want a full, four-week debate in a general election campaign. Moreover, a general election is what the country wants and so desperately needs.
I do not know whether this is a dead-end debate slot, but I do know that I have only six minutes to say all that needs to be said about the economy and business, and I also know how strict you are, Mr. Deputy Speaker, in enforcing such time limits. Saying all that needs to be said in such a brief period presents something of a challenge because relatively little has been said recently in either this place or the media about the economy and business. Far more has been said about the home economics of MPs. We live in a strange world at present, where a £5 claim for an offertory is given as much precedence in terms of newspaper headlines as was the attack on the twin towers.
In a way, however, that might not be such a bad thing, because when the focus was on the economy, that led to a rush of Government headline-grabbing initiatives that were not well thought-through, and to the media ceaselessly attempting to pile on the misery, darken the gloom and depress optimism. Every statistical device known to man was used to illustrate that, when compared with the great depression of the 1930s, the black death and so forth, the severity of current circumstances was unrivalled.
I am not trying to pretend that the economy is not in serious difficulties and an unexpectedly bad state, but I drew attention to the media effect on confidence in an early-day motion that I tabled some time ago. I called for that to be studied, because is it not a strange coincidence that some slight signs of recovery—of bottoming out—are arising in a period of relative media neglect? While democratic institutions are taking a hammering, the ailing economy is enjoying something of a media respite.
I make this point because I was receiving a consistent message from my constituents a few months ago. They were saying, “Yes, business is in a fix, and we know that these are difficult, hard and tough times, but we could do without the media larding it on and exaggerating the extent of the depression.” The local media do not do that, because they do not want to depress confidence unduly as they recognise that they need advertisers and that those advertisers are local businesses.
Does the hon. Gentleman also recognise that when dealing with matters affecting our local economy, which is very important, the most important thing we can do is stand up for manufacturing industry and the people who really matter? We must protect their jobs and interests, and do everything we can to ensure that they can survive in the current difficult circumstances.
I do accept that, but I want to make the point that there is a big difference between how the whole issue has been treated from start to finish by the local media, which in a sense depend on local industry, and by national media, such as the BBC, which do not. I simply point that out. The effect of that may be marginal, but it is nevertheless real. Mark Vitner, senior economist of Wachovia, recently commented on the fragile recovery in business confidence in the US and warned that:
“People’s expectations were built on such things as newspaper headlines.”
Let me turn now to the main subject of our debate: the expectations of business. We are going through tough times, and there is an expectation that Government will help. In good times, good business does not need any help, but most businesses currently do. Genuine attempts to help have been made; the Minister listed some of them. The Government have pressured banks to lend and also to maintain credit, which is very important. They are also trying to create a more benign tax environment; there is some evidence of that in the current Finance Bill. They are spreading business rate payments, too, and increasing advice. More national and European grants are coming forward as well. However, much of the help is rushed, poorly communicated and, at times, ineffectual. It also does not address real and reasonable requests. One of them has already been mentioned: the automatic small business rate relief would not cost the Treasury anything, but it would be enormously beneficial to many local businesses.
Businesses also notice that the help they are being given is incommensurate with the help being given to banks, who were the authors of the general misfortune in the first place, and who still pressure viable businesses rather more than businesses that are likely to default. In other words, they put pressure on businesses that are doing reasonably well and tighten their access to credit, because they know that if they put pressure on businesses that are likely to fail, they themselves will be the losers.
Expectations are not being met, therefore, but then few expectations are being met these days. Few people expected the current economic mess, or the scale of it; few expert economists, global pundits or parliamentarians did so. However, that has not stopped everybody now rushing in to make further predictions with the same confidence as in the past. The best of the predictions do little more than encapsulate current trends. The CBI recently said:
“Although we were deep in recession, the rate of contraction is slowing markedly.”
That still augurs that we are going to have increased unemployment, more bankruptcies, more pressure on public finances and a painful clawing back to prosperity.
Fiscal stimulus, or natural retrenchment, may efficiently—or haphazardly—be working as an economic brake, although we recognise that there is a cost to that in terms of the public finances. The big problems, however, are structural, on both an international and a national, British, basis. China and the USA remain trapped in a Faustian pact whereby the productivity of one requires the indebtedness and refinancing of the other. The world financial system requires a remarkable revision, but it does not have the capacity to implement it. The British economy has similar major structural problems. Unlike Sweden and the Czech Republic, we have not learned to protect our manufacturing base. We are also grossly dependent on the footloose service and financial industries. We have not been filling the skills gap either, and there has not been any real attempt to square the circle, so to speak, of matching increased prosperity with diminishing social inequality. We are in a fix, and it is a structural fix. Unless we address these fundamental issues, we will find ourselves in a deeper fix still.
I am very pleased to have been called to contribute to this debate because during all the years that I have been a Member of Parliament I have fought for, campaigned for and promoted UK manufacturing—indeed, so much so that Members on both sides of the House have identified me as “Mr. Manufacturing Industry, MP.” I have stood up for manufacturing industry under successive Governments. During the 18 years of Conservative government, I formed the Manufacturing and Construction Industries Alliance, which was a partnership between big and small industry, trade unions and all who believed that manufacturing industry is one of the only sources of non-inflationary, sustainable economic growth. I believed that when I first entered the House, and I believe it today, and I also believe that, sadly, successive Governments have often sacrificed manufacturing industry in this country unnecessarily.
In my local area, I am at present deeply concerned that the largest employer, AstraZeneca, a world-renowned pharmaceutical company, is reducing its work force in both my constituency and that of my immediate neighbour and colleague, my hon. Friend the Member for Tatton (Mr. Osborne), by some 1,500 jobs over a three-year period. Those jobs are not disappearing entirely, but they are disappearing from Macclesfield—both at the Hurdsfield plant and the big research development plant at Alderley park—because the company is transferring the jobs to China and Mexico. Why is it doing that? One might say that it is doing that because it is a global company, but it is also doing it because the cost of those jobs is much less in China and Mexico. Over the years the company has also transferred jobs to India. One may say that there is a good reason for it to do so, but the message I am trying to get across to the Government is that they should not increase the cost of employment and of manufacturing industry unnecessarily.
The Government could take many steps at the moment to reduce the costs to manufacturing industry. It will see us come out of this recession, because things produced in this country at a competitive price and to a standard that people want, and delivered as such, are the real wealth creator, which should be encouraged. A smaller company in Poynton in my constituency, Aearo Ltd, owned by 3M, is sadly closing its plant there and transferring the jobs to Poland—again, because of the cost advantages of operating in that country. The Government should take these matters very seriously.
I turn to a matter relating to the Ministry of Defence. On the periphery of my constituency is the BAE Systems facility at Woodford, where the Nimrod aircraft, which is on order for the RAF, is produced. I pay a huge tribute to the trade unions there for the way in which, over recent years, they have worked in complete co-operation with the management in order to produce a good aircraft to the MOD’s delivery and specification requirements. Of course there have been problems in the past—about which industry would one say that there have been no difficulties between management and labour in the past?—but at this facility full co-operation has been given.
The MOD has ordered nine Nimrods—the initial order was very much larger and it has subsequently been cut—but it is now looking, under Project Helix, for another three aircraft. I believe that the MOD’s R1 mission system upgrade project could utilise the MRA4, and if it does so, that would extend the work force and the employment at Woodford for a further two years. However, the MOD is looking at the American Rivet Joint, which is a Boeing aircraft that is some 40 years old—these planes are currently lying in the desert, but I am sure that they are being properly maintained—and the thought is to lease three.
I have met the Under-Secretary of State for Defence, the hon. Member for Grantham and Stamford (Mr. Davies), who has responsibility for procurement, to discuss this matter. I have done so along with representatives of the Labour party and the Liberal Democrats, because we want to ensure that our expertise in aerospace continues. We believe that the MOD’s R1 mission system upgrade project could be properly fulfilled by the MRA platform and that there is therefore a Nimrod MRA4-based solution to what the MOD requires. The Government can help, so they should retain high-tech engineering jobs in this country, rather than go to another country for purchases that can be fulfilled within our own manufacturing sector.
Having made a plea on behalf of certain industries and companies in my constituency, may I say, as has been said from the Front Benches by my hon. Friend the Member for Hammersmith and Fulham (Mr. Hands) and the hon. Member for Southport (Dr. Pugh), who speaks for the Liberal Democrats, that despite receiving unprecedented valuable bail-outs from the taxpayer—the Treasury—the banks and other financial institutions are still providing little or inadequate help to hard-pressed businesses and individuals via increased lending?
I have an interest in the construction industry, because I worked in it before I came into this House, and I understand it pretty well. In my view, it is market forces that have constricted the housing market, and not the financial institutions per se. I am not sure whether the Minister agrees with that observation. My view is that falling house prices are mirroring the economy at any one time, and those will correct themselves gradually once the economy has recovered. However, I stress that the lending banks and institutions must do more to help stimulate this country’s housing market.
The plight of small to medium-sized businesses is serious. They are the powerhouse of the modern economy, yet the commercial banks are still refusing to lend to struggling businesses. One thing that greatly annoys and frustrates me is that HBOS, which is now part of the Lloyds Banking Group, is refusing to lend to a highly successful, long-standing company in my constituency. Like many companies, it is going through difficult times and has cash flow problems, and HBOS is refusing to honour commitments to it. Having received huge handouts from the taxpayer, the banks, rather than merely representing their own interests, should seek to represent the interests of the economy of this country.
As the Minister will be aware, small businesses often operate on their overdraft facilities, rather than on loans, which are aimed more at development and expansions. The Opposition have made some important proposals, which my hon. Friend the Member for Hammersmith and Fulham dealt with briefly, and called on the Government to act to assist industry in a more positive way than they are doing at the moment. One action could relate to our proposals to cut corporation tax and to cut payroll taxes for small companies; we have also called on the Government to cut national insurance contributions by a penny in the pound for small companies with fewer than five employees. I know that those are small measures, but they are all valuable. On insolvency, small and medium-sized enterprises should be able to apply for a short breathing space during which they would be able to come up with a restructuring plan, rather than go out of business. We want to save as many businesses as we can.
The Government have sought to act on prompt payment, and I give them credit for doing so. As the Minister knows, lots of small businesses provide goods and services to local authorities, with payment normally coming within 30 days. Some local authorities, appreciating the position of small businesses, have implemented a 20-day rule, and I warmly welcome that.
My hon. Friend will perhaps be excited to learn that Conservative-run Westminster city council has instituted a seven-day repayment rule. On his previous point, although much is said about the idea of trying to introduce a chapter 11-type pause in the insolvency regime, this country’s regime is extremely flexible and administration provides that opportunity, instead of companies having to go towards fully-fledged liquidation.
I very much respect the experience of my hon. Friend, who represents Cities of London and Westminster, which, of course, is home to the core of the financial services in this country. I know the very close relationship that he has with those in his constituency, who are the powerhouse of our economy.
As I was saying, some local authorities have implemented a 20-day rule on payments—I am delighted that Westminster city council has implemented a seven-day rule—and bearing in mind that local authorities are dealing with taxpayers’ money, I am sure that most taxpayers are very happy with that sort of policy and I hope that it can be followed by many other local authorities. Just a few days can make all the difference in terms of paying bills and staff, and helping businesses to survive, so I urge the Government to approach local authorities to get them to adopt the shortest possible payment period in order to help business at this time.
As I said in a question to the Prime Minister, there are currently 2.73 million manufacturing jobs in the UK, down 160,000 on the year and down from 4.5 million in 1997. Productivity in manufacturing was down 4.1 per cent. in the final quarter of last year on the previous quarter, and that compared to a 1.8 per cent. fall for the whole of the economy. The figures are from the Office for National Statistics. I hope that the Minister will recognise the true value of our manufacturing industries to the stability and future success of the United Kingdom. Will the Government seek to reverse the crippling £16 billion burden of constantly changing regulations and the £7 billion a year new taxes that they have introduced, which are a drag on manufacturing industry, making us less competitive?
The Minister mentioned France and Germany, and I agree that they have had severe problems, mainly—and this does go against my argument—because so much of their economies is manufacturing based. While they do produce manufactured goods, they have no market for them if the country to which they sell them does not have the money to pay for them. We must not force more of our manufacturers out of business or into relocating abroad. When the economy recovers—as an optimist I believe that it will—we will need manufacturing.
A new report out recently from Policy Exchange reveals how the Prime Minister’s second spending spree is set to reach 50 per cent. of GDP—a stark figure indeed—and that is not because of the recession. The report also calls for an emergency Budget and a spending freeze. Government spending is growing far more quickly than in other countries, and faster than in previous recessions. This perceptive and important report finds that the surge in spending is not being driven by the recession. At most, it says, only 6 per cent. of the increased spending is going on public works, and just over a third is due to the rising cost of social security or debt. Instead of “investment”, most of the increase is due to a decision to spend more on consumption.
The report also argues that all budgets, except social security, tax credits and debt interest, could be frozen at 2008-09 levels, resulting in savings of £87 billion on the Government’s current plans. I have considerable respect for the Minister—I know his background and I used to work in the area that he represents—so I say with some regret that the truth is that history has a habit of repeating itself, and yet again it is a Labour Government who have brought the UK to the brink of bankruptcy. As Chancellor of the Exchequer, the current Prime Minister squandered the growth that he inherited from the last Conservative Government and he now has to fix the problems that his Government have created.
History shows that successive Labour Governments, sadly, always leave the country deeper in debt. The present Government will have doubled the national debt to more than £1 trillion, so that anyone earning more than £20,000 will have to pay more tax. Rampant borrowing and tax rises will make the recession worse and the recovery more difficult, because they undermine the confidence in the future that is crucial to the recovery of economy.
I make a plea to the Government and, perhaps just as strongly, to my own party, which has not always been the best friend to manufacturing, although it does appreciate the role that manufacturing can play, to ensure that the measures that we introduce take fully into account the problems facing the manufacturing industry and the important role that it can play in the recovery of our economy.
Bill Clinton had a sign over his desk that said:
“It’s the economy, stupid”.
It was there to remind him that although people claimed that the electorate were interested in other matters, it was the economy that mattered most. It is the economy that matters most to the people in my constituency and, I suspect, in most other constituencies. Even the anger that has been experienced over allowances, and before that over bonuses for bankers, is fuelled by people’s fear and uncertainty about their own economic prospects, and we should not forget that.
The sad truth is that although the economy is the most important issue for this country and our constituents, the Government have chosen to have a one and a half hour debate on it on a day when the local and European elections are distracting our attention. Until a few moments ago, the Government had not even been able to persuade a single one of their Back Benchers to support their position here. That is an astonishing rejection by the Government and their supporters of the importance of the economy.
The title of the debate also refers to “supporting business”. The implication is that direct intervention by the Government can solve the problems of business. At the moment, the principal problem in this country and the rest of the world is a shortage of demand for all the resources and people available to produce goods and services. As long as the principal problem is that shortage of demand, merely switching an element of that demand through the tax system to be spent elsewhere will not alleviate the problem. Money can be spent on the automobile industry, but it will be at the expense of money spent elsewhere. That may receive support from people in the auto industry, but it destroys jobs elsewhere. It is only measures to restore the aggregate demand in the economy to employ all the resources available that will ultimately support industry.
We should be considering measures that will restore the growth of demand and thus the growth of economic output and employment. In my view, the key to that is money. It may be an old-fashioned view, but money is very important. If people have money in their pockets, they will be inclined to spend it. If they do not have money, they will not be able to spend it. If they have inadequate supplies of money, they will save and scrimp to try to build up their money balances. If one person saves money, less money goes to other people, and the total output of the economy is not altered.
I think that the Government had the right intention with quantitative easing. We need measures to boost the supply of money in the economy. People may think that that is an unusual thing for me to say. I am a longstanding monetarist, and many of my monetarist friends are suspicious about printing money, because it can be a cause of inflation—especially if too much is printed. However, if there is an insufficiency of money—the collapse of the banking system threatened to destroy money—more money must be created. That is why it was essential for the Government to prop up the banking system. If banks collapse they destroy money in the economy. In a developed economy, money normally comes from banks increasing their lending. That is what creates additional money.
If I were to lend my distinguished hon. Friend the Member for Cities of London and Westminster (Mr. Field) £100, I would be £100 worse off, he would be £100 better off and there would be no increase in the money supply. If he, however, were to go to the bank and say, “Can I increase my overdraft by £100?,” that would create £100. There would be £100 extra in the economy—and when he spent it, as I am sure he would in due course, that money would circulate through the economy. Banks create money, but when banks are retrenching on their lending they destroy money. They call in loans and do not replace them, and there is less money in the economy. That is why it was necessary and right for the Government to do something like quantitative easing to ensure that enough money was circulating in the economy. It takes a little time for that to happen, but I think that it will happen. It might be part of the reason why we are seeing at least a slow-down in the recession and even some signs that it is bottoming out, even if we are not yet seeing a resumption of growth.
My right hon. Friend rightly points out some of the concerns about the level of quantitative easing. Given the amount of money that has been printed by the Government, much of which to date is being hoarded by the banks, there is a potential inflationary problem. He says “provided that too much money is not printed.” How on earth can we possibly judge when that point is reached—when too much has been printed, or, indeed, is about to be unleashed into the economy at large?
My hon. Friend’s question could be rephrased, “How are we to know when too little money has been printed, when too little money is available or when too much money has been destroyed by the banks’ retrenching?” We have to make a judgment. The Bank of England spelled out what it thinks is necessary and it will do it in a series of tranches. It is not proposing a Zimbabwean type of inflation, but an increase of a few percentage points in the supply of money. In general, an economy needs to see the money supply growing by a few percentage points more than the real growth that one hopes to achieve. We need to get back to that, and as long as the Bank does not overdo it, that is sensible.
By contrast, reliance on a fiscal stimulus seems likely to be less effective, and there is less scope for it in the British economy than might be desirable. If we started from a position whereby the Government had a very low deficit, or a surplus, it would be worth a try. It would be worth the Government’s saying, “Let’s give a fiscal stimulus by borrowing to spend.” However, when a Government start with a huge deficit, any further increase in that deficit is likely to destroy confidence, and as a result, have a negative rather than a positive effect on the total level of demand in the economy.
That is not just a theoretical point. The European Central Bank and economists from the European Commission have both separately carried out analyses of all the studies that have been published of attempts to use fiscal stimulus, in Europe and elsewhere, to stimulate the economy in the post-war period. They both show that on a majority of occasions when Governments have attempted to use the Keynesian weapons of borrowing to boost demand, it has had the opposite effect to what simple-minded Keynesians might have predicted. On half the occasions when Governments have boosted borrowing, that has led to deflation. On other occasions when they have reduced borrowing, even in a recession, it has led to a resumption of growth.
That is not something that should be too unfamiliar to us in this country. We have had three major recessions since the late ’70s. In 1976, the Labour Government faced a terrible recession with a huge and burgeoning deficit. The Keynesians among them said, “Let’s add to it. Let’s borrow even more, spend even more and try to get out of this recession.” Unfortunately, there was a run on the pound and they had to call in the International Monetary Fund—the only time the IMF has ever been called in to a developed economy—and the IMF said, “Stuff that for a lark. Forget about Keynes. Just get your books balanced again, raise your taxes, reduce your spending and that will restore confidence and get things going.” And it worked. I went to a seminar recently at which someone who was one of the Government’s chief economic advisers at the time said that they were astonished at how rapidly it worked, and how rapidly the economy started recovering thereafter.
In 1980-81 the economy appeared to be in freefall, with a decline in output. At the same time, there was a terrible deficit. The then Chancellor, Geoffrey Howe, had the courage to say, “We’ve got to get the public finances back into order if we are to restore confidence and resume growth.” Then 364 economists, led by the man who taught me monetary economics—or tried to, as I am happy to say that I did not imbibe all his views—published an open letter to the Chancellor saying that there was no reason in theory or in past experience to believe that if he persisted with his policy it could lead to anything other than an intensification of the recession. If we plot what happened, we can see that the economy was in freefall until 13 March, the day that they published that letter. From then onwards, a V-shaped recovery began. They were completely factually wrong. We know from experience that it can sometimes be right to get a grip on the public finances. That restores confidence and leads to a resumption of growth. The same applied in 1992.
That, of course, is why the Government, despite all their rhetoric and talk about an additional fiscal stimulus, have not introduced an additional fiscal stimulus on top of what is already happening through the automatic stabilisers. They are right not to take that risk. On the other hand the German Government, which is in a much better position, ought to be increasing spending, borrowing and trying to get their economy going. Other economies that are in that happy position should do likewise.
As a simple-minded Keynesian speaking to a simple-minded monetarist, may I say that if the right hon. Gentleman looks at the pattern of fiscal support for the economy across Europe and the G8, he will see that, astonishingly, the support provided by the different Governments is very similar? The only variance is whether it takes place through automatic stabilisers or a separate fiscal stimulus. The pattern of support is very similar, and that blows a hole in much of his argument.
My argument was based on the fact of what has happened in the past rather than projections of what might be happening now. We shall see. It might provide an interesting test case if we come back in three or four years’ time and argue it out. The hon. Lady describes herself as a simple-minded Keynesian and me as a simple-minded monetarist, but if we are both simple-minded enough to say that we should look at the evidence, we will see that the evidence is clear. The evidence is not just what I have put forward; the evidence has been put forward by the European Central Bank in its study of studies and the European Commission in its study of studies, and the conclusion they have come to is that on a lot of occasions the Keynesian stimulus does not work and has a contrary effect.
I am relatively optimistic that a recovery might soon be under way, because we will see the normal inventory cycle reverse. When final demand for goods falls, as it fell after the Lehman effect with the collapse in confidence across the world, that is amplified as companies do not merely reduce their demand by the 10 per cent. fall-off in final demand but reduce their inventories, too. Back down the supply chain, the 10 per cent. decline in demand might become a 20 per cent. decline and then a 50 per cent. decline in demand for components. We have seen that across the world, and it is partly why the great manufacturing economies, despite the great strengths that my hon. Friend the Member for Macclesfield (Sir Nicholas Winterton) pointed out, suffer a particularly sharp downturn during that inventory cycle. It merely has to stop, in a sense, for it to reverse. When people stop reducing their inventories, that feeds back through the chain and produces a sharp rise in output, even if it does not go back to the level it was at before the crisis began. We may see that inventory cycle go through its normal process.
My worry is more for the longer term. Again, I just look at the evidence. What evidence have we for what happens when a modern developed economy experiences a banking crisis and a subsequent recession? The only such experience that we have is that of Japan. It did many of the things that we have done, but in a slightly different order, and some people say that it did not do them fast enough. It managed to avoid the worst of a recession, but it had 10 years of sluggish growth. My fear is that if we do not get rid of the overhang of both public and private debt as speedily as possible we, too, may first enjoy something of a recovery but then have quite a sustained period of sluggish growth.
That is why it is absolutely vital that the Government realise the supreme importance of getting a grip on the nation’s finances. We face the most enormous deficit; it is unbelievably large. Effectively, the Government are saying, “We will borrow to finance the entire military, education and law and order budgets, and much of the health budget, too.” If we closed down all the Departments concerned, it would just about eliminate the deficit, but I certainly hope that the Government will not close them down. We have to look for savings wherever and whenever we can find them.
I can tell the Economic Secretary to the Treasury that I have been responsible for the biggest-spending Department in Government, and I have seen the problems and pressures of trying to control public expenditure from within the Treasury. The single most important thing, and the first thing, that one must learn to do is to say no. Until we can stop inventing new ways of spending money, we will not get a grip on the total imbalance between our propensity to spend and our ability to raise revenue through taxation. The Government keep adding to the burdens. I get summoned, as Members do, to sit on little Delegated Legislation Committees. There was one the other day that proposed spending an extra £120 million on some benefit for expectant mothers. Even the Liberals, I am happy to say, thought that the measure was complete rubbish and voted against it, as did I. Nobody on the Committee thought that the benefit would do any good to anybody. I am generally in favour of feeding expectant mothers every kind of nutrient that they could need, but there was no support for the measure, and it was badly timed and badly focused. It was a pure gimmick—but it will cost £120 million. The deficit is made up of thousands of £120 millions, and we have to get a grip on them and stop giving the money away.
There is clear medical evidence that if we support women during pregnancy, particularly with food, for which they need money, the outcome for babies is improved. In particular, doing so tackles the problem of low-birthweight babies, which is a problem in some of our inner cities. That measure is a practical way of tackling that problem.
Order. Before the right hon. Gentleman responds, may I say that we are rapidly running out of time, and there are more hon. Members who want to speak? Perhaps he would bear that in mind.
I apologise for going on for so long. It was a mistake for me to bring up a detailed issue. There are clearly arguments in favour of the measure concerned, but at a time of national emergency we ought to be saying, “Not now.” We have done without it for the past 50 years; we can do without it for the next five years. Until the Government learn to say, “Not now. No new projects or programmes. Let’s get a grip on the ones that we have,” we will not avoid the prospect of 10 years of sluggish growth.
Despite the fact that Scarborough was recently voted the most enterprising town in Britain, and went on to the finals in Prague, where it was voted the most enterprising town in Europe, we have not managed to buck the trend of this Labour recession. Between April 2008 and April 2009, unemployment has gone up by 68.7 per cent.; that is 1,000 more people out of work.
The biggest shock to our local economy was the closure of the two Greaves printing works. On 9 April 2008, almost 200 jobs were lost at the gravure print works, and on 30 January 2009, 200 jobs were lost at the finishing works. On the day of the European elections, people ask, “What are the benefits of Europe?” and some might answer, “Structural funding has gone into the former coalfield areas and into the areas where heavy industry is in decline,” but ironically it is precisely because Polestar printing got a £6-million grant from the European Commission under objective 1 funding for its new print works in Sheffield that the print works in Scarborough has had to close. The law of unintended consequences has come into action.
The building and construction market is dire. The second-home market for premium flats on the seafront is holding up reasonably well, possibly because many people cannot see the point of keeping their savings in the building society given the low interest rates being offered, and because of the worry that there may be inflation coming down the road as a result of quantitative easing. However, the market for residential property, and certainly new-build property, is very poor indeed. Given that people previously got 95 or even 100 per cent. mortgages, I suppose that now that they are being told that they need a 10 or 20 per cent. deposit, it is not surprising that there will be a time lag before people in rented accommodation come into the market, if indeed they can save that money.
The automotive industry is doing better in Scarborough than in other parts of the country, mainly because the Plaxton bus factory and the Bluebird coach factory are selling to local authorities and to the public sector. Of course, the McCain chip factory makes the ultimate counter-cyclical product; there is nothing like a bit of comfort food during a recession.
Of course, the lifeblood of Scarborough and Whitby is the tourism industry, and the weak pound is helping there, as people are choosing not to go abroad. As a result of the uncertainty, people are leaving it later and later before they make their booking. In fact, last year, I asked an hotelier in Whitby on a Thursday what the bookings were like for the weekend, and he said, “It’s too early to say.” People wait for the weather forecast on Thursday night, or even on Friday, before they go online and book their rooms. Fortunately, weather forecasts are more accurate than some of the Chancellor’s forecasts in the Budget. For example, the Economic Secretary to the Treasury mentioned the fact that the economy had contracted by 1.9 per cent. That was announced by the Office for National Statistics only two days after the Chancellor had forecast a 1.6 per cent. contraction in the economy. In fact, Treasury forecasts are so consistently wrong that they are in the same league as Michael Fish was when he told us not to worry about that hurricane.
I should like to flag up a couple of issues that affect the tourist industry, and they give another example of the law of unintended consequences. The first point is about the threshold for VAT registration. We are trying to make Scarborough and Whitby a 12-month-a-year resort, but all too often, when it gets to February or March and the owners of small guest houses look at their turnover for the year, they see that they are on the point of breaching the £68,000 VAT threshold. It makes more sense for them to close down their guest house and go to Tenerife for a few weeks than to stay open. It is a real problem. If they go over the threshold, they have to pay VAT on all the money that they have taken since the previous April. I do not know whether Ministers are thinking about how that could be addressed. Perhaps we will have to leave it to the next Government to try to come up with a solution to that problem.
On holiday lets, bookings are up, but I am concerned about changes in the Budget that affect the holiday let market. From April 2010, income from holiday lets will no longer be classified as earned income; it will instead be classified as unearned income. One consequence is that income from that side of the business cannot be offset against income other than other property income. That affects many small farms that have invested in their farm buildings, and converted them into holiday lets. Those farms now find that the two businesses cannot be offset against each other. Also, income from such holiday lets now does not qualify as “relevant earnings” for pension fund contributions. Such holiday cottages can no longer be considered a business asset, and that will have far-reaching implications for capital gains tax planning. All sorts of reliefs that are available for business assets, such as roll-over, hold-over and entrepreneur’s relief, will no longer be available.
We know why the Government did that; it was because many people had second homes on the coast, or even abroad, and it was seen as unfair that they could use the cost of running those holiday homes, assuming that they let them for 140 days, against their income from their ordinary jobs, but the case of farm cottages is entirely different. They are a diversification of a business. Farmers do not stay in their holiday cottages, but the cottages are usually in the farmyard. They are an integral part of the steading. In many cases the planning permission given by the local authority or the national park authority means that those holiday cottages cannot be sold off separately from the unit. In fact, in some cases, land cannot be sold off separately from that unit. I hope that the Minister will look at that problem and make sure that we can do something to try to help the hard-pressed tourist industry in my constituency.
I agreed with my hon. Friend the Member for Macclesfield (Sir Nicholas Winterton) and, indeed, with my hon. Friend the Member for Hammersmith and Fulham (Mr. Hands) on the Front Bench, when they referred to the fantasy figures that undermined much of the recent Budget. The very idea that there might be 3.5 per cent. growth during the year after next provided the Government with a very convenient alibi with which to avoid making some of the tough decisions that they must make on public expenditure. Those decisions have effectively now been delayed until after the next general election.
My hon. Friend the Member for Hammersmith and Fulham rightly recalled the emergence of the International Monetary Fund, as, indeed, did my right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley). We went to the IMF some 33 years ago, and the big worry in many people’s minds is that we will have to return to it. I suspect that, if we do go down that path, the Government will do all they can to avoid it happening on their watch.
As the Member for the City of London, I believe that in the months ahead several pressing issues will emerge in our financial heartlands. As the Minister knows, two of the big four domestic banks are now all but fully nationalised. One of those, Lloyds Banking Group, contains what might euphemistically be called “assets” from HBOS, which engaged in a series of balance-sheet boosting debt-for-equity deals during the boom years in the middle of this decade. As a consequence, Lloyds Banking Group has large holdings in a swathe of leading UK companies. Doubtless, many such household names will require refinancing as the downturn proceeds, and their financial rescue will come from the taxpayers’ coffers, for obvious reasons. In short, before long, considerably large parts of mainstream corporate UK could end up being effectively nationalised.
We need to use some much smarter intelligence to nip regulatory problems in the bud. An enhanced role for the Bank of England is very much a part of my party’s policy, but that development will have to be accompanied by the appointment of some high-calibre, trusted and respected professionals to the Bank’s top roles. That in turn should be augmented by the emergence of prosecutors with US-style status to replace what I am afraid is an increasingly discredited Serious Fraud Office. Nothing less will restore the confidence of market professionals and the public at large.
I fear that the banking bail-outs will turn out to be an expensive failure. Indeed, that has already been proved to a large extent, and I do not entirely agree with the earlier comments of my right hon. Friend the Member for Hitchin and Harpenden. The lesson that we must learn is that any institution that is deemed too big to be allowed to fail will forever be prey to reckless risk-taking. If banks cannot fail, they cannot effectively be regulated, because regulation requires the eradication, not reward, of recklessness.
I appreciate that, in the current economic situation, in relation not so much to banks, but to depositors, it is difficult for us simply to stand aside. However, the operation of capitalism requires corporate failure. It is not “market failure”, as it has been articulated by many in the governing circles; it is a sign that capitalism is working properly and efficiently. The message that banks will not be allowed to fail serves only to make their effective regulation all but impossible, because regulation creates tremendous barriers to entry and therefore advantages larger corporations over smaller start-ups. The wisest policy option is to create smaller, more competitive financial institutions, and I fear that nationalisation, of which we may see more, leads us in precisely the wrong policy direction. The best form of regulation must always be open competition, and public ownership is anathema to that policy goal.
I shall come on to that point in a moment. One of the great mistakes that the US made a decade ago was to break down the Glass-Steagall distinction between investment and depositor banks. We must protect depositors’ interests, but the core problem with the nationalisation of our banks is that bondholders’ interests are now also preserved—at the expense of taxpayers, both present and future.
My right hon. Friend for Hitchin and Harpenden touched on quantitative easing. I suspect that the current consensus that favours it will find less favour as this year wears on. With little evidence that the velocity of money within the economy is any less sluggish as the real recession takes hold, printing money in vast quantities increasingly seems like a last throw of the governmental dice when relatively little else has succeeded. My right hon. Friend is quite right that inflation is clearly not an imminent problem, but the unprecedented pumping of money into the system is certain to be inflationary as time goes on. History suggests that an unsustainable mini-boom may well be on the cards by the first half of next year, but I fear that stagflation—a toxic mix of inflation, rapidly rising unemployment and low growth or diminished competitiveness—will follow. Indeed, the commodities and futures markets already factor it in when pricing for the early years of the next decade. I suspect that the Government will not have seen the last of their recent problems with trying to sell gilts, either. In the City, there is a lot of evidence that many banks now hold vast sums of cash and are ready to reinvest in the market, courtesy of the Bank of England’s policy of promoting liquidity.
I accept that now that we live in a globalised economy, this crisis is certainly different in magnitude from any that we have ever seen. One of the grand old names of British banking, Barings, collapsed owing what seems like a minuscule amount, £780 million, only 14 years ago. Today, the Royal Bank of Scotland survives courtesy only of a £26 billion bail-out. However, we can learn lessons from the past. As I mentioned earlier, we need to restore the distinction between retail and investment banking which, in the US at least, existed for more than six decades until the Clinton Administration repealed the Glass-Steagall Act in 1999. At that juncture, it was regarded as outdated 1930’s throwback legislation, but its purpose was to protect the ordinary depositor from high-risk, if innovative, banking practices. That protection now seems mighty apposite.
How then do we deal with the toxic assets that banks still hold and find so difficult to quantify? Curiously enough, the UK has a pretty good template close at hand. The near collapse of Lloyd’s of London in the insurance market, which has developed great strength in recent years, was avoided almost two decades ago by the creation of the Government-backed Equitas fund. That experience should be the starting point for the consideration of any further large-scale Government- backed rescue expenditure. In fairness to the Government, they have begun down such a path, but we should be fearful of the likely overall cost to the taxpayer.
The nagging sense of insecurity that the spoils of globalisation are being spread inequitably will continue to grow among the majority of the UK work force, and it has the makings of serious social unrest. I echo the words of my hon. Friend the Member for Macclesfield, because the hollowing-out of large swathes of “traditional” UK industry, particularly manufacturing, as employment has been exported to low-cost China and India, has not been accompanied by higher, middle-class and middle-income professional earnings, at least for those outside the gilded world of financial and associated services.
During the past decade, the mirage of higher living standards was maintained only by the credit-fuelled residential property market. The sharp correction of that market has exposed the reality that, in recent times, international free-trade has done little to enrich, personally, at least, the majority of our fellow countrymen. It is dawning on many middle-income folk that the losers from the free movement of labour and capital are not simply the unskilled who are forced to compete with ever large numbers of immigrant workers; it is increasingly apparent that the generation that is about to join the work force will probably be less well off than their parents, not least because they will have to foot the bill for the economic unravelling that became so apparent last September. That phenomenon is almost unimaginable outside times of war and a shocking indictment for today’s generation of politicians.
On the political difficulties ahead, there is little doubt that, whichever political party wins the next election, tough and unpalatable decisions will have to be made on public spending. Even if the Government’s own—almost certainly wildly optimistic—figures on public spending come to pass, during 2009 they will raise only £3 for every £4 that they spend.
I agree with my right hon. Friend the Member for Hitchin and Harpenden that we must come to terms in double-quick time with the fact that, arguably, entire areas of central and local government activity should no longer qualify for public funding. The overall state of the public finances suggests the necessity for further scrutiny, even in areas such as education, health and defence, which in more economically clement times my party pledged to ring-fence. The issue of defence, of course, will be discussed in the forthcoming debate. Although there has been a marked improvement in school and hospital infrastructure in the past decade, much of it has been financed, off balance sheet, by the private finance initiative. It will need to be paid for in the years to come.
I appreciate that the hon. Member for Northampton, North (Ms Keeble), having arrived slightly late, wants to say a few words, so I shall bring my comments to an end. In the past decade or so, we have lived to a large extent in the best of economic times; now, however, we have a big price to pay—and a much tougher era awaits.
I thank the hon. Member for Cities of London and Westminster (Mr. Field) for cutting short what was obviously a much longer speech; we saw him paging through it at the end.
I should like to pick up a few points and make a few remarks to the Government on how to move forward. Despite the need for caution and care, and despite the caveats and risks involved in what the Government are doing, the Government’s approach to dealing with the crisis is absolutely right and it has already spared a great many of my constituents a great deal of hardship. Without the Government’s strategy, I am sure that many more of them would have lost their homes, or been at risk of that happening, and that many more would have found that that they did not have jobs either. Despite the difficulty of managing such a profound recession, I think that we will see the benefits of the Government’s approach.
It would be extremely nice to be able to discuss the comments made by the right hon. Member for Hitchin and Harpenden (Mr. Lilley) and the hon. Member for Cities of London and Westminster, but there is no time for that. I will, however, pick up on a couple of points. First, it is completely wrong to say that the quantitative easing is anything like the printing of money in Zimbabwe. The asset purchase facility, coming on top of the asset protection scheme, has been well designed to deal with the toxic assets and get money flowing in the private sector. It has been absolutely the right approach.
If the right hon. Member for Hitchin and Harpenden is to lend money to the hon. Member for Cities of London and Westminster, I hope that he will conduct an honest assessment of the risks involved with that character, that he does due diligence and that he gets some proper security, because what caused the banking crisis were improper risk management, lack of due diligence and lack of proper security for the assets.
The Minister is not going to respond, but I will make three points to him. First, will he please make sure that there is a report on the results of bank lending to business? Like other colleagues, I think that the situation has not been as we would like and everybody wants such a report. Secondly, will he also make sure that his Department does real work with the Department for Communities and Local Government so that public spending on housing goes to local private contractors and so that local councils can manage things properly and support their local industries? Thirdly, will he make sure that the Government take into account the impact of their spending and efficiency reviews on the wider economy, so that—
One and a half hours having elapsed since the commencement of proceedings, the motion lapsed (Standing Order No. 24A).