On a point of order, Mr. Speaker. While I accept that we are all fallible in terms of the potential to leave on our mobile phones, may I recommend to the House a scheme in operation at Leeds city council, whereby the lord mayor of Leeds fines a council member when his or her phone rings? May I suggest that you, Mr. Speaker, consider a suitable charity and introduce a similar scheme in this House?

I have no powers to fine hon. Gentlemen—or hon. Ladies, for that matter.

I inform the House that, in both debates, I have selected the amendments in the name of the Prime Minister.

I beg to move,

That this House is concerned at the increasing difficulties caused by the current economic crisis to many British citizens in maintaining their homes, paying their bills and providing for themselves and their families; believes that these problems originated not just in the global financial system but in unsustainable levels of personal borrowing and house prices which were overlooked by Government policy; is alarmed at the steep rise in mortgage arrears and repossession orders; regrets that, despite receiving £500 billion of taxpayers’ money, the banking industry has failed to respond adequately to the needs of its customers or modify sufficiently its behaviour in respect of mortgage interest rates, new lending to struggling small businesses and its bonus culture; notes that the Bank of England has implemented the 2 per cent. cut in interest rates which the Liberal Democrats called for and urges it to make further cuts if the economy deteriorates further; and calls on the Government to introduce an immediate substantial cut in income tax to benefit low income and standard rate taxpayers, paid for by wealthy individuals who profited disproportionately from the economic boom and who do not pay their fair share of tax.

Having checked that I have switched off my mobile phone, it is a pleasure to introduce an Opposition day motion that stands in my name and in those of my colleagues. Our purpose in bringing it to the House is to give Members an opportunity to review the rapidly deteriorating economic situation and to air some ideas and options about how it might be dealt with in the run-up to the pre-Budget report.

We have noticed a pattern developing in the past few weeks whereby we come up with ideas and, whether they are on housing repossessions, interest rates or tax cuts, within a few days or even weeks, they are rapidly followed by the Conservatives, the Government, or both. We might almost say that the road to Damascus is becoming severely congested as they queue up to adopt our policies in different respects. Unfortunately, some Government Front Benchers do not convert quickly enough, and as a result, they leave themselves feeling somewhat embarrassed.

I am glad that the Exchequer Secretary has been brave enough to come back to the House after the previous such Opposition day debate, because she may already realise that her comments on that occasion have become the stuff of radio and television comedy shows. I shall quote one of her more memorable observations during that debate:

“The Liberal Democrat motion has been much commented on, possibly because it reads like the storyboard for “Apocalypse Now”, or perhaps even “Bleak House”. According to the motion, we are facing…the ‘risk of recession’…Fortunately for all of us, however, that colourful and lurid fiction has no real bearing on the macro-economic reality.”

It is only fair that we do not isolate the Exchequer Secretary too much, however, because Labour Back Benchers faithfully echoed everything that she said. I do not want to criticise a gentleman in his absence, but I am sure that he will not mind my quoting what he said. He is one of the more distinguished—[Interruption.] Indeed, he is here now. The hon. Member for Leeds, East (Mr. Mudie), who is a very distinguished and respected member of the Select Committee on the Treasury, said on that occasion:

“I do not see how anyone can table a motion that suggests that we are nearing a recession”.—[Official Report, 2 April 2008; Vol. 474, c. 824-5, 810.]

Well, things do change in a six-month period.

It is not just Government Members, however; the habit has spread. The Conservative shadow Chancellor is not present, but I remember that when I last spoke about economic matters, he intervened to rebuke me for irresponsible behaviour in respect of interest rates. On 14 October, he said:

“By the way, I do not think that it is particularly sensible either for politicians speaking from the Front Bench to call on the Bank to cut or increase interest rates. Indeed, I make it a practice not to comment on them.”—[Official Report, 14 October 2008; Vol. 480, c. 708.]

Well, I followed the hon. Gentleman last week around the television studios, where he claimed credit for having anticipated the cut in interest rates. Indeed, there was some mysterious process of intellectual osmosis by which the idea had communicated itself to the Monetary Policy Committee of the Bank of England, and for which he wanted to claim full credit.

Without indulging too much in anecdote, however, I think that it would be useful to record some of the facts of the current economic situation. Those of us who talk to local business groups know that the position is really dire and will feed through to statistics in the coming months, but let us stick initially to the facts. The Government’s own figures recorded a decline in output in the third quarter, and that represents a fall over the year. The International Monetary Fund predicts a stagnation of growth this year and a decline of 1.3 per cent. next year, which it believes is the deepest cut in any major western country.

We talked at length about the housing market in our last Opposition day debate. The main market indicator suggests that there has been a 15 per cent. fall from the peak at the end of October last year and that house prices at auctions have now fallen by 30 per cent. since last year. It is worth contrasting that with what the former Financial Secretary to the Treasury told us when we debated this subject a few months ago:

“House price inflation is declining, but it is doing so relatively gradually, and house prices remain higher than they were a year ago.”—[Official Report, 2 April 2008; Vol. 474, c. 803.]

The Government told us that repossessions were not a problem, but they have doubled since the first quarter of 2007; at the end of October this year, they were 71 per cent. up on the year before. The latest figures suggest that there were more than 4,000 insolvencies in the third quarter of 2008—a 26 per cent. increase on the corresponding quarter the previous year. The unemployment rate is, mercifully, much lower than during the last recession, but at 5.7 per cent. on the international measure it is up worryingly, although we hope that it will not reach those alarming levels of the early 1990s.

Those are the facts, although we will no doubt argue endlessly about the causes. A reasonably fair-minded view is that the problems and the depth of the recession that we now face are partly due to domestic policy failures and partly due to international factors beyond our control. As far as domestic policy failures are concerned, it is reasonable to point out the growing consensus that there was an excessive build-up of personal household credit linked to the boom in the housing market. We warned about that for the first time back in October 2003. Others, including the IMF and the Governor of the Bank of England, also issued warnings; even Conservative Front Benchers eventually spotted that there was a problem—the shadow Chancellor referred to it for the first time in January 2007. Clearly, there is now an acceptance that that major UK problem was domestically generated.

There has also been an international banking crisis, for which obviously the Government are not responsible, at least directly. We should not be too complacent about that, however, because much of the shadow banking industry that originally grew up on the back of sub-prime lending activity originated or developed in the City. Until very recently, there was extraordinary hubris and complacency about the workings of financial markets in the City. A few months ago, the Minister’s predecessors were talking to us in loving terms about how the City operated, a bit like little boys who had just discovered an unexploded bomb and thought that it was a shiny new toy. The Minister’s predecessors now realise that many of the activities that were taking place were dangerous.

It is a great pleasure to intervene on a Member who will single-handedly save so many seats for the Liberal Democrats. Is not the issue about seeing the solutions rather than trying to place blame for what happened in the past? The hon. Gentleman has detailed the damage done to the banks. Does he agree that, following the rescue of the banks, one of the solutions is to repair them, take the bad debts off their balance sheets and create a bad bank solution, as has been done successfully in Sweden, and is now also being attempted in Switzerland?

That is a helpful prompt; I was about to move on to the positive suggestions, and the hon. Gentleman is right to say that we should spend our time and energy on them. He has anticipated one of the points that I was going to make: the British bank rescue plan—the recapitalisation—was right, necessary and appropriate, but it is only one half of the solution, and there is the other half to deal with.

In talking about where we move from here, we should start with the bank rescue proposal, as the hon. Gentleman suggested. We supported that; it was right and timely. However, we now know a little more about what is going on and can ask more critical questions about how the process is developing.

One of the key questions concerns the nature of the commitments that were entered into between the Treasury and the banks when the recapitalisation programme and insurance of inter-bank lending were entered into. On one of the key commitments, we have debated several times the precise meaning of the statement that

“the Government has agreed with the banks”

on

“maintaining…the availability and active market of competitively priced lending to homeowners and small business at 2007 levels”.

It becomes more important that we establish exactly what that commitment meant and what was understood about what would happen.

Let me put a series of specific questions to the Government. Are they or anybody else actually monitoring the amount of business lending, in particular, that is taking place? Are they monitoring on a weekly or monthly basis how much credit is going from each individual bank into the business sector? I hear anecdotes—I cannot prove this—that several of the banks have instructed their managers to cut credit and are incentivising them to do so. One way of proving or disproving that point would be to have evidence, and I hope that the Government are monitoring it very carefully. Do they have any mechanism for telling us what is happening as regards the flow of funds?

What instructions have been given to the Government directors? Do we know who they are? What were their letters of appointment? What have they been told to do? They appear to have a very simple mandate, which is not to interfere, but that is clearly creating a problem in itself.

Does the hon. Gentleman accept that the Government are saying two contradictory things to the banks? Through their regulator they are saying that the banks have to improve their ratios, which means cutting their loans as well as increasing their capital, and through their guidance they are saying that the banks need to increase their loans, which would worsen their ratios?

The instructions are indeed contradictory, and we need more clarity. In fact, they are not the only instructions that the banks are being given. As of the other day, we understand that the Government have now told the banks to pass on interest rate cuts—a third objective. Again, we need to understand the implications. The banks tell us that they are making a loss by doing that; I do not know whether that is true, but we need to understand precisely what the banks are being instructed to do and in what circumstances.

I have checked on the internet with several banks today, and rate cuts are certainly being passed on to savers. For example, a product that was available with 6.9 per cent. interest two weeks ago is now down to 5.7 per cent., which seems to be the best deal available. Does he agree that that does not seem to be matched by the offers being made to mortgage holders?

Indeed. The banks are simply widening their spread. That is their objective, as the right hon. Member for Wokingham (Mr. Redwood) suggested. The Government appear not to have thought through the implications of the agreement that they reached.

What precisely was the understanding on bonus arrangements, which have been criticised in all parts of the House? Quite lavish bonus arrangements have been proposed by Lloyds TSB, which is one of the beneficiaries of the process. Mr. Hornby, who on any conceivable measure could be described as a business failure, is now being very lavishly rewarded by his new employer, Lloyds TSB. How is it possible that the Government reached a very specific agreement with the banks on bonuses only to have them completely disregard it?

Let me make various suggestions on the banking programme before we move on. First, it is clear, as we have heard in the previous two interventions, that merely telling the banks that the Government are going to operate on an arm’s length basis is causing confusion. The rational response of the banks is to build up their reserves to get the Government off their backs as quickly as possible so that they can pay dividends and bonuses. The Government’s ambition appears largely to be limited to getting the taxpayers’ money back as quickly as possible. While those objectives seem rational in themselves, pursued in isolation they potentially have devastatingly negative consequences. If the economy goes into a downward spiral and business credit is cut off, that further increases bad loans, which increase the amount of the recapitalisation that will have to take place. Can the Government be absolutely clear about whether they are going to intervene to give the banks more specific instructions?

Secondly, can the Government tell us why they are now proceeding, in terms of their approvals, with the Lloyds TSB-HBOS merger? There may well be good commercial and public policy reasons for that, but I think that they are assuming that because it made sense six weeks ago in order to rescue HBOS from collapse, it still makes sense today. There are growing numbers of authoritative people in the banking system who say that it does not make sense. They want to have the options re-examined and they want alternative bids to be looked at properly. Along with Tavish Scott MSP, I have written seeking an appointment with Mr. Hornby and Lord Stevenson to explain why they are not willing to reopen matters on the part of HBOS. There is also a question for the Government, however. Will Ministers explain why they are allowing matters to proceed? The deal may well be beneficial to Lloyds TSB, but why is it in the national interest?

Finally on the banking system, what the Government did in broad terms made sense in the context in which they introduced it, but a whole set of other problems are now coming over the horizon that have not yet been discussed. When will the Government discuss them? One of them was raised from the Back Benches a few moments ago: we have had half the policy. The Swedish model had a combination of elements, one of which was recapitalisation, and another concerned the “bad bank”—the Paulson-type plan, and the Americans have had the other half of the programme, but are the Government going to bring both halves together, and how will they do so? Are they thinking ahead to how the new banking system will operate?

We are discussing at the moment a Banking Bill that is valid in many respects, but is limited in what it covers. It does not explain how the banking system, once it has emerged from its massive heart attack, will lead a different kind of lifestyle. One thing that cannot continue is the ambiguous relationship in which banks have what Cruickshank called eight years ago “regulatory privileges”—they depend on being bailed out, in other words—while they continue to operate on the maximisation of shareholder value. That contradiction cannot continue, and the Government need at an early stage to give ideas as to how they will deal with that problem.

My second point about forward-looking policy concerns housing, which is the sector that has been most damaged. We encouraged the Government to pursue an idea that they had some months ago of buying up empty property and land, which is now available at heavily discounted prices, so that registered social landlords can increase the availability of social housing, thereby providing an injection into the building industry. Although the Government are talking the right language, the feedback that I have received suggests that absolutely nothing is happening. It appears that approval was given for £8 billion of investment in social housing, but that the money is not reaching the social landlords. There are problems with the Treasury funding arrangements and the rental arrangements that operate under Treasury rules, which are preventing progress from being made with the programme. Will the Government tell us how much of the social housing package has reached the social landlords, and how many houses they propose to proceed with in the context of the emergency to which we are told that they are reacting?

On repossessions, 10 days ago, at Prime Minister’s questions, the Prime Minister told us that the Government have proceeded with fresh instructions to the courts on how to handle repossession cases. We had been urging that, and we welcomed it at the time. The feedback I have received suggests that no instructions have yet been given, or if they have been, they are very discreet. No one is aware of any change in practice being communicated to the courts that process such matters. Moreover, there is an extremely alarming story in the Financial Times today, which says that banks and building societies whose clients are in arrears for a few weeks can proceed to repossession without going to the courts; they simply issue an instruction to the bailiffs to repossess after a few months’ arrears. The Government need to tell us how, through legislative or other action, they will prevent a cascade of repossessions from proceeding through the winter, as growing numbers of people find that they are on short-time working hours, losing overtime or losing their jobs, and simply cannot afford their payments.

Thirdly, we had a debate on small business a week or so ago, which my hon. Friend the Member for Caithness, Sutherland and Easter Ross (John Thurso) introduced. I do not want to go into further detail on the measures involved, but how will the Government develop the helpful ideas they have already set out for accelerating payments to small businesses that are involved in Government contracts? Will that extend to the vast numbers of quangos that operate under Government scrutiny? Will it be used for companies that are subject to Government procurement? The 10-day payment—the accelerated payment—is a good principle, but how far will the Government spread it? How far has the programme already gone?

Will the hon. Gentleman extend his advice to the Government by asking them to ask Her Majesty’s Revenue and Customs to take a more sympathetic and reasonable attitude to those who owe the Government money in back taxes, and to agree more achievable repayment systems and schemes?

Indeed, the Government could take a variety of steps, and the hon. Gentleman suggests one. The small Government loan guarantee scheme has not been updated to take account of current realities. Given the strength of the Government’s balance sheet relative to the private sector, the Government could do a variety of things to help. They have made several helpful gestures, but they could go much further.

Let me consider the issue of the day—tax cuts. I approach the matter with caution, given that the Conservatives and the Government seem desperately anxious to run on to the ground that we staked out. Our approach was that there should be tax cuts for people on middle and low incomes, for which people who are relatively wealthy would pay. We argued that primarily on the ground of fairness. At the time, there was no major economic crisis, but the proposal now happens to be appropriate to the context in which we operate.

Clearly, people on low incomes have a higher propensity to spend than those on high incomes, who are very wealthy. Our proposal, which the new President elect of the United States echoed at least generally, seems highly relevant. We have advocated a programme whereby income tax should be cut for people on low incomes, either by raising thresholds or cutting the basic rate by the equivalent of 4p in the pound. We are therefore considering an amount of approximately £1,000 for a £30,000 income tax payer. The proposal would be funded in a variety of ways, which we have set out, one of which involves tackling potential tax avoidance and the existing concessionary rates that people pay on capital gains tax. We were impressed with the sensible way in which Lady Thatcher and Lord Lawson devised the capital gains tax rules, and we would like to revert to that, with potentially major Revenue implications.

We believe that people who contribute to large pension pots should be incentivised, but that larger incentives should not be given to people who make small savings—we believe in closing that loophole. We also believe in a much tougher approach to tax havens. Again, the President elect of the United States wanted to go down that road. Specific measures, such as dealing with leading corporations’ evasion of stamp duty, which the Government should have tackled long ago, are blatantly obvious. A series of measures could, if implemented, enable us to make a substantial cut in income tax for people on low and middle incomes.

Does the hon. Gentleman agree that, when the proposal was made, it was not intended to be a fiscal stimulus? Indeed, it would not be a fiscal stimulus, because he is describing how revenue would be raised to pay for it. Given that there may be a case for some temporary fiscal stimulus in the not-too-distant future, does not it make more sense to consider a temporary reduction in value added tax, which would relate directly to consumer demand? It seems likely that we will need to stimulate consumer demand in the new year.

The measures that I have described would be stimulating for the reasons that I gave: people on low incomes are more likely to spend. The right hon. and learned Gentleman’s proposal could have the same effect, but it depends on how it is funded. That gets to the heart of what I am sure that Conservative Members will tell us in the next day or so. As I understand it, the Conservative party proposes funding the VAT cut through parallel cuts in Government spending. Although there may be a case for cutting Government spending generally, in the context that we are considering, the proposal would simply offset a stimulus with a reduction in spending. The right hon. and learned Gentleman must deal with the same problem that the Government have and that we have tried to tackle.

If there is to be a tax cut, it should operate under three simple principles. First, it must be substantial; a nominal cut has no effect in such circumstances. The package that I have described would cost something in the order of £16 billion. That is a large sum, but as a share of GDP it is not enormous and is certainly affordable within the parameters that I have described. The second principle is that a cut should be fair and equitable, which was where we started from. The third principle is that a cut should be funded. There are dangers in doing what I believe the Government propose, which is to have an unfunded tax cut, which I understand would be financed by Government borrowing. However, Government borrowing ultimately has to be paid for—it is deferred taxation or inflation, and that is not a satisfactory way forward either.

We need a stimulus that will be funded and is seen to be fair, but which also makes sense in the context of the need to inject demand from people on low incomes, whose income standards are being squeezed. With that, Mr. Speaker, I thank you for the opportunity to introduce the motion and look forward to hearing the reactions to it.

I beg to move, To leave out from “House” to the end of the Question, and to add instead thereof:

“notes that the Government’s actions mean that the economy is entering a period of global downturn with unemployment, inflation and interest rates all much lower than in previous slowdowns, and with debt reduced from 43 per cent. of gross domestic product in 1997 to below 36 per cent. last year; welcomes the extra investment in public services and public servants that this has enabled to compensate for historical underinvestment both in infrastructure and services in every region; supports the Government’s global leadership and action to tackle both the causes and effects of the financial and economic turmoil on an international level; welcomes the Government’s timely support to protect financial stability and consequently depositors, business and the wider economy; further notes that as a condition of this support the Government has demanded support in turn for homeowners and small and medium size businesses; further notes the action that has been taken in the court system and through mortgage interest support to enable people to stay in their homes, and the provision of £360 million to help small and medium size businesses under the Train to Gain initiative; and further notes that Government action to support families, individuals and businesses across the UK through the tougher times ahead includes extra tax credits, cutting income tax, freezing fuel duty, further winter fuel payments and increases in Child Benefit.”

Let me start by saying that the Government share the concerns of the whole House about the effects of the global economic crisis on British families and business. Over the past few months, newspaper headlines have been dominated by the dramatic events in the international banking sector. However, all of us know only too well that behind every headline there are real people facing worries about staying in their jobs or homes, keeping their businesses afloat or paying their bills every month. The Government have already shown that they are determined to be on their side in the tough times ahead and we are determined to do more to help as the situation unfolds.

Although the recessions that we endured in the ’80s and ’90s were essentially domestic in origin, this one is fundamentally different. It is undoubtedly caused by global events originating outside our borders. This recession began in the sub-prime mortgage market in America and spread across the world, mostly because of irresponsible behaviour by banks. The twin shocks of the credit crunch and the surge in energy and food prices have hit every country in the world. As one of the most open trading economies in the world, the UK has not been immune to the effects of those shocks. Although the crisis is global in origin, we recognise that its effects are local.

The credit crunch presents us with a once-in-a-generation economic challenge. To meet that challenge, we must first stabilise the global banking system to deal with the legacy of bad debt, which has meant that banks have lost confidence in each other and that global credit markets have seized up.

Given that the credit crunch first became apparent in August 2007, could the Exchequer Secretary explain why Treasury Ministers were so slow to understand the implications that she is now spelling out?

I do not think that that is a fair accusation, given that everybody watching the events unfolding has said that the credit crunch is an unprecedented, once-in-a-generation occurrence. Policymakers the world over, including those in business, are scrambling to catch up with circumstances as they change and with the changed world that events have left us with, so I think that the hon. Gentleman is being rather churlish in his analysis. Hindsight is a wonderful thing after sudden changes in realities that have been so stable. It is easy to look at the new realities as they are being created as if, prior to those events, we all had crystal balls and everybody knew what was going to happen. We did not. In such unprecedented circumstances, it is important that policymakers and political leaders such as my right hon. Friend the Prime Minister respond flexibly and quickly, and that is what he has done.

The Minister is absolutely right that one must not look back. The Government acted decisively in rescuing the banks. However, does she think there is merit in dealing with the damage that she has detailed by taking those bad debts off the balance sheets to repair the banks and in using the “bad bank” solution?

We believe that the package of recapitalisation, special liquidity and the guarantee of inter-bank lending is a comprehensive package that should deal with the problem. However, we will continue to watch carefully what is going on in the international financial markets, as well as what is going on nationally in our own banks. It is important that we respond appropriately if other facts come to light. At the moment, we believe that we have a comprehensive answer.

Will the Minister confirm that the inter-bank lending guarantee has failed to deliver the intended solution—to bring down LIBOR to the rate that existed before the banking crisis?

As of the weekend, the important three-month LIBOR rate had come down from a peak of 6.4 per cent. to 4.4 per cent., which represents good progress. We will continue to monitor those numbers, but that has been a cause of significant relief throughout the financial system.

rose—

I shall give way to the UKIP Member.

Earlier, the Minister mentioned the level of personal debt, but what was the level of national debt, as a proportion of gross domestic product, as we started to enter this negative cycle? What peak does she expect it to reach during the cycle?

The updated economic forecast will be available when the pre-Budget report is presented; it is not my role to start anticipating it today. The hon. Gentleman will get those figures in full at the appropriate time. The Labour Government inherited a debt of 43 per cent. of gross domestic product, which is higher than the present level. It is important to note that point.

As the Government prepare to take on liabilities of £3 trillion from the three big banks in which they are buying shares, will the Minister assure the House that they have checked out the assets and liabilities, and that there will not need to be major write-downs on the loan books after they have bought the shares?

It is significant that all national Governments in developed countries have taken action similar to that outlined by my right hon. Friend the Prime Minister when he announced the recapitalisation scheme. That was a result of the unprecedented situation in which the global financial system found itself. I wonder whether the right hon. Gentleman would have done the work that he mentioned while the financial system melted around us, given that that could have caused circumstances as bad as, or worse than, those of the great depression in the 1930s. The people of this country demonstrated through their support that they appreciated my right hon. Friend the Prime Minister’s swift and effective action.

Will the hon. Lady confirm that, whatever she might think, the Office for National Statistics says that the current deficit is 43.3 per cent. of GDP?

The hon. Gentleman will see the fiscal and monetary figures when the pre-Budget report is produced, and people will be able to make their own decisions at that time.

Quite a number of statements have suggested that this economic crisis was a thunderbolt out of the blue. The Minister will remember, however, as a member of the Treasury Select Committee, that I visited the United States in January 2006. I cannot remember whether she was on that trip, but others from her party certainly were. Investment bankers made it clear to us that, while all was well that day, there would be a major crisis in the sub-prime housing market 18 months down the road, and that there were black clouds on the horizon. We attempted to pass those messages on to the Treasury, formally and informally—so there were warning signs.

It was not my pleasure to be on that trip. I made rather a bad habit of missing the foreign trips taken by the Treasury Committee when I was a member of it, owing to other work pressures. However, I think that one of the lessons to be drawn from the circumstances of an interconnected and globalised world is that the weakest link in the regulatory chain can affect all economies, as the circumstances of the credit crunch have demonstrated in quite a sobering way. That new reality will have to be taken into account as we rebuild and reform international structures.

Before taking a series of interventions, I was saying that the credit crunch presented us with a once-in-a-generation economic challenge, to which we are rising by stabilising the global banking system. However, we must also re-engineer the global economic system to cope with 21st-century realities, and the reality that the hon. Member for Richmond Park (Susan Kramer) spotted in the sub-prime mortgage market during her trip to America is clearly one of the new realities with which we must deal.

May I return my right hon. Friend to the question of the gross national debt? Is it not the case that our gross national debt is still way below that of many other countries, that it is historically low, and that to tighten the fiscal stance at this moment would be economic madness?

My hon. Friend makes an appropriate and astute comment. People will be waiting to see which side of the Opposition’s schizophrenic approach predominates.

As I was saying, we must re-engineer the global economic system to cope with 21st-century realities—

The Minister is obviously about to discuss the global measures that she considers to be the remedy. Does she think that looking at the global economic system will have any effect on the two things that went wrong here? First, an appalling fiscal problem piled up, the scale of which is being debated but which is plainly making us all very cautious about considering how we can afford a fiscal stimulus now. Secondly, a complete regulatory failure took place here. Nothing happened in the American housing market that did not happen in the British housing market. Our own national regulatory system, as designed by the present Prime Minister, completely failed to function, despite all the warnings about a credit bubble that were well in evidence long before the Government turned their mind to it.

I think that the right hon. and learned Gentleman is being rather partisan in his caricature of the circumstances. When I say that we have an important job to do in re-engineering the global economic system, that does not mean that we do not have equally important reforms to put in place nationally, or that we do not have equally important reforms to put in place at European Union and G7 level. Those jobs must be done together.

Another lesson of the new era in which we find ourselves, following the credit crunch and the way in which it is manifesting itself, must be that, given the extent of the present interconnection, our problems cannot be solved simply by examining national circumstances or national regulators. That does not mean that the Financial Services Authority has not recognised that it needs to change and reform. Indeed, a programme of work is already under way to respond to some of the shortcomings that the FSA’s chief executive identified. The reforms in the Banking Bill constitute another—but only one—aspect of that. There is much work to be done across the piece, at national and at global level, and all the parts of that work must fit together.

As trying to run an economic system without credit is rather like trying to run a car engine without oil, restoring some normality to credit markets has been an obvious priority for the Government. A sound banking system is an essential precondition for the long-term health of the economy, so by definition our initial focus has had to be on the banks.

That is why on 8 October, in consultation with the tripartite authorities, the Government announced comprehensive measures to ensure stability in the financial system. By recapitalising banks, guaranteeing inter-bank lending and extending the special liquidity scheme, the Government are demonstrating their commitment to do whatever is necessary to maintain stability. The fact that this comprehensive plan was followed by similar action around the world shows both the global nature of the challenge confronting us and the leadership given by the UK in responding to it.

The Prime Minister and the Chancellor are working with other global leaders and our European partners to ensure that the banks are stabilised and begin to lend again, but they are also focusing on reform of the international system to ensure that it can cope with the realities of an interconnected and increasingly interdependent global economic system.

I agree very much with my hon. Friend’s comments. I wanted to make the following point to the Chancellor when he made his statement some time ago. Given that the Government have now taken big stakes in a number of banks, with some in public ownership and Government representatives on some boards, was it not also important to put in Government officials at the operational level to make sure that banks and those in banking behave appropriately in the public interest?

My right hon. Friend the Chancellor has announced the creation of UK financial investments. We are still putting together the approach for those who will sit on boards and the arrangements that will need to be made to make that work. We will, no doubt, in due course have discussions about the details, but my hon. Friend has made his pitch and I will make sure it is looked at.

May I urge my hon. Friend to resist the siren voices of the Liberal Democrats? While they have a certain track record in one sense, they focus exclusively on the short term. Short-term measures are important, but I urge my hon. Friend to continue, as the Government have, not only with short-term measures but with medium-term measures, which the Opposition are overlooking, such as the new Bretton Woods agreement that we need, increasing house building in the UK to address the problem of undersupply and therefore of over-inflation in house prices; carrying on with training for the skills we will need when the economy picks up again; and carrying on with measures such as changes to the pension system so we do not end up a basket case, which Italy will be in about 10 years’ time?

I always do my best to avoid siren voices, but my hon. Friend is right to point out that, despite all the diverting and difficult things going on in the immediate term, it is important at times such as these to look through the sound and fury to the medium term, and to ensure that, in the areas my hon. Friend mentions, the Government position this country’s economy so it can get through in the best possible shape.

The scale of the problem caused by the disruption we have all been experiencing in the global financial system is enormous. As the International Monetary Fund said last month, the world economy is now entering a major downturn in the face of the most dangerous shock in mature financial markets since the 1930s. As a result of the credit crunch, we have already seen falling output in Germany, France, Italy, Ireland, Japan and Canada, and we now also hear that the USA is in recession. We are now seeing falls in output in the UK, too.

Two weeks ago, the Bank of England’s financial stability report estimated sub-prime and related losses at almost $3 trillion, and it is clear that there can be no return to business as usual in these unprecedented circumstances. The interconnected nature of our financial institutions substantially increases systemic risk if any one financial institution fails. The capacity of private sector institutions to rescue each other has proved to be limited. Governments around the world have therefore acted on an unprecedented scale to support a financial system that has been shaken to its foundations.

There will be long-term implications for the relationship between Government and the financial sector at both national and international levels. The Chancellor has made it clear that we need to return to the issues of regulation and transparency, and to the design of the international financial architecture, which must be made fit for purpose in a more globally interdependent world. We also need progress on a world trade deal and the rejection of a beggar-thy-neighbour protectionism, which changed the great stock market crash of 1929 into the great depression and the global calamity of the second world war.

Unlike the Conservatives when they were last in government dealing with a recession, the Labour party in government does not believe that unemployment is a price worth paying; nor does it believe that if it is not hurting, it is not working. We believe it right to stand alongside people and use the power of the state to help them through difficult times, and we are determined to help people and businesses with targeted support. Therefore, at the last Budget we gave a tax cut worth £120 to all 22 million basic-rate taxpayers. We delayed the planned fuel duty increase, at an annual cost of £1 billion. We helped 9 million households by making additional winter fuel payments of £50 for the over-60s and of £100 for the over-80s, on top of current payments. Since the Budget, we have also announced substantial help for people to insulate their homes and reduce their energy bills.

It is inevitable that the global financial crisis should have some effect on the number of people who have difficulty repaying their mortgages, but the number of repossessions for the whole of 2007 is about a third of the levels of the early 1990s, and data from the Council of Mortgage Lenders show that the number of properties taken into possession in the first half of 2008 equates to 0.16 per cent of all mortgages—less than half the rate seen in the early 1990s. However, we are not complacent, and I recognise that each and every repossession is a tragedy for the people involved.

Will the Minister give way?

I have given way to the hon. Gentleman once already, but I shall do so again.

I am very grateful to the Minister for giving way again. As she knows, the level of repossessions took some time to build up in the crisis of the early 1990s. Is she saying that there will be no further increase in the level of repossessions? Given what happened when we debated this matter in April—my hon. Friend the Member for Twickenham (Dr. Cable) has quoted her as saying that there was no possibility of a recession, and that there was scaremongering on the Liberal Democrat Benches—why should we take her at all seriously now, when she was so comprehensively wrong then?

I noticed the quote from the hon. Gentleman in April when talking about the hon. Member for Twickenham (Dr. Cable)—that he was one of those gloomy economists who always think that a glass is half empty, rather than half full. I am not going to be gloomy about the UK economy; rather, I will repeat what I was saying when the hon. Member for Eastleigh (Chris Huhne) intervened. We are not complacent. We recognise that each and every repossession is a tragedy for the people involved. I am certainly not going to predict—the Government do not predict—the number of repossessions; the Council of Mortgage Lenders publishes its figures. However, we are determined to do what we can to ensure that we can mitigate the problems that lead people to fall into arrears and face repossession. I will deal in a minute with some of the announcements that we have made to that effect.

I thank my hon. Friend for giving way yet again; may I reinforce her point about repossessions? Before the 1997 election, my constituency had the highest level of repossessions in the country, as a result of which I had almost the largest swing to Labour during that election.

It was your own talents.

If only! It was entirely due to the catastrophic effect of Conservative policies on my constituents.

My hon. Friend is treating us to many pearls of wisdom today, and that was another one.

In September, we announced a range of new measures to support thousands of vulnerable home owners. Help newly available as a result of these announcements includes a £200 million mortgage rescue scheme that will help up to 6,000 households avoid the trauma of repossession over the next two years. From 1 January, we will reform the help available to home owners who lose their jobs, so that their mortgage interest is paid after 13 weeks, rather than after the 39 weeks that they would previously have had to wait for help. We have brought forward £400 million of Government spending to deliver up to 5,500 new social rented homes at affordable prices while the private sector market remains weak.

The Government believe that repossessions should be a last, not a first, resort, so we have asked mortgage lenders to review their voluntary arrangements for supporting borrowers who are facing difficulties. The Council of Mortgage Lenders has produced its guidelines, and the Finance and Leasing Association is preparing best practice guidance for lenders, which will be published later this year.

On 22 October, the Prime Minister announced new guidance for the judiciary to halt court action on repossessions unless alternative options to help the home owner have been fully examined. The new court protocols set out clear guidance on the steps that lenders are expected to take before bringing a claim in the courts, to ensure that repossessions are indeed a last resort. Lenders will now be expected to demonstrate that they tried to discuss and agree alternatives to repossession when borrowers got into trouble with their mortgage payments. If a case reaches court, lenders will be required to tell the court precisely what they have done to comply with that protocol.

The recent cut in the Bank of England base rate has been widely welcomed. The UK now has its lowest interest rates since 1954, which will provide some welcome relief to home owners who are struggling with mortgage repayments. In the context of responsible lending, we want customers to benefit from the rate cut, and where banks are benefiting from cheaper borrowing, we want that to be passed on to their customers, too.

There are serious shortages of affordable housing, and fewer houses are being built at the moment. Government policy instructs local councils to reduce the leasing of private properties in order to house people in housing need, on the basis that that is a temporary solution. Right now, a temporary solution of that sort would help to meet not only the housing needs of a large number of people, but the need to cover mortgage costs of those who have these properties and would like to let them out. There might be a solution that meets the needs of two groups: those facing the loss of their property, and the many who are in housing need.

We will be looking to build further on our announcements of help to home owners as the situation progresses, and we will bear the hon. Gentleman’s suggestions in mind.

Although the world economic climate is uniquely challenging, pessimism about our prospects is neither sensible nor reasonable. We need to be not only realistic about the difficulties we face, but confident that we can get through them. The UK is better placed to weather the global economic storm than it was in the 1970s, 1980s or the 1990s. Following last week’s Bank of England actions, the UK has its lowest interest rates since 1954, and we also have low inflation. Both interest rates and inflation are well below the double-digit levels that were a feature of previous recessions.

The Minister says that we are well placed to weather the economic storm, but the huge level of over-indebtedness that many families face means that they are not well placed to do so—as the individual insolvency figures for Scotland, which were released on Friday, showed when they rose by 26 per cent. between quarter two and quarter three. Families and individuals across Scotland—and, indeed, the rest of the UK—are struggling. How are those people, who face such high levels of debt because of irresponsible lending, well placed to weather this storm?

I was talking not about individuals but about the economy as a whole when I made my points about interest rates and so on. We have to deal with individual problems as they come to our attention. Clearly, some people are struggling with their debts, which is why we made our announcements to support them. The hon. Lady must not think that I was applying what I said about interest rates and inflation levels to a particular individual in trouble in Scotland—I was not. We recognise that individuals are facing difficulties, and this Government are determined to be alongside them, helping them to cope during this downturn.

We need fiscal stimulus in the economy and the Government should borrow to provide it. Will my hon. Friend confirm that the accumulated national debt in the UK as a proportion of gross domestic product is far lower than that in any other G7 country except Canada?

Yes, that is the case. Scaremongering about our indebtedness or readiness to deal with these difficult circumstances, as the Opposition do, does not help.

Will the Minister give way?

No, I have given way to the hon. Gentleman lots of times.

Frit.

It is churlish of the hon. Gentleman to say that I am frit when I have given way to him so often. Perhaps I am getting a bit fed up of giving way to him and this time I am not going to do so. Our labour market has 3 million more jobs than it did—

Will the Minister give way on that point?

Order. I think that the Minister has made it perfectly plain that she is not going to give way.

Our labour market has 3 million more jobs than it did when we came into government and we are determined to use the reformed Jobcentre Plus service to help anyone facing redundancy to find new work opportunities as quickly and effectively as possible. Thanks to decisions that we have made since 1997, public debt remains low. That means that we can provide targeted support to those who need it most in these difficult times and protect vital investment in our infrastructure—investment that in previous downturns the Conservative party sacrificed and that will underpin our future growth.

We have taken the long-term decisions to boost our competitiveness on energy, planning, transport, housing, science, skills and digital technology. As the International Monetary Fund recently stated:

“For over a decade, the United Kingdom has sustained low inflation and rapid economic growth—an exceptional achievement….fruit of strong policies and policy frameworks, which provide a strong foundation to weather global”

challenges. [Interruption.] Opposition Members are saying that I am quoting the IMF—I am, and I am as aware as they are of the IMF’s recent comments on our prospects for growth next year. If Opposition Members were to look at the IMF’s mid-term forecast, they would see that it put us second after only Canada for growth in the 2010 to 2013 period. They should take account of all the IMF’s forecasts, rather than taking tiny bits of the forecast out of context.

We are determined to demonstrate that we can help our economy weather this global financial storm and to get through it in the best possible way, so that we can take advantage of the many opportunities as economies seek to recover.

We strongly support the sentiment in the first half of the Liberal Democrat motion, which identifies the fact that the asset price bubble and the over-borrowing that has occurred in the UK are a major contributor to the problem that we face. That problem was not simply made elsewhere and inflicted on an entirely innocent bystander—the Prime Minister. We agree that one of the principal concerns of the Government and this House should now be to get help to families and businesses that are struggling with the short-term challenges of recession.

We also agree—I think that this is implicit in the Liberal Democrat motion—that the first response to the recession should be a monetary policy and that any targeted tax cuts to support families and businesses must be fully funded if we are not simply to burden future generations with the consequences of problems that we have created but do not want to shoulder. Indeed, the Exchequer Secretary came close to supporting that view when she said that we must look through the immediate challenges to the medium term. That strongly suggests to me that she is beginning to see the wisdom of resisting the temptation to borrow and spend her way out of the recession.

We part company from the Liberal Democrats, however, on their prescription, which is that old chestnut—the easy option of tax cuts for everyman, funded by amorphous wealthy individuals, or as the leader of the Liberal Democrats described them today, top earners. That is too easy. We have reached the point in this economic debate where difficult decisions have to be taken, although I know that is not something the Liberal Democrats specialise in. Who are those wealthy individuals or top earners? They are the usual victims. [Hon. Members: “You.”] Hon. Members are right. According to the Liberal Democrat proposals, every one of us is one of those top earners or wealthy individuals—anybody earning £40,800 or more.

The Liberal Democrats want to increase tax on pensions for people on middle incomes by withdrawing the benefit of higher rate tax relief on pension contributions for those earning £40,800 or more. Those people are headmasters, police inspectors and senior nurses—hundreds of thousands of hard-working families across the country. The Liberal Democrats want further to discourage entrepreneurship by taxing capital gains as income. They propose another £20 billion of unidentified spending cuts to support their tax cut programme, but they cannot tell us how they will be achieved. In fact, the situation is worse than that; it is not just that they cannot tell us, they will not tell us.

Some of us will remember when the leader of the Liberal Democrats was interviewed on “Newsnight” immediately after their party conference. Once he got to £5.5 billion of the £20 billion, Jeremy Paxman asked, “Where’s the rest?” His answer was:

“well, I’m simply not going to tell you the rest.”

The Lib Dems bring a whole new dimension to the concept of political transparency.

The Liberal Democrats are all over the place on tax. They are also all over the place on the Bank of England. The hon. Member for Twickenham (Dr. Cable) claims guru status for having called for a 2 per cent. base rate cut by the Bank of England, but on 15 September he told his party conference:

“The Government must not compromise the independence of the Bank of England by telling it to slash interest rates.”

Then he got on the train back to London and spent the next three weeks going around the television studios calling precisely for a cut in interest rates—[Interruption.] That is the point: while those of us who belong to parties that are either in government or aspire to be in government studiously try to respect the independence of the Bank of England, the hon. Gentleman apparently regards himself as free to indulge in wildly populist and contradictory demands on our television screens.

But does the hon. Gentleman remember that my hon. Friend the Member for Twickenham (Dr. Cable) said that it is in the Government’s gift to set the inflation target and that looking at the current reality of the economy it was entirely appropriate to change, suspend or defer that target so that the Bank could concentrate on rescuing the economy? May I also remind the hon. Gentleman that although the shadow Chancellor, in response to an intervention from me, said that he did not comment on interest rates—I cannot read a quote during an intervention, but the hon. Gentleman will be able to find the exact words in Hansard—within two weeks, he was writing in The Daily Telegraph that there was plenty of scope to stimulate demand with lower interest rates? That contradicts exactly what the hon. Gentleman has just said.

The hon. Lady needs to think about that. It is one thing to observe that there is a considerable gap between the level of UK and US interest rates, which was precisely the point that my hon. Friend the shadow Chancellor was making, but quite another thing to call for a reduction after having just told one’s party conference that the Government must not compromise the independence of the Bank of England by telling it to slash interest rates.

I want to be a little more consensual, however, and to return to the point where we agree with the Liberal Democrat motion—at least to some extent. Of course, this is not just a US-made problem, and the sooner the Government can take that on board and accept that this is a problem for which the UK regulatory and policy regime is partly responsible—

Partly.

Of course, it is partly responsible. The sooner the Government do so, the sooner that we can start making the interventions that will solve the problem and ensure that we do not repeat the mistakes in the next cycle. Unsustainable debt, the asset price bubble, UK households borrowing £1.4 trillion—the highest indebtedness relative to gross domestic product of any country in the world—and the Government operating a pro-cyclical deficit funding policy are at the root of the domestic component of the problems that we are facing.

It is too late to do anything about avoiding this recession, but we must at least learn the lessons for the next set of challenges that we face. How do we tackle these problems? Clearly, international co-operation, including a revisiting of the pro-cyclical effect of the Basel II capital adequacy rules, will be part of the solution.

Does the hon. Gentleman not think that it is a bit harsh to say that we have a recession and that there is nothing that we can do about it? [Interruption.] Well, that is exactly what he said. There is plenty that we can do about it, but it is, of course, politically better to get off on abstract arguments. We could do things with mortgages to keep people in their homes, and we could do things with small businesses to keep them in business and employing people. So, for saying that we can do nothing about the recession, the hon. Gentleman should apologise to the British people.

The hon. Gentleman will read Hansard in the morning and see that I said that it is too late to address the unsustainable debts, the asset price bubble, the over-borrowing by households and the pro-cyclical Government deficit funding policy. It is too late to do anything about them to address the recession, but he is absolutely right to suggest that we can do plenty of things to alleviate the immediate impact of the recession, and I shall run through some of them in a moment.

I was talking about how we tackle the challenges. International co-operation is one way. We need to tackle areas of domestic regulation—for example, ensuring that bonuses do not compound the problem by creating perverse incentives that lead banks into the kind of areas that have delivered the problem that we now face. Is there a case for including asset prices in the targeted inflation measure? We have looked at that, and many academic economists around the world have asked themselves that question. Our conclusion is that that is not the right way to proceed, but we need to address asset price inflation.

We have proposed specifically a debt responsibility mechanism by which the Bank of England would take on the role of measuring aggregate credit debt in our economy and transmitting its concerns to the Financial Services Authority, which would then use those concerns in managing the capital adequacy ratios of individual British lending institutions—an effective domestic solution to the regulation of the credit cycle. I should be interested to hear from the Economic Secretary when he replies whether the Government have something to say about that proposal and, of course, fiscal discipline—not a Liberal Democrat unique selling point. We need in place a framework that has the confidence of the markets and that effectively constrains Government action, not just when the going gets difficult but throughout the cycle—not a set of rules that crumbles as soon as the Government run into the first hurdle.

Does the hon. Gentleman agree with me about bonuses? I opened an account at Barclays a few weeks ago. On the news that it was seeking funding to avoid Government intervention, possibly involving not paying bonuses, I contacted the bank to say that I did not want to go ahead with my account, and it was very worried by that, having asked me the reason why. I wonder whether there is anything in people power—perhaps by having to print directors salaries and bonuses on bank statements. Does he think that that might give the public some sense of where they want to keep their money?

If the hon. Lady wishes to exercise her people power, I point out that it is a statutory requirement for directors’ salaries and bonuses to be published in banks’ annual report and accounts.

The second issue that I want to address is the Bank of England’s monetary response in the past few weeks. I agree with the hon. Member for Twickenham that it has been most welcome, but our concern must be that it has not been fully effective. Rhetorical attacks on banks in general, or banks in which the public now have a stake, will not solve the problem. Of course the rescue of the banking sector was undertaken not simply to save the banks, but to save the real economy from meltdown. Presumably, now that we, collectively, are investors to the tune of £37 billion in banks, we want to make sure that we get our money back. With the greatest respect to the hon. Member for Luton, North (Kelvin Hopkins), I do not think that that cause will be advanced by putting him in charge of lending policy. Politician-dictated lending policies will not be the answer.

Is the hon. Gentleman more concerned to make sure that nice, big bonuses are paid than to ensure that the public are paid back their money?

No, of course not. The two objectives with regard to the public-sector investment in the banking system must be, first, to save the banking system so that we can protect the real economy, and secondly to get every penny of the £37 billion back, preferably with a substantial gain for the taxpayer over time. Those must be our objectives. Let us not forget that we have a big stake in the banks in question.

Will my hon. Friend acknowledge that £18 billion of cash is going to Abbey/Santander for Bradford & Bingley, that there was £3 billion of equity investment in Northern Rock, and that unfortunately our first 100 per cent. investment, Northern Rock, made us a loss of £580 million in the first half of the year? Is there not therefore a lot of work to do to make a profit?

My right hon. Friend is right, but he is perhaps rather generous to describe the £3 billion as an equity investment in Northern Rock; I think that it was a write-off of debt, about which the Government had little choice. [Interruption.] I know that it is counted as an equity investment, but I do not think that it was made out of choice.

Surely the solution is to mend the mechanism that, until last year, always linked Bank of England base rates with the banks’ costs of funding. We can of course urge the banks to pass on changes in the official rate, but we also need Government action to secure the reopening of the money markets, so that banks’ borrowing costs follow the base rate down. We will then be in a far stronger moral and practical position to urge the banks to pass on the Bank of England’s monetary policy response to consumers and businesses.

The motion in the name of the hon. Member for Twickenham refers to

“£500 billion of taxpayers’ money”

having gone into the banking system. I think that that is made up of £200 billion in the special liquidity scheme, £37 billion-odd of capital, and £250 billion in money market guarantees. The latter was the largest component of the package announced by the Prime Minister and the Chancellor a few weeks ago, together with the recapitalisation. As far as I can tell, that bit of the package is not working. I do not know whether the Economic Secretary can, in his winding-up speech, give us any figures on what take-up there has been of that £250 billion. The information is difficult to come by, but my inquiries in the City suggest that there has been minimal take-up. That may have to do with the conditions attached or the pricing. That is a critical matter that the Government must look into, because the whole package depends on our being able to reopen and restore confidence in the money markets, so that in future, the Bank of England’s base rate cuts are automatically followed by cuts in the cost of funding to the banks, and thus automatically followed by cuts to mortgage rates, small business overdraft rates, and lending rates to families.

The hon. Gentleman makes an interesting point about use of the guarantee. Of course, it was a very innovative proposition at the time. Does he not agree that the most effective guarantee, were it to work brilliantly, would not be taken up at all?

Ultimately, once confidence has been completely restored to the markets, I guess the right hon. Lady is right, but sadly that is not the position that we are in. I hope that when the Chancellor and the Prime Minister announced the £250 billion guarantee facility—a very big, eye-catching, headline-grabbing number—they did not announce it with the expectation and intention that virtually none of it would be taken up. I hope that they announced it in the expectation that it would have the desired effect. It has not, however, because if it had, LIBOR rates would have fallen by 1.5 percentage points last Friday. That is where we need to get to. We must restore the link, because that is what is broken, and that is what needs urgent attention if we are to fix the credit famine that is affecting families and small businesses throughout the country. No amount of rhetoric or exhortation will deliver sustainable relief if we do not fix that mechanism.

I have listened very carefully to the hon. Gentleman talk about fixing the mechanism, but will he tell us how he would fix it?

The Government have already announced the £250 billion package, which the right hon. Gentleman will remember we supported, but the Government now need to consider the pricing and the conditionality that are attached to the package. The Economic Secretary may tell us later that I am misinformed and that hundreds of billions of pounds of the guarantee facility have been taken up, but if that is not true and it was a critical part of the package, the Government need urgently to examine how that part of the mechanism works. This is not a party political point; we supported the package.

My question was not meant as a party political point either; it was meant for all our elucidation. I shall say something later about inter-bank lending, which is right at the heart of the matter, but the hon. Gentleman said quite clearly that the mechanism is not working, so, if he believes that it is not, what does he think would?

I suspect that the mechanism is not working, and I suspect that the reasons why are partly the pricing, partly the conditionality and partly, perhaps, the toxic assets that remain in the system. We heard a suggestion earlier about the creation of a “bad bank”. I should like to hear from the Exchequer Secretary not that she has a magic wand but that the Government at least recognise that the extent to which that part of the package has not been taken up demonstrates that the package as a whole is not delivering the intended results, which it clearly is not. That is a problem for all of us, and one that we, collectively, have to address.

The third point on which we agree with the Liberal Democrats—at least I think we do—is that spending and borrowing our way out of a recession, over and above the levels that are implied by the automatic stabilisers and the Government’s commitment to continue some support for those who lost out in the 10p tax fiasco, will not work and is not sustainable. Future generations would be burdened with even higher debts and the recovery might be threatened by the prospect of large tax rises. We would simply be sowing the seeds of the next crisis, but, as we heard earlier, carefully targeted and fully funded tax cuts, and other specific support measures, would bring relief to families and businesses.

We do not agree with the Liberal Democrat approach in seeking to raise taxes on middle-income earners to pay for cuts, and we do not believe it credible to claim to fund cuts on the back of unidentified spending cuts. Fiscal prudence and a concern for the future does not mean, however, being unable to help, although others who have behaved more prudently in the past have greater scope for action now: the Australians recently enjoyed the luxury of making a decision to spend half their public sector surplus on stimulating demand from families and businesses. We have set out a number of suggestions and already announced the following proposals: a council tax freeze, funded by cuts in Government consultancy and the Government’s advertising budget; the abolition of stamp duty for 90 per cent. of first-time buyers; the use of the Post Office card account to give access to direct debits—thus cutting the fuel bills of the most vulnerable householders—while the Government appear set on privatising it; cuts in the small companies corporation tax rate, funded by scrapping the annual investment allowances; a temporary cut of 1p in the pound in employers’ national insurance contributions for the smallest employers for six months to stimulate employment; the deferment of small-to-medium enterprises’ VAT bills for six months at commercial rates of interest to help businesses with their cash flow; and, changes in the law to provide breathing space for businesses facing insolvency and households facing repossession for amounts that were incurred as unsecured debts. We continue to identify opportunities for targeted, fully funded interventions that will bring much-needed relief to families and businesses.

I turn briefly to the Government amendment, which has the now-familiar focus on the global dimension—the subtext broadly being, “Not our problem, guv. The problems were made somewhere else and we are innocent victims.” The Exchequer Secretary used the words “global” or “globally” 21 times in her speech, and I heard no acknowledgement in it of the policy and regulatory failures in the UK. The Lib Dem motion sets those failures out and we have repeatedly drawn attention to them.

The fact is that the claim to have abolished boom and bust heralded in the UK the age of irresponsibility against which the Prime Minister now rails. There was five-times-income mortgage lending and there were 125 per cent. mortgage loans: the Government not only failed to curb household borrowing, but through the years of economic growth ran the biggest deficit of any developed economy. The Exchequer Secretary claims that Government debt has been reduced since 1997, but she and almost everybody else in the House knows that the Office for National Statistics figures show that, in fact, Government debt is up a little on the 1997 level. After 10 years of continuous economic growth, our national debt position has not improved but slightly worsened.

There is no sense in the Government amendment of the scale of the challenge. The Exchequer Secretary likes to draw comparisons with statistics relating to the end of the last economic recession, but the appropriate comparison for where we are now is with its beginning. In the last full year before that recession, there was a budget surplus of 0.2 per cent. of GDP; this time, we are entering recession with a budget deficit of 2.6 per cent. of GDP, as a result of having borrowed through the boom.

May I take the hon. Gentleman back a little to the issue of household debt? One of the difficulties has been that for more than 30 years there has been a shortage of housing supply in the UK, and that has led to ridiculously high property prices. On the back of that, equity release, based on optimism that house price rises would continue, has gone on apace. The Government—and, I hope, the Opposition—are stretching towards what we need to do, which is to build a lot more housing so that there is no boom and bust in the housing market.

Furthermore, one of the drivers of the current situation has been the Conservative policy, in the mid-1980s, of removing the ban on equity release from mortgages. Like me, the hon. Gentleman is old enough to remember when people could not get money from a building society or bank on a house unless it was to buy or improve the property—the money could not be for buying a car, more furniture or whatever. We need to look at getting back to that position.

I urge the hon. Gentleman to be a little cautious with that analysis. I suggest to him that although house prices are now falling rapidly—and, according to the hon. Member for Twickenham, will fall significantly further—the housing shortage has not gone away. The housing-asset price bubble has been driven by the growth of credit and the invention, for it was an invention, of clever new ways of creating credit, mainly through securitisation. That led to more money being available in the system and manifested itself as an inflation in asset prices.

I acknowledge, of course, that the housing shortage is an underlying problem, but a lot of people with no borrowing power—short of their houses—do not in themselves drive up house prices. House prices get driven up when the people who want to live in the houses can borrow effectively unlimited amounts of money to bid up the prices. That is what we have seen in the past few years.

The Prime Minister has repeatedly claimed, and did so again as recently as last week, that Britain is well prepared to weather the economic storm. In fact, back in January Alan Greenspan described us as being particularly vulnerable. The EU reports, and the IMF report that we saw last week, have confirmed that Britain is ill prepared for the recession, that we go into it with a bigger deficit than any other country and that because of our economy’s narrow base, we are struggling to find the locomotive that will pull us out. That is because we have been so heavily dependent on financial services, rising public spending and the housing market during most of the economic growth of the past decade.

The Minister used the term “schizophrenia” towards the end of her speech. However, I have to say to her—perhaps the Economic Secretary will clear this up later—that the Government’s position is far from clear on the question of an overall significant further fiscal loosening. We have heard lots of rhetoric and been given lots of briefings that are then not matched by the words that come out of the Prime Minister’s or the Chancellor’s mouth. Having heard the hon. Lady’s speech, we are none the wiser as to whether the Government are proposing a massive fiscal loosening or merely considering targeted tax measures—along the lines that the Liberal Democrats propose and we have discussed—that are fully funded by changes elsewhere.

The immediate imperative must be to help those caught in the fall-out of this rapid economic decline—families facing repossession, sound businesses caught in a short-term cash crunch, employers who are having to face the agonising decision over letting valued staff go because their orders have dried up—and to fix the broken transmission mechanism in our monetary system. However, we must not lose sight of the lessons of the past few years as regards how we got to this point. A recession caused by excessive borrowing cannot be solved by borrowing and spending our way out of it. That will not work, and anyone who doubts it should ask the Japanese.

A responsible approach combines immediate, fully funded help for families and businesses to weather the recession; action domestically and internationally to restore confidence and thus liquidity to financial markets; a rejection of the superficially easy route of a massive increase in borrowing to pay for an unfunded spending splurge; a careful and considered response to the weaknesses that have been exposed in the regulation of our financial system; a proper, sustainable medium-term fiscal framework to restore market confidence that does not crumble at the first hurdle and will get the public finances back into a position where Governments will be able to help families and businesses in future downturns; and a focus on fixing the underlying weaknesses in our economy—the productivity gap, the skills gap, the unreformed welfare system, and the negative productivity growth in significant parts of the public services—all of which must be resolved if Britain is to maintain its prosperity and resume a sustainable growth path long after this immediate crisis has passed. That is the approach that Her Majesty’s Opposition will continue to pursue.

rose—

Order. Before I call the next hon. Member to speak, may I remind the House that a 15-minute limit on all Back-Bench speeches will apply from now on?

I should like to start with several welcomes. First, I welcome the fact that we are having this debate, because given the enormity of the challenge we face, the more time that we spend discussing it and seeking solutions and responses, the better. Secondly, I welcome the steps that are already being taken by our Government. I hope that that is widely recognised. Whatever other areas of disagreement might exist in this House, the Prime Minister, the Chancellor and the Government should be congratulated on the courage, decisiveness and leadership that they have shown not only in this country but internationally. It would be churlish for anyone in the Chamber not to recognise what has been recognised in so many other countries. Thirdly, I welcome the fact that the Government, and indeed many Opposition Members, recognise the requirement to address these complex issues in a multi-layered way: at the international, global level; at the level of central banks; at the sovereign, national level; at the level of inter-bank relationships; and at the level of individuals.

I understand that this evening, according to news reports, the Prime Minister will again urge a restructuring and reformation of the international monetary regulatory system. I do not know why that makes news; he has been doing so for years. Indeed, not only has the current leader of the Labour party been doing so, but the one before that, and the one before that. I have been here long enough to remember the one before that, Lord Kinnock, calling for a revision of Bretton Woods in the early 1980s. It just shows that if we stay around long enough, common sense—born out of a crisis—afflicts everyone.

Does the right hon. Gentleman think that one of the priorities should be to put more capital into the International Monetary Fund so that it has enough money to lend to impecunious countries that are borrowing too much?

I certainly think so, but there has been a shift in economic predominance from the west to the east, and we cannot merely ask other countries to inject liquidity into the international monetary system or the IMF without having regard to the fact that they may want something in return. That is an element of the international rearrangement of the mechanisms set up in the late 1940s, and since the 1970s it has been obvious that those mechanisms are inadequate in some respects.

I welcome many of the measures that have at least been hinted at regarding the protection of individuals, particularly those who need the most protection, through targeted cuts in taxation and so on. I do not know whether the Government are considering such measures. If so, I feel that they are to be welcomed. Of course, such measures need to be responsible and prudent, and there are automatic stabilisers in the system anyway, which entail an increasing dependence on Government finances because of the reduction of incoming income, and the increase in outgoing expenditure to protect the poorest.

Will the right hon. Gentleman clarify whether he is advocating to his colleagues on the Front Bench unfunded tax cuts that create a fiscal stimulus, or the sort of funded tax cuts that both Opposition parties have talked about?