My Lords, with the leave of the House, I shall repeat a Statement made by my right honourable friend the Prime Minister entitled, “World Leaders Summit: Financial Markets and the World Economy”.
“First, Mr Speaker, I am sure that the whole House will join me in sending our profound condolences to the family and friends of the three servicemen killed in Afghanistan in the past week. They were Marines Neil Dunstan and Robert McKibben from the UK Landing Force Command Support Group, and Colour Sergeant Dura of 2 Battalion of the Royal Gurkha Rifles. We owe them and all those who have lost their lives in conflict a huge debt of gratitude.
“With permission, I should like to make a Statement on the Washington Summit on Financial Markets and the World Economy—the first ever G20 leaders summit—which I attended this weekend with my right honourable friend the Chancellor.
“In just over six months, the world has seen a 40 per cent collapse in global share values; global financial institutions write off losses approaching $1,000 billion; world oil prices peaking at nearly $150 dollars a barrel and then sinking 60 per cent; and a fall in global expectations for growth in the world’s industrialised countries from 2.5 per cent in 2007 to below zero, with all the impact on families and businesses with worries about mortgages, jobs and family security in Britain and around the world. What has made this a fully worldwide crisis is that in recent weeks a problem that started in America has extended to emerging markets and developing countries, some of which are facing bankruptcy.
“These unprecedented global events call for unprecedented global action. While the economic problems of the 1970s created the G5 and then the G7, it is right that for the first time leaders from developed, emerging and developing economies, which are responsible for 85 per cent of global GDP, met and agreed on the urgency of common and concerted, and, where appropriate, co-ordinated actions to address the financial and economic crisis.
“To put the long-term challenge in context in the next 20 years it is expected the world economy will double in size, which will mean a doubling of opportunities for British business and new opportunities for British workers and families. But to make the transition to, and secure the benefits of, an open and inclusive globalisation, we have to deal with three other consequences that it brings: the need for restructuring of industries and services to reflect the new global division of labour, not least resulting from the rise of Asia; increased competition for resources as long-term demand for oil, food and commodities from the newly emerging economies threatens to outstrip supply; and, now that we have global flows of capital, the need to ensure a global framework for financial services as a precondition of prosperity and security, as epitomised by the sub-prime crisis that started in America. At the root of the banking crisis was a failure by banks to manage risk, understand increasingly complex and opaque financial products and to make transparent a developing shadow banking system.
“In Washington we agreed, first, on fundamental reform of how the financial system is supervised around the principles that Britain has been promoting—of transparency and accountability, responsibility, better banking practice, integrity and international co-operation, including establishing international colleges of regulators; bringing transparency to tax havens by including them within the scope of the financial system; convergence of accounting standards; reviewing executive compensation schemes that encourage excessive and irresponsible risk-taking; disclosure of toxic assets; and reform of credit-rating agencies.
“We set a clear timetable, tasking our Finance Ministers to prepare immediate measures for implementation by 31 March and to report back on progress with the full action plan at the next meeting. The summit also agreed that recapitalising the banks was the right course of action. The action taken in the UK to buy shares in banks has now been followed on every continent, and guarantees have been introduced to allow banks to raise the money needed to continue to support the real economy, as they must, through lending to businesses and families.
“Secondly, we agreed that, against a background of deteriorating economic conditions worldwide, a broader policy response was needed immediately, based on closer macroeconomic co-operation. Importantly, we made clear that within our commitment to fiscal sustainability this broad and international policy response needed to encompass both monetary and fiscal policy action.
“While it is for independent central banks to make their own decisions, we recognised the importance of monetary policy to the restoration of growth. While some have contended that it was impossible to cut interest rates in Britain because of the fiscal position, in fact the Bank has now, in two successive months, made two cuts worth 2 per cent in total, and the governor has stated clearly that there is scope for further action. A measure of the level of international co-operation that has already resulted is the extensive currency swaps put in place between central banks and the co-ordinated cut in interest rates across Europe, Asia and America a few weeks ago.
“On fiscal policy, crucially, and for the first time, our Washington statement agreed a broad and concerted international macroeconomic policy response: first, that fiscal policy has an essential role to play alongside monetary policy in sustaining demand, with quick-acting measures to encourage a rapid impact with help for households and businesses; and, secondly, that the benefits of fiscal policy action will be greater for each country if all countries act in a concerted way.
“This imperative is international. In recent days, China, South Korea, Australia and Germany have joined other European countries, including Spain and France, in considering new fiscal stimulus packages. The European Union has already said that flexibility in the stability and growth pact to recognise exceptional and temporary conditions will be used, and President-elect Obama has already stated that a new fiscal stimulus package in the US is both necessary and urgent. Most previously published forecasts assumed the absence of co-ordinated fiscal action, but the downturn can be shorter and less deep if Britain takes action and if that action is matched elsewhere.
“It is of course for individual countries to make their own announcements, as we will in due course. The more co-ordinated the action, the greater the benefit to each country will be. However, I believe that the emerging consensus across the world, from the IMF itself, from Governments of left and right and in developed and developing countries, is that we should take rapid, co-ordinated and concerted action through the use of budgetary measures.
“Over the past year, the central problem facing the global and the UK economies was inflation, driven by a sharp rise in international commodity prices, allied to a credit crunch, which left fewer options for Governments. This year, the reality is sharp falls in commodity prices while the credit crunch is leading to contractions in bank lending and in consumer demand. The risk in this new environment is not now stagflation but rather the impact of close-to-zero inflation. It makes sense for the Government to support interest rate cuts with fiscal action. I believe that, in addition to the announcements already made, in the next few weeks we will see many countries following with expansionary measures founded on this agreed international position.
“The third central message of the summit is that in taking action we must resist all forms of protectionism. These threaten to slow down and eventually stall world trade and thus deny us the benefits of one of the great engines of new growth. So, uniquely, all nations signed an agreement that over the next 12 months they will resist pressure and refrain from raising new barriers to investment or trade.
“The key to confidence in open trade is of course the signing of the Doha world trade agreement, on which talks have stalled since the summer. We cannot allow this impasse to continue. I welcome today’s new agreement, following Saturday’s summit, to work towards a ministerial meeting in December. To ensure that the trade round truly is a development round that benefits the poorest countries, it will be accompanied by an agreed $4 billion aid-for-trade programme to invest in the infrastructure of developing countries. In discussing issues facing poorer countries, the summit reaffirmed the importance of meeting the millennium development goals and, even amid the necessity of dealing with the financial crisis, the importance of applying the same common purpose to the challenge of meeting these goals. Some have argued that as long as the trade talks remain deadlocked on specific issues no deal can be agreed, but the G20 was explicit about the action that we have to take. For the first time, we have instructed our Trade Ministers to agree, by the end of the year, the outlines needed for a successful conclusion to the Doha round.
“Finally, the G20 leaders have also agreed that the next summit will allow us to review and to make decisions on the wholesale reform of the international economic architecture, built in 1945 but no longer adequate for the challenges of 2008. In agreeing the need to reform our international financial institutions to meet the challenges of the global age, we also set down agreed changes that we believe are essential to effective reform, including a greater voice and representation for the emerging and developing countries; an urgent expansion, with a broader membership, of the financial stability forum; and better identification of vulnerabilities and anticipation of potential stresses, with swifter action in crisis response—all to be delivered by the expanded financial stability forum in collaboration with the IMF.
“The IMF's ability to assist countries facing problems as a result of the current liquidity shock and the contraction of international capital flows depends on its reserves of £250 billion. We welcomed the announcement from Japan to lend up to $100 billion dollars from its reserves as an interim measure, but that may not be enough. We agreed to review the IMF’s facilities to ensure that it has the flexibility to give countries the help they need. The World Bank agreed that it will make new commitments of up to $100 billion over the next three years to protect the poorest and most vulnerable countries, as well as $30 billion of new facilities with contributions from other donors, specifically to help address problems faced by the private sector as a result of the crisis, including recapitalising banks and providing trade finance.
“At this unique moment in our economic history, we are seeing the world come together to find global solutions for the global problems we face. Over the next few weeks, following consultation, Britain, as the incoming chair of the G20 Finance Ministers, will lead the preparations for the next summit working alongside the past and future chairs. We will set out the schedule of events, meetings and papers that will take us to the next conference, the date and venue of which will be announced next week.
“In the run-up to the conference, we will monitor, following the recapitalisation of the banking system, barriers to the resumption of funding, for this summit and the meetings that will follow are about the real challenges of everyday life: the need for people to have confidence in the banks that hold their savings and their mortgages and that everything possible is being done to help them in their jobs. We pledge, with national and international action, real help in difficult times. We will take people through the downturn fairly, and I commend this Statement to the House.”
My Lords, that concludes the Statement.
My Lords, I thank the noble Baroness the Leader of the House for repeating the Statement. I join her in the Prime Minister’s tribute to the family and friends of those servicemen killed in Afghanistan in the past week.
All too frequently, we now seem to gather to hear Statements about the disastrous consequences of the most imprudent government-stoked boom this country has ever seen. Since the previous Statement made by the noble Baroness on 20 October, sterling has fallen by 11.4 per cent against the euro and, in the past three months, by 30 per cent against the dollar. More families have had their homes repossessed. Savers have seen their incomes slashed and another 36,000 proud people were forced to sign on for the dole. Only this morning, the CBI forecast a deeper recession and warned that another 1 million people may lose their jobs over the next year. Will the noble Baroness therefore begin her response by apologising to those workers who are now being caught up in the bust that has followed the boom that the Prime Minister engineered?
We hear a lot about the Prime Minister as the saviour of the world. We have had the boasts; is it not now time for the apology to the jobless and the homeless who are suffering as a result of these policies? The IMF says that the British economy will shrink faster than any major economy in the world. Even the European Commission puts our economic prospects in the fourth division with Latvia and Estonia. Can the noble Baroness tell the House—I ask for an explicit answer—whether any responsibility for this recession lies with the Government? Is that a significant amount or nothing at all, or was this recession pit dug entirely abroad?
Before the G20 summit, the spinners in the Government were saying that countries with budget surpluses, such as Saudi Arabia, would put more funds into the IMF. Those in this House with a long memory will know that Labour Governments with deficits know a lot about the IMF. Therefore, can the noble Baroness tell the House what commitments were given by other G20 nations in Washington to provide additional funding to the IMF and other international financial institutions? What is the Government’s latest estimate for the deficit in trade in goods in 2008? Can she confirm that in 2007 it was £89 billion in what was once a proud manufacturing nation? Against this background, does she think that the unprecedented devaluation in sterling we have seen is a benefit or a problem?
At the G20 meeting, there was talk of better regulation of financial services. Judging by what has happened in Britain, they could scarcely be worse regulated than in the system put in place by the Prime Minister in 1997. Will there be another apology for that? Will the noble Baroness acknowledge the immense importance of financial services to our country? Surpluses and services have offset half the UK’s deficit in goods. While collegiate co-operation is welcome, will she give a clearer assurance that the UK Government will not accept the imposition of external regulation that may strangle the success of the City of London, which is so vital to our national well-being?
I greatly welcome the renewed commitment to the completion of the Doha round. Nothing would do more damage than renewed protectionism. Can the noble Baroness give the House the Government’s latest assessment of the intentions of President-elect Obama on this? Is it not essential that we impress on him how damaging US-first protectionism would be at this juncture? How is this message being transmitted?
We will no doubt discuss a fiscal stimulus at length in the debate on the Pre-Budget Statement that we have been promised. This Prime Minister has taken more money from the British people in taxation than any Chancellor in history. There is general agreement that tax cuts are necessary: the issue is how they should be paid for. We have put forward some carefully funded proposals. We submit that there is waste and space enough in the public sector to provide room for greater efficiencies. The public sector cannot ignore the need to tighten its belt when families and businesses face these pressures day by day. Is it not clear, therefore, that more borrowing now, without knowing where the money is coming from, will inevitably lead to higher taxes later? That is what the Business Secretary admitted this morning when he talked about a medium-term adjustment some years ahead and a structural adjustment later on. Translated from the original Greek, that means tax cuts now, tax rises later. There is not a single family in the country that does not understand that what you borrow now you have to repay. Borrowing has its place, but it is like a drug; if you take too much for too long, it can kill you. So far this year, we have borrowed £100 each month for every man, woman and child in the country. In the Government’s view, is there any ceiling to the current growth in borrowing, including commitments to the nationalised banks, PFI and public sector pensions?
The Business Secretary spoke of a “medium-term adjustment”. What can this mean—higher taxes, spending cuts, printing money and higher inflation? What, my Lords, and when? The Government led us into this, not with the G20 but on their own. They now have a duty to chart the course that will lead us out. I hope that when the noble Baroness responds, she will give us an assurance that she will ask her right honourable friend the Chancellor to set out a clear strategy for repayment of the debt now being undertaken in the Pre-Budget Report next week.
In his Statement, the Prime Minister calls this a,
“unique moment in our economic history”.
I call it the mother of all economic crises. Let its father now accept some share of blame for the mess that he has made.
My Lords, we on these Benches join in sending condolences to the families of the three people killed in Afghanistan.
We all recognise that we are in a severe and serious economic crisis that has its roots in the global economy, starting in the United States and spreading across many other countries. In these circumstances, it behoves us to be hesitant about being over-partisan. I followed the noble Lord, Lord Strathclyde, with puzzlement. He implied that the Conservatives would have been far less committed to free markets and financial capitalism than the Labour Government have been; that they would have wanted to regulate the City more tightly; but that they are resistant to any idea that foreigners should regulate the City more tightly. On the contrary, we on these Benches recognise that, in an international crisis, we need the stronger international co-operation that goes with an open global economy. It has always been a core Liberal principle. We believe in free trade, open markets, and the international institutions and international co-operation that go with them. However, some of us are hesitant about the ambition of our current Prime Minister to undertake, as he said in his Statement,
“the wholesale reform of the international economic architecture built in 1945”.
That is a very ambitious and long-term goal. We on these Benches encourage the Government not to raise too high expectations of what is achievable in any group, whether it be eight, 20, 150 or, even worse, 192 or more.
How do the British Government see the adjustment to the rise of these new economies? Is the G8 now dead? Do we expect the G8 to continue meeting under the Italian presidency next year, welcoming the “deeply tanned” new President of the United States? Or do we expect the G8 now to go into a state of suspension? There is reference to,
“a greater voice and representation for the emerging and developing countries”.
The Financial Times today notes that this means that we have to recognise the over-representation of European states. It comments that the United Kingdom could give a lead in suggesting that we reduce the representation of European states. Do the Government have a view on the sort of lead that the United Kingdom might take?
I follow the noble Lord, Lord Strathclyde, in asking about the contributions that the rising economies are willing to make. The Saudis appear not to have agreed to contribute to the IMF; nor have the Gulf states with their substantial sovereign wealth funds; nor has China with its massive reserves. It would be more useful if they now recognised that with growing representation come growing responsibilities.
There is surprisingly little in the Statement about the contribution that the promotion of global development could make to getting us out of the recession. Kofi Annan had a very good article in the New York Times yesterday on maintaining the commitment to global development.
As to immediate measures, we welcome concerted fiscal and monetary measures. It seems to Liberal Democrats correct that Britain should focus on short-term tax cuts and longer-term investment in infrastructure. I note with interest that the Conservative Front Bench appears to be against countercyclical fiscal policy—a sort of pre-Keynesian approach to the way in which we should manage things.
We note the European framework for better regulation, in which the United Kingdom has led, and for greater transparency, but we are still a little puzzled about how global supervisory colleges of regulators will work. We note with interest stronger measures on tax havens, on which I shall be brief, since I have a Question on this tomorrow. Half of the world’s major offshore financial centres are under UK sovereignty. We are puzzled to know exactly how we will tackle excessive executive compensation schemes, or within what domestic or international framework the Government anticipate that some change in domestic law will be needed. We welcome the Government’s statement on the importance of finishing the Doha round, and we encourage the Government, with their European partners, to push ahead as far as they can on that.
Lastly, we welcome that the United Kingdom will be the chair of the G20 next year, and we hope that they will manage to strike the right balance between constructive leadership and an assertion that we were right and that we are leading the world. We need co-operative leadership for the present moment and not a hint of self-righteousness.
My Lords, these are difficult times in this country, but they are difficult times in the rest of the world. That is absolutely clear from the meeting that took place at the weekend in Washington. Of course, these are most difficult times for those individuals who have lost their jobs. This makes it unbearable for some families, and it makes it very difficult for the economy. That is why we as a Government are doing absolutely everything that we possibly can to retain jobs by boosting the economy and to assist those who become unemployed.
The noble Lord, Lord Strathclyde, asked whether I would apologise for the recession. It is clear from what was said at the meeting at the weekend that the world got it wrong and, if the noble Lord reads the communiqué and not just the Statement, he will see that the world has said that the world got it wrong and that we, the world, must do what we can to make things right.
The noble Lord asked about the estimate for the forthcoming trade deficit. I do not have figures, but it is clear that the current devaluation of sterling will boost exports and that will eventually be good for business. No, the UK will not accept external regulation that will strangle the City of London because, like the noble Lord, we recognise the importance of this jewel in our crown. In relation to protectionism and the USA, the US Administration were clear at the meeting that they were in constant touch with the transition team of the President-elect. I am hopeful—indeed, I am confident—that President-elect Obama will not resort to protectionism.
The noble Lord mentioned the carefully funded proposals of his party. One could interpret that as meaning no new money, at a time when the people of this country, the economy and the businesses of this country need more money so that we can kick-start the economy. Of course, the borrowing that we must do has to be sustainable, which is exactly what my right honourable friend the Chancellor will make clear in his Pre-Budget Report; he will say how he is going to make that borrowing sustainable. I reflect on the point that, at this time, the noble Lord and his party are not looking at finding any new spending, or new tax cuts, or at pouring money into the economy, whereas the leadership of the world at the G20 agreed that what was wanted now was precisely a fiscal stimulus.
The noble Lord, Lord Wallace, briefly mentioned partisanship. I, too, believe that this is no time for partisan politics and I am delighted that there is not a partisan approach in the world. As mentioned in the Statement, Governments throughout the world—left, right, north and south—all agree on the way forward. That is important. The noble Lord also asked about the wholesale reform of institutions. The Prime Minister is trying to keep up the pressure so that the necessary reforms take place. Without that impetus, we may not see the necessary reforms.
The noble Lord asked whether the G8 is dead. I do not think so, but at the moment we need the G20 more. That is why the meeting took place at the weekend and why there will be another very welcome meeting in April. Will there be a reduction in EU states in the G20? I do not think so; we will have to wait and see. The important thing is to have the right people around the table. The G20 has the right people around the table with five representatives from the Americas and five from the European Union, so it could be said to be balanced.
Development issues were covered by the communiqué and all leaders were conscious of the need not to forget such issues at this difficult time. On better regulation, greater transparency and how the colleges will work, we will have to wait to see how they work in practice. As I understand it, for every financial institution a college of regulators will be drawn from all the regulators in the most important economies in which those institutions work to ensure that there is proper regulation. On excessive bonuses, we do not want beggar-my-neighbour remuneration. We want to ensure that it is agreed around the world that excessive bonuses are anathema and that people are paid the proper rate for the job.
I am grateful for the comments made by noble Lords.
My Lords, if this meeting was as important as the Prime Minister has made out, how is it that the New York Times did not report it in its main section? The meeting only made page 3 of the business supplement, which is usually the territory of small earthquakes in Chile. In the absence of the new Administration, it was like inviting us to watch “Hamlet” without the Prince. Is the Minister aware that the biggest problem facing our country is the rise in unemployment, and as fiscal stimulus is now the fashion, could she ask the Chancellor to set out how many jobs are likely to be created by a tax cut of £5 billion, £10 billion or £15 billion? If that sort of money does not create jobs, it is perhaps not the right policy. That issue has to be addressed by the Government.
My Lords, I am sorry that the people of New York were not able to read in the New York Times of the success of the G20 meeting in Washington. That is their loss, not ours. The important thing to remember about this summit, notwithstanding the fact that President-elect Obama was understandably not present, is that if we had not started the G20 talks until the end of January with the new Administration, we would be two or three months behind where we are now. Twenty leaders, heads of state and government, have agreed on 50 action points. They have a route map so they know where they want to get to. As soon as President-elect Obama becomes President, they know where to begin their discussions with him rather that just his transition team.
Is the biggest problem unemployment? It clearly is one of the biggest problems. It is interesting to note that while in this country we are losing jobs, which is regrettable, other jobs are being created. I believe that there are just fewer than 600,000 job vacancies on the books at the moment. I may have to reflect on that figure and come back to the noble Lord, but there are many vacancies, although, regrettably, people are still losing their jobs. We shall do everything that we can to ensure that more jobs are created.
My Lords, it is intriguing to students of political etymology to hear the interpretation of the noble Lord, Lord Strathclyde, of “bipartisanship”, which the leader of the Conservative Party said would characterise his party's approach to the current global crisis. It was equally instructive to hear the noble Lord, Lord Baker—a veteran of Conservative Cabinets which included a Chancellor who said that higher unemployment was a price worth paying—give us the benefit of his concerns, rightly placed, at the prospect, indeed the reality, of rising unemployment.
Is it not encouraging to every family and business that the words and purposes characterising the conclusions of the G20 meeting in Washington were that fiscal stimulus to combat recession should be big, rapid, co-ordinated and co-operative, and supported by buttressing reforms to be fulfilled by next March? Is it not fortunate that the declaration that fast, stimulative fiscal action would bring the collapse of the pound was widely seen to be the desperate, irresponsible exhibitionism which, in truth, it was, derided by mature business and market opinion? Finally, is it not commendable that the energetic and intelligent leadership given by the British Prime Minister and Chancellor of the Exchequer is resulting in combined global efforts which have both the realism and the radicalism that current crisis conditions make vital?
My Lords, does my noble friend accept that the great importance of the meeting is that it begins the long-overdue reform of the intergovernmental organisation, which was highly successful in 1944-45? It is immensely important for that process to begin now. Does she also accept that we welcome bringing tax havens into more public scrutiny? That is also long overdue. Finally, I suggest, in passing, that she does not worry too much about the comments of the noble Lord, Lord Strathclyde. Throughout the past 50 years, the Conservative Party has been remarkably consistent in talking Britain down when in opposition and in taking Britain down when in government.
My Lords, the point made by my noble friend about the reform of international institutions is absolutely right and very important. However, it is interesting to note that my right honourable friend the Prime Minister has been arguing for the reform of those institutions for the past eight or nine years. He is the one to whom we should be listening at this time.
My Lords, my noble friend said that the G8 is not dead, but is it not significant that, at a time of such crisis, it is not the G8 but the G20 which is convened? Given the fact that any Prime Ministers and leaders of Governments have only a limited time, should we not now gently put the G8 to rest? To most of us, it is clear that the Prime Minister and the Chancellor took a lead in that, as on the recapitalisation. A cursory glance of the international press shows the esteem in which the leadership of the Prime Minister is held. By contrast, the utterances of the Shadow Chancellor have the gravitas of a rather young and immature student leader. In the crisis, Denmark has had to rethink its attitude towards entering the euro. Is it my noble friend’s judgment and that of the Government that the current crisis leads to some rethinking, some retilting of the balance of argument in respect of the United Kingdom and the euro?
My Lords, it would not be appropriate for me, at this Dispatch Box, to sound the death-knell of the G8. We shall just have to watch that space. It is absolutely clear that the G20 is the important body. At this time, it is the body which is most responsive to the needs of the 21st century. On the euro, at a time of such global economic turbulence it is even more important that the former Chancellor’s five economic tests are met.
My Lords, we have a serious global economic and financial problem. It is all the more serious that the noble Lord, Lord Strathclyde, could not find a single positive alternative. A fiscal stimulus is essential. That means an increase in borrowing. I do not know what serious alternative is being suggested. It certainly did not come from the noble Lord, Lord Strathclyde.
My concern is that it would be wrong if the fiscal stimulus were to result in increasing capital expenditure. I hope my noble friend would agree with this. It requires urgent and immediate capital investment, and I hope she can confirm that that is what the Government have in mind.
On regulation, one of the major reasons we have the banking problem today is a factor that did not apply in Keynes’s day or any other day I can think of; namely, the derivatives used by bankers, who used to be intelligent people. They have been spending money as if it did not matter at all. Not only that, they did not know what they were spending it on.
Who is going to put in place the new regulation that all sides want? Are we going to use ex-bankers? Perhaps my noble friend could tell us or give us some idea what kind of regulation the Government have in mind. This will be important if we are to get over these serious banking as well as economic and financial problems.
On monetary policy, the Prime Minister made it clear that he wants to see lower interest rates. In the past, the Governor of the Bank of England, who has the responsibility here, has been a little cautious, to put it mildly, in coming forward with interest rate cuts when he should have done. Is my noble friend really saying that, if the governor were to revert to his previous cautious position and not cut interest rates further, the Government would not use the reserve powers available to them in the Bill that set up the responsibility of the Bank of England? It would be a terrible situation if we left the Bank of England to act without any government responsibility.
My Lords, on fiscal stimulus and the increase of capital expenditure, I will leave these issues for the Statement on the PBR, which will be made by my right honourable friend the Chancellor of the Exchequer on Monday. I am sure, however, that he is well aware of the points made by my noble friend.
On derivatives, I agree with my noble friend that this is one of the key issues that need better regulation. We have to ensure that these are regulated and that it is a proper, transparent market. I am not, however, the best person to address this today and I will write to my noble friend on this.
On interest rates, which are now at 3 per cent, the lowest since 1954, the Bank of England is doing what it can. I am sure that it will continue to watch the economic situation and take appropriate action at the appropriate time. The Governor of the Bank of England has said that, if and when necessary, he will reduce interest rates.
My Lords, 10 years ago after the Asian financial crisis, the then Chancellor and now Prime Minister returned from a meeting of the G7 indicating that what was needed was an expansion of the Financial Stability Forum, the introduction of international financial standards and codes, greater transparency, early warning systems for the International Monetary Fund, and a more central role for the G20 because the G7 was somehow insufficient to deal with problems of this nature. Is that not exactly what is being proposed, 10 years later, and is not one of the problems that this action should have been taken then? The system might have been in better shape to withstand the storms that have now come.
My Lords, the noble Lord is right that my right honourable friend the Prime Minister was arguing 10 years ago for these reforms, and I think he will find that at every subsequent meeting he has been arguing for them. However, it is only now with the global crisis that other world leaders see that these reforms are absolutely necessary. They have all signed up to ensuring the reform of these global systems to meet the needs of the 21st century.
My Lords, does the Leader of the House think that the issue of derivatives raised by the noble Lord, Lord Barnett, will be solved by regulation or by the fact that the markets are now and certainly in the future will be much more aware of the problems associated with such instruments? Will that not in itself police them to a far greater extent than has been the case until now, and far more than could be achieved through regulation by former bankers or by anyone else, because they will be extremely difficult to regulate? Further, will the other countries which are apparently imitating us also lend to their banks at 12 per cent and expect those banks to lend on to their customers at rates regulated at close to 3 per cent?
My Lords, it was made clear at the weekend that, while there must be concerted and, where appropriate, co-ordinated action, each country must do whatever is deemed necessary for itself. I am sure that each country will look at these problems through its own spectacles, as it were. On the matter of derivatives, I am sure that the noble Lord is right to say that peer pressure will have an effect on that market, but it is also clear that some regulatory pressure needs to be applied. I would guess that the proposed international college of regulators will have something to do with policing the derivatives market.
My Lords, will my noble friend join me in congratulating my right honourable friends the Prime Minister and the Chancellor of the Exchequer on the continuing leadership and judgment they have shown throughout this evolving crisis? In particular, will she join me in welcoming the really tangible proof of the action that has been taken in the significant drop in the sterling LIBOR rate since 10 October and in the improving liquidity that we see week on week in the sterling bond markets? As I say, this is tangible proof that the action the Government are taking is working; that action has been noted not only by the Wall Street Journal but, I believe, even in comments in the New York Times.
My Lords, I join my noble friend in her congratulations, and in noting the effect of the Government’s policies. The effect on LIBOR rates and liquidity might be slower than we would wish, but these two things are essential if we are to regain necessary confidence in our banking system so that banks can lend to individuals and to business.
My Lords, some people need to save, but there are many people who need to spend. At this point, it is good when people put money into the economy. However, it is especially so when business puts money into the economy. We want businesses to invest in the economy so that they create jobs.
My Lords, I have been travelling fairly extensively in the Middle East over the past five weeks or so, and in that time I have consistently heard, not only from political leaders but from a wide range of business people, about the admiration they have for the leadership offered by my right honourable friend the Prime Minister. Noble Lords opposite may not like that but it happens to be true. Does my noble friend think that the statement that came out of the G20 summit not only demonstrates the Prime Minister’s prescience 10 years ago but his consistency in advocating something that is now recognised as being in the world’s interest?
My Lords, speaking from the Independent Labour corner, we must remember that the present problems have arisen because of profligacy in public and private expenditure. People have been offered 125 per cent of the value of their property and private consumption has exceeded the gross domestic product, and that has to be paid for some time. We have to take that into account.
I was rather impressed by the remark in the Statement that the world economy will double in size over the next 20 years. The next business is the Climate Change Bill. I am not much in favour of it, but we are not going to be able to meet its targets if we are going to double the standard of living of everyone in the world over the next 20 years. I hope that the Government realise that if that is to be so, we will not have the resources to meet the demand and we will be pushing a lot more CO2 into the air. Will the Minister comment on the hiatus between the Government’s policies?
My Lords, profligacy and greed might be at the root of some of our problems, but so are excessive risk-taking in too many financial institutions, inconsistent and insufficiently co-ordinated macroeconomic policies and inadequate structural reforms. The leaders of the G20 agreed that those issues were the root causes of the problems. There is a lot of potential for green jobs and for improving the quality of life when we adapt our economies and our societies to climate change. I understand what the noble Lord is saying, but I do not share his concerns. I am sure that we as a world society will be able to adapt to climate change to the benefit of all of our societies.