House of Commons
Tuesday 31 March 2009
The House met at half-past Two o’clock
Prayers
[Mr. Speaker in the Chair]
Oral Answers to Questions
Foreign and Commonwealth Office
The Secretary of State was asked—
Iran
The International Atomic Energy Agency’s latest report of 19 February shows that Iran continues to refuse to suspend its proliferation-sensitive nuclear activities and has not granted the IAEA the access that it seeks as required by five UN Security Council resolutions. We, and the international community, will continue to press for Iran to fulfil its international obligations and restore confidence in its intentions.
Does the Secretary of State agree that while President Obama’s recent outreach to Iran is welcome, diplomatic overtures must be backed by a readiness on the part of the United States and the EU to impose such further sanctions as are necessary until such a time as Tehran can demonstrate to the unequivocal satisfaction of the UN inspectorate that it has abandoned its ambitions to develop a military nuclear capability?
I am grateful to the hon. Gentleman for his enunciation of the policy, which I think has support across the House. It is the so-called dual-track policy, which is that we should seek to engage with Iran, that we should make it clear that we have no quarrel with the Iranian people and that the choice of Government in Iran should be a matter for them. However, whatever the Government in Iran, they need to abide by their international responsibilities. If they refuse to do so, there are costs associated with that decision.
The hon. Gentleman is right that there are responsibilities on the EU and the US, but the responsibilities go wider. The international coalition, which is right to fear an Iranian nuclear weapons programme, goes wider than the EU and the US. Russia, China and the Gulf states have responsibilities, too, and I am sure that the hon. Gentleman would want to join me in working to ensure that they are part of a global coalition against an Iranian nuclear weapons programme.
With North Korea, it has proved useful to include its neighbours, Japan and South Korea, in the negotiations to discourage it from going down the nuclear weapons route. Should not Iran’s neighbours, particularly Saudi Arabia, Turkey and Egypt, be invited by the Security Council to join the negotiations over Iran, especially as the Iranians need to realise that those three countries might themselves go nuclear if Iran ends up as a nuclear weapons state?
Only up to a point. The multilateral negotiations are not being conducted under a UN framework—the E3 plus 3 is not a UN body, but it is recognised to have a global coalition behind it. The right hon. and learned Gentleman might have an important point, which was at the heart of the E3 plus 3 offer agreed under my chairmanship last May in London. It concerns what will happen in the future if Iran ceases its nuclear weapons programme or restores the confidence of the international community that it does not have a nuclear weapons programme. There are important regional political issues about Iran’s legitimate interests in the region, but no discussion of those issues can take place without the involvement of the countries that he has mentioned.
Will the Secretary of State acknowledge that Iran is a signatory to the nuclear non-proliferation treaty and that the best way to prevent any ratcheting up of tensions in the region is to declare our support for a nuclear-free middle east? That would include Israel’s having to bring its nuclear weapons to a de-alert status and would help to promote the idea of disarmament throughout the region to bring about stability, rather than the obviously very great danger of the development of an arms race across the region.
We have done that for a long time. It is important to be clear that through the Iranian programme we face the danger of proliferation and the sort of domino effect described by my hon. Friend. Iran, of course, is a signatory to the NPT. My hon. Friend is right. Inherent in the idea of the drive towards multilateral disarmament, eventually including the global abolition of nuclear weapons—a commitment that every signatory to the NPT makes—is the idea of a drive towards a nuclear weapons-free middle east, too.
At a meeting of the board of governors of the IAEA in Vienna on 2 March, the director general, Dr. Mohamed el-Baradei, reported, in addition to what the Foreign Secretary has said, that Iran continues to work on heavy water projects and that it declines to implement the additional protocol that is required of it. His recommendation was that a method should be found to find a way through by transferring these activities from national control to multilateral control. How does the Foreign Secretary think that that might be achieved in the short to medium term?
I spoke to director general el-Baradei about that issue when I met him at the Munich security conference. Inherent in the idea that Iran has to win the confidence of the international community that its uranium enrichment programme does not have dual use is the notion that we are open to a range of ideas for multilateral engagement with Iran over a civilian nuclear power programme—a programme that, above all, is destined only for peaceful use.
That is why we have strongly supported Russian support and investment in the civilian Bushehr nuclear power plant. There is a range of options on the table, as long as Iran is clear that it cannot pursue a programme that fails to win the confidence of those of us who believe that anything other than a solely peaceful programme—and one that has the confidence of the international community that it is solely peaceful—is ever going to be able to play any part in stabilising the middle east.
As well as selling air defence systems to Iran, Russia has continued to block attempts by the west to impose tougher sanctions on Iran. What are the Government doing to ensure that Russia does not continue to block the sanctions process?
The hon. Gentleman has made an important point. I am sure that he will have seen, as I did, at least a report of the interview that President Medvedev did for the BBC on Sunday, when he stated unequivocally that Russia does not want the development of an Iranian nuclear weapons capacity. That is why Russia has supported successive UN Security Council resolutions to that end.
The hon. Gentleman is also right that it is important to recognise the urgency of the matter and the need to make it clear to the Iranians that the American offer currently being developed and made represents the best chance that Iran will ever have of normalising its relations with the rest of the world, and above all with the US. The whole world can play a role in supporting American outreach in that regard. It is not only for Europeans but for Russians and Chinese as well to make it clear that this is the best chance that Iran will ever have to regularise its relationships with the rest of the region and the rest of the world, but that cannot be done while there is so much concern about its nuclear weapons intentions.
I wish a happy new year to Iranians here and around the world. The Foreign Secretary rightly talks about multilateral engagement with the Government of Iran. Does he agree that part of that process should also be multilateral engagement with the Government of Israel about its nuclear weapons, as that would build confidence among the Iranians that there is an equivalent process there?
The multilateral basis of engagement with the Iranians is first of all in respect of its NPT obligations. That is why this is an IAEA process, as well as a UN process. The sort of confidence and stability that I know that my hon. Friend wants to see in the middle east can be achieved only if nations abjure the sort of rejectionist rhetoric that has emerged from Tehran, which produces the sort of fears that can lead to a nuclear arms race.
The other thing to say is that not only Israel is worried about an Iranian nuclear weapons programme. If one talks to people from any Arab or Gulf state, one sees that there is a very high degree of concern among them for obvious reasons, given the tinderbox that is always the middle east. The last thing that it needs is a nuclear weapons arms race. In that context, we have a real opportunity, and responsibility, to bring old foes over the Israel-Palestine issue together on the Iranian issue. We believe that it is essential to move forward on the middle east peace process, but we must also recognise that there are also new coalitions to be built on the Iranian nuclear issue.
A moment ago, the Foreign Secretary spoke about the urgency of the process. Given that it is more than 12 months since the Prime Minister threatened new sanctions on Iranian oil and gas, and nine months since the E3 plus 3 made the offer to transform relations if Iran would suspend enrichment, will the right hon. Gentleman say today how much longer we are prepared to wait before we go back to the EU and the UN to ask for more sanctions? That would clearly show that we are taking both tracks of the dual-track process that he has described with equal energy and determination.
The hon. Gentleman asked the same question several times last year. I know that he shares the Government’s commitments on this matter, but I say to him—in the nicest possible way—that one very big thing has changed since then. For the first time in 30 years there is an American Government who want to open a bilateral channel with the Iranian Government and people. By any stretch of the imagination, that is a big change.
Given that the whole world, as well as the American Government, is committed to seeing that outreach take place—[Interruption.] I hear an Opposition Member shout, “How long?” but the Americans have not even completed their review yet, so let us hold our horses about that. It surely makes sense to say that the Americans should complete their review and ensure that the elements of their multilateral and bilateral outreach are clarified for the Iranians. If the Iranians do not respond in a positive way, we can then ensure that further steps are taken. If the hon. Gentleman pauses to think about it, he will recognise that now is not the time to be rushing for more sanctions; instead, now is the time to be backing the American outreach, which is a once-in-a-generation opportunity both for us and for the Iranians.
General Affairs Council
At the General Affairs Council on 16 March 2009, I discussed the proposal to invest €5 billion of EU funds in a number of projects, including on carbon capture and storage and energy infrastructure, ahead of final agreement at the spring European Council.
On Friday, I met representatives of several companies in my constituency, all of which are involved in environmental technologies with a wide range of potential applications. They seek in particular help with research and product development. Does the EU recovery plan contain anything for them?
The package outlined, in terms of carbon capture and storage and opportunities involving wind power, provides an exciting future in which businesses can grow. The environmental business sector is growing apace, at 5 per cent. each year. I suggest that my hon. Friend makes sure that his constituents are aware of what we are providing domestically through the Carbon Trust, the environmental transformation fund, the Technology Strategy Board and the various other ways in which we are supporting businesses to become low carbon and to make their good ideas reality. What is most important is where the EU adds value to what we do at national level. The €5 billion package will be helpful to boosting environmental technologies here and throughout the rest of Europe.
I imagine that the Minister has noticed the remarkable similarity between Questions 2, 8 and 17. Has the Government’s competence so disintegrated that they cannot even adequately disguise an exercise in arranging questions for themselves to answer?
I am absolutely delighted that some Members, especially on the Labour Benches, are interested in what the EU has to offer that is additional to what we in this country can do alone. We are more interested in the substance than in the process.
The EU is to be commended on directing between 60 and 70 per cent. of its economic stimulus funding to proposals relating to the environment. Will the Minister speak to her colleagues in her Department and more widely across Government to make sure that the G20 decisions and the Budget announcements show the same level of commitment as the EU has shown to environmentally sustainable projects? Here in the UK, environmental projects account for less than 10 per cent. of the total; if it were 50 per cent., we would be getting somewhere.
The debate now is on how to green the economy as part of our way out of the recession facing us and other countries around the world. Six months ago, when I started this job, it was hard to conceive of reaching agreement on a package at EU level, but we did. I hope that the G20 will ensure that opportunities to use fiscal stimulus to stimulate low-carbon economies, which would be good for our planet and good for jobs and skills in future, are at the heart of its achievements.
Given that the European economic recovery plan will not work if we cripple businesses with excessive red tape, can the Minister for Europe redeem herself from yesterday’s incredible admission that she has not read the Lisbon treaty, and so does not know what Europe has to offer, by assuring us that the Government will work hard in the negotiations to protect the UK opt-out on the working time directive, which has as critical an effect on environmental employees as it does on many others across this country?
Yesterday, the hon. Gentleman asked me whether I had read the elements of the Lisbon treaty that relate to defence. I answered honestly that I had read some, but not all, of it, but I have now done so. I have no doubt that he spends many nights and many hours—alone, I presume—poring over the Lisbon treaty to discover some hidden plot. This Government are working with our European partners to engage constructively and to ensure that we find a way out of the recession facing the world, which is a darned sight more than the Opposition are doing.
EU-US Relations
A strong and vibrant EU-US relationship is clearly in the UK’s interest. It provides an essential basis for meeting many of today’s most pressing challenges, from the global economic crisis and climate change to foreign policy priorities, including Afghanistan, Pakistan, the middle east and Iran. I shall continue to work to strengthen that relationship with European and American colleagues, as will the Prime Minister when he represents the UK at the EU-US summit in Prague next Sunday.
I am grateful for that answer. One area where one might expect closer partnership working is the middle east. Given the appointment of Senator Mitchell, but the relative failure of the Quartet and the Annapolis process, what role does my right hon. Friend see for the EU, and Britain within the EU, in moving the peace process forward?
I thought that my hon. Friend was going to anticipate a later question by complimenting the Quartet representative on the outstanding work that he has done, side by side with Senator Mitchell, to take forward change on the ground in the west bank and Gaza. My hon. Friend might try to catch your eye to make that point later, Mr. Speaker. The appointment of Senator Mitchell has in fact brought respect and applause from across the middle east, because of his obvious knowledge of the region, given his work on the settlements issue in 2001-02, and his record in the Senate and elsewhere. From my conversations with Senator Mitchell on four occasions, he will make a distinctive contribution to a region that needs urgent engagement on a problem—that of Palestinian statelessness and Israeli insecurity—which, if not solved soon, will never be solved.
Has the Secretary of State had the opportunity yet to look at the details of the US stimulus package? The majority of the $787 billion of new money is being spent at a state level. May I encourage him to employ that approach in the United Kingdom and throughout the European Union, rather than to pursue his Government’s plans of cutting public spending by £1 billion in Scotland, £500 million in Wales and nearly £200 million in Northern Ireland?
I understand why the hon. Gentleman was drawn to the American example; of course, President Obama has had to bail out a large number of states that have left their public finances in a baleful condition. Presumably, the hon. Gentleman has some experience of that as a result of the performance of the Scottish National party in Scotland. The measures being taken in this country, including some of those that he has criticised, have been of benefit not only to national Government and individuals, but to local government right across the country.
As we welcome President Obama to this country and to Europe, is it not time to congratulate NATO, reaffirm the transatlantic partnership between Europe and the United States and ensure that European Union countries and the US work together on security issues for the future?
My hon. Friend has made a very important point. The summit on Friday and Saturday marks the 60th anniversary of the foundation of NATO, and it is an important chance to look forward. One of the foundations of NATO’s future, whatever the debates about how it should combine the defence of its members with operations beyond its borders, is that it must embody the transatlantic alliance that has served Europe and North America so well over the past 60 years. I hope that the meeting on Friday and Saturday can be more than a “celebration”. First, it needs to be a chance to chart the future in respect of Afghanistan, the biggest and most important NATO mission currently under way. It should also start the debate about how NATO can look forward, in the next 10 or 20 years, to working in a very different context from that in which it was created.
Given the Government’s failure to act urgently on carbon capture and storage, and the fact that the Prime Minister’s own adviser, Lord Stern, said last night that he thought that it was unacceptable for Kingsnorth to go ahead without carbon capture and storage, does the Foreign Secretary expect leadership on that technology, which is crucial to tackling climate change, to be ceded to the United States?
No, not least because on the Friday before last, the United Kingdom was successful in ensuring that a significant tranche of the €5 billion stimulus package agreed by the EU should be dedicated to countries that want to take on carbon capture and storage, and €180 million is coming to the UK precisely for that purpose.
Ukraine
The UK has a very strong bilateral relationship with Ukraine. The Foreign Secretary and I both visited Ukraine last year, and President Yushchenko has paid three visits to the UK in the past 12 months.
On the eve of England’s first ever World cup match against Ukraine, does my right hon. Friend agree that it should not be too long before the European Union offers Ukraine a long-term membership perspective, to use the Euro-jargon, and that that measure, more than any other, is likely to encourage further political, legal and economic reform?
That might depend on the outcome of the match. Seriously, it is important for the EU and Ukraine to conclude a substantive new association agreement, including a deep and comprehensive free trade agreement. That will represent a strengthening of our ties and will offer an opportunity for Ukraine to integrate into the European economy, to align with EU energy policy—an important issue in recent months—and to co-operate in other areas such as tackling organised crime and trafficking.
When does the Minister envisage Ukraine becoming a member of the European Union? [Interruption.] “Not too soon,” I heard someone say. Has the economic crisis in Ukraine delayed that country’s entry into the European Union?
Ukraine will become a member of the EU when it meets all the requirements, and that is a matter for Ukraine. With the eastern partnership being launched, it is important for Ukraine to show that it is ready to reform and to find a consensus across the political divide to move forward on an issue that is very popular among the Ukrainian people, namely joining the EU.
The Minister has mentioned trafficking. It is estimated that half a million women from central and eastern Europe are working as prostitutes within the EU. When the Home Affairs Committee went to Ukraine, we found that it was both an origin country and a transit country. What further measures are the Government proposing to help the Government of Ukraine deal with the serious issue of human trafficking?
My right hon. Friend has made an important point. As I have said, getting the association agreement under way will lead to greater collaboration on matters such as organised crime and trafficking. He is right to point out that Ukraine is a significant transit country for illegal migrants and a major exporter of trafficking victims. The Serious Organised Crime Agency is currently working on identifying the criminal networks involved, and we are offering programme assistance to prevent trafficking. We are liaising with agencies here in the UK, such as the UK Border Agency and the Child Exploitation and Online Protection Centre, and working with our Ukrainian colleagues to stamp that out.
Will the Minister assure the House that targets are in place to ensure a significant reduction, in human trafficking, particularly in the numbers of women coming either from or via Ukraine into the UK to work in the manner outlined?
I will write to the hon. Gentleman with some detail about targets, because I am not in a position to answer that here. But it is important to demonstrate that the measures we are taking are having an impact. I am happy to write to the hon. Gentleman about how we assess that because, presumably, knowing the flow is important in understanding whether the problem is being tackled effectively.
Sri Lanka
We have become increasingly concerned about the humanitarian situation in northern Sri Lanka and in particular about the fate of the many civilians caught in the conflict area. We have made repeated calls on both the Sri Lankan Government and the Liberation Tigers of Tamil Eelam to agree an urgent humanitarian ceasefire to allow civilians to leave the conflict area safely and for increased humanitarian supplies to be brought in.
One of the great tragedies of the conflict has been the loss of civilian life, particularly in the so-called Government safe zones. Many feel that the only way in which we can have a lasting settlement is if the alleged abuses of human rights are investigated. Does the Minister agree? What action are the British Government taking to ensure that that happens?
I agree with the hon. Gentleman. The scale of losses since January this year—more than 2,600 civilians killed, more than 7,000 injured and hundreds of thousands internally displaced—is truly shocking. The UN Commissioner for Human Rights has expressed very serious concerns about the civilians reported killed and injured in the conflict. We are urging all parties to investigate those matters, and we believe fundamentally that there needs to be full and independent investigation.
I commend my hon. Friend and the Government on appointing the former Secretary of State for Defence, my right hon. Friend the Member for Kilmarnock and Loudoun (Des Browne), as an emissary on these matters. Notwithstanding the initial reception for this move, will my hon. Friend stress to all parties involved in this tragic case that this is not a matter of taking sides; it is a recognition that however essential military means may sometimes be, they are never sufficient to solve a problem? One cannot ultimately solve a political problem by military means alone, and it is in that spirit that we approach trying to assist a resolution of that terribly tragic conflict.
I agree with my right hon. Friend that this is not about taking sides; it is about standing up for all the innocent civilians who are caught in the middle of the conflict. He is right to draw attention to the fact that on 12 February the Prime Minister appointed the former Secretary of State for Defence as his special envoy to Sri Lanka. I very much regret the fact that the Government of Sri Lanka have yet to agree that appointment. We are disappointed and do not understand their attitude. I further agree with my right hon. Friend that the conflict cannot be resolved by military means and that there must be a political solution.
The Minister has rightly identified the problem in northern Sri Lanka with the Tamils, but is he aware that in parallel with all that is the persecution—I think that is the right word to use—of journalists in the Sri Lanka Broadcasting Corporation and in national newspapers in Colombo? What steps can the Government take to try to protect journalists and ensure that journalists can speak out and speak the truth?
We have the power of advocacy, but we do not have the ability to mandate actions on the ground. Nevertheless, the aspect that the hon. Gentleman has identified is a matter of the highest priority. The attacks and threats to journalists, members of civil society and others is extraordinarily concerning, as is the culture of impunity. We have urged and continue to urge the Government of Sri Lanka to do everything possible to investigate such instances and ensure that those responsible are brought to justice.
About two weeks ago, Balasingham Nadesan, the political leader of the LTTE, made a plea for a ceasefire. My view is that the Government of Sri Lanka should take that plea seriously. Have the Minister or his colleagues pressed the case with the Government of Sri Lanka and their representatives?
I know that my right hon. Friend is extremely concerned about the situation and has forcefully put forward her views. We agree that there should be a ceasefire. Indeed, our Prime Minister was the first international leader unequivocally to call for a ceasefire, and at every opportunity we are making it clear to all the parties that that is our view.
I call Keith Vaz.
Mr. Speaker, I am sure the right hon. Gentleman’s lawyers will be speaking to mine.
May I draw the Minister out a little further in his comments about the UK special envoy? Will he explain to the House what reasons the Sri Lankan Government have given our Government for refusing to accept the right hon. Member for Kilmarnock and Loudoun (Des Browne)? Does he see any way in which, in the near future, we will be able to resolve that impasse?
Dead ringer, I would say!
Let me be clear on the position of our special envoy. He remains our special envoy and we emphatically urge the Sri Lankan Government to recognise that. I do not know and do not understand why they will not work with our envoy. We are not in isolation. There are other envoys with whom the Sri Lankan Government are not co-operating. The message that we need to communicate emphatically at all levels is that there must be a political solution in Sri Lanka, not a military one.
Over the weekend, a group of brothers from the De La Salle order in my constituency came to see me about their concerns about Sri Lanka and the civilian safe zone in particular. Can my hon. Friend assure us that whoever is to blame for the problems and the mayhem, we will continue to give as much humanitarian support as the situation clearly invites?
I agree with my right hon. Friend. There has been a limited delivery of UN humanitarian supplies to the conflict area since January. That is not enough, and we urge all parties to ensure that medical supplies, food and equipment get to the people who so desperately need them.
Iran
The UK desires a constructive relationship with Iran, based on mutual respect. However, we have significant concerns about Iran’s nuclear ambitions, its regional activity and internal repression. Unacceptable harassment of staff in Tehran has forced the British Council to suspend its operations, which has obstructed the legitimate activities of our embassy. We have protested to Iran on numerous occasions, and we regret that it has done nothing to address the situation.
The Minister did not draw attention to the fact that Iranian activity has been responsible for the deaths of our servicemen in Iraq—and now, particularly, in Afghanistan. What are we going to do, other than merely protest?
We make our views very clear to the Iranian Government. We also interdict the forces coming from Iran. The message that needs to go out from all of us—it is part of the message that President Obama is sending the Iranian regime—is that we want Iran to be a responsible international partner. Fuelling terrorism and fighting in the region does nothing whatever to further that end.
What representations has my hon. Friend made to Iran following Israel’s interception of Iranian missiles that could reach Tel Aviv? They were being transported across Sudan to be smuggled into Gaza.
The reports have not yet been confirmed; nevertheless, a constant refrain of our dialogue with the Iranian regime is that such activities, wherever they occur, are not only wrong but move us further away from the peaceful outcome that we all want in the region.
We are right to be very concerned about Iranian nuclear ambitions; so, too, are the Government of Israel. However, does the hon. Gentleman accept that it is important that we should stress to Mr. Netanyahu and the Israeli Government that their interests are best served by working in concert with the United States and the European Union, rather than by contemplating any unilateral action on their own part?
I very much agree with the right hon. and learned Gentleman’s statement. There is a shared interest, and all our interests are served by our presenting the Iranian Government with that choice—a choice between engagement, with all the political and economic benefits that that can bring, and much tougher sanctions imposed on behalf of the whole international community.
General Affairs Council
The overriding aim of the European economic recovery plan is to stimulate demand and boost consumer confidence across the EU. The €5 billion package discussed at the General Affairs and External Relations Council and agreed at the spring European Council on 19 and 20 March focuses particularly on improving energy and broadband infrastructure. It will deliver cheaper, greener energy and better internet access, particularly to consumers living in rural areas.
My right hon. Friend’s answer has confirmed that making sure that consumers get back into the marketplace is central to the European economic recovery plan. That, of course, means jobs here in Britain. Does she believe that Britain’s influence and ability to make sure that we get those jobs would be increased or decreased if we had a Government who were withdrawing to the fascist wing of the European process?
We can be proud that the UK Government have more friends and allies in Europe in 2009 than we inherited in 1997. What is important is that we can come together across Europe, at this crucial time for our citizens, to focus on the issues that matter—rather than on internal institutional navel-gazing, which the Conservative party likes to do. The Conservatives’ decision to remove themselves from their alliance with the European People’s party is a bad one; it is bad for politics and it is bad for—
Does the right hon. Lady agree that spending yet more taxpayers’ money in this way is unlikely to do anything good for consumers, as it all has to be paid for? Will she instead look at the continuing blizzard of high-cost, job-destroying regulations that are pouring out of Brussels? The European Scrutiny Committee has to look at more than 1,000 such regulations a year. Will she ask for at least a moratorium on such regulation, at least for the duration of the recession, in the interests of employment and consumers alike?
I would have to disagree with the right hon. Gentleman’s suggestion that investing in carbon capture and storage and renewables is a bad thing to do. There is a time when regulation is right. We need to look at how we better regulate the banks and the way that they work. Over the past few years, we have seen some huge reductions in regulation in the European Union, and there is a target to reduce the number by another 25 per cent. by 2012. That has been greatly influenced by the better regulation unit that we set up here in the UK, which has found favour in other member states, and certainly within the Commission. I look forward to less red tape, but where we need it, it has to be SMART—specific, measurable, attainable, realistic and timely.
Is the right hon. Lady confident that enough is being done to address the problems of the countries of eastern Europe that 20 years ago were members of the Warsaw pact, and which now see their hopes collapsing around them and their economies in shreds?
The hon. Gentleman asks an important question. We need to be clear that some, not all, countries in eastern Europe are facing difficulties at this time. I agree with the Prime Minister, who said in a speech only the other week that it is important that we ensure within the European Union family that none of the members is left behind. That is why the G20 is important, but also important is what happens afterwards to ensure that Europe comes out of this recession stronger and better able to equip itself for the future.
Burundi and the Great Lakes
Burundi has made some progress while recovering from the legacy of a long civil war. However, elections next year will be a real test for its fragile democracy. The recent co-operation between the Democratic Republic of the Congo, Uganda and Rwanda offers the best prospects for peace in the great lakes region, which we warmly welcome.
I thank my hon. Friend for that reply. On a recent visit to Burundi, my hon. Friend the Member for Bury, North (Mr. Chaytor) and I heard concerns from civil society and opposition parties about the elections that are due next year. We met journalists and trade unionists who had been imprisoned for criticising the President—two of whom, happily, have now been released. Will my hon. Friend ensure that we do everything in our power as the UK Government to support those elections and, critically, what happens in the post-election period, which has traditionally been the time when violent acts take place, so that the country can continue down the path of peace that its people have chosen?
First, I thank my hon. Friend and my hon. Friend the Member for Bury, North (Mr. Chaytor) for the excellent work that they did when they went to Burundi in promoting good democratic practice by working with parliamentarians there. We were very glad to support that.
I can assure my hon. Friend that along with the Department for International Development we are working very closely with international partners to assess the potential risks in the lead-up to the elections and how we can best take action to head off those risks in advance of the elections and beyond. I would be delighted to meet both my hon. Friends in order to discuss how we might bring that forward.
I, too, was impressed by the Minister’s original answer to the question. Does she accept, however, that it is not appropriate to force western European democracy on to cultures that are very different from those in Europe? We need to look at the systems of democracy that we seek to help countries to develop in accordance with their needs and cultures. If we do so, we can perhaps find an acceptable arrangement that will not lead to the bloodshed that has been so typical in that part of the world.
May I first wish the hon. Gentleman a very happy birthday? [Hon. Members: “Hear, hear!”] That clearly commands support in all parts of the House.
This is not about imposing models of democracy, but about assisting with the development of good governance. I share the hon. Gentleman’s view that good governance in Africa needs stability, growth and development. That is the purpose of the work that we do in the Foreign and Commonwealth Office and in DFID. I can assure him that we will work closely not only with Governments but with non-governmental organisations, civil society and the media to give them a voice in ensuring that their countries can be stable, absent from the bloodshed that he mentions, and can move forward.
In the next two years, there are crucial elections in three countries of the great lakes region—Burundi, Rwanda and the DRC. The evidence strongly suggests that in countries that have come out of long periods of conflict, it is always the second democratic election that can mark the turning point. Will my hon. Friend do everything possible to support the integrity and transparency of the electoral process in those three countries over the next two years?
I share that view, but I should also say that we welcome the good signs of progress that we have seen in the region, particularly the serious and constructive work that the key leaders have done together, which has meant the restoration of diplomatic links and co-operation on matters such as reintegration. That proves that the solution is never just military, but also political. We will continue to support that process.
Pakistan
I maintain regular and frequent contact with Foreign Minister Qureshi, Prime Minister Gilani and President Zardari, as well as opposition figures in Pakistan. Our recent discussions have covered political development, stability in Pakistan’s tribal areas and in Swat and prosecuting those responsible for the attacks in Mumbai.
I am grateful to the Foreign Secretary for that reply. Even before yesterday’s brutal attack, President Zardari had appeared on UK media outlets appealing for direct and urgent UK assistance for Pakistan in tackling its Taliban problem. According to some reports, the Taliban control vast swathes of the Swat valley. Can the Foreign Secretary spell out how he intends to respond to that appeal, and what practical assistance we can give to Pakistan? If Pakistan continues its slide into bloodshed and violence, the consequences for the entire region will be catastrophic.
There are three or four ways in which we can respond to the needs of Pakistan. We are close friends of the Pakistani people, as well as of the Pakistani Government and the political parties. As well as the economic aid, which is substantial—not just the Department for International Development programmes, which amount to £500 million, but the International Monetary Fund loan, which we strongly supported and which is being well implemented—we can offer security support, which obviously we do not detail publicly. Finally, we can offer political engagement with Pakistan. It is significant that today, the United States Government have called a meeting in The Hague to discuss with the whole region the situation in Afghanistan and Pakistan, and that the US has proposed setting up a trilateral body of Afghanistan, Pakistan and the US to work on economic and security issues. Those are two examples of what has come out of the Riedel review on Afghanistan and Pakistan, both of which have the strong support of the British Government. Such political engagement with the problems in Pakistan and Afghanistan is essential.
The Foreign Secretary will be aware that Her Majesty’s Government have recently taken steps to suspend the constitution of the Turks and Caicos Islands. Although the population there are grateful for the corruption probe that is taking place, is he aware that they are anxious that the Government should work with all the countries in the region to restore democracy to that country as soon as possible?
Order. I could not hear properly because I was distracted, but I do not think that that supplementary is tied to the question before us. Perhaps the hon. Lady is thinking of topical questions. We will try Mr. MacShane—I think that he will be able to get it right.
No!
Set up again, Mr. Speaker, with your usual courtesy.
Does my right hon. Friend agree that the Foreign Office should never use the ugly acronym “AfPak”, which is patronising and condescending to the nation of Pakistan? Secondly, will he take the shadow Foreign Secretary behind Mr. Speaker’s Chair and agree with him that we have to talk about India if we are to get a solution on Pakistan. Finally, can we get more free trade going on Pakistan—[Interruption.] Well, I was invited to ask a question by the Speaker. [Hon. Members: “Not three!”] I chanced my arm. I hope that I can have an answer to all three questions.
I must say that I am disappointed not to have had the third part of my right hon. Friend’s question.
The situation in Pakistan deserves the full engagement of the UK. My view on its immediate responsibilities is that it must ensure that those responsible for the Mumbai attacks are prosecuted and, if found guilty, punished. There is no way in which the necessary dialogue between India and Pakistan can be restored until confidence is established that the Pakistani authorities will prosecute and punish, if found guilty, those responsible for the Mumbai attacks. On that basis, President Obama spelt out the regional equities very well last week.
Topical Questions
I visited Basra and Baghdad at the end of last month on 26 and 27 February. Today in Basra there is a ceremony marking the handover of coalition divisional command. Multi National Division (South-East), led by British troops, has done so much to stabilise southern Iraq, and the handover signals the merger of MND (South-East) with MND centre to form a new MND (South) command for all nine provinces of southern Iraq. Over the next few months, the final draw-down of British forces will take place while civilian engagement from the UK rises. As the first majority Shi’a democracy in the Arab world, Iraq’s future success matters to the whole region, and we will be working with the Iraqi Government and people for that success.
I thank the Secretary of State for that answer. He answered at great length earlier questions about Iran and its nuclear programme, but may I press him on other Iranian activities? He will be aware that The Times newspaper believes that some 40 British soldiers have been killed by Iranian roadside bombs and that Iran is funding Hezbollah, Hamas and the Taliban. Iran is fast becoming a rogue state. Is there any positive action that we can engage in to try to bring Iran back into the international fold?
Yes, there is positive action that we can take. First, we can ensure proper interdiction of the sort that the Minister of State, Foreign and Commonwealth Office, my hon. Friend the Member for Harlow (Bill Rammell), referred to, so that our troops are properly defended. Secondly, we can make it absolutely clear in the diplomatic engagement not just by us but, crucially, by the United States, that if Iran seeks a normal relationship with the rest of the region, it must behave responsibly. The hon. Gentleman cites a number of areas in which Iranian behaviour needs to change. The important point that has changed, though, is that it is now clear that saying to the Iranian Government that it is behaviour change that we seek, not regime change, can be done with unity and clarity right across the west.
The passion that my hon. Friend brings to this issue is well merited. Democratic Governments are held to higher standards than terrorist organisations, and the actions of the Sri Lankan Government in respect of the 150,000 to 200,000 people in the north-east of the country have fallen below the expectations of people all around the world. That is why we have unequivocally called for a ceasefire. The fact that the Liberation Tigers of Tamil Eelam have herded people into that zone is no excuse for the actions of the Sri Lankan Government.
The rules of the Commonwealth are quite clear: it is democratic norms that are the foundation of membership. An important part of the power of our argument and our international action—including by the special envoy, who was discussed earlier—comes from making it clear to the Sri Lankan Government that if they isolate themselves from international norms, they will cause grave damage to all the people of Sri Lanka.
I know from what the Foreign Secretary has already said that he will agree that the United States White Paper on Afghanistan and Pakistan, published at the end of last week, is very much to be welcomed. In December, the Prime Minister announced that he would be leading the UK review of policy on Afghanistan. Now that the United States has published its review, will the Foreign Secretary undertake that the British Government will complete and publish the review led by the Prime Minister? In particular, will he ensure that it is published and put before Parliament before any final decisions are made about the commitment of additional British forces to Afghanistan?
I think that the right hon. Gentleman asked about this in the House at the end of last year. I said that initial results from our review had been fed into the American review, which is right. I, too, am pleased by a significant number of the aspects of the Riedel review, the so-called “review of reviews” by the President’s appointee. The Prime Minister will discuss Afghanistan and Pakistan with the President tomorrow, and there will be EU-US discussion later.
As the right hon. Gentleman knows, troop numbers are decided on the basis of the situation on the ground, and they will always be reported to this House at the appropriate time.
The Prime Minister referred in December to a UK review. There would be great disappointment in the House if the British Government did not produce a review—a basis—for decisions that are to be made. General Sir Richard Dannatt seems to have gone ahead of Ministers by giving journalists the impression that 2,000 additional troops will be deployed. Is that an accurate number in the minds of Ministers? Will the Foreign Secretary assure the House that, if the Government are to authorise additional troops, they will entirely satisfy themselves that those troops will be accompanied by the right equipment, including the right number of helicopters, the right civilian back-up of every kind, and some reasonable prospect of a well-thought-out political process running alongside their difficult military mission?
I can certainly confirm that no decision has been made to send 2,000 troops or any other number to Afghanistan. Indeed, the UK has not been asked by the United States for any more troops, although we always keep the number under review for obvious reasons. The right hon. Gentleman knows that there has been some increase in the number of troops precisely to ensure better protection of the troops who are already there. The defence and protection of our troops is prominent in the minds of military commanders, as well as those of Ministers.
As the right hon. Gentleman knows from the debate about Afghanistan that we held earlier this year, it is vital that the Afghan Government lead the drive for a political solution under the tag of reconciliation. It is also right that the Afghan Government must be clear that the contract of which President Obama spoke last week includes a crackdown on corruption, which does so much to sap the confidence of the Afghan people, never mind the international community, in progress in that country.
We have always taken the view that elections need to be credible. Not only presidential but parliamentary elections are due next year—the latter are rarely discussed. Sustainable security improvements are vital for presidential and parliamentary elections. It is dangerous to profess confidence, but I am confident that a significant number of measures, including deploying extra troops from the US and the Afghan national army, are designed to ensure security for people seeking to exercise their democratic right on 20 August.
The hon. Gentleman speaks with great experience and he well knows that we are careful about discussing the details—or any sort of substance—of intelligence-sharing arrangements. The House shares a determination to ensure that those who perpetrated the terrible crimes, which claimed the lives of the soldiers, are brought to justice, and that everything is done to ensure the safety of soldiers—those who are stationed in Northern Ireland and also those, as in this terrible case, who are on their way to Afghanistan. They must be properly protected.
Following the Attorney-General’s decision to refer the allegations about British complicity in the torture of Binyam Mohamed to the police, will the Foreign Secretary confirm that the police will be provided with all the relevant papers that the UK’s secret services have, even if their source was the intelligence services of another Government—be they American, Pakistani or Moroccan? Will the police be able to interview any Foreign and Commonwealth Office Minister, not just secret service agents?
Of course they will have access to all the necessary materials, as did the High Court in conducting its investigations. The intimation or underlying assumption in the hon. Gentleman’s question that somehow the High Court inquiry did not have access to American or other papers is erroneous. We have had the debate precisely because the court had access to the American papers. I hope that the hon. Gentleman intended no slur on the work of the Attorney-General or the Metropolitan police. The work will take place under the precise terms that the Attorney-General set out, which are in line with this country’s determination to abide by its national and international responsibilities.
As I think I said when I made a statement to the House on the Gaza conflict on the first day back after the Christmas holiday—the conflict was still under way then—we take seriously all allegations of war crimes and they should all be properly investigated. At the moment there are investigations by the Israeli Government, the UN and the International Committee of the Red Cross. We wait to see the results of those investigations, but we must get credible answers. That is the basis on which we will judge the need for any action after those inquiries.
I am racking my brains back to the statement that I made last February on the issue. I can confirm that we were informed of two people who were rendited through Diego Garcia, but the hon. Gentleman will have to get a proper written answer from me to that question, because I certainly would not want to mislead anyone on the issue. I have nothing further to add to the statement that I made here last February.
I would like to echo my hon. Friend’s comments about the valuable support that Estonia has given to our collective efforts in Afghanistan. I am pleased to inform him that assistance to Estonia is being provided through NATO’s work to protect both its own and its allies’ communication and information systems from cyber-attack. NATO has established the cyber defence management authority to oversee work in that area and a team of deployable experts who can respond in an emergency. NATO has also set up a centre of excellence in Estonia to conduct research into cyber-threats. Threats come in many forms. We should not underestimate those that come in the form of blocking technology.
I am pleased to answer that. In addition to the measures on financial regulation and macro-economic co-ordination and the help for the developing world, it is vital that international leaders first make the right statements against protectionism, and secondly, ensure the right mechanisms to follow them through. Those mechanisms began to be put in place at the Washington summit, but I look forward to the hon. Lady reading the final communiqué of the G20 summit, which I think will show substantial progress in a number of areas. She knows that the agenda for the G20 is much broader than that for the Washington summit, but I believe that there will be important progress in those areas, which will more than justify the leadership that has been given on the issue by the Prime Minister and the Government more widely.
I do not know whether that is a question more designed for me or for my right hon. Friend the Secretary of State for Defence, but I can assure the hon. Lady that the rise in force projection in Afghanistan is very significant indeed. Obviously it is Pakistani forces that are operating in Pakistan, rather than coalition forces, but there is certainly no military constraint of the kind that she implied on coalition forces in Afghanistan at the moment.
Points of Order
On a point of order, Mr. Speaker. On 3 March, Dr. Challoner’s grammar school in my constituency received a final allocation letter for the spending on 379 sixth-form students for the financial year beginning tomorrow. Yesterday, the headmaster heard that the funding has been slashed by £119,000, so that it would cover only 362 students. Clearly, as the school already has 379 students, it cannot plan for a reduction at such short notice, so the decision will affect the quality of education offered to the school’s students starting this week. Can you advise me, Mr. Speaker, whether the Secretary of State for Children, Schools and Families can be asked to come to this House to make an urgent statement on why the Government have removed this funding at the last minute?
I cannot advise the hon. Lady about that, but perhaps she could try for an Adjournment debate. She could put her case there and a Minister would have to respond.
On a point of order, Mr. Speaker. On 1 July, I received a written answer in reply to an inquiry about the security of the redaction process to deal with the 1.3 million receipts being processed. The spokesman for the House of Commons Commission, the hon. Member for North Devon (Nick Harvey) stated:
“It is… planned that the scanning of some 1.3 million documents and first stage redaction to remove details such as addresses, telephone numbers, banking details and account numbers will be undertaken under secure conditions by a contractor familiar with providing services to Government and Parliament whose staff have been security”—[Official Report, 1 July 2008; Vol. 478, c. 742W.]
vetted. Do you agree, Mr. Speaker, that it is a very different thing when something that is going to be published later is released early in some sort of journalistic scoop and when personal information, such as home addresses, telephone numbers and bank account details, are hawked around journalists with a view to selling material in a way that would undoubtedly be both a crime of theft and a crime under data protection legislation? Is there anything you can do, Mr. Speaker, to protect hon. Members against this sort of personal data being disclosed when this House has voted that it never should be disclosed?
This House has in good faith, as the hon. Member for North Devon (Nick Harvey) pointed out, handed this work over to a contractor with security vetting, so I am deeply disappointed when any information like this has been put out. When a service is given by the House, it is obvious that security and confidentiality must be all-important. No one in that organisation, either for financial gain or any other reason, should be handing over information that has been put and safeguarded with it to do a certain job of work. I can confirm to the hon. Member that the House has started an inquiry to establish the facts relating to the release of personal documentation and to determine whether an offence has been committed. I shall of course keep the House informed whenever I can.
Council Tax Rebate
Motion for leave to introduce a Bill (Standing Order No. 23)
I beg to move,
That leave be given to bring in a Bill to rename council tax benefit council tax rebate; and for connected purposes.
This Government have a proud record in reducing poverty among pensioners. Since 1997, a raft of measures, including the largest ever increase in the basic state pension, has helped to lift 2 million pensioners out of poverty and means that pensioners are, for the first time in our history, less likely to live in poverty than the working population. Too many of our pensioners, however, including our veterans who have served this country with courage and distinction, still live in poverty, so this is no time to rest on our laurels.
The House will be aware of the valiant campaign led by the Royal British Legion to increase levels of council tax benefit take-up. It has rightly highlighted that for many pensioners, council tax represents a significant outlay—in some cases, it is their largest single expenditure. I am sure that Members of all parties will recognise council tax as one of the most frequently raised issues on the doorstep, particularly among pensioners.
Council tax benefit was introduced to address precisely this issue: to help the most vulnerable members of our society with their council tax bills. But as it stands, as many as 2.2 million eligible pensioners do not claim council tax benefit, even though they are entitled to it. In fact, the level of take-up of council tax benefit has actually fallen by 10 per cent. over the past seven years for which data are available. This means that council tax benefit, which has the highest number of potential claimants, has the lowest take-up level of any state benefit. Nearly half of all pensioners who qualify for council tax benefit do not make a claim, and almost £1.5 billion of council tax benefit—money that has been set aside by the Government to help people pay their council tax bills—goes unclaimed each and every year.
The sum of £1.5 billion may sound like an abstract figure, but in real terms it would mean an additional £598 per year per eligible pensioner to help cover the costs of council tax. As 41 per cent. of pensioners living below the poverty line are entitled to council tax benefit but do not claim it, £598 is a very significant amount. Indeed, in many cases it would be sufficient to lift pensioners out of poverty altogether. A higher take-up rate of a council tax benefit could, therefore, bring about dramatic reductions in the level of pensioner poverty. Just a 10 per cent. increase in take-up would lift 47,000 pensioners out of poverty, and the Royal British Legion believes that as many as 20,000 veterans would be better off if they claimed council tax benefit. That is why the Royal British Legion was able to attract 25,000 signatures to the petition it presented to No. 10 Downing street at the end of February.
The Government accept that current levels of council tax benefit take-up are not good enough, and I welcome the fact that they have made it clear that pensioners are their priority group for increasing take-up. I believe that rebranding council tax benefit as council tax rebate would increase take-up, especially among pensioners, and this is what my Bill seeks to achieve.
For accuracy alone, there is a strong argument that council tax benefit ought to be rebranded as a rebate. Effectively, council tax benefit assesses an individual’s liability to pay tax and as such is misnamed at the moment. Using the term “rebate” rather than “benefit” would reflect more accurately council tax benefit’s true nature as a reduction in tax liability, rather than a state benefit. There is also evidence to suggest that this simple renaming could encourage higher levels of take-up. Indeed, when my hon. Friend the Member for Oldham, East and Saddleworth (Mr. Woolas) appeared before the Communities and Local Government Committee in June 2007 as a local government Minister, the first suggestion he provided for ways to improve council tax benefit take-up was, without being prompted,
“To change the name to something that is not benefit”.
In its final report, the Select Committee went on to endorse that sentiment, as its predecessor Committee did in 2004, and as have the Audit Commission and the Lyons inquiry into local government.
In his report, Sir Michael Lyons highlighted that when the old domestic rates regime was in place, the term “rebate” was used instead of the term “benefit”. Take-up rates stood at 75 per cent. overall and were around 90 per cent. for older people then, which is substantially higher than the current estimated take-up rate of between 55 and 61 per cent. This discrepancy may, at least in part, be explained with reference to the stigma associated with claiming what are perceived to be benefits, which may deter some eligible pensioners from submitting a claim.
Many older people I meet in Enfield are proud of their independence and do not like asking for help, not least our veterans who fought for the freedoms that we all enjoy. Indeed, a survey conducted by Help the Aged suggested that as many as one in seven pensioners would not undergo means-testing, even if that meant foregoing benefits to which they knew they would be entitled. This is certainly the opinion of the Enfield Borough Over 50s Forum, which, I am pleased to say, supports my Bill. Its chairman, Mr. Monty Meth, told me that the forum—and with more than 3,000 members, it is one of the largest in the country—had
“first hand experience of people refusing to apply for reduced council tax because of the stigma attached to the idea that they are applying for benefits or for charity, when in fact they are claiming a rebate that is rightfully theirs”.
Renaming council tax as a rebate would address the stigma associated with the term “claiming benefit” and remove this barrier to take-up. In my experience, older people have far less aversion to claiming back tax than to claiming benefits. The use of the word “rebate” would, therefore, provide pensioners with a greater sense of legitimate entitlement to the relief and, moreover, would be consistent with the second adult rebate, which is already administered by councils and provides a reduction in the council tax bill for some people.
In principle, the Government accept the case for this change. My Bill does not seek to change the rules that govern who is entitled to council tax benefit or to alter the amount of assistance people receive; it is simply about helping to implement a policy that the Government have already introduced. They accept that the take-up level of council tax benefit is too low, that a priority must be increasing the level among pensioners, including among our veterans, and that changing the name of council tax benefit, particularly by removing the word “benefit”, would encourage a higher level of take-up, particularly among pensioners.
I do not think that any of the supporters of this Bill, who come from all parts of the House, think that a name change is some sort of panacea, but that is no excuse for inaction. There is no master plan, no one-size-fits-all strategy and no single solution to improving the level of council tax benefit take-up, and if Ministers are waiting for one, I fear that they will be disappointed and, more importantly, thousands of poor pensioners will go without the help to which they are entitled.
Increasing the level of council tax benefit take-up and reducing pensioner poverty, including among veterans, will require a variety of different strategies tied to local needs. That will involve central Government working in partnership with local authorities and using the creativity of voluntary organisations. Given that so many could benefit so much from such a small and straightforward change, I hope that Ministers will listen to the thousands of pensioners, including the 25,000 veterans who added their name to the Royal British Legion’s petition, and agree that the case for renaming council tax benefit council tax rebate is compelling.
Question put and agreed to.
Ordered,
That Joan Ryan, Siobhain McDonagh, David Cairns, Jim Dobbin, Bob Russell, Dan Rogerson, and Mr. Nigel Evans present the Bill.
Joan Ryan accordingly presented the Bill.
Bill read the First time; to be read a Second time on Friday 26 June and to be printed (Bill 82).
The Economy
I beg to move,
That this House has considered the matter of the economy.
In the week when the G20 leaders and Finance Ministers meet here in London, I am glad to have the opportunity to start this debate on the economy. We are now facing the most difficult economic situation we have seen in generations, with negative world growth this year—for the first time in 60 years—world trade collapsing at the sharpest rate we have seen since 1965 and industrial production falling in 54 of the 57 largest economies. By way of example, in the past year alone 4.5 million jobs have been lost in the United States, and last week we heard that Japanese exports have dropped by some 50 per cent. So this week, we have to show together that we can agree international solutions for international problems.
Thursday’s meeting here is the opportunity to show that countries can learn from what has happened in the past, and can work together with a commitment to growth. We want growth to be sustainable, and for that to happen it cannot be kept just for the richer countries but must be shared. Trade must once again drive growth, and a global recovery must benefit both us and the developing and emerging economies, not just to meet what we need to do today, but to serve our long-term interests in the future.
Can the Chancellor tell us what is a prudent limit for borrowing in this country at present, bearing in mind the need to stave off any danger of bankruptcy or inability to raise money?
It is right that countries borrow if it is for the purpose of supporting the economy at a time such as this, when we are encountering substantial difficulties. That is very important, and I am not alone in believing that. Indeed, I saw on last night’s “Newsnight” that the right hon. and learned Gentleman, who sat at the Cabinet table in the last Conservative Government with the right hon. Member for Wokingham (Mr. Redwood)—[Hon. Members: “Who?”] It was the shadow Business Secretary, and I am glad to see him in his place, supporting loyally—as ever—the shadow Chancellor. When the shadow Business Secretary was asked last night by Mr. Paxman what he would do to save jobs, he said:
“What I’d be doing to save jobs—trying to keep stability into the system, trying to join with the others in getting the worst of the global recession over and I would also be concentrating on bailing out the banks, concentrating on the toxic asset problem”.
Mr. Paxman then asked:
“Would you borrow any money?”
The shadow Business Secretary replied:
“I’d be borrowing some money in order to go for a loan guarantee to help with the credit markets”.
So he would be prepared to borrow to support the economy—
Will the Chancellor give way?
I will in a moment. The right hon. and learned Gentleman’s appearance on “Newsnight” rang alarm bells in his mind as well as in other Conservatives’ minds. He is right that it is important that we borrow money to support the economy now, but at the same time we are ready to ensure that in the medium term—like every country—we live within our means.
I am glad that the Chancellor watched me. He probably saw that I agreed with the Governor of the Bank of England, with most of the world’s Finance Ministers and with the President of Chile that, in view of the appalling state of our public finances, this Government cannot afford any further fiscal stimulus. I suspect that the Chancellor also agrees with those distinguished gentlemen: will he confirm that?
I certainly agree that it is necessary for us to be cautious. I agree in particular with what the Governor of the Bank of England told the Select Committee when he was asked about the prospects for growth in the world economy and in our economy. He said that the same factors that led the Bank to believe that there would be a recovery in the UK also suggest that there will be one in the world economy, and those factors included the large financial stimulus that has been injected. In other words, the Governor supported the view that we took last autumn that we had to support the economy, and we will continue to do that.
I shall give way to the hon. Gentleman, but I just want to tell the House that normally I give way to most Members who wish to intervene, but I know that many Back Benchers want to speak in this debate and that Mr. Speaker has been concerned about the length of time that Front Benchers have been taking in economic debates. I shall give way, but then I shall make some progress. No doubt the hon. Gentleman wishes to ask about Europe.
I am sorry to disappoint the Chancellor—[Hon. Members: “Oh!”] I am disappointing the House too by the sound of it.
Does the Chancellor accept that the public sector debt figures that he gave in the pre-Budget report only a few months ago have now tripled, and that the most recent estimate by the Office for National Statistics is that it is £2.2 trillion? Does he accept, therefore, that the reduction in public expenditure and the increases in taxation that go with it make a nonsense of the statements he made in the pre-Budget report only a few months ago?
No, I do not. As I have said throughout this time, it is necessary for Governments to support their economies, and 19 of the 20 G20 countries are doing so. There is recognition across the world that in these extraordinary times we need to take extraordinary action to support our economy. It is equally true, as I have said time and again, that in the medium term we have to live within our means. I believe that we were right last autumn and that we are right now to continue to protect jobs, to support people and to support businesses. We are right to continue to repair the banking system and to make the reforms we need for the future. We are right, too, internationally to use the International Monetary Fund and other international institutions to support developing and emerging economies; otherwise, that will not only damage them but affect us, too. We need to get world trade going and we need to ensure that the recovery is sustainable in the long term.
That was why last autumn I took the judgment that we needed to intervene. I rejected the suggestion that we should simply sit back and let the recession take its toll. That was what happened in the 1980s and 1990s, with disastrous consequences. We are helping people and businesses, with more than £1 billion going into the Jobcentre Plus network to help people find jobs. That is one reason why, still, more than half the people who lose their jobs get back into work within three months. That did not happen in the 1990s and 1980s.
We have given additional money to pensioners. Next week, the pension credit will go up from £124 to £130 a week. The state pension will go up to more than £95 a week. In January, we increased child benefit to more than £20 a week for the first child. The child tax credit will go up next week, and from Monday 22 million basic rate taxpayers will see a reduction in their income tax. That is real help for people up and down this country, at a time when the Conservatives have opposed every single one of those measures. They would have done nothing, as they did in the past. On top of that, we have put £12.5 billion into the economy through the reduction in VAT. The health in pregnancy grant is another measure that shows how we, even at this time, are ready to help people who need help, and it will come in at the beginning of next week.
It is important that at a time such as this we support people and businesses. It is imperative. I simply do not understand the policy whereby, in the face of all this, we should do absolutely nothing and hope for the best.
The Chancellor says that he wants to help businesses. Why, therefore, did businesses up and down the country last week receive new business rate demands significantly greater—in some cases, two or three times greater—than those they had paid the previous year? How is that helping business?
I shall come on to that in a moment. The hon. Gentleman supports his party in believing that we should not be spending any extra money. Time and again, Opposition Members say they want more of this and more of that, but they are not prepared to find the money for it. I believe it is important to support businesses, and one way in which we do so is by supporting the wider economy. When we consider what we have done—the £20 billion that went into the economy last year, the automatic payments into the economy through lower tax receipts and higher benefit payments—we see that we have increased such support as a percentage of what we produce. We have provided about the same level of support as the United States, Germany and China—indeed, most countries in the G20 have been prepared to take action because they recognise that it is necessary to support their economies and families and businesses.
We can afford to take that action because we were prepared as we came into this—[Hon. Members: “What?”] To put it another way, I firmly believe that we cannot afford to take no action. If we did so, the cost would be far greater. That is why the IMF said only in February:
“Some countries entered the crisis with greater fiscal space to expand”.
It cited:
“Canada, China, France, Germany, the U.K., and the U.S.”
We were in a position to take action, and we did so. The Opposition would have turned their backs on the people of this country. They would not have done what was necessary—just as they did not in the 1980s and 1990s. They were wrong then and they are wrong now.
The Chancellor is talking about the decisions that were taken in the autumn. This afternoon, a letter from the former chairman of the Royal Bank of Scotland to the Select Committee on the Treasury has been published. It says that the evidence that the Treasury Minister, Lord Myners, gave to the Select Committee was not an accurate account of how much the Government knew about the size of Sir Fred Goodwin’s pension. In other words, while the Prime Minister was pretending to be angry about the Goodwin pension, his hand-picked Minister knew about it all along. Does the Chancellor agree that unless, by the end of the day, Lord Myners can prove that what he told the Select Committee was true, he must resign?
I know that the letter sent by Sir Tom McKillop has been published. We are considering it and will respond to it, but we are in the middle of a debate on the economy for which the hon. Gentleman has been calling for weeks. He said he was desperate to set out his case, so I thought that he was going to intervene to tell me why it was wrong to do anything and why his policy of inaction and standing by was absolutely right. However, he chose not to do so.
I believe that it is right that we do that—
I shall make some progress, and then I will certainly give way.
We must continue to make progress with sorting out the problems in the banking system. There is no quick or overnight fix, but it is important that we build on the recapitalisation of the banks. We must strengthen and restructure them where appropriate, and of course it is also important that we strengthen the regulatory system. We have to ensure that the supervision and regulation of institutions—including hedge funds—here and abroad are more extensive than in the past.
We must make sure that regulation is more intrusive than it has been in the past—a point that, to some extent, we discussed with Dunfermline building society yesterday. We need to strengthen prudential oversight: in future, we must make sure that banks throughout the world have sufficient reserves and that systems are in place to put the brakes on lending, where necessary.
We must also ensure better co-operation within the EU. We need common rules but, at the same time, we must respect the need for national supervisors to ensure an adequate system of regulation, here and throughout the world. The process of strengthening and improving the regulatory system is absolutely necessary, and of course it must be accompanied by a long-term culture change in bank boardrooms. Ultimately, it is the responsibility of banks’ boards to get these things right, and it is important that they do so in future.
Lord Myners has asserted that the RBS board exercised discretion to enhance Sir Fred’s pension. Sir Tom McKillop flatly contradicts that, and he is supported by the minutes. In his letter, he says:
“There was no question of any discretion being exercised in relation to Fred’s pension and no discretion was exercised in that regard by any other RBS director.”
Does the Chancellor not now think that Lord Myners’ position is unsustainable?
No, I do not. As I said earlier, Sir Tom McKillop’s letter has just been released. We need to consider what he has to say, and we will respond in due course. However, we are 15 minutes into this debate and one would have thought that someone on the Opposition Benches had something to say about the economy.
On a point of order, Mr. Speaker. I do not know whether you are able to guide the House, but when a witness is found to have lied to a Select Committee, would it be in order—
Order. Is the hon. Gentleman referring to a Member of the other place? [Interruption.] I want a clear answer, and no interruptions.
I am asking for general guidance, Mr. Speaker—
Order. Is the hon. Gentleman referring to a Member of the other place?
I would not do that, Mr. Speaker, because it might be out of order—
Order. What the hon. Gentleman has to tell me is a yes or a no.
Well, I would not do that, Mr. Speaker—
I am going to make this plain. If any Member of the other House is accused in this Chamber of lying, I will make sure that it is not reiterated in the Chamber. I think the hon. Gentleman was out of order in even raising a point of order in the manner he did. It is best that he resume his seat and keep quiet. That is the best thing he can do.
We have commitments from the banks in which we have shareholdings. RBS will increase its bank lending by £25 billion this year and next, and there will be £14 billion from Lloyds and more from Northern Rock.
Will the Chancellor give way?
Not at the moment. Even those banks in which we do not have shareholdings, such as Barclays, HSBC and others, have said that they will increase lending.
Will my right hon. Friend give way?
I will in a moment.
That is important, because it is vital that we help businesses. For example, 100,000 businesses have already benefited from the extra time we have given them to pay taxes. We have also helped small companies by postponing the increase in corporation tax.
It is very important that we help businesses and I want to set out a little more of what we propose, but, before I do so, I give way to my hon. Friend the Member for South Thanet (Dr. Ladyman).
As my right hon. Friend says, we have taken shareholdings in banks. Has he estimated how much profit the Government will make if they return the shareholdings to the private sector when the banks’ share prices recover?
Not yet, but I hope to be able to do so at some stage.
Will the Chancellor give way on that point?
No, I want to deal with the point about business rates because I am conscious of the fact that businesses in this country faced a 5 per cent. increase in business rates, simply because the increase is linked to last autumn’s—last September’s—retail prices index rate. However, RPI inflation has fallen to 0 per cent. in the past month and is expected to fall further. I want to help businesses, so I can tell the House that companies will be able to pay only a 2 per cent. annual increase this year and pay the remaining 3 per cent. smoothed out over the following two years. Local authorities will write to business rate payers to let them know what will happen and what their options are, so businesses need not contact local authorities at this stage. I believe that that will provide genuine help to businesses in this country, with 1.5 million properties gaining from the measure and about £600 million of payments being deferred. I am glad that the hon. Member for Ludlow (Mr. Dunne) raised the matter. I hope that he is still glad that he did so.
Has my right hon. Friend received representations from the aerospace sector on loan support to support sales of major items, which are greatly straitened by the present unwillingness of banks to support such sales?
Yes, I have, and I believe that my hon. Friend has raised the matter with the Economic Secretary in his capacity as a Minister at the Department for Business, Enterprise and Regulatory Reform. I am aware of the importance of supporting the aerospace industry. When I was Secretary of State for Trade and Industry, I was glad that we were able to support the industry in a number of ways. We shall continue to consider what else we can do.
Many businesses will welcome the business rates measure the Chancellor has just announced, but could it be coupled with the concept of automatic business rate relief for small businesses, raised in a private Member’s Bill introduced by the hon. Member for Mid-Worcestershire (Peter Luff)? If local authorities are already writing to businesses, is there not the capacity at that point to determine whether they qualify for automatic small business rate relief, and so accomplish both measures in one operation?
I shall certainly look into the possibility of doing that. Anything we can do now to help businesses, especially small businesses, is well worth while. I shall ask the Secretary of State for Communities and Local Government, who is sitting beside me, to investigate further.
Before my right hon. Friend moves from banking, may I tempt him with, I hope, a slightly easier question than the one asked by my hon. Friend the Member for South Thanet (Dr. Ladyman)? It is now accepted in Newcastle that the Government did the right thing by Northern Rock, bringing about stability and turning the bank around. Does my right hon. Friend anticipate that the bank will fully repay the loans?
I very much hope that it will. My hon. Friend knows that when we lent money to Northern Rock, there was a lot of scepticism—especially among the Conservatives—about whether we would ever get any of the money back. When we eventually nationalised the bank, there was downright hostility, but few would say now that that was not the right thing to do. Of course, we have new legislation, which would help us in future. However, Northern Rock has been able to repay, ahead of schedule, the money it borrowed from the Government. A loan of about £10 billion is outstanding, but I think it right, in the light of changed circumstances, to allow Northern Rock to re-enter the mortgage market. That is important.
I want to make more progress before giving way again.
It is important to remember that the fiscal action we have taken is reinforced by the monetary action taken by the Bank of England. Interest rates have fallen quite dramatically in the past few months, which is helping millions of people in this country—mortgage holders as well as business people.
Will the right hon. Gentleman give way on that point?
No—I am making progress.
In addition, we have given the Bank of England power to put more money into the economy, to ensure that we do not get deflationary pressures and that we do all we can to keep the economy going.
The Bank of England, in addition to buying Government gilts, will buy commercial paper and commercial bonds. As a result of its intervention, the 10-year gilt yields have fallen by about 0.5 per cent. since the announcement. We are doing the same as the United States, Switzerland, and Japan; other central banks will no doubt follow. The point is that in the face of unprecedented conditions, we are prepared to act—to provide substantial help for families and businesses, prevent the collapse of banks, protect people’s savings in UK institutions, kick-start credit, and build a sustainable recovery. We are ready to seize the opportunities ahead. That is the difference—
Will the Chancellor give way?
I will give way shortly, by all means.
That is the difference between our choice, and the choice that the Opposition have made. Our choice is to support jobs and help people to get back into work. More money for pensioners and families with children, more money in the child tax credit, basic rate taxpayers being helped by next Monday—all that is being opposed by the Tories. Those are not their priorities. Their priority is to introduce one proposal to help just 3,000 people in this country. If ever there was a policy for the few, not the many, that is it. That is the path that the Conservative Government have chosen.
Does not the Chancellor think that all the things he is doing, and wants to do, would be much easier to do if the Government had run a responsible fiscal policy over the past six years, and had run surpluses in the good years?
The hon. Gentleman has to remember that, over the past 10 years, our economy has had the longest period of stability in a generation. We were able to do more for the health service, housing and education. At no time did anyone anywhere in the House say that we should spend less—quite the opposite. In these debates, Members used to call for even more to be spent, so, no, I do not agree. I thought that at least one Conservative might explain why, when faced with the choice of whether to help people to get back into work, which has cost about £1.3 billion—that is what we are giving to Jobcentre Plus—they would instead spend the money on helping a tiny minority of people. In the scheme of things, one might have thought that the Conservatives’ choice would be on the side of the many in this country, not just the few.
I appreciate my right hon. Friend’s giving way. Will he briefly comment on the disparity in the contributions made by building societies and banks to the Financial Services Compensation Scheme? The hon. Member for Dunfermline and West Fife (Willie Rennie) was in the Chamber just now. We have lost one building society; I would hate to see another go.
As I said yesterday, we want to do everything we possibly can to make sure that we support stability in the financial sector, including the building society sector. Indeed, yesterday, although it was very sad that the Dunfermline building society got into the position it did, at least we were able to transfer it to another building society; that is important.
rose—
I will give way in a moment, but first I thought I might give the Opposition some further food for thought.
We face the most substantial economic downturn in generations. The whole world faces a financial crisis the like of which we have not seen for decades. The Conservatives might have thought that the No. 1 priority was to cut inheritance tax. Surely they would question not only having such a policy, but the fact that they cannot even pay for it. On 24 March this year, the shadow Chancellor told the BBC,
“what I’m saying is with the Conservatives’ plans these are funded, on inheritance tax we will pay for it with the long-established proposals we’ve put forward on non-domiciles.”
The next day, again on the BBC, the shadow Secretary of State for Business, Enterprise and Regulatory Reform said:
“We don’t know how many non-doms will be here, we don’t know how much our policy of raising fair taxation from foreigners who work in this country will raise”.
In other words, the policy is not only unfair but unfunded. Does not that tell us everything we need to know about where today’s Conservative party is?
Given the Chancellor of the Exchequer’s remarks, with which I entirely agree, about Conservative policy on inheritance tax, will he reconsider the Government’s own cuts to inheritance tax in the forthcoming Budget?
No, because they are the right thing to do. At every stage, when we take action, we do it because we think it is fair and right. Faced with all the current problems that we and other countries have, it would be utterly wrong to make a priority of a measure that would benefit a very small number of people.
The Tories have a second policy. Not only do they oppose our putting money into the economy, but they are calling for £5 billion to be taken out of the economy, starting next week. That would mean taking money out of the police service and out of the environment at a time when we should be putting money into the economy. We can grow our way out of a recession; we cannot cut our way out of a recession.
The Chancellor of the Exchequer has got a nerve. He is posing as the saviour of the millions of pensioners in this country. Does he not accept that it was his Government’s action in removing advance corporation tax relief to pension funds that destroyed the pensions industry and millions of pensioners throughout the country? Furthermore, he accuses my hon. Friend the Member for Tatton (Mr. Osborne) of inaction. Where was the Chancellor’s action when he set up the Financial Services Authority? It crucified the small independent financial adviser, but it failed to spot the big bankers making a huge mistake with the economy of the country.
I do not agree with the hon. Gentleman, as he will appreciate. In the past 10 years we have increased the state pension, we have introduced the pension credit, which is helping millions of pensioners by matching hard-earned savings, and we have taken many more pensioners out of tax. We will continue to do everything we can to help older people, because that is the right thing to do.
I believe that at a time like this, Governments across the world need to take action. They need to support their economies. Yes, of course they must take action to ensure that they live within their means in the medium term, but we must also ensure that we support our economies, continue to get credit going again and sort out the banking system: together, internationally, we must get international trade going again. We need to do everything we can to help the emerging markets and to prevent people from falling into poverty, because that would be a scandal.
There is a moral imperative on every one of us to do everything we can, both here and abroad, to make sure that we help people in this difficult time. We are committed to doing that. The sad fact is that the Conservatives will be committed to doing nothing. I look forward to hearing exactly why.
I begin by welcoming the Chancellor to one of the debates that we have been having in the House of Commons on the economy, even if he chose to speak for only about half an hour on it.
As always with the right hon. Gentleman, the most interesting parts of his speech were the bits that he left out. I notice that he did not repeat his pre-Budget prediction that the British economy would start growing in 12 weeks. I notice that he did not repeat his prediction that the Budget deficit would be a mere 8 per cent. of national income this year, because he knows that it will be higher. I see that he did not even try to mount a credible defence of the VAT cut, which cost £12 billion—he mentioned it in passing. Perhaps that is because Labour MPs are queuing up to say that it should be scrapped.
I could not help noticing that there was no reference to the grand global bargain, even though the Prime Minister is supposed to sign that in a couple of days. A whole Government White Paper was produced by the Treasury on the grand global bargain, yet it does not even make it into the speech from the Chancellor of the Exchequer two days before it is supposed to be signed at the G20.
Were it not for my hon. Friends’ interventions, the Chancellor’s speech would not have mentioned the Prime Minister’s ambitions for a second fiscal stimulus or the fact that the Governor of the Bank of England has put the kibosh on that. Listening to the Chancellor, one would never know that the Government’s entire economic argument that they have advanced against their opponents had collapsed in that defining moment when Mervyn King said that the country could not afford to borrow more for a second fiscal stimulus.
We heard the rehearsed lines on my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke). Let me say this about the former Chancellor and inheritance. He left this country with a golden economic legacy, whereas the present Chancellor will leave the worst inheritance any Government have left since the second world war. The right hon. Gentleman had a dig at me and at my right hon. and learned Friend. I read the interview with the Secretary of State for Children, Schools and Families in which he openly pitched for the Chancellor’s job, and I hear all the briefings from Downing street that the Chancellor is to be moved in the next couple of months. Frankly, by the time of the next election I am a bit more likely to be in my job than the Chancellor is to be in his.
The Chancellor did talk about the G20. I shall come to considerable areas of disagreement, but there is some common ground on the G20. We welcome the fact that the summit is happening and that it is to take place here in London. We hold out real hope that substantial achievements can be made, provided that the Prime Minister resists the temptation that he always has—to fight his domestic battles and look for political dividing lines.
Skilfully chaired, the meeting on Thursday could achieve a real breakthrough on free trade, for example. By “breakthrough”, I do not mean warm words in the communiqué about how we will resist protectionism and not turn inwards; we had exactly those words in the communiqué signed in Washington at the last G20. Since then, as the Chancellor well knows, 17 of the 20 leaders who attended the conference have increased protectionism, 47 new protectionist measures have been introduced, the Indians have increased agricultural tariffs, the US Congress has passed “buy American” clauses, the French Government have boasted about the jobs that France is taking from eastern Europe and our own ludicrous Prime Minister has gone around repeating the slogan about British jobs for British workers, even though not a single member of his Government will repeat it alongside him.
Meanwhile, world trade is contracting for the first time in 30 years and the engine of global growth, on which we have come to depend, is spluttering to a halt. Completing the Doha round this spring would send not only a massive boost to the world economy, but a massive message to the world of confidence in our future. The G20 also looks likely to agree a substantial increase in resources for the International Monetary Fund. We welcome that, although I am disappointed that the Chancellor does not think that IMF reform should be on the agenda; I would have thought that, with China, India and Brazil attending the G20, this is a moment when we could get some real reform.
indicated dissent.
The Chancellor shakes his head, but the last time we exchanged remarks about IMF reform across the Dispatch Box, he said that it should not be attempted at the moment because it would be too difficult. As I say, that is disappointing.
We want the members of the G20 to live up to the commitments on aid signed at Gleneagles by the G8, because all of us in the House appreciate that the poorest countries are the silent victims of the credit crunch. On financial regulation, the test will be whether the G20 engages with or ducks the difficult issues. We can, of course, expect a strongly worded statement on bankers’ bonuses and offshore tax havens; the Government would have more credibility on those issues if the Prime Minister dealt with Lord Myners. The vote of confidence that Lord Myners got from his boss, the Chancellor of the Exchequer, was hardly a ringing one. We await events this afternoon.
It would also be good to have reform of the structure of banking. I noticed that although Paul Volcker, Nigel Lawson and the head of the Bank of America are all saying that we should look at dividing narrow banking from investment banking, the only person in the world who wants to shut down that debate is the Prime Minister, who has already made up his mind and does not want to listen to any other argument. It would be useful to have that debate in the G20.
Those are all tests for the Prime Minister as he chairs the summit. [Interruption.] I am glad to hear that the hon. Member for Blyth Valley (Mr. Campbell) is confident that the Prime Minister will pass all those tests. Of course, the real test will be whether he is focused on the right objectives in the build-up to the summit or whether we will end up with what Lord Malloch-Brown candidly called
“meaningless, empty commitments which don’t survive the flight home”.
The fear is that the Prime Minister is not focused on those objectives but has instead wasted his energies on trying to use the international stage to fight his domestic political battles. After all, as the Chancellor knows perhaps better than anyone, the Prime Minister will look for the domestic political advantage in everything. He cannot help himself.
The Prime Minister’s plan has been pretty clear since the beginning of the year. He wanted to get all the G20 leaders together in London and make them sign up to a second round of fiscal stimulus. He then wanted to unveil the British version of that second fiscal stimulus three weeks later—in the Budget, which he delayed for the purpose—and to leave the Opposition on the wrong side of one of his pathetic dividing lines. Well, if that was the plan, it has spectacularly backfired. The result is hardly the springboard for yet another political relaunch by this Prime Minister but actually proof that the Prime Minister is the one who is isolated, while European Governments are lining up with us to warn about the dangers of borrowing more.
My hon. Friend is making his usual, very powerful, case. Does he agree that the Chancellor should be pitied, because his predecessor set up his own regulatory system, made himself head of it, and had no foresight when six major financial institutions went under for lack of capital, which he had failed to monitor?
My right hon. Friend is completely right. One of the most ridiculous positions that the Government have got themselves into, which all Labour Members will be defending come the general election, is that the system of financial regulation that allowed the collapse of the UK banking system does not need to be changed. That is what they will go into the general election defending, whereas we argue that the Bank of England should have back the powers to monitor overall levels of debt in the economy so that we do not repeat the mess that the Prime Minister has visited on us.
Can the hon. Gentleman reflect on this for a moment? We are about to have a meeting of G20 leaders in the UK, at the instigation of the Prime Minister, with an agenda to try to tackle globally the current downturn. Does the hon. Gentleman really think that the British people think that he has the gravitas to achieve that sort of meeting and the coming together of minds to try to deal with this? Does he really think that people would listen to him given the several positions that he has held on many major issues over the past 12 months?
The last time I looked at public opinion, we were the people who were trusted on the economy, not Labour; the public were opposed to a second fiscal stimulus, not in favour of the Government’s policy; and the man chairing the G20 was about the most unpopular Prime Minister that this country has ever had—so when it comes to credibility at the G20, we will see what other European Governments think of him.
Let me take another question, particularly as we are going to take the hon. Gentleman’s seat at the next election.
The Conservatives have been saying that for 12 years now.
Before the hon. Gentleman leaves the subject of banking regulation, would he like to point to any speech that he made prior to this crisis in which he indicated that there was the wrong level of banking regulation? Would he like to contrast that with the speech that he made after Northern Rock went under, when he said that the problem was too much regulation?
I can point the hon. Gentleman not only to numerous references by me and my colleagues to the growing debt levels in our economy but to the fact that we fought the last general election—in complete contrast, by the way, to what the Chancellor said—arguing that we were spending too much as a country and needed to slow the growth in spending. Since the hon. Gentleman says that he has been in this House for 12 years—he will not have much longer—I point out to him that 12 years ago my hon. Friends who were in Parliament at the time raised concerns about the tripartite arrangements in numerous debates, and those predictions have been borne out by events.
The hon. Gentleman is clutching the Whips’ handout, so let us hear what is on it.
I will tell the hon. Gentleman what I am clutching—the Conservative election manifesto from 2005. As he mentions the Bank of England and the tripartite arrangement, and all his warnings, can he explain why that manifesto, on which he stood for election, includes a discussion about the Bank of England with not one word about the tripartite arrangement, the level of bank regulation or credit expansion? When did he have his convenient conversion on all those subjects?
I think that the hon. Gentleman will remember that during that election campaign we repeatedly raised concerns about the levels of debt. As I say, he has a choice—
You are in favour of tax cuts.
That is rich coming from the Liberal Democrats, who are proposing to spend even more than the Government. We would be in an even bigger hole if they had, by some miracle, won the general election. [Interruption.]
Order. Mr. Browne, you are normally quiet, so get back to normal.
The truth is that given all that has happened in the last 18 months, Labour Members are going to fight the next general election on a commitment to maintain the tripartite committee—to maintain exactly the relationship between the FSA, the Treasury and the Bank of England. That is not a credible position given what has happened, and we are the ones coming up with answers about how to reform it.
In the last few days, a whole string of European leaders have queued up to agree with our arguments about debt. The German Chancellor said:
“I will not let anyone tell me that we must spend more money.”
The Spanish Finance Minister said:
“In these conditions, I…believe there is no room for new fiscal stimulus”
The Czech Prime Minister, and the current President of the European Council—before the Chief Secretary to the Treasury sneers at him—says:
“All…these steps are the road to hell”.
In view of the shadow Chancellor’s comments, will he confirm that the German stimulus is not less than that of the British, but 1 per cent. of GDP above it?
The German Government went into this downturn with a surplus and the scandal is that the Government of whom the right hon. Gentleman was a member, and those at the Cabinet table around which he sat, agreed to spending plans that were completely unaffordable and which left us with the biggest budget deficit of any western economy going into this downturn. He did not fix the roof when the sun was shining and we are all having to pay the price now.
The right hon. Gentleman can explain himself.
The shadow Chancellor has given a long answer to a question that was not asked. Will he confirm that despite what he has said, twice, about the German Government agreeing with his position of not having a fiscal stimulus, their fiscal stimulus is the equivalent of 4 per cent. of GDP, which is 1 per cent. more than ours?
Admit it!
Let me just say this to the right hon. Gentleman: the question is—[Hon. Members: “Answer!”] I will answer his question. He is the one handing out the Whips’ handouts. Of course the German Government have engaged in a round of fiscal stimulus, just as the US Government have. But the difference between the German Government and the British Government is that the former were led by people who put aside money so that Germany would be better prepared when the economy turned down. The truth is—this is what the right hon. Gentleman will have to reflect on when he thinks about his time in the Cabinet—that he never once challenged the Chancellor of the Exchequer of the day, who was spending and spending and spending, racking up debt in the good years, so that when the economy turned, there was nothing left for us to deal with the economic downturn. That is the true story of the Blair years.
Will the hon. Gentleman give way?
It is very odd; I usually take interventions from the hon. Gentleman, who is sort of bidding for the job of finance spokesman, even though he is the shadow Home Secretary—or whatever they call themselves in the Liberal Democrats.
I am grateful to the shadow Chancellor for giving way. Given what he said about the German position, how does he explain the fact that the German general government-to-debt ratio was substantially higher at the beginning of this recession than ours was—in fact, it was a matter of some 20 percentage points of GDP?
If we had a true account of British Government debt that included the PFI and Network Rail liabilities, British debt would be significantly higher. Secondly, British debt is now rising at a faster rate than anyone else’s because our budget deficit is higher than anyone else’s. Surely the hon. Gentleman cannot be happy with the fact that this Government are running the highest budget deficit that Britain has known in peacetime—higher than when Denis Healey went to the IMF. Surely he cannot be happy with that.
As I was saying, European Governments are now lining up in agreement that there should not be a second fiscal stimulus, which completely shoots away the ground on which the Prime Minister thought that he would stand at the G20. Faced with that icy response, he went on that rather bizarre trip to south America last week. Even his most loyal henchmen would struggle to call that trip a success. First he went to a half-empty European Parliament and found that the response to his speech by a Conservative MEP got 1.6 million hits on the internet and no one noticed a word that the Prime Minister said. Then he crossed the Atlantic to continue his campaign for more spending, only to find that while he was away the Governor of the Bank of England had said that the country could not afford more fiscal stimulus, and in effect had cut up his credit card.
Finally, the Prime Minister made it to south America, where not only was he ticked off by the President of Brazil and stood up by Pelé, but the President of Chile gave him a lecture on sound public finances. Instead of addressing the G20 agenda, the Prime Minister was reduced to saying that he would reform the monarchy and that we would keep the Falkland Islands. That is how the chairman of the G20 used the week before the meeting to prepare for that summit. Where is the sense of priority in this Government?
What is left of the main economic argument that the Government have deployed against us since the autumn—that Britain needs to spend and borrow its way out of recession? It was striking at Treasury questions last week that, when pressed twice, the Chancellor could not bring himself to agree with the Governor of the Bank of England on fiscal stimulus. He was challenged twice to agree with the statement that the
“fiscal position in the UK is not one that would say, ‘Well, why don’t we just engage in another significant round of fiscal expansion?’”—[Official Report, 26 March 2009; Vol. 490, c. 443-44.]
That is the argument that we have been making, and the Chancellor did not take the opportunity that he was given to agree with it. Indeed, when my hon. Friend the Member for West Chelmsford (Mr. Burns) asked the Chancellor to express confidence in the Governor of the Bank of England, he ducked that question too.
I would have thought that the Chancellor of the Exchequer should see the Governor of the Bank of England as a key ally. For weeks, presumably with the Chancellor’s knowledge, the Treasury has been briefing everyone that actually he agrees with the Governor, the CBI and all the other organisations that are lining up to say that this country cannot afford a second fiscal stimulus. The Chancellor’s disagreement is not with the Governor, but with a Prime Minister who thinks that we can borrow our way out of debt.
Even if the right hon. Gentleman makes it to the next election and, by some remote possibility, his party wins that election, he knows that he will not be reappointed as Chancellor. Everyone knows who the Prime Minister’s top choice as Chancellor is—the Secretary of State for Children, Schools and Families. This is the Chancellor’s moment in that great office of state. Does he want to go down as the Chancellor who stood by and let his Prime Minister lead the country down the road to fiscal insanity, or as the one who did something to stop that Prime Minister? That is the choice that he has to confront in the next three weeks—does he do the right thing and face down his neighbour, in which case he will earn the gratitude of the country, or does he cave in? [Interruption.] The hon. Member for Stockport (Ann Coffey) wants to talk about the measures that the Government are taking. Let me take one example, the working capital scheme.
For five months, since November, we have been calling for a national loan guarantee scheme to support businesses that need credit. In early January, the Government finally conceded that we had a point and promised a guarantee scheme of their own. It was called the working capital scheme and was supposed to start on 1 March. It did not, and businesses desperate for help were left out in the cold again. Then the Business Secretary reassured them and said, “Don’t worry, the scheme will be operational in March as originally announced.” It is now the last day of March, so where is the working capital scheme that was promised for 1 March and then promised to be delivered by the end of March? Companies are going bust and thousands of people are losing their jobs because businesses cannot get credit, and the scheme announced by the Government in January and promised for March has still not been delivered. That is a scandal.
Of course, that is the truth of so many Government schemes. The home owners mortgage support scheme, announced in December—not a single home owner has been helped. The automotive assistance programme was announced two months ago—still not a single loan has been made to car firms. The national internship scheme—it was never heard of again. The Government’s slogan of “real help now” is a cruel joke to businesses and people losing their jobs up and down the country.
Is my hon. Friend surprised to learn, as I was, that the directors of Technorton, a small business in my constituency that went into administration this morning, laying off several constituents, had been trying for the past few weeks to get access to the enterprise finance guarantee scheme? The scheme is much trumpeted by the Chancellor as one of the few that actually work, but when the directors applied for it, they were told that funding would be available only if they first put in personal guarantees. They had already exhausted those by backing the business, so they looked to the Government for help. None was available, hence the business is now in administration.
I suspect that almost every hon. Member could tell a similar story. The Chancellor sits there and will not even answer the basic question of why the working capital scheme and the loan guarantee scheme, which we have discussed in the House for months, are not operational now that we have reached the end of March. Will he intervene and explain that to the House?
indicated dissent.
Why will he not intervene?
Does my hon. Friend accept that, although the Government may scoff at individual examples that Members present to the House, surveys throughout the country, especially from the Federation of Small Businesses and local chambers of commerce, show time and again that the majority of local businesses do not believe that any Government schemes will improve lending or terms? That is third-party confirmation that the Government schemes are not working.
My hon. Friend is right. Not only Conservative Members have complained—if the Chancellor had attended some of our previous economic debates, he would have heard Labour Members complain regularly about the schemes not being operational. Last week, the hon. Member for Coventry, North-West (Mr. Robinson) said that
“as far as industry is concerned, we just don’t have those schemes working yet. And that’s where we’ve got to put the pressure at the moment.”
Hon. Members have an opportunity in this debate to put pressure on the Government to fulfil their promises. Getting credit flowing is crucial in a credit crunch. Agreement at the G20 is important, but in the end, confidence will not return and recovery will not come until we have a Government who understand that the debt-fuelled model of economic growth which they pursued for the past 10 years is fundamentally broken.
Our Prime Minister shows no sign of that understanding. He continues to assert that Britain is better placed than most economies to weather the storm. Yet, when he looks around the table of G20 leaders, he will see no one else with a budget deficit as large as Britain’s, according to the IMF, and no one else who will have a longer and deeper recession than the United States, according to the OECD. He continues to argue that the recession is caused by a banking crisis that blew in from America on an otherwise sound economy. [Interruption.] The hon. Member for St. Helens, North (Mr. Watts), who is the Government Whip, says he never said that. The problem is that the Prime Minister kept saying it from the Dispatch Box. That has been the Government’s main economic argument—that we are suffering some banking crisis from America. The truth is that it is caused by 10 years of building an economy on debt and the Government are now reaping the consequences.
I must give way to the hon. Member for Chorley (Mr. Hoyle), since I visited his constituency on Friday.
Which the hon. Gentleman failed to tell me. Not to worry, it is the second time, so it is not a problem.
The hon. Gentleman rightly uses the Federation of Small Businesses as an advocate of how policies should be developed. If he accepts its recommendation and that of JCB, Corus and other major industry, will he back short-time work subsidies as a way forward to ensure that we protect the jobs that matter to all of us and save manufacturing for the future?
Of course I am sympathetic to those who are desperate to keep their jobs and to people who have lost their job. I would like to help them by providing a national insurance rebate for employers who take them in. The problem is identifying the cost of the hon. Gentleman’s proposal. He asks a good question. I think that I am right that he opposed the Government’s VAT cut and proposes that they should give back that money. Perhaps he will suggest that they use it for his scheme. So that we have it on the record, will he confirm that he does not support the Government’s principal fiscal stimulus—the VAT cut?
Let me give the hon. Gentleman the answer that he seeks: the scheme would cost £1.8 billion, which would save 600,000 jobs a year. That is the sort of stimulus that one could use if we ended the VAT cut.
There we have it: another Labour MP who does not agree with the principal component of the pre-Budget report announced by the Chancellor just a few months ago.
I promised to give way to the hon. Gentleman, but this will be the last time that I give way before I conclude.
When the hon. Gentleman answers my question, perhaps he could start by also answering the question that my hon. Friend the Member for Chorley (Mr. Hoyle) asked about whether he supports a short-time subsidy, to which I did not hear an answer. How would the hon. Gentleman’s loan guarantee scheme work? Does he insist that a national loan guarantee scheme would work if it had no money behind it, or does he say that it would indeed have money behind it? In which case, does he agree with the shadow Business Secretary, his right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke), who says that if such a scheme were introduced, the taxpayer would take some kind of hit?
The person whom I agree with is the Economic Secretary to the Treasury, who says of the loan guarantee scheme:
“We expect the measures to be run on a break-even basis”.—[Official Report, 14 January 2009; Vol. 486, c. 220.]
That is the Government’s assessment of the cost for loan guarantees: a “break-even basis”. The Economic Secretary is right in that judgment, which is also the judgment on which we rest our argument.
What we have is a Prime Minister who presides over this economic wreckage, who clings to the seat of that aeroplane, who says that he has nothing to apologise for and who really believes it. That shows how detached he is. The country faces a fiscal crisis, yet all the anchors of fiscal policy have been cut loose. There are no fiscal rules and the spending reviews have been cancelled. It is the Opposition, therefore, who have to come forward with proposals for an independent office for budget responsibility and genuine restraints on public expenditure, so that this country lives within its means.
The country faces a crisis in the institutions of banking regulation. We have a Prime Minister who refuses to accept that anything went wrong because he happens to be the person who set up the system. It is therefore the Opposition who have put forward the detailed plans to give the Bank of England more power. The country faces a crisis of growth because the economy is contracting. The narrow engines of economic prosperity upon which the Government relied for 10 years—property and finance—have disappeared, yet in the words of the director general of the CBI, the Government have
“little sense of a coherent strategy”
about what to do next. It is the Opposition, therefore, to whom the country now turns to reform our education and welfare systems, wean our economy off its addiction to debt, provide support for savers, encourage low-carbon technologies, rebuild manufacturing and restore confidence in the economic prospects of our children. The truth is this: we are the future and Labour is the past. The sooner the country can vote for change, the sooner confidence will return and the recovery will begin.
rose—
Order. May I remind all right hon. and hon. Members that Mr. Speaker has imposed a 10-minute limit on Back-Bench contributions?
We are facing problems the likes of which none of us here has ever seen during our time in the House. The shadow Chancellor referred to the legacy of the Blair Government. I share responsibility for that and I share pride in it. When I consider the 700,000 people who are not on NHS waiting lists now or the people who are not losing their sight waiting for a cataract operation or dying because they need heart surgery because we have reduced the maximum time between the doctor’s surgery and the operating theatre from some three years to 18 weeks and the average time to eight weeks, I think that, far from being useless expenditure, that is money well spent.
Let me also tell the hon. Member for Tatton (Mr. Osborne) that as we spend that money during the good times, so we aim to protect people during the difficult times. Although today the shadow Chancellor made a few telling points against the Government, who must share some responsibility, as everyone else does—indeed, as his party leader has said, the Conservatives share some—nevertheless, to take the position that during such a recession we will do nothing and ought to do nothing to protect ordinary people is not sustainable. I genuinely believe that the hon. Gentleman has not risen to the occasion that the opportunity gave him. When he said that he will be in his position as shadow Chancellor right up to the election, perhaps his ambition is too modest. I fear that he may well be in his position as shadow Chancellor well beyond the next election.
Let me turn to the great challenges that face us, and they are indeed great. We are dealing simultaneously with a fairly typical recession and, on the other hand, a very far from typical financial crisis. The first of these requires a huge stimulation of demand and the second—the financial crisis—requires intervention to ensure solvency, liquidity, oversight, regulation and transparency in the financial sector. That statement is agreed by just about everyone in the world so far as I can see—except for Conservative Members. Both those elements require the widest and most measured range of co-ordinated international action.
For most of the world, this is not actually a debate about whether we should borrow or not, or about whether we should have stimulus or not; rather, it is a debate and discussion about the extent, the quantity and the measure of that stimulus and of that borrowing. This debate is taking place with every Head of State who is arriving here and with every Prime Minister, too. The only people sitting outside the framework of that discussion are, unfortunately, Members of the Conservative party—with the exception of the shadow shadow Chancellor, the right hon. and learned Member for Rushcliffe (Mr. Clarke).
It is always easy to criticise the Prime Minister, as the shadow Chancellor did today. I think, however, that that is grossly unfair. The Independent on Sunday said that, and I agree; indeed, it not only unfair, but untrue. If the Prime Minister set his sights high and if the plans he pursued were of a magnitude unprecedented in the experience of most Members here, that is only because the challenges that we face are unprecedented. If the Prime Minister—it is the Prime Minister who is leading—fails to achieve everything he set out to achieve, or if he achieves only half of it, it will still be a light year away from what would have been achieved by a policy of doing nothing. The nation ought to be grateful for that.
So I believe we should avoid undue pessimism this week, as we tried to avoid the over-hyped press expectations last week. Let us remember three or four aspects of this whole debate. First, we have a range of weapons in our armoury, so the debate is not just about an additional stimulus. As I understand it, the Conservative party did not agree with the Governor of the Bank of England, because it objected not only to the next potential stimulus but to everything that has been done up to now, which is clearly different from the Governor of the Bank of England. We have automatic stabilisers, discretionary stimuli and quantitative easing, so we should not get particularly hung up on one specific example.
Secondly, let us remember that national predilections and preconceptions are not just irrational or political or ideological stances; they are shaped by the history of each of our countries. I do not blame a country such as Germany, with its sensitivity and great concern about the effects of hyperinflation in the light of what happened in the 1930s, for being rather cautious when it comes to the question of stimuli.
Thirdly, the point I made is absolutely correct. Even with that caution, Germany’s stimulus has been 1 per cent. above what has been done in this country up to now. In the UK, our stimulus has already been significant; although a discretionary stimulus amounts to only about 0.5 per cent., the automatic stabilisers brought in about 2.5 per cent. of gross domestic product of further stimulus. It is significant by international standards.
Will the right hon. Gentleman tell us why, despite the slump, inflation is still 60 per cent. above target? Is he at all worried about printing lots of money?
It is a matter of measure, is it not? Yes, I would worry if we printed too much money, but we have to take the advice of the Bank of England and others on quantitative easing, as we have to do on other matters. Again, there is no issue about whether we should have quantitative easing or printing of money; the debate is about the extent, the application and the effect they will have.
I want to speak about an issue that has unfortunately not been mentioned in either of the speeches so far. When it comes to the second area—that of financial regulation—I shall express my view about the leaked communiqué. I do not usually like using such communiqués, and my right hon. Friend the Chancellor will know that for many years I condemned anyone using leaks; on this occasion, this was thrust into my hand as I approached the Chamber. Sections 14 and 15 are, in my view, very weak on a question that I believe is vital to the oversight and regulation of the financial sector—I refer to the word “transparency”.
I believe that the three Graces that are necessary in order to revitalise that sector effectively are oversight, regulation and transparency, and the greatest of these is transparency. It is a crucial area with which to enhance oversight and regulation, but it must be done in a way that works with, rather than against, the market. That should be one of our primary objectives, because if regulation becomes an imposition—a punishment, a central diktat—that effectively tries to run the markets, rather than regulation, oversight and transparency being a means of assisting the rational workings of the market, we will end up not curing, but killing, the patient.
Will the right hon. Gentleman give way?
Let me avoid Europe for now, as I shall address it later.
I say to the Chancellor that I hope he and the Prime Minister will set down as one of our primary G20 objectives the restoration of a degree of confidence in the financial sector by doing, in so far as is possible, the following four things: first, we must make sure that the information necessary for market transactions is available to everyone; secondly, we must ensure that market participants have access to all data; thirdly, that must not be restricted by cost; and fourthly, the data and information must be provided from neutral sources. If we do not achieve that, I do not believe we will go any way towards having significant oversight, regulation and improvement in the financial sector. This—
Will the right hon. Gentleman give way?
I have two minutes and 30 seconds left, and I hope the hon. Gentleman will accept that I must make some progress because, unlike the Conservative party, I want to put forward concrete proposals.
I urge the Chancellor to recommend the following key principles when he meets world leaders at the G20 later this week. First, there is the principle of non-discriminatory access to pre and post-trade data, which includes accuracy and timely data, an essential ingredient for transparency. Secondly, data should be made available at reasonable cost as described under the European legislation, MiFID—the markets in financial instruments directive. There must be clearer guidance on what constitutes reasonable cost. Thirdly, there should be high-quality raw data; that is imperative for sound decision making, and I believe greater transparency is needed to identify who is submitting incorrect data. I come to this subject having never held a Treasury post among my nine Ministries. That is not a statement of avoidance of responsibility; it is a confession of relative inexperience in this area. However, it surprises me that sourcing data do not exist in financial markets. Finally, there must be effective consolidation of raw data, and in Europe that is currently impeded by an absence of common reporting.
I believe these principles should be introduced in the discussions and that the Government should set up an ongoing transparency group under the auspices of the G20 to assist in the implementation of the principles agreed at a global level. Why? Because of liquidity. I have previously spoken about inter-bank lending. As we look further into the opacity of some of these deals, through derivatives and into the credit default swaps, it will become clear that it is impossible to return confidence to the market unless there is more transparency than exists at present. The most obvious example of this is the market in credit default swaps. Some of the information that is put out in this most difficult of areas is largely controlled by the banks. If ever there was a case of people marking their own homework, it is in the credit default swaps market, where there is lack of both transparency and control of regulation. I believe doing this is essential for confidence, and that it should be a major element this week. I commend this approach to my right hon. Friends the Chancellor and the Prime Minister.
I welcome the debate. I know that the Chancellor has to leave for another meeting, but his participation was welcome. I specifically welcome the one proposal he made, which was in relation to business rates and the smoothing out of the increase. It has been called for by the Federation of Small Businesses and the CBI and it is absolutely right. I hope he will follow it up with the suggestion made by my hon. Friend the Member for Somerton and Frome (Mr. Heath). We know from surveys that half of all small businesses are not even aware that they are entitled to business relief; it is very much dependent on the activism of local councils to bring it to their attention. If this could be done automatically, it would save a great deal of grief among small companies.
Listening to the contributions that we have heard from both sides, one gets the impression that the dominant issue in economic management is the size of the fiscal stimulus, which is a very odd perspective, regardless of whether one is in favour of it or against it. The International Monetary Fund has just published a very interesting analysis of what is happening in the British economy and where the stimulus is coming from, and it puts things into an interesting perspective. The IMF calculates that the value of the Government’s fiscal stimulus over a three-year period is about £20 billion and contrasts that with some £90 billion of stimulus that is coming from interest rate cuts and monetary easing and with the stimulus that dare not speak its name—devaluation—which is providing an extra £40 billion. Although the Government do not acknowledge it, and nor do the Conservatives, for their own reasons, what is actually happening is that the Government are very carefully following the doctrines of Milton Friedman and we have, in essence, a monetary response to the crisis, which is absolutely right, provided it is effective and gets money into the economy. The argument about the fiscal stimulus, although it may be amusing and politically interesting, is fundamentally a sideshow.
While we are discussing the sideshow, I just wish to reiterate the view that Liberal Democrats have been expressing, which has been reinforced by experience and by the conviction of a growing number of Labour Members. It is that although the VAT cut may have seemed a bright idea, as the Government needed to do something in a hurry, it was not the best way of using £12 billion of taxpayers’ money. There is a strong argument for simply stopping it and using the money instead for a much more carefully targeted programme of public investment aimed at social housing, insulating people’s homes, and public transport, so that at the end of it there will be assets, many of which will produce an income, which will directly stimulate employment and also do something for the environment.
An interesting survey has just been produced by HSBC on the environmental impact of the Government’s fiscal stimulus, small though it was. It estimates that about 70 per cent. of that package contributed to environmental improvement, as opposed to figures of 15 per cent. internationally and 80 per cent. in countries such as South Korea. The Government have covered themselves in this mantle of the green new deal, but their policies are nothing of the kind and are completely bereft of any environmental value.
Before I leave the fiscal stimulus, I should note that it was interesting that the Chancellor threw out a challenge to the Conservatives when he said that they were proposing a cut—a negative fiscal stimulus—of about £5 billion. That is probably correct, but what he did not mention was that the Government, according to their own figures, are proposing a negative fiscal stimulus in the next financial year, because, of course, public investment has been brought forward and will be cancelled next year. If unemployment is astronomically high next March, as many of us expect it to be—it could be 3.5 million or 3 million; it will certainly be very high—and we are still in a recession, this Government, who seem to attach so much importance to fiscal stimulus, will be proposing that we have a negative one. I do not know whether that was intended or whether it was just the way the arithmetic came out, but the Government will have to solve this problem of how to sustain their commitment to the economy should this recession continue and not be a temporary blip, as they initially thought it would be.
I turn now to the quantitatively much bigger issue of the banking system. The following question was asked by Members from several parties yesterday: how much are we now exposed to the banks as a result of the various takeovers and the commitments that have been made? The total balance sheet of the British banks is about £8 trillion—about five times Britain’s gross domestic product—and we are now liable for most of it. A lot of that is the gross value of derivatives and if we take them out, the figure becomes quite a bit less; but none the less we are talking about commitments that are several times bigger than the British economy.
The IMF has, again, produced some helpful estimates, although they are very speculative. It estimates that when this banking crisis has finally resolved itself, total losses of about £200 billion will have to be absorbed by the British economy and, in effect, by the British taxpayer. Now, it is not quite as bad as that, because—as the hon. Member for South Thanet (Dr. Ladyman) intervened to point out—there may be a gain from selling the banks, if they are run properly. That might happen in 10 years’ time, so the net cost may be a good deal less, but the taxpayer’s commitment is substantial, even if it is phased over some years.
The question that the Liberal Democrats would ask is whether we are getting value for our money. We profoundly disagree with the way the Government are pursuing their involvement in the banking system, because we have the worst of all possible worlds, with large-scale public investment in the equity of the banks, but without effective public control and without the banks being run in the national interest. I thought that it was pathetic when the Chancellor waved a bit of paper and said that he had an agreement of some sort from RBS and Lloyds bank to lend a bit more money. Well, he told us that in October. We have no idea what the banks are doing, and whether they are lending more or less. What we do know is that the banks are doing what they think they have to do, which is to be obsessed with their tier 1 capital.
Nobody on the board of the banks, in UKFI or in the Treasury is asking how we can maximise taxpayer value. That is the question that should be asked, and it is not being asked because the Government are desperately trying to maintain an arm’s length relationship with the banks. As a result, there is no pressure on the banks to ensure that they lend to solvent British companies with a liquidity problem. We know that there are many of those because the companies in our constituencies all tell us the same story—whenever they try to raise money, even if they have a good business or a full order book, they cannot get money from the banks; or if they do, it is on punitive terms with large arrangement fees and demands for massive amounts of security. The Government should intervene to stop that.
I am told that in France the Chancellor’s opposite number, Christine Lagarde, has a daily conference call with the chief executives of every leading bank and insurance company in France to ensure that taxpayer value is aggressively pursued, with the Government working actively with the banks. People may not like the French model, and in normal times I do not think that we would advocate such a dirigiste approach to the banking system. However, the idea that the Government have to grasp the nettle and treat the state-supported banks as nationalised industries is shared across the political spectrum. Those who have advocated that approach include John McCain, the defeated Republican candidate for the US presidency, and Alan Greenspan, so this is not an ideological point. It is a recognition of the reality that if vast amounts of taxpayers’ money go into the banking system, it should be run in the national interest.
Does the hon. Gentleman accept that if every country followed the French model that he proposes, there would be a real danger of financial nationalism, which would in itself pose a threat to a global economic recovery?
There would be that danger, and that would obviously be a problem for the UK, because we have several global banks here. But RBS, which is a global bank, is not being rescued by the globe. It is being rescued by British taxpayers, and it is not unreasonable in the circumstances for it to make it a priority to lend to solvent British companies. The Government have to pursue that in the interests of the people whom we represent. I am not a nationalist, but that is the reality of the world that we now live in.
Instead, the Government are pursuing what they call the asset protection scheme, which the Conservatives also support. I argued from the outset, and I probably used strong language at the time, that that is a fraud against the British taxpayer. The leading banks are taking their bad loans to the Treasury—the banks know a lot about those loans and the Treasury does not know as much—paying a fixed fee of insurance and walking away. I have discovered, although I have not yet been able to obtain the documentary evidence of it, that the banks are then promptly closing down the companies that they have insured. That is fraud in a real sense, as well as in a metaphorical sense. That is happening under the noses of the Treasury. There is no reason for that scheme. It does nothing to promote new lending, which is much better done by direction or through credit insurance of the kind that the Conservatives have promoted—both valid approaches to the problem. The scheme is also a massively expensive commitment for the British taxpayer.
I am following what the hon. Gentleman is saying with great interest, and I agree with much of it. Anatole Kaletsky, writing two or three weeks ago in The Times, suggested that if we completely nationalised RBS and it became a state bank, others would quickly follow, dominoes would fall all over the world and we would very quickly have a world where the banks controlled public investment. Publicly owned banks and state banks would run the economies of the world. I would welcome that, personally, because I am a socialist. Other people might not. Does the hon. Gentleman think that Anatole Kaletsky’s concerns are valid?
If non-socialists want reassurance, they should probably consider some of the models from when that has been tried before. The obvious one is Scandinavia, where the banks were nationalised and re-launched as private banks a decade later. That made money. I talked yesterday night to the ambassador of Israel. I did not realise this, but the Israelis had an enormous banking crisis 25 years ago, nationalised all their banks, cleaned them out and sold them on at a big profit to their taxpayers. Their banks have had absolutely no trouble in this recession because they were cleaned out and prevented, among other things, from engaging in securitisation. There is a model that is not a socialist model but shows a practical, common-sense way of dealing with the problem.
I was talking about the asset protection scheme and it is probably worth quoting one of the more distinguished members of the Monetary Policy Committee, who was one of the first to serve on it—Willem Buiter. His comments, I think, have been valued throughout this crisis. He notes:
“Like its American and Dutch counterparts, this toxic asset insurance scheme is without redeeming social value: it is inefficient, unfair and expensive”.
One positive bit of news about the asset protection scheme in the past week, however, is that it looks as though our second biggest bank, Barclays, will not use it. That is very good news. Barclays was probably scared off by the bad publicity surrounding the potential exposure of its tax activities, and the British taxpayer has therefore been spared a great deal of grief. That remains to be seen.
I want one issue clarified when the Minister sums up. Where do we stand on taxation and the asset protection scheme? It is very clear from the original terms issued by the Treasury that any company that wanted to avail itself of the scheme, whether it is nationalised or non-nationalised—this provision is in section 5 of the Treasury paper on the scheme—has to disclose any information available to it or any opinions given to it on tax matters. Within the last week, the Treasury has appeared to dissociate itself from that and has said that tax matters are entirely separate. When I asked the Chancellor of the Exchequer about that during Treasury questions last Thursday, he confirmed that from the Treasury’s point of view, tax is a separate issue. Is it, or is it not? It seems to me, from the point of view of the taxpayers’ interests, that we cannot possibly use taxpayers’ money to underwrite banks that do not pay their British taxes but try to avoid them. There is massive ambiguity on that from the Government and I hope that they will clear it up.
Let me make one final point about the asset protection scheme. It is very clear that all the leading Treasury officials and several of the leading Ministers involved in the scheme are preoccupied, night and day, with trying to make the scheme operate. As a result, they are not focusing on potentially much more important issues. Why, for example, have the Government not yet focused on the problem of how to convert debt into equity? If many companies are over-leveraged and need to acquire fresh equity, which many of them do, the Government can use that process through their control of the banks. The banks have no interest in doing that, obviously, so the Government will have to require them to do it or to set up a scheme to do it. There is no evidence that that fundamental problem is even being faced.
We also know from the evidence given to us by many of the businesses that have talked to us that there is a major crisis in trade credit insurance. The system has completely broken down, which is one reason why supply chains are collapsing. I understand that in France that problem was fixed last December. It could be dealt with in the UK through the activities of the Export Credits Guarantee Department, but again it would appear that nothing is happening and that nothing is being done. The Government are clearly distracted from these important and pressing issues.
The hon. Gentleman may have noted my oblique reference in my intervention on the Chancellor to the fact that major, entirely credit-worthy companies with solid orders appear to be having difficulty with their loans from banks and the ECGD. Does he agree that further assistance may involve applying some compulsion to the banks under Government control to support those loans?
I am not familiar with all the details, but I believe that there are three specialist institutions in the business, none of which is now working. All their potential customers are being left high and dry, with disastrous consequences. That is a clear example of market failure: the Government should intervene and deal with such situations, but that is not happening.
Before the hon. Gentleman moves on from the asset protection scheme, may I ask what alternative to it he believes exists? I understand some of the criticisms that have been made of the scheme, but how else can we deal with the problem of bad assets on banks’ books? The public-private scheme that the US Federal Reserve and Treasury Secretary have produced has been roundly condemned, but what alternatives are there?
There is no doubt that the bad debts have to be separated out, and in some cases it might be sensible to convert them into equity of some kind. At some point in the future, the bad debts can be sold off, but it is not clear to me that they are a priority. The overriding need is to get new lending going, and that is what the banks are not doing. The Government are trying, in a very oblique way, to create confidence in the banking system, when they should be directing the nationalised banks. That is the answer: the hon. Gentleman may not agree with that approach but, if he accepts—as my party does—that there is no alternative to the de facto nationalisation of the banks and the effective direction of their strategy, the asset protection scheme becomes, if not unnecessary, then certainly a lower priority.
I turn now to this week’s G20 meeting. I agree with the Conservative shadow Chancellor that it was odd for the Chancellor not to address it at all. That was very strange, because the meeting is something that we should very much welcome. People in a negative frame of mind ask why we are having it and say that it is a waste of time and money, but of course it is not. The world economy is in peril, and it is absolutely crucial that there is a collaborative approach to the problems.
Some fundamental things can and probably will be done at the G20 meeting—for instance, on getting agreement on the IMF funding that many countries, especially in eastern Europe, need, and on securing a more effective role in decision making for China and the other emerging powers. Most important of all—and again I agree with the Conservative spokesman on this—progress will probably be made towards a meaningful agreement on preventing protectionism, both in traditional trade and more widely.
Those are obviously essential tasks, but I am perplexed by the overriding priority that the Government are giving in the short term to issues of international financial regulation. Of course we need such regulation, but many of the things that must be done can be done at a national level.
For instance, there is a broad consensus that banks will need to be regulated through their capital on a counter-cyclical basis, but that can be done at a national level. It is already in hand in some countries: Spain has tried to do it, and there is plenty of discretion in that regard in the European rules and the Basel process. There is no reason why countries need an international agreement before they get on and introduce regulation.
Another problem involves tax havens, on which the Government are quite rightly focusing. Tax havens are a long-term problem, in part because of money laundering issues but also because of tax policy. However, most of the tax avoidance in the UK takes place under the Government’s nose and with the Government’s full knowledge. In the case of the banks, it is happening with the active complicity of the British authorities. To say that there needs to be an international agreement to deal with the problem is perverse. That is simply escapism, and an example of our Government failing to face up to their responsibilities.
In conclusion, I want to make a final point about financial regulation. We have had Lord Turner’s report since we last debated the matter, and it is a very important milestone in how we look at financial regulation and the City. The debate has often been presented as meaning either more or less regulation, but that is not a sensible way of looking at the matter. There was plenty of regulation going on, and an enormous amount of box ticking, but the problem was that there was very poor supervision.
Supervision is not regulation—the two are fundamentally different. Custard pies may fly backwards and forwards across the Chamber about whether we need more regulation or less regulation, but that argument comprehensively misses the point. Plenty of institutions in the City do not need heavy regulation; for them, light-touch regulation is perfectly relevant, because they pose no systemic risks. What is absolutely clear, however—this goes back to the Cruickshank report—is that the banks were different: they needed to be supervised much more actively and regulated in a different way from other types of financial institution. That is the conclusion that should have been drawn.
Following the line the hon. Gentleman is taking on the importance of national supervision, does he rule out the proposals in the de la Rosière report and the European Commission’s proposals to have European supervision of banking and financial services, which the Government appear to be pretending could be supervised at national level, when in fact the legal framework would be decided through the majority voting arrangements and the ultimate jurisdiction of the European Court of Justice?
I do not rule out the proposals in Mr. de Larosière report, which, as I understand them, involve much closer collaboration between European regulators—he uses the concept of a college of regulators, I believe. Surely all our experience last autumn and the panic induced by the Irish independent policy on bank deposits suggest that European co-operation is needed more than ever. That is not to say that we would support an ending of national regulation—that is the bedrock on which the collaborative structure is based. A combination of the two is needed.
The hon. Gentleman is making a most interesting speech, but does he accept the point I tried to make earlier, which is that it is not a matter of just regulation or supervision? Regulation and supervision are impossible if there is no transparency. If the counter-party’s assets are completely untransparent; if some of the derivative products were not understood even by those who were selling them, far less those who were reinsuring them; and if the credit default swaps—in extremis, verging on speculative gambling—are covered over the counter with a total lack of transparency, unless we have some way of putting the information in the hands of all the parties in the market, we will not have a rational market or the means to supervise and regulate.
The implication of the right hon. Gentleman’s argument is that some sort of clearing house is needed internationally to create a market for those products. As I understand it, that has been agreed in principle. There is a particular problem with one type of derivative—credit default swaps—but most of the others, contrary to some pessimistic expectations, have not exploded in the way that was feared. Certainly, in that respect, effective international co-operation is needed.
In addition to the broader point on regulation, we may draw several conclusions from Lord Turner’s work, one of which is that he, like the Prime Minister, bottled out of answering the question whether the banks should be split into their relatively low-risk utility operations and what the Governor of the Bank of England calls their casinos. In practice, in a world of rather complicated financial products, that split is technically difficult to achieve, but the principle is right. I am pleased that the Opposition parties are of the same mind on that matter, and I think that many Labour Back Benchers take the same view. I am utterly perplexed as to why the Prime Minister, uniquely, seems to be standing in the way of such a reform.
It is clear in the RBS accounts which is the casino bank and which is the utility bank. The question is: why did the Government buy both?
At this stage, we are arguing about how we progress from that to a reformed system. In a world of securitised products, it is quite difficult to separate the two types of transaction, but that is what needs to happen. Instead, however, we are hearing a lot of excuses, based on technical problems, for failure to implement what people who have fairly sophisticated knowledge of the area, including many in the banking system, accept is a reform that simply has to happen.
To summarise, I welcome the debate. The Liberal Democrats agree with some of the points the Government made, but there are several points on which we disagree. We think that the approach to banks’ not accepting the responsibilities that go with nationalisation is fundamentally wrong, and we disagree with the make-up of the fiscal package. We believe—we will deal with this when we discuss the Budget in a few weeks’ time—that, within a public financial system that we all recognise is highly constrained, there is a great deal of scope for rebalancing the tax system in the interest of greater fairness.
It is always a pleasure to follow the hon. Member for Twickenham (Dr. Cable). I always enjoy his arguments, about half of which I fully and strongly support, and half of which I disagree with vehemently. However, he makes his arguments with great authority and I am pleased that he has now converted his party to the idea of a fiscal stimulus. Not many weeks ago, he argued that any tax cuts, or indeed spending increases, should be fully funded. While he correctly says that the fiscal stimulus is only part of the solution, at least he now accepts that it is something on which the UK and other Governments ought to be engaged.
I congratulate my right hon. Friends the Chancellor and the Prime Minister on the strong and robust leadership that they are showing. They are leading the way, across the globe, with a concerted, robust response to what must certainly be the biggest financial crisis within living memory. It is accompanied by the first global economic slow-down since the second world war. Indeed, the Governor of the Bank of England said only last week:
“I cannot recall any previous experience of such a sudden, severe and synchronised downturn in world output of the kind that we have seen in the last three to four months.”
Of course, most severe recessions are caused by mistakes made by policy makers, rather than by any global economic shock that has come along and hit the financial or economic system. We should never forget that it took the world years to recover from the 1929 Wall street crash. However, the problem was not a function of the crash itself, but of the response by global policy makers to that crash. It is timely to remember that the London summit in 1933 collapsed in disunity as the world retreated into a downward spiral of protectionism and depression.
Is it not a fact that the depression in the 1930s arose, at least primarily, from the deflationist policies operated after 1929 by certain Governments, notably the Government of Germany—[Interruption]—and Britain? A degree of tariff protection enabled countries to reflate their economies. Protectionism came later, and actually helped the recovery. It was the deflation at the beginning that caused the problem.
My hon. Friend is right in parts. Of course, the overwhelming problem was deflation, but how the world reacts to deflation decides whether it will manage to come out of it properly. There is always a case, in specific areas, for really well targeted tariff protection, but overall, the world system has to remain open to growth. We have to accept that 70 per cent. of world trade comes from developing nations. Without that contribution, the whole world’s growth would slow down. It was not until the Bretton Woods economic summit in 1945 that the world was able to unite to agree a new international economic and financial architecture that laid the foundations for half a century of peace and prosperity.
The G20 meeting this week is a huge opportunity for world leaders to agree to stimulate the world economy as much as is necessary, either this year or next, depending on their specific circumstances; to continue to take the measures necessary to restore trust in the banking system to get credit moving again; and to design a system to minimise the risk of any repetition in future. It is clear that, to date, Britain has been leading the way on the international stage, arguing for bank recapitalisation, designing an innovative scheme to protect and insure banks against toxic assets, and putting in place a significant monetary and fiscal easing to stimulate the economy and get growth going again—policies that are being replicated, in one form or another, around the world. Indeed, only this morning the OECD said, in an interim report on the world economy that it produced to inform the G20 meetings:
“While some have dubbed this severe global downturn a ‘great recession’, it will remain far from turning into a repeat of the 1930s Great Depression, thanks to the quality and intensity of government policies that are currently being undertaken.”
The hon. Member for Tatton (Mr. Osborne) talks about fighting domestic battles on an international stage; I would argue that it is the Conservative party that has been attempting to do that. Unfortunately, the debate at home has constantly been subject to distortion from the Conservative party, so I want to take a moment to explore some of its hypotheses before outlining the measures that I think that we ought to take, as well as some of the most pressing risks to the current approach taken by the Government, particularly for those in the developing world.
Let me start with the statements of the Leader of the Opposition. I was reading a speech that he made last week, which continued his well-worn theme, attributing the cause of this recession to the weakness of the British economy. He said:
“Our banking system is not separate from our economy, it is a reflection of it…The unsustainable debts in banks are a reflection of the unsustainable debts in our households, our companies and our government.”
At first sight, that seems a completely unremarkable thing to say, as well as politically expedient. But unfortunately that leads him and his party to formulate completely the wrong policy prescriptions to deal with the current crisis, because he continues:
“So while of course it’s true that some of our problems are global…we’ve got to recognise that the underlying policy failures were national.”
I do not know of any serious economic commentator in the world who says that this synchronised global downturn is due to British national policy mistakes.
I am sure that the right hon. Lady has read the report from Lord Turner, the first chapter of which states that one of the reasons why Britain is particularly exposed to the international storms is that we had very large macro-imbalances. Our banks were highly leveraged, our households had borrowed more than households in the United States and our housing boom was larger than that of the United States. Surely she will accept that national policies put countries in different positions in terms of their ability to weather the storm.
I do accept that, but I want to go on to quote the Governor of the Bank of England, whom the hon. Gentleman is so fond of quoting, who so pithily expressed it by saying that
“banks are global in life and national in death.”
That is precisely the opposite argument to the one that the Conservative party has been making. In other words, of course Britain was exposed to the global economic downturn because it had a large financial sector. It had lots of global banks based in London. Those banks were indeed global; they operated across the world. When it came to saving those banks, it was the responsibility of the British Government, as of course it should be. We need only to think of the Icelandic banking crisis, which affected individuals and local authorities across the UK, or the collapse of Lehman Brothers, which reverberated across global boundaries, to realise that that is true.
How does making very weak banks lend more strengthen them?
The right hon. Gentleman’s Front-Bench colleagues are arguing that the only thing we need to do in this recession is to try to get our national banks, and international banks based in London, lending more to people who want to borrow for mortgages and businesses here. I see he is distancing himself from their remarks. I think there is a danger there, too, as I said in an intervention on the hon. Member for Twickenham.
One of the key differences between the 1930s financial crisis and the current one is the extraordinary degree of interdependence that has developed between our complex major international institutions, so that the failure of one part of the system reverberates around the globe. Indeed the Deputy Governor of the Bank of England, Paul Tucker, put it like this in answer to the Treasury Select Committee about the Government’s new toxic asset scheme:
“We cannot cut ourselves off from the international nature of this crisis.”
To go back to the Turner report, Adair Turner says:
“The origins of the crash lay in the US housing market”.
[Hon. Members: “Read the rest of it.”] The rest of the quote is,
“with growing evidence that excessive credit extension and weak credit standards had resulted in rapidly rising credit losses, with implications for the price of many asset- backed securities”,
the point being that asset-backed securities are held by institutions right across the world and have been affected by the sub-prime mortgage issue in the United States.
If the Conservatives cannot understand the nature of the credit crisis, how on earth can they be expected to be the ones entrusted to solve it? Indeed many of their policy prescriptions seem to stem from that flawed analysis; putting forward a prescription based on fiscal rectitude; promoting saving and living within our means; and reining in public debt at a time when liquidity and demand both need to be supported to prevent this recession from turning, indeed, into a great depression.
I am glad that the Conservatives seem to have rowed back from immediate cuts in inheritance tax, now to be implemented, I think, within the first term of Conservative Government, rather than on day one. However, they still seem to be recommending £5 billion of public spending cuts in this financial year—the same prescription that was made in the Thatcher recession of the early 1980s, which led to the massive unemployment that became entrenched for a generation.
It may suit the Conservatives as a matter of political strategy to pin the downturn on the British Government, but that is plain wrong. Not only is it wrong, but the argument is further confused by obscuring the situation on debts and deficit. The facts of the matter are that we entered the recession with public debt low by international standards. Even after the recession, after any fiscal boost, according to the OECD, we are likely to come out of the recession with public debt, although significantly higher, still likely to be one of the lowest in the developed world.
I accept that we have run and will run very large fiscal deficits in years to come. We are likely to do so largely because as tax receipts fall and benefits rise—we have to accept the fact that automatic stabilisers are much stronger in this country than in other countries—we naturally support our economy through any downturn. How much will the VAT cut, the fiscal boost that we have already seen, contribute to the deficit?
The Institute for Fiscal Studies has said that the VAT cut and the fiscal stimulus package more broadly will make little difference to the scale of the deterioration in the UK’s public finances over the next five years. The stimulus package contributes only one fifteenth of the increase in public sector net debt that the Treasury expects by 2013-14. In fact, providing a strong economic stimulus, both fiscal and monetary, to support spending during the downturn is precisely what the British economy and the global economy need.
As the IMF said in a note this month:
“Some countries entered the crisis with greater fiscal space to expand, including more favourable levels of deficits, public debt, contingent liabilities and interest rates”,
referring to Canada, China, France, Germany, the UK and the US. It is a travesty to misdiagnose a problem that is clearly international as a domestic regulatory failure in order to pin blame on the Government.
I accept that there was a collective failure around the world to see the downturn coming. In retrospect, the huge global economic imbalances that emerged between China and the west were never going to be sustainable. As those surpluses searched for yield across the globe, that gave a huge impetus to global financial institutions developing more complex financial instruments.
The G20 comes at a critical moment. The first priority must be preventing the recession from turning into a depression. Secondly, we must craft principles to reform the international financial system. Thirdly, we must protect the world’s poor, rejecting trade protectionism in any form.
It is always a privilege to follow the right hon. Member for Bolton, West (Ruth Kelly) since she returned to the Back Benches. She has consistently given the House thoughtful and well-informed speeches on economic matters, even though in this case I profoundly disagree with her, on both her analysis and her prescription.
Unless we establish the cause of the current economic crisis, we will not be able to find a cure or a way of preventing a repetition of the problem. Unfortunately, so far analysis has focused not on establishing the ultimate cause, but largely on allocating blame to greedy bankers, impotent regulators and incompetent Americans.
Incidentally, following the point that the right hon. Lady made, the Prime Minister cannot say, as he does when he is trying to escape any share of the blame himself, that the problem arose solely in the US, and simultaneously blame the British bankers. Either the problem was caused exclusively in the US, in which case not only is the Prime Minister innocent, but so are the British banks, or the British banks contributed to their own downfall and aggravated our economic problems, in which case not only are they guilty—I believe they do share in the guilt—but given that he was responsible for regulating the banking system over the past 12 years, so was the Prime Minister, the former Chancellor, guilty of his share of aggravating our problems.
I am sure that all the alleged guilty parties deserve some of the blame, but I will argue that their behaviour was essentially a symptom of a much more fundamental underlying cause of our woes. Take greedy bankers. I am sure that bankers were greedy, but bankers have always been greedy—I cannot remember a time when they were not accused of being so. It is a fundamental axiom of logic that we cannot explain a change by a constant. If bankers have constantly been greedy, why has that only now resulted in this change in our economic fortunes?
The interesting thing is that, in the past bankers, were accused of being greedy because they would lend only to the rich, who had ample collateral, and to low-risk projects at high interest rates. This time they are accused of greed because they have lent to poor people at low interest rates with inadequate and inflated collateral and a risky repayment profile. Bankers’ greed has been a constant feature; it is the form that it has taken that has changed and needs explaining. I shall come in a moment to a more fundamental explanation of that change.
The second alleged culprits are impotent regulators. The common accusation is that deregulation stripped the regulators of the power that they needed to prevent the excesses of the past decade. In fact, under the regime that the Prime Minister introduced in one of his first acts as Chancellor, the regulators whose duty was to supervise the banking system in the UK had every bit as much power as they had ever had.
The other day, my right hon. and learned Friend the Member for Folkestone and Hythe (Mr. Howard) reminded the House—and, indeed, me—that I was the shadow Chancellor when the Bill that became the Bank of England Act 1998 was introduced. In the debate on that Bill, I warned the House:
“With the removal of banking control to the Financial Services Authority...it is difficult to see how…the Bank remains, as it surely must, responsible for ensuring the liquidity of the banking system and preventing systemic collapse.”
I went on to say:
“The coverage of the FSA will be huge; its objectives will be many, and potentially in conflict with one another. The range of its activities will be so diverse that no one person in it will understand them all”—
and so it turned out. I added that I feared that
“the Government may, almost casually, have bitten off more than they can chew. The process of setting up the FSA may cause regulators to take their eye off the ball, while spivs and crooks have a field day.”—[Official Report, 11 November 1997; Vol. 300, c. 731-32.]
I could foresee that then, because the problem was not deregulation but the regulatory confusion and proliferation introduced by the former Chancellor. The regulators have never had more power, employed more people or spent a bigger budget than now, but they have failed. The problem with the regulators worldwide was not lack of power, but lack of foresight and insight; until the eleventh hour, they were as convinced as the bankers that everything was going swimmingly. In its global financial stability report in April 2006, a year before the crisis erupted, the International Monetary Fund no less, referring to securitisation and other complex derivatives, said:
“There is growing recognition that the dispersion of credit risk by banks to a broader and more diverse group of investors, rather than warehousing such risk on their balance sheets, has helped make the banking and overall financial system more resilient…The improved resilience may be seen in fewer bank failures and more consistent credit provision. Consequently the commercial banks…may be less vulnerable today to credit or economic shocks.”
That is what the pinnacle of the regulatory system worldwide was saying a year before the crash. The truth is that the behaviour of bankers and regulators was not so much the fundamental cause of the crash as a symptom of a long period of easy money and irrational exuberance fuelled by excessive credit.
Does my right hon. Friend remember that the Government introduced a lot of mortgage regulation relating to process? When we criticised them and said that they needed to regulate the institution, which was where the damage was being done, they said that we were wrong. Do they not now see that we were right and that the institution, rather than the individual transactions, had to be regulated?
My right hon. Friend is absolutely right. The bulk of regulation was focused on consumer protection rather than systemic stability. There was not enough prudential supervision; if anything, there was too much detailed regulation of the consumer-lender interface.
The right hon. Gentleman has succinctly described the causes of this situation, and I do not want him to go off that point. Basically, he is saying that people were lending money they did not have to those who should not get it, in a form that neither side understood, for returns that were too high and with a risk that was too high, and then persuading themselves that if they spread-bet all that across the world, everything would be fine. If they had gone to Ladbrokes, they would have been told by any spread betting expert that if a bookmaker is accepting all the money on a hot favourite and all the other horses in the race have only three legs, they can reinsure all they like, but ultimately they just lose a fortune.
The right hon. Gentleman puts it extremely eloquently. He demonstrates why he should have been Chancellor during the past few years instead of the person who has occupied that place on the Front Bench—a point on which I am sure we are similarly agreed.
The monetary authorities allowed lending and borrowing to outstrip personal incomes. They ignored bubbles in dotcoms and house prices, and promised to limit the downside risk by what became known as the “Greenspan put”—the promise to cut interest rates and pump in money if ever the economy faltered. However, it was not just down to Alan Greenspan in America—the monetary authorities on both sides of the Atlantic pursued almost identical policies. Indeed, it is a bit rich for our Prime Minister to blame the United States and, by implication, Alan Greenspan, when he slavishly copied Greenspan’s policies, appointed him as his adviser and awarded him a knighthood for, let it not be forgotten, services to financial stability. Of course, he went on to give knighthoods to most of the bankers he is now vilifying—for services to banking.
Underlying that “easy money” policy was the willingness of half the world to run savings and balance of payments surpluses, tempting the other half—the Anglo-Saxon and “Club Med” countries—to run deficits fuelled by borrowing. It was lovely while it lasted, but it could not go on for ever. Our banks had to find people to lend their surplus savings to, and as they ran out of rich people with good collateral and low risk of default, they started lending increasingly to poor people with inadequate and inflated collateral and a high risk of default. The ultimate cause of our problems, which we must recognise if we are to come up with the correct solution, is that we took advantage of the cheap savings from the surplus countries until we were so over-borrowed and inflated that the system was ripe for collapse.
We now face a huge dilemma. The cure for too much borrowing cannot be yet more borrowing—least of all for the UK, which as well as having incurred excessive private debts is running an unprecedented public sector deficit and, unlike the US, does not enjoy what General de Gaulle called the “exorbitant privilege” of having the world’s reserve currency. The deficit in this country is expected to exceed the entire defence budget, the entire children, schools and families budget, the yield from doubling corporation tax and the yield that would come from increasing VAT to 25 per cent. If we are contemplating any further discretionary borrowing on top of that, we must be mad, and we would destroy confidence in the markets.
Does the right hon. Gentleman accept that by far the main cause of those high deficits is the operation of the automatic stabilisers?
Well, let us not add to that problem by some un-automatic excessive borrowing.
The other half of the dilemma is that if the whole world tries to save less than it is producing, output and/or prices will fall in a deflationary spiral—the point that the right hon. Lady was making. The only way in which we can reconcile those two truths—that we cannot solve too much borrowing by more borrowing, and that we cannot simultaneously, across the world, all try to spend less than is being produced—is that the countries that have borrowed too much must, sooner or later, start saving, and those that have been running prudent surpluses should start spending more. The Prime Minister is misguided in trying—to offer himself cover—to persuade everyone to do the same thing: to run discretionary deficits simultaneously. Equally, the German Chancellor is mistaken if she is correctly reported as telling everyone to do the same thing: to strive to reduce their deficits simultaneously. The spenders need to start saving and the savers need to start spending. It will not be easy to co-ordinate that, but if the Prime Minister, as chairman of the G20, does not realise that we need such a bifurcated approach, it will not happen. That should be the agenda for the G20. It is sad that he has mistaken the recipe that he is trying to cook up at that meeting.
Some people will feel that I am looking to the past, but we have to accept that the British economy, the world economy and what we call the real economy are in serious trouble because of the crash of the casino economy run by bankers for the benefit of bankers. It has become fashionable to say, “Let’s not be too hard on the bankers.” I agree, because it is impossible to be too hard on the bankers. There are only two possible explanations for the mess they have got us into: either they could not tell the difference between liabilities and assets, in which case they are too stupid to be bankers; or they could tell, and they managed to sell liabilities claiming that they were assets, in which case they are fraudsters. Those are the only two possible explanations. If I may say so, there is no third way.
We are told that the bankers had to be paid millions because they were risk takers. We certainly could not deny that they were risk takers, but they were not taking risks with their own money. Many were not taking risks with their own jobs, and in some cases they were not taking risks with their own pensions. The consequences for many of them have been minimal, whereas for everyone else they have been dire. Other people’s jobs and pensions have gone; 25,000 jobs in financial services went in the last quarter of last year, but few of those jobs belonged to the people at the top who were really coining it. It is bank clerks’ jobs that have been disappearing. In that quarter, 160,000 jobs, including those of some of the regulators, went as a direct consequence of the stupidity and greed of the banking system. Jobs are not threatened because there is anything wrong with JCB equipment, Leyland-DAF vehicles or products in the aerospace industry; they are threatened because of the bankers. But people still argue that the bankers concerned are worth huge pay and bonuses.
Nick Leeson was sent to prison for his banking practices. Would it not concentrate a few minds if some more bankers were sent to prison?
Yes, indeed.
We were told that if these people did not get huge pay and bonuses, they might go elsewhere, to Dubai, Mumbai or Shanghai. I am trying to envisage the interview. They might be asked, “Who did you say you were working for in the City of London? Was it Lehman Brothers, Royal Bank of Scotland or HBOS? Were you helping Bernard Madoff, or were you working at Merrill Lynch?” The idea that those people would be welcomed by any sane banker—assuming there is such a thing—is quite ridiculous, but they still say that they ought not to be regulated, which is one of the arguments their apologists make.
Our Government, like other Governments around the world, have tried to introduce extraordinary measures to counter the extraordinary damage that these stupid, greedy people have caused, intending to limit the length and depth of the recession through tax changes, changes to monetary policy and monetary relaxation, and by trying to get credit flowing again. That means huge costs for the Government and for taxpayers. Needless to say, the Tory party—the political wing of the banking industry—is spending all its time blaming the Government and attacking the Prime Minister as he makes the preparations for the G20 summit in London in two days’ time.
Will the right hon. Gentleman give way?
No, I have not got time.
Frankly, the Tories hope that the G20 will fail—it would be to their political advantage—and their friends in the press, TV and radio have been taking every opportunity to contribute. They even quoted on BBC TV, with approbation, the Czech Prime Minister’s denouncement of the policy of Obama and the British Prime Minister, but they did not mention—and I think it was germane—that the preceding day, he had lost a vote of confidence in his own Parliament due to his ludicrous running of the Czech economy. That did not get a mention. He was treated like some economic guru by virtually everybody who reported him.
The G20 must try to shorten and lessen the depth of the recession. Different approaches will be suggested by different Governments, employing all possible methods, including trying to strengthen the International Monetary Fund to make it a trifle less stupid than it has sometimes been. As my right hon. Friend the Member for Airdrie and Shotts (John Reid) pointed out, we will need to toughen the regulatory system, both national and international, and make it much more transparent.
We have to act on tax havens, which we all know private profiteers and corporations exploit to evade tax due on transactions and profits in places where the transactions occur and the profits are actually made.
We also have to act against commodity speculators. The oil price shot up to $140 a barrel, but there was no shortage of oil. Sometimes, in the time it took a cargo of crude leaving the Gulf to get to Halifax, Nova Scotia or Rotterdam, it was bought and sold 10 times. There were massive speculative increases in prices, and that has to be stopped.
Worse still, the price of rice practically trebled at one point, which was attributed to the fact that the Chinese had started eating more rice. Actually, a lot of filthy speculators in this country, in the United States and in European exchanges were trying to get more money out of rice. I was in Bangladesh recently, and I was assured by some of the rice farmers that they had not been paid three times as much for the rice they produced. We have to stop those speculators, because what they do is also part of banking’s greed and stupidity. We have had difficulties in this country because of the credit crunch, but in many parts of the third world, what is happening is at that horrid boundary between life and death. People will die because of the greed of bankers, and it is shameful that bankers have continued to do what they have been doing. We need a changed world system; we do not want to go back to the old system. We cannot leave such matters to lightly regulated bankers, or to the apologists for bankers.
Some of the apologists are unable to make up their minds. Some say they do not want regulation, but others say they were not properly regulated. They cannot have it both ways. The latest line is that the old ways were the best: “Perhaps we could go back to the old ways when the Governor of Bank of England had influence.” It is argued that people were constrained by the Governor’s “raised eyebrows”. You’ve got to be joking. The only thing that would have restrained the worst offenders who caused this crisis would not have been the Governor of the Bank of England raising his eyebrows, but the police feeling their collars.
The Governor’s remarks were somewhat exaggerated by the newspapers, television and radio, and used to undermine the Prime Minister. The Governor expressed caution. Well, that is what Governors of the Bank of England do—it is their job to express caution. I remind the Governor that he has some very undistinguished predecessors. One of the greatest contributors to changing the Wall street crash into the great depression was the great Montague Norman, who absolutely insisted on rejecting Keynes’ policies, which might have rescued the whole world from the ’30s depression and Germany from Hitler.
I wish the Prime Minister well at the G20 in London and the subsequent G20 meetings. Nobody believes that things will be sorted out in one meeting, and there will be a long series of such meetings and many meetings of officials to thrash out the changes that are needed. If anyone does not wish him well and hopes that his efforts will fail, as I believe many Opposition Members do, they might be thinking about what is good for the Tory party but not about what is good for the people of this country.
The right hon. Member for Holborn and St. Pancras (Frank Dobson) had a good go at bankers, who are a pretty easy target, but there is nothing new in the behaviour of banks creating financial crises, which is why they need regulating. I think it was Warren Buffett who observed of this crisis that banks have spent the past 10 years inventing a whole load of new ways of losing money, which was completely unnecessary as the old ways were working fine. I am afraid that there is not much new in what the right hon. Gentleman’s target has been doing.
I wish to spend my few minutes talking about how we go forward rather than how we got into this crisis. There has been a huge amount of analysis of how we got here, but what are the sensible things to do to get out of the crisis? I do not agree with some of the Government’s policies, but I do with others. One must spend a moment reflecting on what happens in a recession, which is the hangover after the binge.
We have had years of excess monetary growth, which has gone into living beyond our means at both public and private level. There has been too much private sector borrowing, and the Government have been running deficits and living beyond their means. Monetary growth and excesses have found their way into asset prices, particularly houses and property, rather than into consumer price inflation. Those things have to be corrected, which will take some time and will not happen overnight. We have to move to an economy in which savings are higher, asset and house prices are lower, money is tighter in the long run and bad loans and investments are written off. That is a painful process, but the mistakes in policy are behind us. There are no options in front of us that could enable us to avoid that process happening, which it must.
We certainly want to help the victims of the recession, as the Conservative Government did in a recession and as this Government are doing. We want to help people who are unemployed or in danger of losing their houses. Of course one wants to do that and to let the natural, automatic stabilisers work, but from what I have read they account for about 3 to 3.5 per cent. of GDP. The fiscal stimulus is an awful lot bigger than that. I do not believe that in the current circumstances, an additional fiscal stimulus involving the numbers being talked about will make any difference to the recovery from the recession. It is a monetary phenomenon with a monetary cause, and the correction will be in monetary policy.
This recession started in the banks, which is perhaps why it is unusual among the recessions that have happened in my adult political lifetime. Usually, recessions that start in the financial system last longer, because it takes the first year for the system to sort itself out, so the Government are right to concentrate on sorting out the banks and getting them back to lending. We can argue about whether their schemes could have been introduced better, sooner or cheaper, but certainly their strategy is right. However, those policies have to be given time to work. They have had only a few months, and there is a misplaced sense of panic about what is happening. If the panic had happened a year or two ago we might have been able to do something different, but from where we are now the measures taken in the monetary markets must be given time to work.
We need four things, the first of which is prudential regulation, which has been discussed a lot, including by the right hon. Member for Holborn and St. Pancras. Regulation has clearly failed, and it is no good anybody pretending it has not. What we need is not more regulation, more regulators or more money spent on them. As my right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley) said, we have had that in spades for the past 10 years. What we need is more intelligent regulation. The difficulty is that the people in the FSA are not as good as the people in the banks, who despise them and say that they are all 28-year-olds who do not know anything. With a lot of unemployed, smart people from the banks around, perhaps the FSA can employ some of them and be slightly better.
However, the next stupid thing that bankers do in making ridiculous loans will not be the same as they have just done, but something new. In the past it was the Latin American debt crisis, Russia, the far east and then the dotcom bubble. The next one will not be one of those, so it is no good regulators now shutting that stable door. They have to think about what is coming, and that is what I mean by more intelligent, rather than tougher, regulation.
Was it not really very easy? All that one regulator had to do was read the balance sheets of the top half-dozen banks in Britain, and it could have seen that they were grossly over-geared.
Yes, although other things were going on, too. Monetary policy was too loose during that period, and the problems were pretty obvious from monetary statistics, without analysing the banks’ balance sheets.
Adair Turner has basically got his prescription right. I disagree with him about only one thing, which is the Glass-Steagall Act and the splitting of the casino from the utility—of the commercial banks from investment banking. That is worth considering, because the two are much more interrelated than they were, and in investment banking there is a risk of counter-party default. As we saw with Lehman Brothers, if one bank goes down it risks dragging a lot of other securities institutions with it. However, the problem in the current case was irresponsible lending by commercial banks. If we can isolate the deposit-takers and their business from the business that investment banks do with either their own capital or money borrowed on the bond market, we can be much tougher on investment bankers. We can say, “Right, you can write off your equity, and your lenders are not going to get their money back.” However, we have a responsibility to protect commercial banks because there is a risk of system failure. I hope that the Government will insist on a tougher look at that.
We have discussed the remuneration structure, which led to people behaving rationally as individuals but produced a totally irrational outcome—the upside for a banker of taking risks and making money, which was his bonus, vastly outweighed the downside. The worst that could happen to him was not getting a bonus, or perhaps in extremis losing his job. Regulation of that area will have to be considered in future, but there is a danger of over-regulation. The City of London has, on the whole, been doing quite well for Britain and making money for 500 or 600 years. There is a danger that we and the United States will over-regulate our banking systems and lose what is good about financial markets to other places. If we could just stop what is bad that would be fine, but if we risk losing what is good through over-regulation, we will create a new problem. The City is a very important part of the British economy, and hopefully it is not going to go away.
All recessions are preceded by a monetary boom and lead to irrational lending, high asset prices and consumer price inflation or house price inflation. Recessions have monetary causes and monetary solutions. The Government and the Bank of England have put in place very low interest rates and a bank bail-out that is now worth £500 billion. Such amounts terrify me—a hundred billion here and a hundred billion there, and pretty soon we are talking about real money. A vast percentage of our GDP is at stake and we must keep very tight control over quantitative easing, which is a wonderful euphemism for what we would call printing money if it were being done in Latin America. I am not trying to second-guess the Government on that, but a huge amount of money is being pumped into the system. I hope that when the recovery starts, we will be ready to start getting that money back out again. Otherwise, we will end up with huge consumer price inflation in two, three or four years’ time.
The debate has been about fiscal policy, which I believe is wrong, because the remedies are in monetary policy. We are already running a huge fiscal stimulus, which will be 9 or 10 per cent. of GDP this year and next. The idea that we are somehow not running a fiscal stimulus is completely wrong. As I have said to the Chancellor, we should have been running a surplus in the good years, although there might be room to do a bit more now, as the Germans are finding. However, the United States and Britain are in the almost uniquely weak position of having serious financial and balance of payments deficits. I therefore believe that the US President and the British Prime Minister are wrong about this. They should let the stabilisers work, but we simply cannot afford to spend so much. The Treasury has run out of our, the taxpayers’, money. No more of it can be used without seriously endangering the recovery when it comes. If we are saddled with huge quantities of debt that invade the corporate bond market, drive up yields, drive down the currency and leave the taxpayer with interest to pay for years to come, we will endanger the recovery. We have run a fiscal deficit of £200 billion over the past six years, and we look like running another £250 billion over the next two. Frankly, that is enough. We are getting into dangerous territory.
The recovery will come from the private sector, and I want to make a couple of suggestions about what the Government might do to help that. First, the Government have been regulation junkies—frankly, they have been even worse than we were. A mass of regulation has been introduced and it has cost business a huge amount of money. That is a social luxury, which we can afford in good, but not in bad, times. Five EU directives on employment and four sets of UK regulations are in the pipeline, all of which will impose costs on business and deter job creation. The Government could score a lot of brownie points and do the economy much good through a moratorium on regulation that imposes costs on business or on the Government—regulation imposes costs on the Government, too—until the recession is over. Afterwards, we can debate whether it is a good or bad idea.
The Government could help the private sector through tax policy. I do not simply mean tax cuts to put money in consumers’ pockets. We need to encourage private sector investors to start taking risks again. They are currently risk-averse and are trying to find the safest possible way of conserving their cash. We need to try to alter that equation for them. We could do that if, for example, we provided that any business investment in the next 12 months was free of capital gains tax, or that capital allowances could be enhanced for the purchase of business investments. We could also allow offsets on capital losses made on investments in, for example, the next 12 months, against people’s income tax. That would encourage people to invest in business—get investors investing again—by altering the ratio of risk to reward in the tax system. I do not believe it will cost much. Without the investment, there will be no gains on which to pay the tax, but the Government could genuinely help the private sector to contribute to the recovery.
My final point is that the crisis is of the banking system, not of globalisation or free markets. We must not endanger free markets and free trade, which have given the world the most fantastic growth. They have taken more people in the third world out of poverty than any other system. We must not endanger that when addressing a crisis in the banking system.
Time is short and I hope that the House will forgive me if I am a little parochial. I want to say a few words about the impact of the economic downturn on my region, the west midlands. The newly formed West Midlands Regional Committee is currently conducting an inquiry on that, and we hope to present a report before long. However, with the Budget approaching and given the severity of the economic downturn in our region, some key issues will not wait, and practical action can and needs to be taken. I want to illustrate that with examples from the region as a whole and, in some cases, my part of Birmingham.
The West Midlands Regional Observatory noted that the fall in output in the west midlands is worse than the UK average and the worst of any UK region. It has experienced the sharpest job losses of any region in the past quarter and has the second highest unemployment rate of any UK region. The decline has been especially sharp in manufacturing—20 per cent. of manufacturing firms expect to reduce their work force this quarter. That is not to say that the service sector has not also been hit—the equivalent figure is 11 per cent.
However, manufacturing has long been the bedrock of the west midlands economy and its centre is the automotive industry, with approximately 1,800 companies, 115,000 employees and gross value added of about £5 billion in 2006. Yet the manufacturing redundancy rate stands at 22.8 employees per thousand in the last quarter of last year, and there were more than 5,500 redundancies in the last quarter in 2008 in the automotive industry. In the region, redundancies between November 2008 and January 2009 were up 265 per cent. on the previous year.
I make those comments not to spread gloom or depression—some parts of the regional economy are holding up well. However, I want to emphasise that the west midlands is not only suffering from a severe economic downturn, but that damage is in danger of being done to the foundations of the regional economy. If we lose those foundations now, we will not be in a position to respond when the upturn comes. We could lose not only strategically significant companies, but the skill base that they maintain, and that will not easily return.
Action is important to ensure that the west midlands gets a fair deal. I welcome the automotive package that Lord Mandelson announced on 27 January and I am pleased that my hon. Friend the Economic Secretary and Under-Secretary of State for Business, Enterprise and Regulatory Reform is here. He has done some great work in ensuring that applications under the scheme will be processed as quickly as possible. I cannot emphasise enough that we must ensure that help gets to where it is needed quickly.
We need to move quickly on matters that the Government are considering—I welcome the consideration, but decisions and action are required. We need to introduce a scrappage scheme in the automotive industry. There are different views on that, but the evidence from Germany shows that it has a positive effect on stimulating demand, and I hope that there is good news about that in the Budget.
I want to take up a point that the hon. Member for Twickenham (Dr. Cable) made and emphasise that a key part of ensuring that firms in the automotive industry and other parts of manufacturing can trade effectively is getting the trade credit insurance industry working again. It is not working, and that does tremendous damage.
We need to ensure that the strategic firms on which so many other firms depend get loans and loan guarantees quickly, not because they need bail-outs but because they need support to realise their potential. Other local Members of Parliament and I are therefore joining local papers, such as the Birmingham Mail, the Birmingham Post, the Coventry Evening Telegraph and others, to say that we must stand by Jaguar Land Rover.
The hon. Gentleman knows that Land Rover is in my constituency and, like him, I am worried about the slowness with which European Investment Bank money is coming through. LDV is also in a precarious position and I am sure that all hon. Members hope that that company will survive. Does he agree that perhaps the Government could do a little more to try to ensure that the desperately needed money comes through speedily?
I know that the hon. Lady has a great constituency interest in Jaguar Land Rover as a firm that is strategically important throughout the region and beyond. Discussions have been going on for some time between the company and the Government about ensuring that support is there and that the loans from the European Investment Bank come through. It is vital that those discussions are brought to a successful conclusion.
The hon. Lady mentioned LDV, which I intended to consider next. I often criticise the current administration of Birmingham city council because what it says about itself often exaggerates what it does in practice. However, it was right this weekend to announce waiving business rates for LDV, and it is looking to make orders for that company’s products. That was the right decision, and I welcome today’s announcement by the Chancellor on doing more about business rates. It is also important that Her Majesty’s Revenue and Customs is as flexible as possible in its dealings with LDV. We must all do what we can to ensure that the company gets the support that it needs from the EIB and that other public authorities use their procurement powers to buy the kind of vehicles it produces. In Britain, we have the capacity, skills and technology to produce the low-carbon vehicles of the future, but people and firms must buy them. Public authorities are in a great position to do that. We can also help stimulate investment in the private sector through purchasing those products in the west midlands and elsewhere. Some extension of annual investment allowance would help.
Let me make two other points. First, my hon. Friend the Member for Chorley (Mr. Hoyle) mentioned training subsidies and subsidies for short-time working. When an economic downturn happens, it is far better to invest to keep people in work and upskill them than to pay for the consequences of their losing their jobs. Contrary to the position in many parts of the country, the west midlands still invests in training. The figures there are still better than in a lot of other places, but we need to do more to help. A temporary wage subsidy for short-time working must be an important part of that. Part of providing the training is that we have to have the facilities to train people. That is why I want to mention something that straddles both training and construction.
There are genuine questions about how the Learning and Skills Council’s capital programme has got into the position that it is in and about how it has become so over-committed. When investment in infrastructure in the third and fourth quarters of last year was still positive nationally, but dramatically falling in the west midlands, now is not the time to allow vital capital projects to go down, either for training reasons or for the construction industry.
A central plank of the regeneration of the Longbridge site in my part of Birmingham is the relocation of Bournville college to that site, with a state-of-the-art building whose construction will provide new jobs in the short term and new opportunities for quality skills training for generations coming through. That will be a visible catalyst to enable south-west Birmingham not simply to win through the current economic downturn, but to deal with the continuing effects of the huge blow that local communities suffered in 2005 when MG Rover collapsed. People in and around south-west Birmingham deserve that kind of fair deal. Keeping faith with the Longbridge project, including Bournville college, is part of that.
My right hon. Friends in the Government face formidable challenges. Their job is made no easier by the sniping from the sidelines by Opposition Members, who complain about the effects of the economic downturn but will not commit the resources that are needed to beat it. Ministers do not have the convenient luxury of opposition, but that does not alter the fact that the west midlands region needs urgent action in the short term if we are to seize the opportunities for the long term. That means urgent action on the automotive industry and doing more on infrastructure, particularly those infrastructure projects that are about building the human capital of the region. Colleges are part of that, including Bournville college.
I remind the House of the interests recorded in the register.
I want to say something about the origins of this crisis, the structure of the economy that we are now left with and the state of our public finances. So far as the origins of the crisis are concerned, I fundamentally agree with my hon. Friend the Member for Stratford-on-Avon (Mr. Maples). It is not a crisis of markets; it is a crisis of regulation and controls. It is Governments who control the allocation of credit through the central banks to which they give their mandates; it is Governments who control the holdings of capital through the capital adequacy rules that they require banks to follow; and it is Governments who have controlled lending, in effect, through the supervisory regimes that they have established.
Ten years ago, the amount that the major British banks lent out was covered almost exactly by the deposits that they held. By 2007, the gap was £625 billion and their assets—or perhaps we should say their loans—amounted to three and a half times our GDP. I think it was my right hon. Friend the Member for Wokingham (Mr. Redwood) who put it so well: this country has become a banking business with a medium-sized state attached to it. Who allowed all that? Who encouraged it? Who cheered it on? It was the Prime Minister, as Chancellor, who set up and welcomed light-touch regulation.
In November 2003, the Prime Minister told a conference organised by The Wall Street Journal:
“Capital markets can and should help us manage risk more efficiently between sectors, over time and across national boundaries…there is a need to remove barriers to diversification of investments across borders”
in Europe. In other words, he wanted more American-style investment houses here. He wanted more Lehmans in Europe. It was the regulator that he set up that failed us so badly and the rules that he agreed to under Basel that encouraged pro-cyclicality, drove the search for yield off the balance sheets and, by incorporating self-serving rating agencies into the regulatory process, helped to downgrade the role of risk management. Those failings are now well understood.
Does the hon. Gentleman not recall what his party’s then Front-Bench spokesperson said in the debate on the Financial Services and Markets Bill, which introduced the Financial Services Authority? He said:
“we believe that regulation should be minimal”.—[Official Report, 28 June 1999; Vol. 334, c. 43.]
My right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley) has already reminded us exactly what he said from the Front Bench at that time. It was a huge mistake to take banking supervision away from the Bank of England and give it to a supervisory authority that employs 2,500 people and will cost us £415 million a year from 1 April, but which assigned only three of those 2,500 people to look after Northern Rock, which allowed the Royal Bank of Scotland to expand and expand without lifting a finger to stop it, and which allowed HBOS to put 40 per cent. of its lending into property and construction alone and then to take equity stakes in the very businesses that it was banking. Above all that, there was a tripartite group that hardly ever met.
Those were British mistakes of regulation, made by British banks and British supervisors, under a system set up by the British Government. It is for us to put that right—to put the Bank back in charge of banking supervision, not just financial stability, as the lender of last resort and the institution that will sort out failing banks, and then to establish counter-cyclical rules for capital, tougher requirements for liquidity and a much better understanding of the risks that such institutions are taking on.
Will my hon. Friend give way?
If my hon. Friend will forgive me, I will not give way because of time.
We have to rebalance our economy. I hope that there might now be support across the House for the view that we cannot build a long-term, sustainable, wealth-creating and reskilling economy on the back of an over-inflated housing market, an over-exuberant financial services sector and a bloated public sector, because over the past 10 years, all three have combined to distort how our economy is growing, frustrate innovation across different sectors and prevent the reallocation of resources in response to the change that we now face. All three of those sectors have also been created and sustained on a mountain of debt—private debt in the housing market, to the extent that British households now have debt equal to 70 per cent. of disposable income; public debt, which I shall come to in a moment and which has sustained the vast expansion of the public sector; and commercial debt, which allowed the expansion of financial services.
We need to look again at how we treat debt in the commercial sector. I welcome the intriguing and thoughtful proposals made a couple of weeks ago by my hon. Friend the Member for Tatton (Mr. Osborne), the shadow Chancellor, about how we might move from a debt-driven economy to an equity-driven economy that no longer has a tax system that favours debt over equity finance and which moves us forward towards reinforcing our skills base and building a better value-added economy.
We also have to put our public finances in order. With all the extra taxes from the boom years—the additional stamp duty from the housing market, the income tax from City bonuses and the corporation tax from the financial sector—the Government were able to double public spending from £320 billion when they came in to £623 billion in the current financial year. However, the Government have failed in that period to balance the budget since 2001. That is not a deliberate strategic failure and the failure to control our public finances is not sudden or recent. On the contrary: in the 2003 Budget, it was planned that we would be in surplus by 2006. By 2005, that had slipped to 2008, and by 2007 it had slipped to 2009. By last year’s Budget, that target had slipped out to 2010-11 and now it appears to have been postponed sine die—which, for the benefit of the House, means “until a Conservative Government.”
That matters, because in the end, unless we properly control the public finances, we cannot achieve our goals as a country, and we are failing to invest for the long term. It is that systemic failure to get a grip on our public expenditure that explains why no new power stations have been built, thus jeopardising our future energy security; why only half our school leavers achieve good GCSEs, thus risking our future competitiveness; why our welfare rules rose in the good years, well before the recession started; and why our dilapidated infrastructure continues to put us to shame in front of foreign visitors.
In conclusion, I think our economy is in very poor shape. I think it is badly positioned for the future. Our financial system has been badly regulated and our overall economy has been lopsided in its growth and dominated by debt on such a scale that it is undermining both our private and public finances. Once again, it will be left to a Conservative Government to clean up the mess.
Like my hon. Friend the Member for Birmingham, Northfield (Richard Burden), I want to drill down a wee bit to the impact of the current situation on many small businesses in my constituency, and perhaps replicate the experience of other hon. Members, probably on both sides of the House.
We need to recognise that while we hold big strategic debates, there are actually real people out there who are deeply concerned about what is happening. When I heard the hon. Member for Tatton (Mr. Osborne) talking about the golden legacy of 1997, I remembered what that “golden legacy” was built on. It was built on the destruction of Ravenscraig and of Hillington and Bathgate in Scotland; it was built on the destruction of a mining industry and the decimation of a shipbuilding industry; and it was built on the fact that one in three of this country’s children were living in poverty. We should never forget the practical implications of that so-called golden legacy.
If there is one thing I hope the people of this country will congratulate my Government on, it is that we were not prepared to walk by on the other side when there were dire straits. Sometimes when I look across to the Opposition Benches, I realise why I was angry in 1997 when I first came to this House. It was because of what I had seen—and some of the very right hon. and hon. Members sitting in their places today were part of the architecture that created the decimation of communities, not just in Scotland but right across the United Kingdom. Frankly, our Government have had to pick up that legacy over the last 12 years.
Let me return to the local circumstances, as I want to reinforce the House’s knowledge that the majority of businesses in this country are from the small and medium-sized enterprise sector; certainly in Scotland, they comprise about 90 per cent. of all businesses, while 93 per cent. of all Scottish firms employ fewer than 10 staff. It is their size, agility and adaptability that make small businesses so ideally placed to react to market conditions.
Unfortunately, as many of us recognise, size is also a weakness. When it comes to the circumstances we are facing just now, small businesses’ room for manoeuvre is a little less flexible than it is for some larger businesses. I think we all recognise that credit provides the oxygen that allows these businesses to survive. As someone once said, small businesses are the sort of economic equivalent of the canary in the mine: they are the first to suffer when credit dries up, and they are a good indicator of whether help is getting through.
The Federation of Small Businesses in Scotland surveyed its members at the beginning of this year, and found three main reasons why they are suffering. Yes, they have seen a drop in demand; yes, they have also seen an increase in the length of time they have to wait for payment of invoices; and, lastly, they have seen their credit decrease over the last few months. In some cases, credit is almost impossible to come by.
My contribution to this debate is based not only on surveys—no matter how credible—but on the experiences of businesses in my constituency. One of my constituents has a small export business, employing 30 people, and has had a long-standing and little used credit facility withdrawn by the Royal Bank of Scotland. I am told that the business is not insolvent, but as an export business, it depends from time to time on overdraft facilities, which the bank will simply not renew this year.
Another of my constituents runs a small commercial property consultancy and has banked with the Bank of Scotland for 24 years. The business turns over a modest profit and, against the trend in the property sector, it is projected to break even this year, yet its overdraft facility has been reduced by 20 per cent. and it has been charged a fee for the privilege.
Another example is from the tourism industry in my constituency. For those who have never visited Stirling, I suggest they do as it is a massive tourist magnet. Every battle ever fought in Scotland appears to have been fought in my constituency: there are the battles of Bannockburn and Stirling Bridge, and the ghost of William Wallace runs around the area. The tourism industry is thus crucial to the local economy, but the tourism businesses have had their “comfort” facilities withdrawn, making it very difficult for them to meet contingencies during the winter and early spring period when there are so few tourists around to generate income.
I welcome the Government’s clear agenda of getting help out there as soon as possible. As has been said on many occasions on this side of the House, it stands in stark contrast to what the Opposition would have done, as they would have let the recession take its course and done nothing. I also know that my right hon. Friend the Chancellor is committed to continue to take whatever action is necessary to bring Britain through the downturn—hopefully stronger and hopefully soon.
However, I need to impress on ministerial colleagues the fact that, according to the feedback I am getting from the businesses in my constituency, there appears to be a singular lack of knowledge among the banks of the help that is available. Certainly according to actual stories given to me and anecdotal evidence from the Federation of Small Businesses in Scotland, it appears that high street banks are either not aware of the Government schemes that we have spoken about this afternoon or they do not know how they operate. I understand from reading some of the reports produced after the Treasury Select Committee’s tour of SMEs around the country that the same message was given to them. Yes, it is fine for us to have strategic discussions and take strategic decisions here, but we have to recognise that information must get through to the grass-roots businesses that are so crucial to the existence of our local communities. I know that there is some evidence that the Royal Bank of Scotland is beginning actively to promote schemes and to offer to work more closely with the business community, which is obviously welcome.
Let me make this concluding point. There is now a level of expectation of what the banks, particularly those in which the taxpayer has majority control, can and should do—and I think the banks need to be aware of that expectation. That should apply not just to their dealings with small businesses, but to how they conduct their own business. To use one final example from my constituency, I received a communication from a small IT company that had a successful relationship with the Royal Bank of Scotland over some years. According to my constituent, it is now a stated aim of RBS to seek offshore services to replace suppliers such as his company—regardless of the logic and, in some cases, in complete disregard of the business case. He accepts the need to get the best price for the job, but is aggrieved—and, I have to say to my right hon. and hon. Friends, with some justification—that firms such as his are being excluded by a bank that he feels he has a stake in. I hope that Ministers will continue to use the influence we have on banks under our majority control to ensure that we not only exercise that control, but exercise it in the best interests of British business at a time when it is facing major difficulties.
Finally, let me say that small businesses did not cause the recession, but they will be vital in getting us out of it. I know that my Government will continue to take all necessary action to ensure that small businesses are supported through these difficult times, but let me make one final plea: we can talk all we like about this, but the partners—the banks, the business gateways, the local authorities—must ensure that the information is getting through. Otherwise, if there is a complete disconnect between what we say nationally and what is happening locally, we will undermine the credibility of all of us, and perhaps make this situation last longer than necessary.
I pay tribute to the right hon. Member for Stirling (Mrs. McGuire) for highlighting the importance of small businesses to the economies of our constituencies, and I echo what she said about their frustration that the banks do not always seem to understand what schemes are in place and how they can be best delivered. There is also the general frustration felt by our constituents when they see the big—global—sums going into the banks and then how little seems to be coming out the other end. The banks must be encouraged to recognise the importance of small businesses to our economy.
I want to raise a specific constituency issue that is of major importance to the UK economy too: the future of the oil and gas industry, which has been a great success story for the UK economy. The Treasury has a vital role to play, and now, in the run-up to the Budget, the timing could not be better to reinforce to the Treasury how important the industry is to the country. I should declare some of my interests as registered in the Register of Members’ Interests. The most relevant of them are shareholdings in Shell, an oil and gas company, and a visit to the Offshore Northern Seas conference and exhibition in Stavanger, funded by oil and gas companies.
Let me first, however, address some of the general issues that have come up in the debate. I echo the view of my hon. Friend the Member for Twickenham (Dr. Cable) that the economic stimulus of the VAT cut was untargeted. Many Members on both sides of the House have argued that a more targeted approach in other areas of the economy might have led to a more direct benefit. On behalf of another industry in the constituency, the distilling industry, I should add the concern that although the VAT decrease is temporary, the spirits increases will be permanent, and that sends a signal to overseas markets that such discrimination against these products can take place. In the run-up to the Budget, I urge the Government to look again at the approach to alcohol taxes and VAT.
We as a country should celebrate the oil and gas industry as a major achievement, and welcome its successes. A third of the Government’s corporation tax comes from the industry, and there are 500,000 jobs in it. It has also been a major part of providing a secure energy supply to this country, and has helped to contribute to our cut in CO2 emissions through the use of a lot of gas in energy generation in this country. We need to build on that strength. Oil and gas is not a lame-duck industry; it faces major challenges at present, but it has a strong future.
Oil and gas is one of those industries where, even for those who do not believe that the Government and industry should be too closely involved with each other, it is inevitable that there will be a major involvement, because the oil and gas under our seas belong to the nation, but we do not have the skills and wherewithal to get them out of the ground without using private industry. Therefore, there will inevitably be a strong relationship between Government and industry if we are to achieve the maximum benefit for the UK economy.
Some of the challenges that the industry is facing are background challenges, of which the Treasury was, I think, beginning to be aware even before the current credit crisis. The maturity of the North sea province is one of the challenges: a lot of the infrastructure is quite old, and the finds are much smaller and therefore more expensive to produce, and they rely on the existing platforms and pipelines still being in place to make it economic to produce them. Therefore, there is an increase in costs in a globally competitive market, and the challenge to take forward investment when faced with much higher input costs.
Then, of course, the oil price dropped and the credit crisis hit. Some of the big companies—ExxonMobil, Shell, BP—have their own cash flow and are not necessarily directly hit by the credit crisis, but the maturity of the UK market makes the credit crisis more serious, because many of the innovations and new explorations in the North sea are coming from smaller companies that do not have the cash flow to make the investment.
It is also a matter of great concern that the two major banks that were providing a lot of the liquidity in the North sea were the Royal Bank of Scotland and HBOS. With their tightening up of lending, there is a credit problem, and the drying up of the equity markets also causes a credit problem. In the short term, therefore, the industry faces a challenge. What is needed is not a bail-out, but investment incentives and a better sharing of the risks and rewards between the Government and industry.
The Budget offers an opportunity to provide that. The Government had already been engaged in considerable dialogue with the industry on tax incentives to invest even before this crisis hit, and they have come up with a proposal for a value allowance to encourage greater investment in new fields—smaller fields and high temperature, high pressure fields, and fields west of Shetland where there is more of a challenge and even greater investment costs. The Government must make sure that when they introduce that allowance in the Budget it is of a serious enough scale actually to encourage new investment.
The Government also need to extend the scope of what they are doing to existing infrastructure. Without the existing pipelines, processing plants and platforms still being in place, the new fields into which they hope to attract investment will not be economic, so they need to extend the tax encouragement to incremental developments on those existing platforms in order to make those platforms worth keeping in place for longer and keep the infrastructure available for the new investment.
Another issue the Treasury needs to look at is the cash-flow crisis, because it can play a part where the banks are failing. Exploration gets tax relief. For existing players with existing income, that tax relief comes up front, but for new entrants the Government could bring forward the tax relief, pay that up front, and then reclaim it over the life of the field as production comes in. If they can trigger a greater interest west of Shetland, it will be a real morale boost to see a new province opening up with new finds.
The industry itself has an important role to play, and any Government working with the industry need to emphasise to the industry that it must learn the lessons of previous downturns and keep the skills as far as possible, and not make people redundant. So far, there have been strong signs that it has learned that lesson, but we need to reinforce it. People do not come back to an industry in the upturn if they have been turned away in the downturn. The industry also needs to reinforce its own code of conduct in the supply chain by making sure that those who are cash-rich at present settle their bills quickly, because if the supply chain is not kept operating efficiently and effectively during the downturn, it will not be there again for the upturn.
The reward for the Government if they get the incentives right and get us through the crisis is more oil and gas coming out of the ground in the future, more income to the Treasury in tax returns, and—this is the great jewel in the crown for the UK economy that has come out of the North sea—the exports, such as the skills we now send around the world and that bring money back into this country, to the benefit of our balance of payments. That is especially the case in sub-sea engineering; a great lead has been shown by British expertise in the North sea, from bases in Aberdeen and the rest of the country, and that is now being applied internationally and globally.
While manufacturing is being challenged in many parts of the economy, the North sea oil and gas industry is providing major investment in, and stimulus to, manufacturing. Many constituents in the north-east of Scotland still do not realise how substantial a manufacturing base we have on the back of that industry.
That industry has other contributions to make to the future of UK energy in terms of the low-carbon economy, because the skills learned there can be applied to carbon sequestration, so the Government need to make sure that the incentives for taking forward carbon sequestration are well developed. The expertise learned in the sub-sea engineering sector, which I have mentioned, cuts across into the engineering needed for deep-sea offshore wind developments and for tidal and marine developments for the future.
This is not a lame-duck industry; it is a major part of the UK economy and it is facing a challenge at the moment. With the right handling by the Treasury and the right announcements in the Budget, that challenge can take us forward to a very exciting future where we can see and get rewards—where both the Government and the industry get more. Any oil and gas left in the ground will pay no tax and provide no jobs, and will not contribute in any way to our security of energy supply, so the real message to the Chancellor is to get it right in the Budget. We are at a crossroads; we have bounced back from previous downturns because there was a less mature province and there were still big finds to tempt people back in, but if we do not handle this downturn right, we will not get the benefit of the recovery because we will not have the infrastructure in place to secure that benefit. I urge the Chancellor to make a dramatic move in the Budget to see us through this crisis to a great future—
Order. I call Mr. Lindsay Hoyle.
I am pleased to have the opportunity to speak in today’s debate, which is one of the most important that the House is holding. It is about how effectively we are addressing the issues affecting the UK economy: jobs; the survival of businesses; and protecting the individuals who are hit the most by the downturn. We are at a defining moment in our response to the economic challenges that we face. More of the same will not work; the challenges have changed and so must our response.
In changing our response, I believe it is time to bring forward the end date of the VAT reduction. I supported the measure when it was introduced because it had an immediate impact and it was right to introduce it at the time. There was no doubt about that, because we wanted to get money into the economy very quickly and the way to do so was through a VAT cut. That worked at the time, and I do not question the Government. The measure was about helping hard-working families, but there are now signs that the policy intervention has run its course. That was recently highlighted by the Office for National Statistics, which stated that companies are increasingly deciding to reverse the VAT cut; in fact, some local authorities never introduced it, and that has always been a problem.
In addition, we have to assess the opportunity cost of this measure. The VAT reduction has been quite expensive—Treasury figures show a cost of £8.6 billion between now and the end of the year. That sizeable amount could be better redirected in a targeted way to help those in greatest need. One option is to introduce a time-limited wage subsidy scheme, targeted to keep open viable businesses that are struggling due to the economic downturn. The Government have rightly introduced measures to help those who are unemployed, but surely we should be acting to prevent unemployment in the first place—that would be the way forward.
The hon. Gentleman suggests ending the VAT reduction nine months early. Surely one of the big problems with the temporary reduction was the disruption that it caused businesses, which had to change prices without any warning. Is there not a danger that that disruption would simply be multiplied by giving them very short notice of a further change?
It is not often that I disagree, and the hon. Gentleman makes his point, but I say to him that some businesses never introduced the reduction and some have already put prices back up, so we have a mix-and-match approach in the VAT circles. I understand that there was a cost to business, but this is about doing the right thing by the people of this country and the best thing by people who are losing their jobs. It is about refocusing and re-using that money—we can do that—to keep people in employment, and that is what it should be about. We have to support people who have lost their jobs, because there is no greater upset to any individual or family involved. Surely if we can protect people so that they do not lose their job, that ought to be the measure that we take.
It is a concern that short-time working and temporary lay-offs are now a reality. In some cases, that is having a negative impact on workers who qualify for tax credits, as short-time working is taking them below the minimum hours qualifying threshold. We can help them and we can ensure that those families will still receive the tax credits. We are seeing the impact of short-time working in constituencies up and down the country. My constituents have told me about its impact, highlighting the difficulties and uncertainties facing both workers and employers. Each week more businesses are being forced to do the same. These companies and their workers deserve our support, and we have a responsibility to respond to their needs.
We should introduce a wage subsidy scheme that is time-limited, and that has sufficient safeguards to ensure that only those firms directly affected by the impact of the recession can qualify and that we avoid a dead-weight—in doing so, significant benefits could be achieved.
I am enjoying my hon. Friend’s contribution. On Saturday, I met union representatives from Michelin, Pirelli, Goodyear and others in the essential car component industry, which is being heavily hit at the moment; some employees are now on half the wages that they used to receive. Would he like to comment on those workers in that key industry?
Manufacturing does matter and we have to protect those workers. My hon. Friend is right, because if workers are on half the salary that they were on and they are working half their hours, it is right that we introduce a wage subsidy scheme. It would help those people and we ought to be doing that.
The problem with short-time working is that it will have long-term consequences if we do not introduce such a scheme. The jobs will go to France and Germany, and even to parts of the UK, such as Wales, that offer these wages subsidies at the moment. That is, quite simply, unfair for manufacturing industry in my hon. Friend’s constituency and mine.
I totally agree with that, and I shall touch on the point that my hon. Friend makes about Wales.
Support such as I am outlining would enable employers to avoid immediate redundancies and to retain essential staff and skills, and if it were linked to training in the workplace, it would provide the added benefit that we would be best placed when we come out of the recession—we would not have lost the skills and we would not have missed out on training. This country has to be best placed, because when the dam bursts the opportunity will be there before us and we must ensure that our people are in place. We will not be able to go round the country saying, “Who has got this skill? Who has got that job? Come back to work here.” That will not be good enough. We have to support these people now.
Such support would enable employers to avoid immediate redundancies and the scheme should also be about extra training, because long-term work force investment could be provided in this way. The TUC has estimated that, for a cost of £1.2 billion annually, excluding the training costs, up to 600,000 workers could be protected each year through such a supporting measure. The funding could be drawn from the ending of the VAT reduction, and there would be a considerable sum left over to target elsewhere. As I have said, we could maintain manufacturing, which should be the backbone of a successful economy in the future; we should not be reliant on the financial services. We have to get back to where we were and we have to learn from the mistakes that we have seen. The previous Government and this Government have fallen into the trap: they gave up on manufacturing when they should have been supporting it, investing and making sure that we were best placed. Let us not make those mistakes again. It is crucial that we get things right this time for the future of manufacturing.
Across Europe, Governments have recognised the benefits of such a scheme. We have already seen the support that has been given in, for example, Germany, France, Spain, the Netherlands and Italy. Closer to home, the Welsh Assembly Government introduced a wage subsidy scheme called ProAct at the beginning of the year; a scheme that took only two months to set up has become operational and now benefits many businesses and workers across Wales, and quite right too. If Wales can do it, so can we. Furthermore, the introduction of a short-time wage subsidy is supported by business leaders such as the Federation of Small Business, by major corporate organisations such as Corus and JCB, and by many trade unions; this is supported across industry and across the trade unions. We must make keeping viable businesses open and protecting jobs the priority if we are to come out of this recession in a stronger position. If we fail to do so, there is a danger that we will lose many of the much-needed skills that are vital to ensuring that our economy is the best. I urge the Government to introduce such a scheme without delay.
The second policy that is urgently needed is a change to the way in which statutory redundancy pay is calculated. I am sure that my right hon. Friend the Financial Secretary is aware of the aims of my Statutory Redundancy Pay (Amendment) Bill. Some 200-plus MPs have signed the early-day motion, and the Bill has had a Second Reading and I hope that it will now go into Committee. It is critical that the Government pick up this issue in the Budget. There is a real belief that it would make a difference, so I hope that the Government will not let the people of this country down. Let us reduce the two-year period to one, and let us be honest and stand by our manifesto pledge.
I also urge my right hon. Friend to reject the proposal for a minimum payment guarantee, floated by the CBI. There is a real danger that many workers would lose out as it would be lower than the current statutory cap.
Workers up and down the country are facing the threat of redundancy through no fault of their own. We need to do something to help them. Many hard-working people are looking forward to the Budget. People who have saved money and are dependent on those savings for an income are now being failed. We need a scheme that would provide a guaranteed minimum return for savers, through a national savings scheme. That would guarantee that those pensioners who have looked after their money and saved all their lives would get a return when they need it.
Such a scheme would bring investment into a bank, and that bank should be run by the Post Office. It could provide a guaranteed return to people who save with it, and it would ensure competition for the major banks. We own a bank—Northern Rock—and we should use that. The Royal Mail does not have a banking licence, so we should use the bank that we already own. We need to ensure that there are banking services in rural and urban areas, and we need a bank that will take on the likes of RBS, challenge them and show them what a bank should be. Our bank should look after businesses, its customers and its investors. Pensioners need to know that their money will be safe and protected. We should have a guaranteed minimum return on savers’ money. We could fund that by reversing the VAT cut early. The cut has served its purpose, but it should now be reversed.
We are the party that should be standing by people. We should stand by businesses. We have lots of good ideas, so let use those ideas. Let us work together to formulate a future for our constituents and businesses. Manufacturing needs our help. Up and down the country people are losing their jobs. Nobody should have to lose their job when we can do something about it. My proposals would be a good way forward and protect manufacturing. Let us drive forward together and bring it on.
It would be ridiculous to say that the Government are responsible for all Britain’s economic problems, but it would be equally ridiculous to say that there is no connection between the policies that they have pursued and the crisis that now confronts the country. But that is what the Prime Minister is saying. The public can see that he is in denial about his role in aggravating the crisis. Whether it is in the interests of his party to be more frank is a matter for him, but I am confident that frankness is required to help the Government get the policy right. The country will not believe a Government or a Prime Minister who are in denial about the causes of the crisis that we are in. The Government will have no credibility on their emergency measures or for longer-term proposals for reform.
The Government share the responsibility for the crisis in three important respects. The first is the regulatory system, largely designed by the Prime Minister. It is very important not to assume that, with a better regulatory system, we could have wholly avoided the crisis. There are considerable limits to what can be achieved by regulation, as the Governor of the Bank of England pointed out recently. Excessive regulation may reduce economic performance, but too little will lead to systemic collapses.
The Government aggravated the crisis by introducing a new regulatory framework in 1997 that simply did not work. They created the tripartite committee system, which manifestly and predictably failed. During the passage of the Financial Services and Markets Act 2000, when we debated the memorandum of understanding that explained the new tripartite arrangement, I questioned whether those new arrangements—which left no one in overall charge in a crisis—were sustainable. I pointed out the risk of conflict between the FSA and the Bank in a crisis—exactly what we have experienced. I pointed out that banks tend to act like sheep, like the Gadarene swine, ploughing over the cliff all together. When banking problems come, I reminded the Committee,
“they come not as single spies, but in battalions.”—[Official Report, Standing Committee A, 13 July 1999.]
In response, all I got from the then Minister was a claim that a great deal of time had been wasted on the matter. I was not the only one raising such concerns. Howard Flight did so, from the Front Bench, as did my right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley).
On Report, I said that the new tripartite system was
“wholly untested. If it is tested, I worry that it might be found wanting.”—[Official Report, 27 January 2000; Vol. 343, c. 609.]
It was found wanting. That system led us to the extraordinary position of not even collecting liquidity statistics for the banks. The Bank of England thought that it was no longer its responsibility to do so, and the FSA had not yet got round to doing so. The plain fact is that the tripartite arrangement, with its division of responsibilities, leaving no one with clear overall responsibility for leadership in a crisis, was an accident waiting to happen, and it happened with Northern Rock.
The second important respect in which the Government aggravated the severity of the crisis was by running a huge deficit during the boom phase of the cycle. That was, as far as I know, not just folly, but unprecedented folly in modern economic history. We have heard a lot from the Government, and especially the Prime Minister, about the need for, and the value of, a fiscal stimulus. We have heard more such talk today from several hon. Members. Setting aside the issue of whether we need such a stimulus over and above the automatic stabilisers, the plain fact is that Britain is extremely badly placed to increase the size of its deficit. That is why the Governor took the unusual step of cautioning against any further substantial discretionary easing last week.
Does the hon. Gentleman accept that the Governor has always taken a very precise attitude towards his responsibilities and those of the Monetary Policy Committee? It is our responsibility to look at the wider social implications of the recession and to deal with those, and that is where the requirement for the fiscal stimulus comes from.
If the argument for the fiscal stimulus is not economic, but social, let the Government make that case. We are repeatedly told that the fiscal stimulus is needed as part of the package of measures to rescue us from our share of global deflation—a completely separate argument.
The third respect in which the Government aggravated the crisis was in the language that they used to describe their economic policy to businesses, the markets and the public in the past decade. When the Prime Minister, as Chancellor of the Exchequer, said, I am told, 120 times in the House of Commons alone that he had put an end to boom and bust, he may have thought that he was making a clever reference to Conservative policy, but he was also sending a strong message to those taking decisions about their mortgage and business lending.
One of the reasons why Britain’s personal indebtedness is so high is that by saying he had abolished boom and bust, the then Chancellor was reassuring the public that it was safe to go and borrow to the hilt, and that is what happened. The combined effect of a large fiscal deficit and a massive rise in personal borrowing is now highly toxic for the British economy. Millions of borrowers will need to rebuild their savings, slowing the pace of any recovery. The Government will have to close the gap between spending and taxation, and that is going to be extremely difficult to achieve. It will be painful for many years to come if Britain’s creditworthiness in international markets is to be sustained.
I sometimes wonder whether the Prime Minister was foolish enough to believe his own rhetoric about boom and bust. Why did he embark on such a spending spree after 1999? Did he, too, believe that he had put an end to boom and bust? At that time, many people in the City and the House warned him that that would be an illusion. Here, if I may beg the tolerance of the House for a moment, is one of my efforts to warn him:
“Labour talks as if it has abolished the business cycle when it refers to the end of boom and bust”—
I was saying this in the House nearly a decade ago—
“but the business cycle has always been with us. There will be a recession. I do not know when, but I guarantee that there will be one. It may be sooner or later, but, when it comes, the relatively incautious fiscal position that I have described will be found to be extremely vulnerable.”—[Official Report, 20 April 1999; Vol. 329, c. 784.]
The Government, led by the Prime Minister, still persist in arguing that this crisis was largely an American one. We heard more of that today, but the severity of the crisis and the difficulty of a recovery, is very much part of the Government’s responsibility. The Prime Minister’s plain denial of all that is getting in the way of sorting it out, clouding the Government’s judgment and corroding their credibility with the public.
Let us compare this situation with the poll tax. That was a mistake—not such a big one, but still a mistake. The Conservatives, albeit with a new leader, owned up to that mistake. That honesty undoubtedly contributed to the election victory of 1992. So far, I see no evidence at all from this Prime Minister, who is also a new leader, that he understands that simple point. I do not worry whether his denial is damaging Labour’s prospects, but I worry very much that if it persists, it will damage the country’s ability to deal with the crisis. That, above all, is why this Government have to go and why it will fall to a Conservative Government to clean up the mess.
I have listened to the speeches made from both Front Benches, and the yawning black hole in this debate is the Opposition’s lack of any serious positive alternative way of handling the crisis. Having said that, I think also that the Government’s policies are not working adequately in accordance with the objectives that they have set, and that is what I want to address.
The Government have now committed at least £1.2 trillion to shore up the banks to get lending flowing again through the economy to businesses, jobs and home owners. They have tried reducing interest rates to their lowest rate since the foundation of the Bank of England in 1694. They have thrown gargantuan sums of taxpayers’ money at the banks through special liquidity, credit guarantees, bank recapitalisations and asset protection schemes. They have provided a huge fiscal stimulus, which I support, even when the deficit on the public accounts was already enormous. They have now started to print money—the so-called quantitative easing—even at the risk of severe inflation in years to come. I respect the huge efforts that they have made to get on top of the crisis, but the truth is that the purpose of all that action—lending—has deteriorated sharply. It is not increasing at all.
In August 2007, when Northern Rock collapsed, lending by the banks and building societies to businesses and home owners—I am referring to the M4 money supply—was growing at an annual rate of 17 per cent. In September 2008, a year later, when the Wall street banks collapsed, the rate of growth had fallen to 9 per cent. Last month, despite the eye-watering sums committed to the banks to get lending going again, it was down to a disastrous 4 per cent. None of the policies, sadly—tragically—is working or at least working adequately.
The House must ask whether there is an alternative. There certainly is, but despite this being the biggest crisis that Britain has had to face for nearly a century, the Government—so far, at least—appear unwilling to consider it.
Why has bank lending largely stalled? All the policies employed have been based on the premise that the banks are keen to extend credit and that the real problem is a lack of sufficient reserves. That might have been true initially—it probably was—but it certainly is not true now. They are reluctant to lend now because they fear that they might not have enough capital to meet the losses from their existing loans. Indeed, given the liquidity scares of the past year or two, they may well prefer to hold more reserves in relation to their deposits. For that reason, the latest boost through quantitative easing might prove rather limited in effect. Even if the supply of money were increased, as the Government desperately hope, the velocity of circulation, which they cannot control, might fall. That would leave spending unaffected.
We have committed £1.2 trillion—a sum equal to 80 per cent. of our GDP, which, if fully called in, would almost bankrupt the country. Moreover, any further major fiscal stimulus has now effectively been ruled out by the comments of EU leaders in advance of the G20 meeting, let alone by those of Mervyn King. However, the state, on which the banks utterly depend, is still not requiring the banks to raise their lending to businesses to the level necessary to contain unemployment and save the real economy, which is the whole aim of the exercise.
Does my right hon. Friend accept that the intention of quantitative easing was to bring down long-term interest rates? That first stage has started to flow through in the 0.5 per cent. fall in the long-term interest rates referred to at the start of the debate.
I accept that quantitative easing has not had a chance to be developed; it was put into operation only a few weeks ago. The Government put £75 billion in and still hold another £75 billion in reserve. We cannot reach a judgment on that. There are very good reasons for thinking that its effect will be rather limited and nothing like enough to restore lending to the levels of one or two years ago. That is the problem.
Even when the Government hold a majority of the equity, as they do in RBS, they are still allowing bailed-out banks, in effect, to dictate the terms. As part of the bail-out, RBS agreed to increase lending to £25 billion—a mere 3 per cent. of its total lending to non-bank customers. President Obama sacked the chief executive of General Motors as a condition of the company’s receiving greater aid, but nothing has been done in this country to remove failed or discredited bank executives.
While the US Congress capped executive pay and imposed a 90 per cent. tax on bonuses, the Government’s latest quango, United Kingdom Financial Investments Ltd, is pussyfooting around the bonus culture and the continuing scandal of the massive use of tax havens by bailed-out banks. There is a great danger that UKFI could be captured by the banks it is supposed to be disciplining.
The Government have socialised the banks’ losses while continuing to privatise their control. That is the essence of the point, and the hon. Member for Twickenham (Dr. Cable) made it. The only way to stop this haemorrhaging of the nation’s finances is to take temporary—temporary—control of the banks that either cannot or will not increase lending on anything like the scale required to halt the unfolding collapse of the economy. Toxic assets that are virtually worthless should be sold or written off; they certainly should not be underwritten by colossal amounts of taxpayers’ money. Boards of directors guilty of gross mismanagement should be removed, and replaced by new managers with a different system of governance and a different set of goals. The new boards, with the security of the backing of the state behind them, should give absolute priority to restoring, as nearly as possible, the full 2007 level of lending to businesses and home owners.
I repeat: that is not an ideological stance. Nobody is proposing public ownership for its own sake—I am certainly not. It is simply a common-sense, temporary mechanism.
Does the right hon. Gentleman agree that the problem is that we have zombie banks that are unable to lend because the toxic assets have not been removed from their balance sheets? The approach that he proposes is not a matter of ideology: one of its attractions is that it would allow us to cleanse the banks, restore confidence in our financial system and get lending going again.
I could not agree more. All the enormous financial inducements given to the banks have not succeeded in removing, or even identifying, those toxic assets. My point is that we need to have direct control if we are to achieve the objective that the hon. Gentleman has described. That is simply the only way to get the restructuring that the private sector either cannot or will not achieve—to change banks’ governance and operational rules, and to change their top management to bring about the mandate to implement these alternative principles.
Why, therefore, do the Government not exercise that control? One answer that I have heard is that the policy is not about saving the real economy at all, but about saving the banks. If so, it might be said to have been moderately successfully, but I do not believe it is.
Another possibility is that the Government—and, given the speeches that I have heard, almost certainly the Opposition—believe that a bit of firm tweaking here and there, a successful G20, and a bit more regulation, perhaps flooding the banks with money and raising capital ratios, will mean that we can somehow return to the status quo ante, and that the engine of financialised capitalism can roar off again.
That is an absurd fantasy. The neo-liberal model of leaving things to the markets because they know best is irreparably bust. Whatever financial architecture emerges from the wreckage, there will have to be a fundamental restructuring: unquestionably, the financial sector will have to shrink dramatically.
The third answer—and the only other one I can think of—to why the Government do not exercise control of the banks is that the rejection of nationalisation and of giving direction to banks even temporarily is so embedded in the new Labour emotional and psychological mindset that it is simply not seriously considered. If that is so, we are in an almost Alice in Wonderland situation.
If the liabilities of RBS and Lloyds are included, as they have to be, public debt is now reaching a staggering £1.7 trillion to £2.2 trillion, according to the Office for National Statistics. That is up to 50 per cent. more than our entire GDP and, with all the implications that has for our national solvency, I find it incomprehensible that we are still not taking command of the situation. We face the impending collapse of the real economy, and tens of thousands of otherwise viable companies may collapse and unemployment may well reach 3 million to 3.5 million, so we should be using our power to direct the banks. I am all in favour of trying all the other policies first, but we must give absolute priority to restoring full-scale lending to businesses and home owners.
I conclude with a point about parliamentary accountability. We have not had a Government debate on the economy in the past six months, in which there has been a gathering storm of momentous peril, both for our country and globally. Even today, the debate is being held on a motion for the Adjournment of the House: there is no substantive motion and no vote.
It has been a fascinating debate, but what is the point of a talk shop if we cannot debate—and vote on, and made decisions about—key economic policy options? This is the most important issue this House has faced in the past five or 10 years. Ultimately, it is not just a question of economic direction: it is even more an issue of parliamentary accountability. That is what Members of this House need to address now.
It is a pleasure to follow the right hon. Member for Oldham, West and Royton (Mr. Meacher). Of all the tasks that the Government must get right, one would imagine that handling the economy, including taking steps to measure and mitigate risk, would come top of the list. That means that they should have put laws on the statute book in good time to deal with failing banks. Instead, we have had emergency measures, and we have only just got the Banking Act 2009.
The Government should be transparent about their actions, especially when it comes to spending or committing vast sums of public money. There should have been transparency about PFI liabilities, and the various schemes they have announced—many of which I support—should have been fully worked up, costed and ready to go before the press releases were issued. People remain disappointed that they cannot get proper access to some of the funds, not least the enterprise finance guarantee, if they do not offer a further guarantee to the banks. That has made the whole thing almost worthless, an issue to which I shall return.
I welcome most of the schemes that the Government have announced. They are important because, as others have said, the real economy has gone into recession. The national debt amounted to half a trillion pounds even before the banking crisis began to bite, and that left nothing in the tank to stimulate the economy when the downturn came. As a result, every action that the Government have taken has effectively been predicated on increasing the national debt to £1.2 trillion in a few years.
Even that may not be enough, if the recent forecasts that the Government are out by £100 billion this year alone are correct. To put that in context, that is a debt equivalent of £50,000 per UK household, but if all the contingent liability for the banking bail-outs and the off-balance sheet PFI stuff is included, we may well be talking about a national debt somewhere north of £2 trillion.
The Government oversaw the creation of a house price bubble, allowed too much credit into the system in the early part of the cycle and had nothing in the tank to stimulate the economy when the recession came. All we had were their foolish claims to have ended boom and bust, but the real economy went into a hideous recession, with output down, capacity lost and unemployment at 2 million. We have suffered the largest ever single rise in unemployment, and many of our constituents are in a pretty miserable place, but the difficulties in the banking sector almost overshadow those faced by real people in the recession in the real economy.
I want to speak briefly about what might be called the public genesis of the recession in the UK—the Northern Rock crisis. On 14 August 2007, the Bank of England was made aware of the difficulties in Northern Rock. Shortly afterwards, the European Central Bank, followed by the US Fed, Japan and Canada, pumped huge amounts of money and liquidity into the banking system. On 12 September 2007, the Bank of England rejected that approach. The run on Northern Rock began on 13 September, and it was five months before the company was finally nationalised on 17 February 2008.
The lack of capital was such a problem—although it was not recognised at the time—that we have recapitalised the banks. We have had the facilitated takeover of Bradford & Bingley, whose mortgage book has been taken on by the taxpayer, and we have pumped hundreds of billions of pounds, in one form or another, into the banking system, but the Banking Act has only just been passed. However, we do not have legislative proposals yet for new banking regulation, even though many recognise that weakness in that regard was a significant part of the problem.
I welcome the asset protection scheme, even though it amounts to open-ended insurance on the banks’ excess bad debts, because it will insulate the toxic debt, remove the fear of default and give banks back the confidence to lend to each other. However, the Government have placed untold billions of pounds of liability on the public books even before the new banking regulations are place.
Let me bring the banking story up to date with the sale at the weekend of Dunfermline building society to Nationwide. I have no problem with Nationwide—it is a good building society—but the story has parallels with those of Northern Rock and HBOS. The Financial Services Authority ought last October to have concluded a deal to recapitalise Dunfermline building society, at a cost at that point, it is reported, of some £20 million. Apparently, the FSA did not have the people needed to conclude the deal. We ended up yesterday with the announcement of the transfer to Nationwide, including £1.6 billion in net financing to cover the value of the deposits transferred, plus the liability of the bad debts, mainly the commercial loan book, being taken on by the taxpayer. That five-month delay was unnecessary.
In addition, as happened with HBOS, when the Government panicked and did the deal, they excluded other potential bidders: in the Dunfermline’s case, as we found out yesterday, Scottish Friendly had put in a serious bid to solve the problem, but was ignored by the Government. The Lloyds-HBOS deal was forced through in much the same way.
Of course the banking fixes are expensive, but as important to fixing the real economy are many of the Government’s other actions, including the fiscal stimulus package, which I support, although I shall discuss the detail in a minute. However, as I have said before, I would like to see recognition of the fact that in February, April, October and November 2008, the United States, Spain, France, Japan, Germany and others announced stimulus packages—well in advance of the UK.
On the stimulus package, in particular the VAT cut, although I think we need fiscal stimulus, I do not think that monetary policy will be enough. We found a week after the VAT cut was announced that the same sum directed to direct capital investment would have preserved or protected more than twice as many jobs. That would have been a far better route to go down.
The health or otherwise of the economy generally and the success or failure—or even the commencement of delivery—of the Government’s initiatives are of equal, if not greater, importance to helping business craft a recovery from the recession. One of the key features of policy is the enterprise finance guarantee scheme, but of the £1.3 billion promised, only 5 per cent. has been allocated since January. As for the other schemes—and in no particular order—only £100 billion has so far been drawn down from the £250 billion announced to support interbank lending; the consultation on the house sale and rent back scheme will not report until May; and the home owner mortgage support scheme, which is even more complicated, fiendishly so, is not properly up and running. According to answers I received from the Treasury four weeks ago, not all the re-profiled money brought forward to be spent in the next financial year has yet been allocated to specific projects. All those schemes are essential. Why were many of them not properly worked out and ready to go before the press release was issued?
We can also clearly measure the impact of the recession on business, not simply through the rise in unemployment but in other ways. I was struck by the purchasing managers index scoring for January, which is well below any indication of an upturn in the economy. The spokesman for the Chartered Institute of Purchasing and Supply said that the sector reported an “anaemic opening to 2009”, with record falls in employment in factory jobs. I understand that 30,000 factory jobs are being lost every month. He went on:
“While the weaker sterling exchange rate acted as a crutch to prop up export orders, benefits were offset by the downturn in global demand.”
However, the weaker exchange rate is also acting to exaggerate inflationary figures for essential imports, as we saw only last week in the contradictory messages given by the consumer prices index and the retail prices index. Even with sterling down 15 per cent. against the euro and 27 per cent. down against the dollar, the balance of trade figure for the whole of 2008—a £46.1 billion deficit—is barely changed from the £46.5 billion deficit of the previous year.
Will the hon. Gentleman give way?
No. I have nearly finished and it would not be fair.
The position may be made worse if the quantitative easing programme fails to deliver what the Government expect.
In the few seconds left, let me make two pleas to the Government. First, they must get the schemes they have announced up and running properly and stop announcing new ones. More important, they must get before the House the legislative framework for any new banking regulation we need, including the appropriate early warning systems promised some time ago, so that we can consider it fully and quickly, and get it up and running as well.
I listened with great interest to the hon. Member for Dundee, East (Stewart Hosie), who made several important points about the need to deal with banking regulation. We in the Treasury Committee have been examining key points relating to regulation.
I find it surprising that all the Opposition parties are so opposed to the Government’s active intervention to tackle the present crisis. I understand the Conservatives taking that position, because they believe in a small state and, unlike Labour Members, they do not take the view that, in a recession, the state should actively intervene, but I am surprised by all the Opposition parties taking that view. I am especially surprised by the attitude consistently taken by the hon. Member for Twickenham (Dr. Cable). I believe that the interventionist approach taken by the Government, risky though it is, is the right and the only way to tackle the crisis and kick-start the economy out of recession.
I shall look first at the monetary side. The asset purchase facility is the right policy; the one thing I would question is whether the release of the funds has not been a bit cautious. The scheme has now moved beyond gilts and on to commercial paper and some of the riskier products, but still only half of the facility has been used. I was interested to hear—I cannot remember which Front Bencher said this—about the 0.5 per cent. fall in long-term interest rates, which is perhaps the first sign that quantitative easing has been working. That is precisely what is supposed to happen and what will hopefully start to get the money flowing through the system, making it work again.
The Government were also right to introduce the asset protection scheme. It is right to insure and not to nationalise, because the functions of banking are essentially market functions and belong in the private sector. We should not nationalise them. The valuation of the assets subject to the asset protection scheme is not yet known, nor is it clear when the losses, if any, will crystallise. We have to hope that the losses are limited and that, in fact, the taxpayer does not have to pay out the full value of the assets.
People have spoken as though the Government have done all that without asking for anything back, but that is not true. Agreements have been made with banks that have accessed the recapitalisation funding and the asset protection scheme that they will lend at 2007 levels. The Government have been clear about that. In the original statement to the House, my right hon. Friend the Financial Secretary said that he would report back after a year. At that time, several of us pressed him to report back month by month. I hope that he will accede to those representations and report back monthly on the lending position of the banks. To encourage that, I have tabled questions and will continue to do so, so that we get information on bank lending levels.
Public patience with the policies, good though they are, will run very thin indeed if the banks continue to fail to honour their side of the bargain. We have all heard stories about that in our constituencies; I have in mine. I have heard of cases in which banks have not only not been lending, but have trawled through the facilities that they have provided and have called them in. In my area, in spectacular fashion, HBOS called in a £2 million loan on a property that is part-way built, and which, I am assured, has tenants signed up for when it is completed. We need to be absolutely clear that in return for the taxpayer providing the insurance for the toxic assets—getting them off the banks’ balance sheets, so that the banks can start to lend again—the banks will keep their side of the deal and lend at 2007 levels.
The other side of the equation is fiscal policy. There has been much discussion about a second fiscal stimulus. It is really important that the Government do not pull up the drawbridge on public spending just when the recession is starting to hit some of the most vulnerable people. The Governor of the Bank of England’s expectation was that as quantitative easing worked, and as money started to flow through the system, the demand side of the economy would pick up. That is very much a trickle-down approach. It assumes that we have time to sit and wait while that happens, but we do not.
In addition to looking at what is happening with the money supply, we have to deal with the social consequences of the recession. It is important that the Government use the fiscal measures at their disposal, as they are not in charge of the quantitative easing or the short-term interest rates. They should use fiscal policies—the tools that are at their disposal—to increase demand, and to protect some of the most vulnerable members of the public from the consequences of the recession. I shall identify two particular ways in which they should do so. The first relates to a point that David Blanchflower, a member of the Monetary Policy Committee who is about to retire, made in a powerful presentation in Portcullis House recently. He said that of the 600,000 young people leaving school this summer, an estimated 300,000 will be unemployed. We cannot tolerate the idea of 300,000 young people—plus some university leavers, no doubt—finding themselves unemployed. His report also pointed out the long-term consequences for young people of a period of unemployment early in their lives.
I now come to the second respect in which we cannot just wait for the trickle-down effect, and hope that it will happen. We must protect people who risk losing their homes. We have all seen the figures on mortgage arrears and repossessions. I join in the criticism that I am sure that other people make about the mortgage rescue scheme not yet being online. I am extremely concerned about the fact that the mortgage interest support is linked to income-based jobseeker’s allowance, and not contribution-based jobseeker’s allowance. I am also concerned about the fact that it runs only for two years. That will create real pressure for a good number of families.
If I have a particular ask for my right hon. Friend the Financial Secretary, it is that in the coming Budget there should be measures to tackle unemployment among young people; perhaps that could be done through a reduction in national insurance and tax contributions for employers who employ the under-24s. That would help both businesses and young people. My right hon. Friend should also link the mortgage interest support to tax credits. That would give us a more flexible instrument with which to support families who risk losing their homes. I strongly support the measures that the Government are taking, but I hope that they will put in place small, targeted fiscal stimuli, even if they think that one big one is out of order, to protect some of the most vulnerable people from the impact of the recession.
In his Mansion House speech in June 2007, the Prime Minister actually congratulated the City on its global pre-eminence and looked ahead to furthering the objective of light-touch regulation. Today we can look at the wreckage of the failed tripartite regulatory system, the deterioration of our international competitiveness and a massive increase in the involvement of the state. The pound sterling was then riding high. Today the world has made a judgment on us via the performance of our currency, and it is damning.
We have a chronic trade imbalance, and a recession that is severe and likely to endure for longer than in any other industrialised country. Of course, to a greater or lesser extent, no country is unaffected by the world downturn. We see in this crisis how globally interdependent we are. There was an unspoken mutual interest in the United States purchasing Chinese goods in exchange for China’s accumulation of massive dollar reserves, but clearly that is now ending. It may be that as a result of the G20 meeting, there will be more agreement to share in the monitoring of financial activity internationally, and an enhancement of the funds available to the International Monetary Fund, but the fact that the Chinese floated the notion of a new international currency mechanism, which was not rejected out of hand by the US Treasury Secretary, suggests that the total dominance of the dollar since world war two is destined to end. We may be witnessing, in this credit crisis, the beginning of a hugely significant shift in the world order.
Whatever the final communiqué of the G20 spells out, it will still leave this country in the midst of a terrible hangover of excessive public and private debt, which will cripple us for years to come. The Prime Minister, then Chancellor of the Exchequer, gave the Bank of England a core remit of keeping inflation low. In 2003, under the guise of trying to achieve pan-European measurement comparability, house prices were excluded from the measurement of inflation. That was a tragic error, because on the back of a substantial rise in money supply, interest rates were kept too low for the credit free-for-all that ensued and the huge resulting increase in private debt. Northern Rock could offer 125 per cent. mortgages.
With cheap Asian goods flooding the country, inflation, as measured by the Bank of England, looked unrealistically low. That is something that the Governor of the Bank of England now regrets. Given the importance of home ownership in this country, and our traditional investment focus on residential and commercial property, it should now be a matter of the utmost importance that the Bank of England reviews how housing costs can be assessed for inflation target purposes, and that the macro-prudential role of the Bank of England incorporates consideration of asset prices. Never ever again can we suffer a repeat performance of the policy that led to an asset bubble being effectively excluded from interest rate policy.
The transfer of banking supervision to the Financial Services Authority was quite simply wrong. Individuals of the highest calibre in the Bank of England had monitored banks’ activities for generations. Of course, no regulatory system has been or ever will be perfect, but I have often heard how much that accumulated wisdom and experience was valued, giving the Bank of England a credibility in the world that is now much diminished.
We are entitled to look at how our tripartite system failed us, and so compounded the problems that arose from unfettered credit and asset expansion across the world. That has been well spelled out in the Turner review. We know that officials in the Treasury, the FSA and the Bank of England were aware of growing imbalances, but none took responsive action. There was a clear failure to recognise the extent of the systemic nature of the unfolding failure. The inability to act was a fundamental flaw in the system—a system that was of the Prime Minister’s creation. We understand that, incredibly, the three principals hardly ever met formally; that is woefully characteristic. To announce a policy, but to then be incapable of dealing with its implementation, is a hallmark of the functional incompetence of this Government.
We need carefully to consider how, in future, macro-prudential regulation is to be managed. Looking ahead, I believe that we have to revive the central role of the Bank of England. What the public rightly demand is that this terrible crisis is not repeated and that at the very heart of our regulatory system of financial services is a clear pre-emptive remit. Its ability to assess and dissect the continuing pattern of change which invariably arises in the financial sector, to ensure financial stability and to understand and interpret the marketplace is for the avoidance of both systemic and excessive individual corporate risk. We need a 21st-century version of the Governor’s eyebrow—a focus and influence that the FSA will simply never be able to achieve.
Undoubtedly the individual actions of senior bankers have been frankly disgraceful, whether at Lehman Brothers, Merrill Lynch—I worked at both—or RBS. I think that some clearer sanctions should be in place to deal with such individuals. If somebody is guilty of medical malpractice they are struck off by the BMA; indeed, the same approach applies to other professions. In theory, the FSA has the power to apply financial, civil and criminal sanctions, but I am not convinced that it is the right body to do so.
There is a danger that in the current atmosphere either a lynch mob mentality descends or ultimately that new and counterproductive regulations seek to satisfy public outrage. To pre-empt those outcomes, I suggest that a new body be created with the express purpose of dealing with such individuals, so that next time some master of the universe decides to agree to market a new product that he cannot understand, he might first pause to consider the consequences.
We have seen a whole series of bank mergers in this country over the years, hastened by a number of dramatic shotgun weddings of late. Vast banks are difficult to regulate and their importance means that we have seen what is often described as moral hazard, including the nationalisation of risk. Of course we are where we are, and our most important challenge is to re-liquify our banking system and return it to profitability and to the private sector, but if there is one lesson we need to learn about this, it is the need to open up banks to effective competition. If that means breaking up in due course some of these mammoth institutions, so be it. The present structure is both oligopolistic and unhealthy.
The G20 working group has quite rightly advocated convergence towards a single set of high-quality accounting standards. It is truly astonishing that credit agencies have been able to triple A ratings in the most cavalier fashion, perhaps in part due to conflicts of commercial interest, with all the consequences for investors in Icelandic and other banks. Also, if we are going to have more common accounting standards, we are entitled to ask for improved accounting methods among the practitioners, who—to put it mildly—have not challenged some outlandish valuations.
We have seen an almost neurotic flow of Treasury announcements and misjudgments such as the VAT cut. The decline in our competitiveness has led the people of this country to a view of the future that is not optimistic. For everything that the Prime Minister is doing is about political survival; it is compounding the strength of the recession into which his catastrophic economic mismanagement has led us.
The G20 will not save this Government and neither will the Budget. Frankly, the only thing that will save this country now is the return of a Conservative Government to do what Conservative Governments have had to do time and time again throughout history—unpick the very shambles they have inherited.
I want to return to the daunting agenda in front of the G20 and in particular—this will come as no surprise to my right hon. Friend the Financial Secretary—to focus on finding a way forward for the future regulation of the global banking system, coming away from the problem we have at the moment, which is a Balkanised regulatory system trying to deal with global institutions.
As Lord Turner says in his very welcome report, the seams in this garment first split in the United States. It is interesting to see the response of the US Government, which is to try to begin harmonising their own regulatory platform within the United States, a much more fractured system than we had. That will lead them to come up with something rather similar to our FSA. But as Henry Paulson, the former Treasury Secretary, said recently, that in itself is a multi-year undertaking. It might just bring the USA more or less to where we are now. At the same time, we are part of negotiations within the EU to bring forward the capital adequacy directive. This will be fairly slow progress, yet the task is urgent and the solution required is on a wider and global scale, and not on the scale currently being addressed.
I want to urge the Government that, in their talks on this, they look not just at the scale on which regulation must be achieved in the future, but the method. In doing so, I want to urge caution about relying too much on the Basel approach, which has informed the process up to now. We should remember that that approach has no legal basis and is silent on the issues of compliance and systemic risk and that, within it, the banks have been setting the terms of trade. The system is built on internal risk basing, which involves banks defining and measuring their own risk and their own extended cover. It relies on value-at-risk measurement, which is simply a mathematical approach relying on inferences from past behaviour and was rightly described by Lord Turner in the report as “highly misleading”. It also relies too much just on the instrument of capital adequacy ratio. There is no oversight of accountancy methods or of liquidity. It is simply a conventional device that is inappropriate for regulating what are now a swathe of very unconventional financial instruments.
Finally, the Basel agreements also have a narrow view of what constitutes banking. They are silent on the issue of shadow banking and on off-balance-sheet banking. They have not been able to keep pace with the degree of leverage or securitisation in the system. In fact, a lot of banking activity has gone on outside the boundaries of the Basel system, but even the banking activity that has taken place within it has resulted in country regulators engaging in a race to the bottom to prevent financial flight to other countries, because national competitive advantage in the end always trumps regulatory concerns.
The question is where we go now. The first thing that needs to happen, and is beginning to happen, is the restructuring of the banks themselves. That is happening on an institution-by-institution basis via recapitalisation, extracting the toxic assets and underwriting inter-bank activities, all of which are essential. However, they will not in themselves be enough, which is why we are also now beginning to hear resurfacing the argument about whether we need to separate out retail banking activity from investment banking activity and in some way or other re-introduce the now famous Glass-Steagall-style legislation that emerged in the United States after the 1929 crash. The argument is simple: the US banking system worked pretty well while the Glass-Steagall legislation was in place; the problems that have arisen came post-repeal; so let us reintroduce Glass-Steagall. That is a very simplistic misreading of the chain of causality, because some of the banks that failed were not crossover banks at all. The structure that has now emerged is in any case far too complex to unpick, but there are some principles within the Glass-Steagall-style regulation that are relevant. There is a need to look at firewalls in the system, not simply firewalls between retail and investment banking, but ones that will help to address the issue of proprietary trading and the activity of hedge funds.
We also need major regulatory reform, in my opinion. I think that there is a G20 consensus on the fact that that is needed, but the approaches that I see various key players taking are quite different. The right issues have been identified: capital adequacy, credit ratings, accountancy standards, remuneration policies, counter-cyclicality and the need for early warnings are all on the agenda, and they all should be. But the questions are what tools there are for tackling that challenge and whether the required geographical scope that is required can be met. What will replace the now failed and defunct Washington consensus? Some say a revised Basel system, but that is fatally flawed and will not in itself do the job. Others say that the IMF should be strengthened, but we need to remember that that too has no legal remit over regulation and is in itself tainted by its association with the Washington consensus.
Alternatively, there is reference to the Financial Stability Forum and the introduction of the new colleges, but that in itself is not the answer. The colleges have no legal basis. They cover only the largest financial institutions, and the supervision that they carry out is built around the structure of the large firms individually. Even the colleges are not looking at the risk of systemic failure. They meet only a couple of times a year and they do not change the relative responsibilities of the supervisors. They have no formal decision-making powers. It is still a case of the financial institutions driving the agenda of regulation, not vice versa.
The colleges are certainly better than the gaping hole that currently exists, but on their own they are still only a paper-thin safety net. That might feel all right while the banks are on the defensive or on the back foot, but it will not last unless we take the opportunity to address the fundamental imbalances in the system.
We need to go much further than the devices that have been suggested and consider the possibility of achieving a treaty-based international agreement on minimum standards, particularly in relation to transparency and information sharing, which in future will be critical if we are to have effective safeguards against systemic risk. Risk taking by an individual player in a genuinely open competitive system might not be so bad, but we have learned that when all players are taking the same risk simultaneously, that presents the threat of systemic failure. The problem is that we do not have a regulatory structure that operates on the same scale.
I am not suggesting some form of world regulation or a world Government to do that, which would be impractical, nor do I want over-regulation. In the architecture that I propose, there will still be national regulators and the colleges, but if we can achieve something like that, which is essential if we are to avoid a repeat of the present crisis, for the first time there will be some basic rules of operating on the same scale as the operating of the major players. We have not had that, and we will need it in the future. It is the only way of correcting the fundamental imbalance.
I hope we will not try to rely on the working of the Basel system alone, or on the IMF alone, or on the Financial Stability Forum or on the colleges. They all have a part to play. I entirely agree with that, but the total that is needed is greater than the sum of their parts. For that reason, I hope the G20 will consider the opportunity that is now presented to devise some form of treaty-based, and therefore international and genuinely global, banking regulation. Without that, I fear that at some point we could end up repeating what is happening now.
It is a pleasure to follow the hon. Member for Warwick and Leamington (Mr. Plaskitt). It was also a pleasure to listen to earlier contributions to the debate, notably those of my hon. Friend the Member for Chichester (Mr. Tyrie) and my right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley), who have been involved in the discussion about the framework of financial regulation much longer than I have.
My 12 years in the House have rather reflected the experience of new Labour. I spent my first six years entirely focused on schools and hospitals. I then became absorbed in foreign affairs. It is only in the past couple of years, since I had the privilege of joining the Treasury Committee, that I have had to confront the horrible reality of the current economic situation.
There have been a number of comments from Members on both sides of the House about the real implications of what is going on in the economy. One of the early remarks was about the failure of some of the schemes that the Government have put in place to try to support business and make sure that lending is happening and that credit is moving in the economy. In particular, the enterprise finance guarantee is not operating as effectively as the Government or the business community had hoped.
As members of the Treasury Committee who went to Leeds, Halifax and Edinburgh heard from banks and business people, one of the problems is that the banks have been charged with assessing the viability of a business as a threshold for giving the enterprise finance guarantee. As one banker asked, “How are we meant to assess the viability of a business which may have been operating profitably until just a few months ago, but suddenly doesn’t have an order book on which to base its future projections?” What is really needed may be gap funding for businesses, rather than such a viability-based guarantee.
The Forum of Private Business and some other business organisations have been quoted this evening. In its recent survey, the Forum of Private Business found that nearly a third of its members needing finance have failed to obtain it. The forum also found that among its members, from October to December the cost of overdrafts had gone up by 1.4 per cent. and the cost of commercial loans by 1.6 per cent. at a time when interest rates were being cut. That has clearly not fed through.
There are three main aspects that I shall address briefly in the time available. The first is how we look at the management of the bank assets that the taxpayer now owns, which have been put in the hands of the new organisation, UK Financial Investments. A number of Members have raised concerns already about the way in which the publicly owned or part-publicly owned banks are behaving, and whether they are fulfilling the remit given to them by the Government or the remit that Members might see as appropriate for them.
We need real clarity, which is currently lacking, about the powers of UKFI and the independence of its operation. It made a bad start—a point that I raised in the Select Committee—by being seen to act on behalf of Ministers in the matter of Sir Fred Goodwin’s pension, even though UKFI admits that it did not have a specific remit to do so. If, as I think we all hope, the taxpayer is to emerge eventually bearing as little cost as possible from the ownership of those bank assets, UKFI needs a clear mandate, clear independence and clear objectives to that end, looking at how, ultimately, we will extricate ourselves from the present position.
I shall not go over the ground that has already been covered regarding the depths of the financial crisis, the efforts that have been made to combat it through monetary and fiscal policy, and the quantitative easing that is being embarked upon by the Bank of England. Some of those measures may be entirely necessary and appropriate, but they do not come without a cost in the longer term.
The G20 has been mentioned, as it is meeting in London over the next couple of days. We have heard about the importance of the co-ordination of policy from different countries or, as my right hon. Friend the Member for Hitchin and Harpenden put it, the need for bifurcation of policy—a co-ordination of different approaches by different countries.
Crucially, the situation is still getting worse. As we look at the way different recessions have been charted over time, and the projections and predictions about the route that they would take, we find there is a long history of progressive forecasts being proved wrong, usually because they are too optimistic. They tend to project an early and steep emergence from recession, and then they are revised to suggest that that will be much more gradual. That seems to be happening now. The Governor of the Bank confirmed to me last week that the Bank’s view is changing, having originally envisaged a fairly steep V-shaped recession. As he said, “That was our view in February,” which seems a fairly explicit recognition that the view is changing monthly.
Secondly, one of the crucial problems that we face, which has been alluded to this evening, is the unprecedented rate at which unemployment is rising, and the fact that that rate is itself accelerating. In my constituency, the unemployment increase from January 2008 to January 2009 was 88 per cent.; from February 2008 to February 2009, however, it was 105.4 per cent. All the surveys suggest that the situation will continue to get worse. As the hon. Member for Northampton, North (Ms Keeble) mentioned, a large part of that unemployment increase has affected young people in the 18 to 24-year-old age group. That is a particular concern and a particular problem. If we do not address the problem of increasing unemployment, we will quickly get into the second-order effects and problems for other aspects of the economy. A greater number of people facing unemployment, negative equity and housing repossessions will impact again on the toxicity of bank assets, and make all the problems worse again. It is a worrying spiral.
My third point is about public debt, which Members—on both sides of the House, I hope—are increasingly coming to see as something that will dominate the national debate for a long time. It will do so regardless of which party wins the next election. We have already seen the level of net debt as a percentage of GDP go rapidly back up to 43 per cent. after a period in which it had been rather lower. However, the rises projected for the next few years are truly frightening. By 2013-14, the level is projected to go up to 57 per cent. or more. As has been noted, that is due to a combination of the operation of fiscal stabilisers, the fiscal stimulus that has been applied and the high and increased levels of public expenditure in the past few years.
Some of the warnings have been stark. Writing in The Times, Robert Chote says that the continuing cost to the Exchequer could be about 3.5 per cent. of national income. Professor Colin Talbot looked at the cost of bringing debt back to sustainable levels in the next spending round. He said that that would be tantamount to real-terms reductions of 5 per cent. a year in public expenditure, which by 2013-14 would amount to a cut of almost 17 per cent. or £125 billion in public spending, roughly equivalent to abolishing the national health service.
The real test of the Government will not be what they say on 22 April about the next financial year, but how plausibly they start to chart the course for the medium and longer term to bring the levels of debt down to sustainable levels, with which the country can live in the future.
I hope that the House will bear with my slightly croaky voice, which would certainly stop me singing and will abbreviate what I say. Coincidentally, my speech will follow on precisely from that of the hon. Member for Altrincham and Sale, West (Mr. Brady).
In this debate, our immediate focus has understandably been on the process of restarting the economy. Others have been bold enough to talk about the world economy and our role in that. We have yet to consider, beyond the inclusion of broad figures in the already wildly outdated projections of the pre-Budget report, the harsh task that lies ahead of us if we are to rebuild a framework of sound public finance in this country.
The debate has been useful because we have attempted to educate each other in what we have been talking about. Frankly, some of the more informed Members have said that the much-debated fiscal stimulus is pretty small in comparison with the other means that have been employed to boost our economy. The automatic stabilisers are far more substantial, and the steps taken in monetary policy and the devaluation of sterling are also much more material.
Even according to our current relatively conservative way of counting, the impact on public expenditure as a whole will leave us with net borrowing of more than £125 billion in 2009-10, the year that we are just starting, and with total borrowings of more than £1 trillion. Others have speculated that if we included a variety of other things, the figure would be much greater still. Hidden within the figures is the fact that from 2002 onwards, we operated with what would seem to have been a structural deficit.
Even in a period of consistent growth, we were running material and non-forecast public deficits. The hon. Member for Sevenoaks (Mr. Fallon) drew attention to the consistent misforecasting of our deficit in the early part of this decade. Merely reverting to pre-crisis patterns of spending and revenue-raising—even if it were possible to do that; I shall touch on why it is not—would see deficits growing still further. According to one estimate that I have read, it will take until 2030 to return public finances to pre-crisis levels.
There are already signs that the scale of future deficits, unbacked as yet by clear strategies on how they may be corrected, are having an impact on the effectiveness of our short-term measures. Dissonance between the Bank of England and Government messages is one obvious example, but bond market reactions—the willingness to purchase Government bonds—may be another indication of exactly the same concern. [Interruption.] My hon. Friend the Member for Wrexham (Ian Lucas) is very kind to give me a glass of water; it may also provide relief to Members listening.
The default past response to the need for reductions in deficits has been broad-brush top-down spending cuts. On the evidence of past programmes, that produces extraordinarily inefficient spending management. The cuts made are normally those easiest to make—capital expenditure is generally the first victim—rather than cuts that may require longer gestation and will have a more enduring structural impact. Localised non-strategic savings are also produced; a cut in one area generates an increased cost within another budget heading, outside the responsibility of the accountable manager.
Clearly, we will need new tools in confronting the task that lies ahead. We have an extraordinarily limited institutional memory of robust spending management. The Gershon reviews yielded some material savings, although audit suggests that they did not add up to as much as has been claimed, but they were achieved within a comfort blanket of general public spending growth, allowing redeployment of resources to count as a saving towards new priorities and allowing long paybacks through substantial initial investment. Those luxuries will not be available to us in the future.
What must we do? First, we should use part of the time bought by the fiscal and monetary stimuli to debate the political framework within which we will have to operate. I say “we”, because I take the view of the hon. Member for Altrincham and Sale, West: this will be a task for whichever party wins the election and arguably it makes the election one that many might wish to lose. I am not a candidate at the next election myself.
To make serious inroads into our debt ratio will require far more than annualised savings or economic recovery, especially bearing in mind the large tax takes from banking and the City on which we have relied, and which will certainly not return in the short term and may never return. One estimate suggests—it was quoted by the hon. Member for Altrincham and Sale, West—that merely to stop total public debt increasing further will require a real-terms cut in public spending of about 5 per cent. every year from 2011 to 2014.
First, what will be our political and ethical compass? The Government have indicated, rightly, that tax increases, particularly for higher earners, will play a part in addressing the deficit, but I would not try to exaggerate the significance of that in terms of the scale of the task ahead of us. We will be operating in a context where most losers will see themselves as victims of the errors or venality of others; a willing partnership of burden-sharing will be near impossible to construct. To even attempt that, it will be necessary to demonstrate that there is clear ethical governance in what we do.
Secondly, we will need to reinforce our strategic armoury. Radical choices will be required. Incremental chiselling will certainly not deliver what is needed. To be honest, we will have to ask questions about whether there are parts of public spending that simply cannot be justified in the predictable circumstances of the next decade. Merely twiddling away 1 or 2 per cent. will not do the job.
Thirdly, we should use the recovery period—when a cuts programme would be counter-productive—to engage with our public sector work forces. In the straitened circumstances of the recession, collective bargaining in the private sector on the sharing of burdens has been shown to work effectively, with work forces clearly understanding the need to protect the business in which they work. It will be extremely hard to remove memories of rigid top-down programmes of savings, but the dilemma ahead will place in sharp focus the choices that have to be made by workers and management within the public services.
Finally, a change programme typically requires leadership quite different from that required to lead a stable organisation: that normally means importing hugely expensive consultants and their PowerPoint slides. Their presence in large numbers is a strong impediment to collective burden-sharing, and we must accelerate the growth of our own skills and their transference within the public sector.
One thing is absolutely certain: our public services will be reshaped very substantially as a consequence of this crisis. The moral compass and the methodology that we decide to use will be one of the critical choices before the electorate at the next election; so far, they have heard little that could inform their choice.
It is a pleasure to follow the hon. Member for South Derbyshire (Mr. Todd); I am delighted that his vocal chords lasted as long as his notes. He made a thoughtful, well-informed and rather sobering speech reminding us that whoever wins the next election will have to take some difficult decisions given the scale of Government borrowing and Government debt. Tantalisingly, he implied that some sacred cows would have to be slaughtered, but he did not tell us which were his chosen ones.
I want to make three points in my brief contribution to the debate. The first is a criticism of the action taken in the pre-Budget report, but the other two are helpful suggestions as to what the Chancellor might do in his Budget both to bring down Government debt and to stimulate economic activity. The criticism relates to the £12.5 billion to reduce VAT for 13 months that the Government announced last December. Let me pick up a point made by the hon. Member for Twickenham (Dr. Cable). I am not against a stimulus to help to kick-start the economy, but the VAT reduction was sensationally misdirected. I believe that the Government should have used the money not to encourage shopping but to encourage housing. The money should have been invested in assets in housing and infrastructure, which the Government could then have set against liabilities that they had incurred through borrowing £12 billion. Those assets would also have generated an income through the rental stream from the houses that were built or from selling on those houses for low-cost home ownership. It would have been prudent to borrow to invest rather than borrow to spend. When the VAT reduction comes to an end, the Government and the taxpayer will have nothing tangible to show for it whatsoever—and, I fear, very little intangible either.
Furthermore, investment in housing, construction and infrastructure would have had far bigger employment consequences than the VAT reduction, much of which will have leaked into imports. How many jobs, if any, have been created by the VAT reduction? Yet £12 billion injected into construction and housing would have provided work for the thousands of people in the building and construction materials industry who have lost their jobs during the recession. Crucially, it would have produced more homes for those in housing need and would have brought the Government’s target of building 3 million more homes by 2020 within range, whereas the current public expenditure provision of some £8 billion is going to fall well short of that. The money could have enabled registered social landlords to acquire land at good prices to build out schemes that are stalled because section 106 funds are longer available. Starts could have been made on land that has planning consent. Some of the money could have been used to buy new homes that are overhanging the market and would have been put to good use by those on waiting lists. If the Government had done that instead of the VAT reduction, some of us might even have voted for it—who knows? It would certainly have been far more popular outside than what the Government did.
My second point is related to the first. That £12 billion is no longer available, but the housing market is still on its knees. We need to increase the supply of housing without further driving up public borrowing. The Budget should promote long-term, sustainable investment in new private rented housing by pension funds and insurance companies facilitating housing investment trusts. That policy has been around for some 15 years and has had all-party support. The portfolios of our institutions are not exposed to residential housing. They can invest in commercial property, in gilts and equities, and in other esoteric products, but they cannot invest in bricks and mortar—homes that would produce a growing revenue stream, as rents have historically risen with prices. The Government should deliver on some of their promises made over the past 12 years. In 2004, the Treasury consultation paper promised us a real estate investment trust—REIT—structure that would encourage the development of new housing. Then we had the 2006 Budget, which said:
“To attract more capital into house building, we are now legislating to introduce for Britain the real estate investment trusts that are so successful in the USA.”—[Official Report, 22 March 2006; Vol. 444, c. 293.]
However, nothing has happened. REITs have been used only to convert commercial property and pubs; as far as I am aware, not one single residential property has been built through a REIT. That Budget initiative produced nothing at all.
The challenge for the next Budget is to come up with a structure that works. I was delighted to hear at a meeting with Bob Kerslake, chief executive of the Homes and Communities Agency, that that dialogue with the Government is at last being revived. With public expenditure now stretched to its limits, we need a fresh look at how institutional funds can be harnessed to tackle housing needs. Housing starts this month are 59 per cent. down on the figure a year ago. The Government are producing one third of the number of houses this year that they need to meet their target, so there is a real need for fresh investment in housing, and I hope that they will look at the initiative that I have proposed.
My final suggestion is a response to the ballooning public sector borrowing requirement, and the difficulties that confront the Government in financing their debt—an issue to which others have referred in this debate. My hon. Friend the Member for Altrincham and Sale, West (Mr. Brady) referred to an article by Robert Chote in The Times on 19 March, in which he said:
“The biggest task for whoever is unfortunate enough to win the next general election will be to mop up the gallons of red ink spilt over the Government’s finances by the economic crisis.”
The Government have made it clear that they are bringing forward elements of the capital programme from year three to year one, such as the Homes and Communities Agency budget. I welcome that, but it will push up the PSBR. To counterbalance that, the Government must bring forward some of their income, and they should do that by selling interest-bearing tax certificates. These bonds could be used only to settle future tax bills. I suggest that in his Budget statement, the Chancellor makes such certificates available for sale, bearing interest at 4 per cent. tax free—that being the figure assumed in the pre-Budget report as the average interest the Government would pay on their debt.
These certificates have been introduced before, in 1941, at a time when the Government had to manage a huge amount of debt. Interest then was tax free, and the certificates were discontinued only 30 years later when Government borrowing had been reduced. Those approaching retirement, for example, may wish to invest in these certificates, in order to reduce the tax they pay when they retire. Others may want to buy them to reduce the duty on their estates. They would be even more popular if one could transfer them to other members of one’s family, but they would be of interest to anyone who pays tax, not just the well-off.
These certificates are essentially different from straightforward borrowing. Borrowing pushes up the PSBR, whereas the measure I have suggested would reduce it. It is like a company discounting its invoices by selling them for cash. If the Government borrow, they have to pay the money back, but when they sell a tax certificate, they do not have to pay the money back. It also solves another problem. Many people want to save and, looking ahead, we will have to encourage saving. How do people save at the moment? Do they invest in gilts or equities, do they leave their money in their current account—my high-interest current account pays 0.1 per cent. interest—or do they buy gold? We need a new savings vehicle that whets the appetite of savers, and which helps the Government to manage and reduce their debt, and restore confidence in the currency.
There we have it: a rebuke for some well-meant, but hopelessly misdirected fiscal stimuli; a request to do far better and to deliver on a housing policy which the Government are committed to but have failed on; and some lateral thinking on promoting saving and managing debt. I will not mind at all if the Chancellor steals those ideas and puts them in his Budget.
I was intrigued by the ideas outlined by the right hon. Member for North-West Hampshire (Sir George Young). We would all do well to think carefully about them. My intention probably differs from his because I have no interest in rescuing the system as is, but his ideas may well be part of the system we have to move towards.
I would like to use my time to put on the record a number of heresies about the mess we are in. I have no desire to reach for the olive branch held out by the shadow Chancellor on a consensus that can be agreed on in the G20 or in this House. I have no desire whatever to save free trade from protectionism. I have no desire to reform the International Monetary Fund, rather than replace it. I have no desire for an agreement that would rescue regulators by giving them some sort of global therapy network where they could cry on each other’s shoulders.
The current crisis is an ideological one; it is a crisis of globalisation, and we should acknowledge that, rather than pretend it is somehow accidental. As soon as the deregulating bandwagon got running and production started to chase the lowest labour costs and the least environmental obligations, we were always going to face a looming crisis. Beginning in the 1970s, this was a crisis of overproduction.
The crisis took us into other contradictions. Those who were producing on the back of cheap labour still wanted markets to sell in. Within the industrial world, the problem was that this put a squeeze on median wages, and the sections of consumer society to which corporations wanted to sell their products were workers who no longer had the wages to buy goods that they used to produce themselves.
To get out of that mess—square the circle—the answer was burgeoning credit. Unfortunately, that was sold to us as a solution that would deliver everlasting growth. Public debt was changed into private debt—it went off balance sheet. Somehow we allowed ourselves to be mesmerised and think that this would give the world a way out of the mess we were creating. Had we not done that, we would have faced deflationary problems. As it is, we now face a global recession that runs the risk of becoming a global depression.
This was always inevitable, and we need to acknowledge the collusion between successive Governments in the past 20 years. Many of us on the Labour Benches argued that new Labour’s economic and political error was to sign up to an agenda scripted by the old Conservatives, but that, too, is part of history.
We have to address the fact that in our position, there is probably no choice other than to have an interventionist Government with clear notions of where we want to end up. The question is what sort of interventionism we have and where we intend to redirect the economy.
In principle I am in favour of bank nationalisation. The Government were right to be willing to step in to guarantee savings. They were probably not right to accept that, as part of the deal foisted upon us by the banking and finance sector, we should somehow have a duty to pay off other people’s gambling debts. It is not the duty of the taxpayer to bail out the speculator, but that was the financial absurdity that we allowed ourselves to be bounced into.
Before the Governor of the Bank of England tut-tuts about a second financial stimulus—targeted at the real economy this time, I hope—I want him to explain to the public and the House how he justifies the £1.5 trillion stimulus that made up the rescue package for the financial services sector that took us into this mess. I find myself in the same position as Joseph Stiglitz, the former World Bank governor, who says that it is not the job of Governments to do anything other than rescue narrow banking, real banking, proper banking or whatever we want to call it. We ought to have the courage to say that we will allow investment banking to collapse.
This will allow us to get back to a proper framework in which those who run up gambling debts have to take responsibility for them and we do not saddle the taxpayer with them. I suspect that what I am saying is what is said to virtually every Member by people in their constituency. We are challenged by members of the public saying to us, “This is not my crisis, these are not my debts. Why should I accept the liabilities and the mess that have been created for us by gamblers?”
Had we nationalised the banks and brought them into public ownership as utilities, we would be in a very different position. We could have instructed them to lend into the real economy rather than charge prohibitively to repay the Government or restock their own finances. Part of the problem that firms across the country are facing is in accessing any of the money that has been put into the banking system as notional liquidity.
The UK has put £285 billion of up-front support into the financial sector, which is 20 per cent. of the UK’s GDP and four times the average percentage of the G20 countries that are meeting this week. My argument to the Chancellor is that we have to draw a line and make it quite clear to the financial services sector that we will not take on any more of its bad debts. If that results in collapse, so be it. We should take in fire sale assets and not the debts that we should not carry. However, even if we do that, it will not be enough. I hope that the Chancellor will introduce measures in the Budget that allow us to shift from the old to the new economy.
Many of those who have the courage to think beyond where we are suggest that, when we come out of the credit crunch, we will find ourselves knee-deep in the climate crunch. The economic issues that define our political agenda and our future will centre on food security, water security and energy security. To those in the energy sector, sustainability will mean a shift to renewable energy sources, not a replication of the polluting energy sources on which we have relied in the past.
We need a new Bretton Woods, with two distinct features: first, all the aspects that Keynes wanted to include—all the internationally rebalancing mechanisms between rich and poor; and, secondly, the ecologically balancing measures, which were not even considered at that time.
Like it or not, we live in an era of protectionism. The World Bank recently reported that 17 of the 20 countries that it examined had introduced protectionist measures in the past few months. I hope that our choice will be environmental protectionism rather than the protectionism that has done so much damage in the past. However, we cannot continue to pretend that protectionism is not the realistic scenario that we face. Our history shows that the countries that became the most rich and powerful insisted on the right to protectionist policies to become rich and powerful. In our context now, perhaps we are required to do that to survive.
In the debates in the G20 this week, I hope that we will have the courage to say that we will not put more money into the banking coffers, but that we will shift the basis on which funding is provided to international institutions through introducing a new global Tobin tax. We need to get corporations to fund a way out of the mess that they created, not citizens and taxpayers.
Outside the House, on the streets of London and cities throughout the world, protesters demand a different regime from the one we have constructed so far and anything that Parliament has debated. They regard our debates as a feast of fools and, unless we have the courage to go further, they will be proved right.
I listened to the debate with great interest, but there have been moments when I felt that we were listening to an economic seminar, some of which gyrated around the learned reports that had been pouring out and the questions with which it is important for those who are super-intelligent in economic matters to grapple.
I want to deal with several matters that underpin our discussion, and concentrate on what we must do to kick-start our economy and get into a position, against the background of a likely 3 million unemployed next year, where we can ensure that the people who would otherwise be severely disadvantaged are given a genuine opportunity not only to survive but to prosper.
I should like to get one thing off my chest—it will not surprise anybody. Many of the problems we are experiencing in the current economic crisis are partly attributable to the failures of the European Union. [Laughter.] I said that would not surprise anybody. In the fiscal policy debate on 7 October, I pointed out that it was a question not only of banks, but of countries. I considered the stability and growth pact and the deficits under the Maastricht criteria and the convergence criteria. I said that I thought that some countries would go under. I leave it to others to judge whether I was right, but the bottom line is that the absurd stability and growth pact means, as I said in an article written as many as five years ago, no stability, no growth and no pact. The idea that somehow one can fine countries that get themselves out of kilter with their deficits is absurd when one considers the size of the deficits, as I said on 7 October. I mentioned the latest figures from the Office for National Statistics to the Chancellor this afternoon.
The ONS’s current estimate of our public sector deficit is £2.2 trillion, which not only is triple what the Government set out in the pre-Budget report only three months ago, but excludes major financial obligations, such as public pensions, which amount to £1 trillion, and PFI schemes, which amount to about £70 billion. Including those obligations takes the total to £3 trillion—I challenge any Member on the Government Benches to say, “Oh, we’re not going to pay the public sector pensions.” Those sums may not be in the ONS statistics, but they are certainly financial obligations. If we add them in, we arrive at a figure of £3 trillion, which I am informed is 200 per cent. of GDP. France, Spain, Greece and Ireland have all broken the pact’s rules with their rising budget deficits. Therefore, the whole thing is complete nonsense.
In addition, there are riots going on. I know that Ukraine is not part of the European Union, but there are huge riots going on in Latvia, Greece, Spain and Italy. They are grass-roots reactions. No wonder the far right is going up. That is where the problem lies. With hon. Members representing Stoke-on-Trent in the Chamber this evening, I should say that we are deeply concerned about the growth of the British National party in our area. In Stoke-on-Trent there are as many as 12 or 13 BNP councillors, and that is likely to grow as unemployment increases.
In the few minutes that are left, I want to deal with the absurdity of the direction of the response by the G20 and the Government, which is towards more Europeanisation. There have been letters in the papers today from Roland Rudd, Lord Brittan of Spennithorne and a variety of other Euro-fanatics, who are asking for more Europe and not less. The fact is that Europe is a practical failure and people need to wake up to that. I am not against co-operation or trade, but I am very much against European government and a failing system.
I am grateful to the hon. Gentleman for raising the issue of the far right in Stoke-in-Trent. Is he aware that when Councillor Coleman, one of the BNP leaders in the city, was asked how the economic difficulties would affect his party, he said that the misery was good if it meant that it would gain power?
That kind of language is extremely dangerous. I have even received BNP literature in Pimlico in the past couple of days, which really is extraordinary, and now there is Sevenoaks. Situations are developing all over the country that are of grave concern, but which, at the same time, are a reflection of the economic crisis that we are in and which we must do something about.
That brings me to the more positive side of the equation. There is European government and over-regulation, but I want the introduction of the supremacy of Parliament amendment, which I have proposed on many occasions. We could thereby override legislation and return to what the leader of the Conservative party said in November 2005 about his imperative policy being to repatriate labour and social legislation, by using our powers in this House and ensuring that we govern on behalf of the people of this country, in accordance with the votes that are expressed in the ballot box, not according to majority votes or the rules of the European Court of Justice.
While we are on the subject of financial regulation, I simply make the point, which I have made many times, including to the Prime Minister last week, that there are a lot of weasel words coming from the Government. I challenge the Financial Secretary to the Treasury to tell me this evening whether we will indeed repudiate the idea of the Europe-wide supervision of banks and financial services. I have read the 85 pages of the de Larosière report and the European Commission’s response. I have also read the Turner report and the explanatory memorandum to the European Scrutiny Committee, by the man whom I have described as the hapless Lord Myners, whom we are summoning to the Committee to explain the explanatory memorandum. There is absolutely no doubt whatever that, despite the Government’s attempts to say there will be national supervision, if this turns into a regulation or directive under the Single European Act, that will mean simply acting as agents for a European system, and the effect will be to bring in majority voting. While it is being negotiated, we will be able only to tinker with it, not to change it, and it will subsequently be adjudicated by the European Court of Justice. That will cover the whole of our banking and financial services, which is an enormous threat to the City of London and an enormous threat to this country. I believe that it is also a threat to the Bank of England. I suggest that we wake up and realise exactly where all this is going.
I said that I was going to say something on a more positive note. There should be much more emphasis on the importance of giving credit arrangements to companies that need credit in order to buy the excellent machines of companies such as JCB in my constituency and others. We should also remember that small businesses employ 58 per cent. of the UK’s private sector work force and contribute half of the UK’s GDP, employing more than 12 million people. We want to look after those small businesses.
One of the first things I did when I came to the House was to bring in the Small Business Bill. I have always believed in it; I have always believed in promoting enterprise and employment. We should bear it in mind that 90 per cent. of UK businesses employ fewer than 20 people, so what should we do to help them? Of course we have to help bigger companies, but at this point in the debate I emphasise that we should ensure that we provide these businesses with post office banks, which I believe would help a great deal. There is a proposal from the Federation of Small Businesses to provide a network of small post office banks, which would help rural communities where there is a great deal of deprivation, while also providing facilities in competition with, but not overtaking, the main banking system.
I think we should reintroduce enterprise allowances and enterprise zones, which were enormously successful in the 1980s, and I think that we should reduce the burden of legislation and the burden of taxation wherever it is possible to do so in application to small businesses. In the light of what I have already said about the economic crisis, I fear that public expenditure will be massively reduced and taxation will go up. In the course of that, we must also look after small businesses. I strongly advocate more relief for empty properties.
We want a positive message to go out about what we could describe as the grass-roots people in this country; we should ensure that they have a real purchase on their own future. Right now, what is happening is that they are being crushed, yet they represent a very substantial proportion of the business community and of the population of this country. I say we should put small businesses right at the top of the list.
rose—
Before I call the next hon. Member to speak, let me point out that time is rapidly running out, so if hon. Members could see their way to taking less than their allotted 10 minutes, it would be extremely helpful.
It is a pleasure to take part in this debate and to follow the hon. Member for Stone (Mr. Cash). I agreed with some of what he said, particularly about the rise of the far right and, indeed, about post office banks. We are both members of the European Scrutiny Committee and I suspect we have different views on Europe, but I agree with him that it has been interesting to observe how what the EU identified as orthodox criteria that had to be adhered to have had to be thrown completely out of the window in reaction to what has happened over the past year. Many of us felt that those orthodoxies and rules were not necessarily in the best interests of us or other European countries in any event.
Many people listening to the debate may feel that some speeches have not necessarily related to where they are. They may feel that the language we use and how we put our points across do not relate to the problems they are facing in their lives. Significant numbers of people have already suffered as a result of what we have been through over the past year or so. Many people have lost their jobs, particularly in the construction industry and manufacturing, and many people are worse off as a result of what has happened, although others are better off financially, as their tracker mortgage payments have decreased. One of the biggest impacts, however, is that the entire community has experienced worry about what lies ahead.
People are very fearful about what might be coming. They do not know what is coming, but over the past year they have watched on their television sets what has happened to the casino economy of capitalism, with share prices plummeting and events taking place that nobody in any of the major political parties’ leaderships had predicted. As a result, people have been genuinely fearful of what lies ahead, and it has to be said that the political class has not really provided leadership in explaining what is going on. That is because it is difficult to explain, as there are no words of comfort that we can give to people because of the nature of the crisis that we could face.
One of the problems with capitalism is that so much of it is to do with confidence. Some people, including some Opposition Members, have said they always thought a recession was coming because the nature of the economic cycle had not changed, but they could not predict when it would come. Often, it is something unpredictable that leads to a complete breakdown in confidence, and then we experience the spiral of the past year, and longer in the United States of America.
We face major challenges. There is no doubt that Britain is suffering as a result of events in the world economy, but some of the poorer countries in the world are experiencing much greater pain. We should welcome the fact that the G20 is taking place in London this week. We should also welcome its having been expanded to include 20 countries; it is a step in the right direction that representatives of more major economies are taking part in these discussions. We must also recognise, however, that that still means that many of the major players and peoples of the world are not represented in these discussions by having their leaders there, and also that even countries that are represented are very much represented by political elites that have bought into the systems that have led to the situation we are now in.
Many people simply feel that their voice is not being heard, and it is incumbent on us to look for ways to provide political representation for those people. I say that particularly for Labour Members, because in my view one of the reasons why we have got ourselves into this situation is that the financial and economic system has given little attention to the long-term issues that people face. Far too many short-term decisions have been taken that are about the interests of an individual, company or corporation making money, rather than the long-term interests of the majority of the people in this country.
Speaking as someone involved in the left of the Labour party, one of my frustrations is that we will have to relearn lessons that we have learned previously. A number of Members have referred to what happened in the 1930s, but what was very clear then was that it is not inevitable that capitalism will continue to produce and to grow, and to work in a stable way. It is part of the nature of capitalism that there is a boom and bust economy. The types of regulations that were brought in after the crash have been dismantled over the past 30 or 40 years, with the support of all the major parties including the nationalist parties in this place. I say that as a Member who represents a Scottish constituency. Those of us who remember the Thatcher and Major Governments will recall how they dismantled—the Major Government less so—many parts of financial sector regulation and will be painfully aware that our own Government have not been strong enough to take on the interests of big business and capital. That is part of the reason why we are in this situation.
We have to recognise and be very aware of the role of practices such as short selling and of the fact that although the Government promised us last October that regulation would be brought in for the banking sector, we are still not having a real debate about what that regulation should be and about the actual detail. We have to recognise that over the past 30 years the gap between the richest and the poorest in this country has increased, and decisions have been made without taking into account the long-term interests of the people. Even in the past year, when we have been facing this crisis, we have still been far too soft, particularly on the banks and on big business.
We are reaching the point where we have a UK banking liability that is four and a half times our gross domestic product, so we have to consider what my hon. Friend the Member for Nottingham, South (Alan Simpson) and other hon. Members have said about the fact that the British state is not big enough to provide insurance for the whole banking sector, and look at the different forms of liability, be they retail liability or speculation. We have to say that if British taxpayers’ money is going into the banking system, we must control the decisions that the banks concerned are taking. People talk about the nationalisation of the banks, but in reality most of the money that has gone into the British banking sector has not gone into it in a way that could be considered nationalisation, because we have not got control over the banking decisions that are being made.
One can quite understand that issue from the banks’ point of view, because a conflict of interest is involved, as a number of hon. Members have mentioned. The banks obviously want to protect their capital and to make sure that they maintain their reserves, because they are worried about their own futures, whereas British taxpayers, whom we all represent—they come to our surgeries—think that if they are putting their money into the banks, that should be passed on and Government policy should be, as is generally agreed throughout the House, that the banks lend that money on to small businesses.
I reiterate the point made by a number of hon. Members, including my right hon. Friend the Member for Stirling (Mrs. McGuire), that there is massive frustration that despite our having put so much money into the banks and despite so many helpful Government initiatives, those initiatives are not coming through at the grass roots, businesses up and down the country are not getting credit and that is having a massive impact on the people whom we represent. I ask the Minister to respond to my points at the end of the debate, particularly in respect of how we ensure that the initiatives that have been introduced bear fruit.
“Boom and bust” is one soundbite that we have not heard too recently—I understand that the Prime Minister has used that phrase 120 times since he has got into this position, although we do not hear it too often now—but it has come to underline some of the problems that we face. The hon. Member for North Ayrshire and Arran (Ms Clark), who has just spoken, talked about the confusion in coming to terms with the complexity of the economic downturn. We have had an awful lot of policies, but nothing new or concrete to change the way in which things are happening.
We have also had plenty of soundbites, to the point where the nation cannot keep up. We started by understanding who or what Freddie Mac and Fannie Mae were; the credit crunch was a new term; we then encountered toxic assets and quantitative easing; and even the G20 is a new phenomenon—it used to be the G7 and then the G8, but it suddenly jumped and became the G20. It is almost as if words are being created just to show that the Government are on top of the issues and know where they are going, whereas it is all a bit of a bluff and all they are is one step ahead of the public. Now the public are catching up with what has happened.
The G20 summit is an opportunity to see how other countries are dealing with the economic crisis, and who has made sure that their economy is in order in the past. The tide of prosperity is going out, some economies are not wearing any swimming trunks, and it is not a pretty sight. We are one of those countries.
I wish to focus on a specific part of the economy. Many hon. Members have spoken in general terms about what needs to be done or who is to blame. I want to look at part of the economy that is actually doing well—the British tourism industry. People may ask why I should bring that up as a subject in a general debate on the economy—[Interruption.] It does not have a high enough profile, and the fact that hon. Members are laughing about that shows that we need to spend more time understanding the benefits of British tourism for the economy.
I am extremely supportive of the tourism industry, but I caution the hon. Gentleman not to be too dismissive of the G20. There may be great value in having countries such as China and India, with their huge and growing economies, involved in the discussions in London this week, if we are trying to find solutions that will benefit people across the world.
The hon. Gentleman makes a valid point, but I have a suspicion that not a lot will come out of the G20. I hope that something does, but it could be just another soundbite that we will have to wait for Robert Peston to explain by the end of the week.
The hon. Gentleman’s comment was not unlike that of the late James Callaghan when he asked rhetorically, “Why do I speak of the interests of the Royal Navy?” A voice from the back answered, “Because you’re in Plymouth.” The hon. Gentleman asked why he should raise the interests of the tourism industry, and of course he represents a very fine city on the south coast. That is why he raises the issue of tourism, and that is all that we were laughing at.
Perhaps I should have declared an interest. Ironically, British tourism is doing well because people can no longer afford to go abroad and they are looking for domestic destinations. That is why I ask Ministers to consider what we can do to enhance that situation.
The industry is the fifth largest in the UK, and I do not think that the House fully appreciates that. It is worth £114 billion a year to the economy, so it is twice the size of the IT services sector and four times the size of the agricultural sector. It has 2.6 million jobs and is responsible for one in four new jobs. It is also helping to compensate for the decline in other sectors. With 13 million visitors to the UK every year, it is a sector worth investing in.
We can all be proud of the heritage that we offer, including museums, theatres, countryside, villages, towns and sporting events. There are myriad tourism opportunities in the UK that are unique to this country. Oxford cannot be replicated in Dubai. The Tower of London cannot be reproduced elsewhere. What we have here is special, and we need to promote it. I fear that we are not doing so.
There are some basic failures in our approach to tourism. The first is the lack of leadership. Tourism is not properly represented in the House of Commons. Responsibility for tourism is divided up between various Departments. For example, the Department for Communities and Local Government deals with fire regulations for hotels and bed-and-breakfasts. The Home Office deals with visas. The Department for Culture, Media and Sport deals with a small percentage of connections with VisitBritain, and the Department for Business, Enterprise and Regulatory Reform looks after small businesses. There is no forum to bring those voices together to ensure that legislation created in other Departments does not have a knock-on impact on the tourism industry. That is exactly what happens at the moment.
Visa costs went up about a month ago, with no consideration and no communication with the DCMS. The cost of our visas now means that we get about one fifth of the number of oriental visitors that France or Germany get. That means that we lose a lot of revenue to the Exchequer.
Let me illustrate the importance of tourism. Every pound that is spent by VisitBritain abroad brings £36 of investment into the UK. I ask hon. Members to show me another Department that has that return on an investment—paying £1 and getting £36 back. That would suggest that in these economically difficult times, particularly while exchange rates are what they are, we should be considering putting more money into our British tourism industry and, unfortunately, that is not happening.
One would think that when we are about to host one of the most important sporting events in a generation, the Olympic games, we would take advantage of that fact and harness the marketing opportunities. However, the Government are not spending a single penny on marketing to take advantage of that once-in-a-lifetime opportunity. Surely that must change.
Some other basic issues are hindering our tourism industry and preventing it from flourishing in the way that it could be. We have a confusing system of structures—an issue caused by the promotion of the regional development agencies. We have had 10 years in which England has had no strong voice to represent itself or to work with VisitScotland or VisitWales. Things are changing. The Government have woken up and recognise that the RDA system does not work for tourism. I am pleased that we are moving that way, but it has taken a decade for us to realise that.
We then have the problems to do with local council support for tourism. Councils in places such as Lincoln and the Isle of Wight are closing their tourism departments because that saves money. They invest that money in other departments, knowing that they will get financial rewards from Government, because such activity is financially incentivised. Surely that cannot be the way in which local authorities should support our tourism industry.
The tourism industry is large, as I mentioned. Some 200,000 small and medium-sized businesses are involved in the industry, including everything that one can imagine from the seafront arcades to the British pub. That is another example of where the Government could surely provide more support. We are all aware of the facts; we get all the literature from the organisations. Some 36 pubs close every week simply because of the duties and the taxation regimes that have been imposed on them, which are archaic. VAT has gone down, but duties have gone up. Will the Minister explain whether, when VAT goes back up, the duties imposed on alcohol will go back down? I suspect that the answer will be no.
The hon. Gentleman has made some valid points. On the pub industry, does he not also recognise that the pub companies charge so much to landlords that they put them out of business? The pub reopens, and then closes. People are investing their lifetime savings. The pub companies have a lot to answer for—does he not agree?
The hon. Gentleman makes a valid point. The pub industry itself must come to terms with that. I am focusing on what the Government can do that is positive.
I want to see a strengthened Tourism Minister who has the power to negotiate more firmly with other Departments. I want to see local authorities being encouraged to consider a tourism strategy in every part and every corner of the UK. I also want to see an empowered VisitEngland that can use the strength of the nine regions, rather than each of them individually representing their patch. It is wrong when places such as Boston, Massachusetts, have six different offices representing different corners of Great Britain and trying to get tourists back to the UK. That is madness and it must stop.
There are other aspects of British tourism—I could go on for a long time. I believe that we could have a debate on tourism itself, so important is it. I stress again that I do not believe that we give this subject the justice it deserves. Nor does the Treasury understand how much more money could be brought into this country, bearing in mind that £36 billion of British money is spent abroad simply because we do not really understand what is under our noses and what wonderful opportunities there are in British tourism. As I said, that is now changing, because the economy is working against people, so we should be harnessing those opportunities to ensure that tourism is one area that sees growth and that can help improve employment. We should be doing that rather than cutting the tourism budget, which is what the Government are doing. VisitBritain’s budget for the coming three years has been cut by 20 per cent. That must be wrong, given how much money it could make for the Treasury.
We should step back and look at the economy as a whole. Banks were lending money that they did not have to people who could not afford it and in ways that they did not understand. The Government watched the merry-go-round go round and round, but then the music stopped and they are now looking for answers. The British people are suffering as they wait for the Government to respond.
I have yet to be impressed by any of the answers given by the Government. As I said, I shall hold my breath about the G20, but I plead with the Treasury to recognise the economic benefit of investing in our tourism industry. It is the one industry that could provide a return to the Exchequer, as more people choose domestic holidays over holidays abroad.
It is always interesting to follow the hon. Member for Bournemouth, East (Mr. Ellwood). Although I do not agree with everything he said, he is right to say that we should do more to promote tourism.
In the few minutes that I have this evening, I want to consider how the economic downturn has affected the north-east. Like my right hon. Friend the Member for Stirling (Mrs. McGuire) and others, I want to drill down and look at how the economic downturn is affecting a specific area and impacting on families.
I consider the downturn to be especially tragic for the north-east, because we were just starting to experience the obvious signs of regeneration. It is very curious that the Opposition should accuse the Government of not mending the roof while the sun was shining, as many hon. Members will have experienced the impact of regeneration in their constituencies.
In Durham, we could see it happening on the ground. We have a new hospital, and new GP surgeries are coming on stream just now. A number of schools have been replaced, and there are more new schools in the pipeline. We have managed to cut NHS waiting lists massively, to the point where they are almost non-existent, and we have also improved the educational attainment of our young people.
When Labour came to power in 1997, barely 30 per cent. of young people in Durham were getting five A to C grades at GCSE. Now, we are slightly above the national average, but that change in my constituency did not happen by accident. It came about because of the investment made by this Government. It is therefore particularly tragic that we should be in an economic downturn, as I said, and my plea this evening is that the Government continue to invest in those areas for growth that have been identified in the north-east’s economy, and try to turn things around sooner rather than later.
Unemployment in the north-east stands at 8.6 per cent. That is somewhat higher than the national average of 6.5 per cent. and it is very bad—but nowhere near as bad as it was in the 1980s and 1990s, when some wards in my constituency had unemployment rates of 40 per cent. That was absolutely dreadful.
I listened with some interest to the hon. Member for Tatton (Mr. Osborne) to see whether he would recognise what the previous Conservative Government had done, or put forward any policies to turn the situation around now. He did neither: all we got was a really pathetic and petty rant against the Prime Minister that I think was unworthy of the Opposition at this time of economic downturn.
The difference I note between what the present Government are doing and what the Conservative Government did is that now people are not being left on their own to manage the recession, as the Government’s real help packages emphasise. We have real help for pensioners, with the delivery of a one-off £60 payment to 12 million of them and an increase in pension credit by £6 to £130 a week. We have increased tax allowances to put more money into the pockets of families and, critically, the Government have brought forward an increase in child benefit and in child tax credit. We are putting more money into the pockets of hard-pressed families, not cutting child benefit in real terms, which is what happened under the Conservatives.
We are also giving real help to businesses, which is what we need now. Not only have we cut taxes for households, but we are cutting taxes for businesses and promoting policies to get credit and lending going again. We are deferring tax payments: in the north-east, 2,910 businesses have been helped by tax deferment worth £50 million. We are also, where possible, bringing forward capital projects and putting money into social housing and the building of social housing through the Homes and Communities Agency. I am not suggesting for one minute that we have done everything that we can, and I hope that the Budget will contain more measures to support businesses, but we are helping businesses. We have also put more money into training and skills development.
Business Enterprise North East—there was nothing like it in existence during the ’80s and ’90s—has a website that points businesses to a range of measures to help them. Specifically in the north-east, the regional development agency has pulled together European money from JEREMIE—joint European resources for micro to medium enterprises—the European regional development fund and the European Investment Bank to create a £125 million new venture capital fund, to help business development. That is aimed at those businesses that want to develop and grow during this period.
In addition, NatWest and RBS nationally have provided £3 billion of funding for new financial services. That amounts to £250 million for the north-east to support small and medium-sized enterprises. Some of the money is still being rolled out through the economy, but it is important in this debate to recognise that, slow though it has been—painfully slow—some of our banks, particularly where the Government have a say in how they operate, are now lending.
I have been holding my own summits in Durham—three business summits across a range of sectors. Businesses say that they found the information the Government have given them very helpful, but they want some other, additional things to happen. They want local authorities to be encouraged to direct their procurement to use local companies, where that is possible. They want more venture capital and more funding for companies that want to expand. They want prompt payment by the public sector and action to be taken on business rates. I am pleased that the Government have been listening to some of the points that they have been making. What is certain is that, as we plan to come out of recession, we must not go back to the same system as before. My plea to the Government is that they support development in particular sectors in the north-east.
On green energy, there are very good companies already in place with a substantial share of the market in solar, geothermal and wind energy. A lot of the technology for carbon capture and storage was developed in the north-east, but has not been applied there. My plea is that the Government help companies that are developing that technology to be able to apply it, so that they can create jobs in future. I also want to make a plea for green cars. I ask the Government to look at Nissan’s schemes to produce electric cars, and to support Nissan. I hope that they will also support the health and process sectors. Lastly, I ask the Government not to take their eye off the need to develop higher-level skills and high-value jobs. I hope that they will use our universities and colleges, so that we get more knowledge transfer into our local economies.
I am grateful to my hon. Friend the Member for City of Durham (Dr. Blackman-Woods); it is a pleasure to follow her. In the few minutes available to me, I have a couple of quick points to make. As for the contributions from Opposition Members, it is interesting that fantastic hindsight seems to have flooded the Chamber. [Interruption.] The shadow Chancellor has, with extremely good timing, just come back into the Chamber.
On Saturday morning I met representatives from Michelin. I thank Rob Taylor, one of the officers from Unite T & G, for organising the meeting. I met his colleagues from Pirelli, Goodyear and various other companies to talk about their main concern, which is the short-time working subsidy, or lack thereof. I heard extremely worrying accounts from places around the country. At best, some workers are being paid £21.50 by their employer. If that is in place of a 12-hour shift, their replacement income works out at something like £1.79 an hour. More worryingly still, a number of workers are not entitled to that because the terms have been changed, or because the terms have been exceeded. That means that many workers are having their pay packets halved. That has a huge impact on family life. Indeed, I heard of tragic, appalling cases in which workers have committed suicide because they could not deal with the situation in which they found themselves. To echo the point made by my hon. Friend the Member for Chorley (Mr. Hoyle), that is a matter that we really must address.
One word has not been mentioned in the debate—or if it has, I missed it. It is a word that many constituents use when referring to the behaviour of the banks: greed. We have not really pointed out that we are in this mess primarily because some of our banks spotted that in the United States some people were making very large amounts of money, although they did not understand how, and they wanted some of it. In they piled, and the ordinary worker, the ordinary man and woman—my constituents—are now having to pay the price for the greed of a few, who were already earning huge amounts of money but wanted that little bit more. That is a moral disgrace, and we should take whatever powers, and whatever action, we can to address that, and to get some redress for our constituents.
I want to mention briefly the impact of the recession and the credit crunch on community cohesion, an issue that has already been mentioned a couple of times. As the hon. Member for Stone (Mr. Cash)—my neighbour—has mentioned, the far right is capitalising on the situation. It is a poison or virus that is spreading across the country, and we must deal with it. We must deal with the root cause. Sorting out issues such as the short-time working subsidy is one way to do so. It needs to be addressed because some of our European neighbours have to pay a form of short-time working subsidy. Employers may say, “What shall I do? I have to pay the money anyway to this particular set of employees in another country, so I may as well have them manufacturing; I may as well give the work to them, and not to people in this country, to whom I do not have to pay any subsidy.” So the issue really needs to be addressed.
As has been mentioned time and again, we must get the banks lending; that is absolutely imperative. I want to mention briefly businesses in Stoke-on-Trent. In my constituency of Stoke-on-Trent, South, there are engineering and design firms doing fantastic work. They really need support and help at this time, and a whole raft of measures need to be introduced to provide that support and help. We still have jobs in ceramics, despite what has happened to Wedgwood in my constituency. I wanted to pay a brief tribute to Kevin Farrell, who was the chief executive of the British Ceramic Confederation and sadly died on Saturday morning. My condolences go to Jackie, his widow, and to his family and friends.
Will the hon. Gentleman give way?
I am afraid I do not have time; I am sorry.
The impact on pubs has been mentioned. We need to take into account my hon. Friend the Member for Chorley’s idea of bringing VAT relief to an end. We need to explore the effect that will have and to make sure that it does not have a negative impact on pubs. The duties must be addressed.
One thing I would have loved to have had time to expand upon is state-run businesses, perhaps in the environmental sector. Now might be an opportunity to look at using the state system to get up and running some environmental businesses that perhaps later we could put back into the private sector.
As has been mentioned by my hon. Friend the Member for City of Durham, we did put the roof on. I could list the countless things that we have done in Stoke-on-Trent, South, from children’s centres, Sure Start centres and health centres; huge improvements have been made in and around the constituency. I would list them if I had time.
Finally, Opposition Front Benchers lamented the fact that they have been trying to get this debate for a long time. If that were the case, I would have hoped that the shadow Chancellor, who I see in his place—although the shadow shadow Chancellor is not—would have done a much better job in his speech. Quite frankly, if that is the standard with six months’ notice, it is pitiful.
Oh, dear, Mr. Deputy Speaker; I was going to say that I was glad that the hon. Member for Stoke-on-Trent, South (Mr. Flello) got in to make the important point about the rise of right-wing parties on the back of this economic recession in Stoke-on-Trent—a very important issue that concerns all of us in the House—but unfortunately he rather spoiled it towards the end.
I am delighted to have the opportunity to wind up what has been an interesting and wide-ranging debate on the most immediately important issue facing Britain today. I am sorry that the Financial Secretary did not get to hear the opening speeches and I am sorry that the Chancellor is not here to hear the closing speeches. I understand that they are both heavily engaged with G20 duties, which, no doubt, could not have been anticipated when the Government set the date for this debate 36 hours before the G20 conference.
We wish the G20 well, despite what some Labour Members have said, even if, as the shadow Chancellor has pointed out, some of the Prime Minister’s pre-positioning looks somewhat inept and designed with the domestic political scene in mind. An effective agreement to support trade and reject protectionism would indeed be a prize worth taking away from the summit.
I concur with the comments made by the right hon. Member for Oldham, West and Royton (Mr. Meacher) that it is a shame that the anger and fear that many of our constituents feel as they face the fall-out of the recession cannot be represented by Members here tonight in the Division Lobbies. It is typical of this Government that we have now gone all bar a day of the first quarter of the first full year of recession without a debate on the economy in Government time, and when we do get one it is on a non-substantive motion without a vote at the end of the debate. They do not want to vote and they do not want to debate.
When we do debate the economy, my right hon. and hon. Friends one after another expose the Government’s share of responsibility for the mess the world is in, their culpability for failing to prepare Britain for the challenges it now faces and the ineffectiveness of their response to those challenges. Of course we have heard from the Chancellor—I am glad he has made it back from his important meeting—and I am sure we will hear from the Financial Secretary in a moment excerpts from what might be called the authorised version of events: the “Brown as innocent bystander” version. In this fairytale, there is a land in which boom and bust has been abolished. Economic growth was strong, unemployment low, credit was cheap and plentiful; and all this was due to the genius of a great economist who had managed that nation’s finances for many years.
As my hon. Friend the Member for Chichester (Mr. Tyrie) said, the citizens of that land were encouraged to follow the example of their Government, to borrow because they could afford to do so, and they were discouraged from saving. What is the point of saving when boom and bust have been abolished? Predictably, asset values boomed and the wise leader of that happy nation spent his time explaining to all his neighbours what idiots they were for not following that brilliant economic model. Then, we are told, that happy scene was rudely invaded by the credit crunch, which is an alien creature, blown in on the wind from America, the product of very bad practices by dodgy American banks.
I am glad the Chancellor is present, because I would like to tell him that everybody on the Conservative Benches has understood from the beginning, and everybody in the country understands now, that Britain’s failures are part of the cause of the global problem—not its only cause, of course, but part of the cause—and Britain’s problems must be solved by addressing those failures in the management and governance of our economy.
As my right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley) reminded us, if we do not understand the cause of our problems, we cannot avoid them in the future. Of course, collaborating with other major economies is sensible, and avoiding the slide into protectionism is essential, but the crisis that we face will not be resolved by a clampdown on tax havens and tax evaders, however desirable that may be. Notwithstanding the rather predictable suggestion from the right hon. Member for Holborn and St. Pancras (Frank Dobson) that tax havens, greedy bankers and speculators are entirely responsible for our problems, there are no such easy scapegoats that avoid the need to address the fundamental imbalances and the excessive leverage that now have to be corrected in the British economy.
I never said that at all. I blamed the banks.
I think the right hon. Gentleman will find that the record will show that he gave responsibility in equal measure to greedy bankers, speculators and tax havens, but perhaps we can have a discussion tomorrow when the Official Report is published.
Those were imbalances that the Prime Minister not only allowed to occur but, as my hon. Friend the Member for Sevenoaks (Mr. Fallon) reminded us, actively encouraged to generate the illusion of a sustained boom, an illusion that has turned to the reality of a bust, with all the pain and hardship of unemployment, business failure and repossession, which we have heard about this evening. The Prime Minister’s posturing on the international stage is designed to reinforce the official message that this is not a British problem, to try to underscore his pointing of the finger at everybody but himself.
Let me remind the House that this is the man who controlled single-handedly the management of British economic policy for the past 12 years, not an idle bystander, not even really able to hide behind collective responsibility—plenty of his colleagues are only too willing to tell us in private conversations that he does not do collective—but an active micro-manager of the British economy and happy enough, as I recall it, to take credit for just that role when things were going well.
It was the Prime Minister who stripped the Bank of England of its responsibility for levels of debt in the economy as a whole. It was he who implemented the disastrous tripartite regime that failed so spectacularly to spot the absurd risks that British banks were taking. It was he who abandoned genuine fiscal prudence—Conservative fiscal prudence—at the turn of the millennium and replaced it with a bogus set of fiscal rules that have proved utterly worthless, because they did not stop him running up the huge and unsustainable pro-cyclical deficits that my hon. Friend the Member for Chichester referred to.
It was the Prime Minister who presided over an economy running on empty, living on tick, with both Government and households supporting their spending habit with cheap, easy credit, the whole precarious edifice balanced on the myth of inflated asset values, the origins of which my hon. Friend the Member for West Suffolk (Mr. Spring) touched on in his contribution. As my right hon. Friend the Member for Hitchin and Harpenden reminded us, it was also the Prime Minister who secured the knighting of Fred Goodwin for services to banking and of Alan Greenspan for services to financial stability.
When the crunch came, and the inevitable reassessment of risk occurred across the world while lending criteria suddenly tightened sharply, the Prime Minister’s model fell apart. The emperor, whose claim to the throne was exclusively to have managed the British economy competently and successfully for a decade, was naked. Every action that he has taken since—every initiative, every announcement—has been designed to cover that nakedness and conceal the truth.
But the British people have seen through the Prime Minister; they know that Britain is not, as he claims, best positioned to weather the storm of recession. On the contrary, report after report shows that Britain’s economy is facing a longer recession than any other major economy, and that our recession will be deeper than most. The people also know, ahead of the G20, that whatever else stronger global institutions might do, they would not have prevented the policy mistakes that the Prime Minister made here in Britain. There is no point in his calling for a stronger IMF to act as global policeman when he consistently ignored the IMF’s warnings about Britain’s fiscal position and housing market bubble—in 2003, 2005, twice in 2006 and again in early 2007.
The people are now seeing the downside of the chronic imbalance in the structure of the UK economy as a result of years of uncritical Government focus on financial services to the exclusion of almost every other sector, including tourism, as my hon. Friend the Member for Bournemouth, East (Mr. Ellwood) reminded us. That has left the UK economy desperately exposed to the icy winds of this global slowdown.
What the country needs, as the traumatic effects of deleveraging work their way through the economy, is leadership. I am thinking of leadership with a focus on the medium and long-term solutions that will sustain Britain’s recovery and leadership with the strength of character to refrain from short-term posturing that denies the reality of the situation. The country needs a clear framework for the introduction of proper fiscal discipline in the upturn and a vision for a more resilient, more diversified economy that will be less vulnerable in future. It needs a plan for financial stability that will recognise and reverse the disastrous mistakes of the 1997 tripartite settlement and recession-fighting strategies that will enhance rather than undermine the economic recovery when it comes. Above all, the country needs a willingness to recognise the mistakes that have been made and to abandon the policies that have failed. In short, it needs a readiness to apologise and move on.
However, we have a Prime Minister resolutely focused neither on the long-term economic interests of the nation nor even on the short-term political interests of the Labour party—which would almost certainly imply his immediate resignation from office—but on his own short-term political interests. His response to the economic crisis has been to focus on creating the illusion of an activist Government. There has been a whirl of summits, appointments—some of which have been more successful than others, it appears—foreign trips and half-baked schemes. Every other day of the week there are yet more announcements of brilliant initiatives to resolve the crisis and bring relief to the nation. However, as my hon. Friend the shadow Chancellor spelled out, half the time they do not deliver the help that the attendant press releases promised.
The end result of all that frenetic activity is the exact opposite of what is required. It has not delivered the reassurance that restores consumer and business confidence, but it has given a credible impression of a headless chicken. The stamp duty holiday was followed by an acceleration in the fall of house prices. Last October’s bank bail-out was supposed to get lending moving to businesses and households, but, as the right hon. Member for Oldham, West and Royton told us, it is not delivering. At a time of massive discounting, the VAT fiscal stimulus cut prices by 2.5 per cent. to little effect across the retail sector. That fiscal stimulus stimulated no one and has been universally derided at home and abroad; tonight, the hon. Member for Chorley (Mr. Hoyle) demanded its abolition. That stimulus has added £2.5 billion to our ballooning national debt: a burden on future generations as a result of this Government’s policy failures.
The Prime Minister must shoulder his share of the blame for the global crisis and take responsibility for the failure to prepare Britain for the recession that it is now enduring and for his recklessness with the public finances. He must be accountable for the ineffectiveness of the responses to the recession, which have failed to address the real challenge of getting credit flowing in the economy again and reconnecting real interest rates to official rates, which my hon. Friend the Member for Stratford-on-Avon (Mr. Maples) identified as being at the root of the problem. Crucially, the Prime Minister must be held to account for his failure to recognise his own failure. He still will not acknowledge the fatal flaws in his tripartite regulatory system; the weakness of his fiscal rules; the recklessness of his public borrowing; the terrible error of his claim to have abolished boom and bust, which has led to so much reckless behaviour both public and private; or the mistaken focus on fiscal stimulus when the problems lie in the supply of credit.
The Prime Minister has built his reputation on a model of economic growth based on unsustainable external deficits, unsustainable fiscal deficits and unsustainable household debt, which has brought us to the catastrophe we face today. That reputation is now destroyed, at home and abroad. Yet he tells us, in his own words, that he has “nothing to apologise for”. This country remains a democracy, so if that is his position, let him put it to the test of public opinion. Let him fight a general election under the slogan, “Nothing to apologise for”. Let the people speak, and “Nothing to apologise for” will become his political epitaph.
I apologise to you, Mr. Speaker, and to the House, as I was detained outside the House at the start of the debate for the reasons that the hon. Member for Runnymede and Weybridge (Mr. Hammond) acknowledged.
We have had a wide-ranging and interesting debate. It is clear that Members disagree across the Chamber. The Government’s approach is to support the economy through the difficulties and to tackle the downturn on an international track and on a domestic track. As we have heard, the international track will culminate in the meeting of G20 leaders later this week. The leaders of the world’s biggest economies will meet in the London borough of Newham—which they may not have visited before, but to which they will return for the Olympic games in 2012. At the heart of the recession in this country are worldwide problems that need to be addressed through worldwide co-operation. The Prime Minister and the Chancellor have therefore been leading worldwide discussions on how best to co-ordinate action to tackle the global credit crunch. The G20 Finance Ministers and central bank governors made progress in Horsham on 14 March; we want the leaders to go further still on Thursday.
Alongside the international track, we have been taking decisive action on the domestic track, bringing real help now to families and to businesses. Our response has had four steps: step one, last October, was to save the banking system from collapse; step two was to deliver a stimulus to the economy, which we did before Christmas in the pre-Budget report; step three was to take action in January to support bank lending, with further details and agreements set out earlier this month; and step four, in the Budget ahead, will be to prepare to make the most of the upturn when it comes.
A few hours ago the Chancellor was asked what had happened to the working capital scheme and why it had not been put into effect by the end of March, which is today, as promised. Can the Minister tell us why?
It will be in place next month.
We listened with interest—as always, of course—to what the hon. Member for Runnymede and Weybridge had to say, and we understood from his speech that he disagrees with the Government. What many people are puzzled about, though, is why the Conservatives have so little to offer in this crisis—a point made very powerfully by my right hon. Friend the Member for Oldham, West and Royton (Mr. Meacher). Why have they so failed, over a period, to set out some vision for the future—a credible response to the unprecedented economic challenges that we face?
One reason is simple: recent events have destroyed a linchpin of Tory ideology, and the Tories have not yet found anything to put in its place. The Tory party is ideologically wedded to deregulation. When we legislated for the Financial Services Authority 10 years ago, the then shadow Chief Secretary to the Treasury said:
“we believe that regulation should be minimal”
and that one of their concerns about the Bill was
“the danger of over-regulation.”—[Official Report, 28 June 1999; Vol. 334, c. 42-44.]
The Tory critique was that the FSA was an example of over-regulation.
I would be delighted to give way to the hon. Gentleman, who led the charge at the time.
If that was the Conservative policy, it certainly had the full support of the then Chancellor of the Exchequer, now the Prime Minister, who said to the CBI:
“I want to work with you so that over time we apply the concept of risk…to the decision as to whether to regulate at all.”
In 2004, he said
“I want us to do even more to encourage the risk takers.”
In 2006, he said to the CBI that we need
“stability through a…light-touch regulatory environment.”
Where was the Prime Minister during this period when you were opposing these policies?
Order. It is not for me to oppose policies, and the hon. Gentleman should not refer to me.
I am delighted that the hon. Gentleman gives me the opportunity to trade quotes across the Dispatch Box. Let me read something he said during the Committee on that legislation, where I was the Minister. He said:
“If the FSA gets into the business of regulating risk, it is perilously close to substituting for the fundamental job of the industry itself.”—[Official Report, Standing Committee A, 15 July 1999.]
He was not arguing that somebody else should do the regulation; he was arguing that nobody should do it. The hon. Members for Sevenoaks (Mr. Fallon) and for West Suffolk (Mr. Spring) claimed that the Government had pressed for light-touch regulation when the FSA was introduced, but their party was pressing for lighter-touch regulation. That was their whole approach, and it has been the consistent Tory theme.
Will the Financial Secretary give way?
I am not going to give way at the moment.
Just 18 months ago, the Tory economic competitiveness policy group produced a 200 page report, “Freeing Britain to compete”. Its attitude to financial services regulation is interesting, and it is well summed-up in section 6.1, “Do We Need All This Regulation?”:
“Government claims that this regulation is all necessary. They seem to believe that without it banks could steal our money”.
Well indeed, Mr Speaker. At the Tory party conference, the shadow Chancellor hailed the prescription in this report, to “cut government regulation” in order to “liberate our economy”—and, let us remember, this was after the collapse of Northern Rock. They were still saying that we should scrap regulation.
The same report included the now notorious call for the abolition of mortgage regulation. I say to my hon. Friends that that report is still on the Tory party website and it repays study. If we had gone down that road—as the Opposition have consistently urged over the past 12 years—things would be a great deal worse than they are today. The mortgage code of business rules that we introduced with mortgage regulation prevented the deep discounting of mortgage charges that have been so damaging in the US. If regulation had been abolished, there would have been no such rules.
With that cornerstone of the Tories’ ideology turned to dust by the events of the past two years, and with nothing to put in its place, they have nothing substantial to offer in this debate. Financial services regulation does not need to be cut, it needs to be strengthened. Nobody will dissent from that at the G20 on Thursday. The US Treasury Secretary said, in an interview in the Financial Times today, that the United States is ambitious for regulatory change. Tory party ideology has been found wanting. There has been no sign at all in this debate of anything to put in its place.
The hon. Member for Twickenham (Dr. Cable) asked where we stand on the asset protection scheme and the code of conduct for banks. My right hon. Friend the Chancellor has called for a voluntary code of practice for the whole banking sector in relation to tax avoidance, to ensure that it abides by the spirit as well as the letter of the law. We are talking to the sector about that ahead of the Budget and will announce further details then.
The hon. Gentleman asked why tax avoidance should be dealt with by the G20. I suggest he examine the remarkable series of announcements made leading up to the G20, culminating in the announcement by the Swiss Government that they would abandon decades of commitment to very strong banking secrecy. That announcement was made the day before the G20 Finance Ministers met, which shows clearly why it is right to deal with that issue at the G20 and welcome the progress there has been.
A number of Members mentioned the G20, including my right hon. Friends the Members for Airdrie and Shotts (John Reid) and for Holborn and St. Pancras (Frank Dobson) and my hon. Friend the Member for Warwick and Leamington (Mr. Plaskitt). I can tell the House that there has been very strong support in the other 19 countries for UK leadership at the G20 and very strong personal support for the Prime Minister’s leadership. Our goal is for leaders to agree immediate action to stimulate the world economy, substantial additional resources for the IMF, support for trade finance, action to protect the poorest around the world, measures to encourage credit to flow to people and businesses, firmer financial sector regulation to rebuild confidence now and prevent crises in future, and commitment to a green recovery.
At the risk of being tedious, I hope that my right hon. Friend will add to the objectives the strengthening of transparency. How can we regulate that which we cannot discern? How can we supervise—literally, oversee—that which we cannot see? Unless we strengthen sections 14 and 15 of the communiqué, all the regulatory forums and structures in the world will not be able to operate because they will not have the necessary information from a neutral source. Will he give me a guarantee that the G20 will push on that front?
I can certainly assure my right hon. Friend that the need for transparency has been well understood in the working groups that we have set up in preparing for the G20 summit. Indeed, that is one reason why dealing with tax havens is so important. One problem has been that things have been hidden away in tax havens and there has not been any transparency. People have not known the true value of some of the things that have been going on, and that has contributed to the problems that we now see. I agree about the importance of transparency in financial services, which needs to be reflected in the regulatory system.
I agree with those who warn against seeing the summit as a panacea that will fix all the world’s problems at a stroke, but it can start an era of closer co-operation between nations so that our political structures better reflect our increasingly globalised world. It is a huge opportunity for the first steps towards a global new deal to secure recovery and long-term stability and growth.
Last February, we moved to nationalise Northern Rock. In October we prevented the collapse of the banking system with further investments in UK banks, protecting people’s savings and stabilising the system so that banks could function. Following our lead, other countries around the world took similar action, recognising that financial system collapse would be devastating. Now the Government are working with the banks to clean up their balance sheets. That is the importance of the asset protection scheme, and I am grateful to those who acknowledged that.
As my hon. Friend the Member for Northampton, North (Ms Keeble) reminded the House, we have reached legally binding agreements with the banks that have received public support, to secure additional lending to British households and businesses over the next two years. I look forward to answering the questions that she asked me about reporting. Every major country in the world recognises that it is right to use the power of government to support countries’ economies through difficult times.
I do not agree with the right hon. Member for North-West Hampshire (Sir George Young) about the VAT cut, which is doing the job it was introduced to do. I point him to the comments of, for example, the Institute for Fiscal Studies and the National Institute of Economic and Social Research, which described it as an increasingly effective stimulus. I also refer him to the comments of the Bank of England in its inflation report in February and to the report from Goldman Sachs, which makes the same point.
We have made investment—£3 billion—in the national infrastructure. That spending is beneficial not only to the economy, supporting businesses and jobs at a critical time—
Motion lapsed (Standing Order No. 9(3)).
Business without Debate
Business of the House
Motion made,
That, at the sitting on Tuesday 21 April, notwithstanding Standing Order No. 20 (Time for taking private business) the Private Business set down by the Chairman of Ways and Means shall be entered upon (whether before, at or after 7.00 pm), and may then be proceeded with, though opposed, for three hours, after which the Speaker shall interrupt the business.—(Helen Jones.)
Object.
petition
Schools (Essex)
On Monday 19 May 2008, the Secretary of State for Children, Schools and Families, in response to a question from me about the future of the Thomas Lord Audley and Alderman Blaxill schools in my constituency, told the House:
“Essex county council has explained that its preferred approach is to build on the existing partnership with Stanway school and to pursue a trust. We will support the council in its decision”.—[Official Report, 19 May 2008; Vol. 476, c. 3.]
It transpired that Essex county council had wilfully misled the Secretary of State and the schools Minister, whom I met the next day. It had assured both Ministers that the intention was that the Alderman Blaxill and Thomas Lord Audley schools would continue. Today, Essex county council broke its pledge, which the Secretary of State recorded and the schools Minister confirmed, by agreeing to shut the two schools.
The petition, in the name of Councillor Lyn Barton, is also signed by 492 other residents, predominantly from the Berechurch ward, but also from other parts of Colchester, including Old Heath.
The petition states:
The Petition of various pupils and former pupils, parents, residents and others,
Declares that Thomas Lord Audley School has a special place in the life of the Berechurch ward community in accordance with the Government’s policies towards promoting sustainable communities; further declares the petitioners’ opposition to proposals by Essex County Council which would result in the closure of the school and the bussing of pupils to a school some distance away at considerable financial cost to the parents.
The Petitioners therefore request that the House of Commons call on the Government to stop Essex County Council from closing Thomas Lord Audley School; to ensure that all necessary support, financial and otherwise, is given to enable the school to improve its performance and to continue to be an integral part of the community in the years ahead; and to implement “Option 4”—
that is fully in accordance with the wishes of Colchester borough council—
for secondary school provision in Colchester which would include Thomas Lord Audley School operating in partnership with Alderman Blaxill School and the Stanway School.
And the Petitioners remain, etc.
[P000342]
UK Aid (DRC)
Motion made, and Question proposed, That this House do now adjourn.—(Helen Jones.)
When it comes to mobilising enormous resources and making huge interventions that have the power to change the world, nothing compares with the power of government. This week’s G20, led by our Prime Minister, will seek to do exactly that, following on from the Gleneagles summit and other major initiatives.
Of course, Governments lead by consent and, in general, they must reflect the priorities of the people. Although the people of the UK can be astonishingly generous, it is also a harsh reality that international aid and development rarely sit atop people’s list of priorities, especially in these difficult times. Moreover, there is great competition for people’s attention with regard to international development, and there is sometimes a risk that if Governments attempt to highlight too many problem spots in the world, people can suffer a sort of fatigue on the subject.
That is why the ability of some people and organisations, such as the Make Poverty History campaign, to influence and mobilise public opinion is crucial to giving Governments more power to their elbow to help the least well-off in the world. It is also possible for highly motivated people, sometimes with bags of media savvy, to make a targeted intervention aimed at changing the lives of many for the better.
In the case of the Democratic Republic of the Congo, I would like to mention an initiative that has the power to alter the lives of millions of women in one of the hardest places—perhaps it is the hardest place—in the world to live as a woman: the eastern DRC. In my view—I am not the most qualified to say this, but I have been out a few times—the best prism through which to view life in the eastern Congo is that of the experience of women who potentially face unspeakable sexual violence every day.
When somebody goes out to the Congo, as I and members of the all-party group on the great lakes region and genocide prevention have, they are struck by the many great efforts of the non-governmental organisations in the region and by how enormously challenging a task they face. The Congo has a population roughly the same size as the UK’s, and it is roughly the size of western Europe. It is covered in tropical rainforest and it is a difficult country from a communications perspective.
The Government in Kinshasa were democratically elected through a great triumph of organisation, both by the Congolese and the international community, which made a great effort and contributed lots of cash. However, when visiting, one is struck by the fact that the Congo has a sophisticated body politic in Kinshasa, but an area of utter lawlessness in the eastern Congo. Many hon. Members from all parts of the House are familiar with the things that have taken place there, even in recent years—not just in the past 10 years, but in the past year or so, most recently with the CNDP getting the Congo on television by having, in effect, a kind of civil war. That is now being sorted in diplomatic terms, although Bosco Ntaganda, the man who now runs the CNDP, has been indicted by the International Criminal Court as an alleged war criminal. That will have to be dealt with in due course.
That is the politics of the matter. The reality on the ground is absolutely stunning, albeit in a very bad way. The first time I went to the Congo some years ago with a former Member of the House and good friend, Oona King, we were taken to a health centre where we were told that we would visit a ward. I was expecting a new build, Tesco-type thing, funded by a number of NGOs. What we came across was a kind of hut. The clinic comprised one room with a fridge, which had nothing in it because there was no power, and another room, which was an operating theatre and had some basic utensils—shiny instruments, sharp implements and things for holding hot water—that had been donated by NGOs.
There was a ward, and in the ward was a woman, apparently waiting to give birth to a child. The child, we were told, would be a breech birth—it was in the wrong place. A number of other hon. Members were with me at the time, but there it is: a mother was sitting there. It was one of those branding experiences that has not left me. We asked how long the birth would be and the nurse—a man who had had some rudimentary training—said, “It be may be tomorrow morning. She might last until the next morning.” We said, “What do you mean ‘She might last’?” and he said, “Well, she’s going to die. There’s nothing I can do about a breech birth. I’ve got the skills taught in some basic courses, but I don’t know what to do about a breech birth. The nearest doctor is 2 miles away.” Two miles in the Congo, through tropical rainforests and with all the logistics problems, which as my hon. Friend will know—possibly he is my right hon. Friend—
Well, in due course. My hon. Friend will know that 2 miles in the Congo can be a long, long way.
In a way, we did that classic thing that politicians do. Arriving on the scene in lovely long-wheelbase Land Rovers, we had the potential to change the situation, but we had to make a judgment. In due course we made the judgment that other people in our circumstances would have made, which was that we should move the woman, but that would have disturbed many aspects of how local people were being treated with those limited resources. The point was that that woman expecting a breech birth could have been quite readily dealt with here in the UK, but she was simply going to die, because there was nothing that could be done for her there. As it was, she did not die, but many other women in her situation would have done.
What I want to talk about this evening, if I can, in the minutes left—a fairly generous number are left, actually, so I will wax slightly rhapsodic—is violence. I go about my constituency occasionally with the cops on a Friday or Saturday night. We see a bit of violence in the streets and recognise where it comes from, what is happening and who the bad guys are—who has been caught up in things because they have drunk too much and so on. All the incidents involve men, and the violence is mainly between them. I am also aware, as are all Members of this House, that behind the scenes in people’s homes, violence is being inflicted against women. There is a fabulous women’s aid organisation in Scotland, as indeed there is fabulous women’s aid provision across the UK. Such violence is a more hidden thing. In a privileged position and with a certain lifestyle, as it were, I do not see anything of it, but many people do. It is a hidden thing, but it exists.
It occurs to me—psychoanalytically, I might be miles off on this—that when I go and talk to young men in the Congo who have been involved in astonishing acts of violence against women there, they show traits similar to those of the young men involved in the much lower-level stuff going on in my own constituency. In such an area, however, there is a kind of civilising influence and a series of constraints in the law—there is a legal system and the cops are going about. All sorts of things are civilising influences, such as families, including extended families and so forth. Such an influence is brought to bear on many people—it does not apply to everyone—who get involved in violence, particularly violence against women early in their lives. They can change their ways, but some people do not and such behaviour continues throughout their lives.
When we look at the Congo, what we kind of see, in a bad way, is a Platonic ideal of violence against women. It is completely unmitigated by any mediating institution or mediating experience, and it can be the most brutal thing imaginable on the planet. When we look at the Congo in context, as DFID has to do, it is with the realisation that all sorts of countries in the world need our help and could do with our assistance—the collective assistance of the international community. The best way to look at the situation, however, is through this very easily understandable link between the kind of violence exerted against women in our constituencies at a certain level, and the astonishing dehumanising violence exerted against women in the Congo.
I have just read the complete works—they are not a big bunch; there are about 10 books—of Cormac McCarthy, a great writer. It is boysy stuff; there is a bit of violence and a bit of lovely stuff. He is a fantastic writer, as I have said. There is a scene in “Blood Meridian”, which is an especially boysy book—a bit cowboy-ish, if I can put it that way. This scene occurred to me as I was preparing for tonight’s debate. A young boy called “the kid” is being recruited into a kind of militia. It does not have any legal status or legal authority. It is a militia formed of a brutal bunch of guys who go about in 1849 taking what they want and what they can. They have got enough power and enough resource; in a way, they are beggars in the land, but they are quite heavily armed.
At one point, the kid is asked by the recruiting sergeant of the militia if he would like to join it. The kid says, “What do they give you?”, and the recruiting sergeant says, “Every man gets a horse and his ammunition. I reckon we might find ye some clothes in a case.” The kid says, “I ain’t got no rifle” and the recruiting sergeant says, “We’ll find ye one”. The kid says, “What about wages?” and the recruiting sergeant says, “Hellfire, son. You won’t need no wages. You get to keep everything you can raise.” Essentially, he is saying, “If you’ve got a horse, some kit and a weapon, you’ll be fine; you can take whatever you want from anyone.”
That is an almost exact parallel with the situation for young men in parts of the eastern Congo today. Viewed as a human experience for young men—this is certainly not to sanitise the kinds of things that some of them get up to—that is a useful way, to say the least, to understand the way things are for them and for the victims, with the lack of any kind of justice or legal system in the eastern Congo. Before moving on to issues such as health or education, we should start by trying to establish a coherent justice system. Lord Mance, who is a member of the all-party group and an Appeal Court judge, has compiled a fantastic report of which the Government have taken note. I hope it will play a part in helping to create an effective justice system in the Congo in the coming years.
It also behoves us to look carefully at what articulate and able individuals in the UK can do to give the Government more power in saying, “Look, we want to spend extra cash on these difficult places.” As I said at the beginning of my wee speech, the reality nowadays is that if we say we want to spend an extra £100 million on the Congo, people will often say, “Hang on, but all these people in our country have just lost their jobs and charity begins at home.” People are decent, but they very often look after their own first, and we can all understand that.
There is an initiative at present that extends from an initiative my hon. Friend the Minister will have heard about. It is called V-Day and it essentially comes out of Eve Ensler’s “The Vagina Monologues”, which is played all over the world to great effect, including in the Congo. V-Day is focusing on the Congo for the next five years, which is a significant period for such an important campaign that operates all over the world. V-Day is headed in the US by Jane Fonda, and in the UK Lynn Franks and Gail Rebuck are leading lights, and Tamsin Larby organises many of its activities. They currently have a campaign that is designed to enhance the facilities of Panzi hospital in Bukavu. The hopsital is led by Dr. Denis Mukwege, as my hon. Friend the Minister knows. Many of us have met Dr. Mukwege, an inspiring character who travelled around the US recently raising cash for the “City of joy” project. The campaign is essentially aimed at both the treatment of the women who find their way to the hospital and other places like it, and also their rehabilitation. It is entirely focused on the gender issue because that offers the best political perspective, and it is where the greatest need is.
Once a justice system and the rule of law is established, or progress is made towards that, the next thing to deal with is health. In terms of women who are the victims of violence in the Congo, all these strands come together, because until we start to deal with the way in which men instinctually behave towards women—because they can and they are not subject to the educational learning influences that we in the west are—we will essentially get nowhere.
In asking my hon. Friend to say what he can about these matters, I want to conclude with three quick points. There is a great demand for all public resources throughout the world at present. A lot of stuff is going on, and a lot is taking place in the Congo involving many different NGOs. There seems to be scope to harmonise some of the efforts, as there is some duplication of effort by Governments, NGOs and so forth, and NGOs are open to that argument. It is also worth mentioning Lord Mance’s important report on justice and the rule of law in the Congo. It is very well written, and it is a profoundly important document. Most important of all is the campaign by V-Day UK to help the City of Joy project. It is going to raise $1 million or £1 million—I am not sure which. It will be helped by UNICEF. I have visited the site and I know that the Department for International Development has contributed to it. Can my hon. Friend say that it will keep a close watch on the project in the coming months? There are many other things going on in the world and in the Congo, but it is a profoundly important project where we will actually see results. DFID is a great force for good in the Congo, and I believe that V-Day UK is also a great source of inspiration and a great force for good in the Congo.
May I, in the usual way, congratulate my hon. Friend the Member for Falkirk (Mr. Joyce) on securing this debate and on the way in which he has made his case? I join him in praising the huge contribution made by the non-governmental organisations and development professionals who operate in the Democratic Republic of the Congo—they are a force for good. I also join him in praising the contribution of Women’s Aid and the many other organisations across the UK that do so much to champion efforts to prevent and reduce domestic violence in the UK.
My hon. Friend described the challenges facing the Government and people of the DRC extremely well. He discussed not only the challenges in terms of infrastructure, but the legacy of the conflict and the fragility of the political situation in the eastern DRC. I also join him in praising the work of V-Day UK, and I reassure him that we will certainly keep a close eye on the City of Joy project. I shall bring his specific request in respect of that project to the attention of the Under-Secretary of State for International Development, my hon. Friend the Member for Bury, South (Mr. Lewis), who leads on Africa and, therefore, on the DRC work.
My hon. Friend the Member for Falkirk has been a consistent campaigner for providing more help to the DRC, and as chair of the all-party group on the great lakes region and genocide prevention he helps to keep these issues in the view of not only the Government but the general population in the UK. He rightly alluded to the fact that that is hugely important in helping people to understand that we have not only a fundamental duty to our own citizens, but, given our comparative wealth internationally, a responsibility to the world’s poorest.
My hon. Friend focused in particular on violence in the eastern DRC and on gender-based violence. I shall certainly try to respond to those points, but may I try to put the UK’s response to the situation in the DRC in a broader context? That country faces the immense challenges of chronic poverty and conflict, and now, as he rightly said, the global economic crisis. Every single day nearly 100 Congolese mothers die in childbirth because they are unable to afford medical help—he rightly reminded us of that from the experience of one of his earlier visits. In total, Congolese mothers and fathers watch one in five of their children die before their fifth birthday due to lack of health care and clean water.
As my hon. Friend knows only too well, the DRC is also a country of immense potential. It is home to vast mineral wealth, which could make it one of the most prosperous countries in Africa. We are committed to helping the DRC on the road to a prosperous and peaceful future. The UK is one of the largest bilateral donors to the DRC, providing about £80 million in aid this year, and we plan to increase our support—to £100 million next year and to £130 million the year after. We will certainly use our financial influence and our expertise from other countries to try to bring together more effectively still the work of NGOs and other donors, as he rightly requests.
The UK’s commitment to the DRC is having an impact. As my hon. Friend will know, in 2008 almost 1 million more people in the DRC got access to clean water. We are helping to begin the introduction of free health care provision in some 20 health zones in the DRC. Potentially, that will benefit about 2 million people living in those areas, both by removing the need to pay health user fees and by providing further access to health clinics. The risk of malaria for more than 6 million men, women and children in the DRC has been substantially reduced through the purchase and distribution of more than 3 million treated anti-malarial bed nets. We are also empowering nearly 2 million people in 1,400 villages to take control of their own development. We are helping local communities to decide their own development priorities and to implement projects to meet those.
My hon. Friend mentioned the global economic slowdown and there is a real risk that the gains in development—which are significant, although there is much more to do—could be reversed. This year has already seen the currency significantly weaken against the dollar, foreign exchange reserves drop to very low levels, and mining companies close across the country resulting in an estimated 300,000 miners losing their jobs.
The IMF and the World Bank have approved emergency funding that will help to ease the economic pressures in the short term, and we will use the G20 summit to stress the importance of maintaining aid flows to countries such as the DRC, so that long-term investment in health and education continues.
My hon. Friend rightly highlighted the terrible problem of sexual violence. We seek to focus our support for tackling that issue on two areas. First, we are helping the victims of sexual violence through medical treatment and psychosocial counselling. DFID is helping to finance a comprehensive health package in the eastern DRC that will enable greater access to health care for all, including victims of sexual violence. The health component of the humanitarian action plan, created by donors to respond to the situation in the DRC, has ensured that more than 14,000 victims of sexual or gender-based violence were treated in 2008. Some 12,000 women received psychosocial counselling to which DFID contributed financial support.
Secondly, we want to prevent sexual violence from happening in the first place. That is why we are supporting integrated brigades to bring together people from different ethnic groups to reduce the likelihood of human rights abuses occurring. We are funding specialist training for the judicial police and magistrates and improving the police’s ability to investigate cases of sexual violence.
My hon. Friend is right about the importance of putting in place the beginnings of effective law and order systems in the eastern DRC. We are also supporting awareness-raising and sensitisation work with local communities. For example, we have supported awareness-raising work led by the Minister for Gender, Family and Children, who recently launched a media campaign against sexual violence, including the provision of a professional helpline for victims. We continue to lobby the Congolese authorities at the highest levels, including President Kabila, to stress the urgent need to tackle sexual violence.
We are also watching closely the threat of renewed conflict, which still bedevils the DRC, given the fragility of the political situation in the east. The joint DRC-Rwandan military operations to tackle the FDLR in February have provided hope that the years of conflict in the east may now be in the past. But the situation is still fragile and unpredictable. The potential remains for further violence following recent reprisals by the FDLR militia group. The humanitarian situation remains serious with more than 850,000 internally displaced people in North Kivu alone.
Ensuring a smooth army integration process will be critical in ensuring a permanent peace in eastern DRC. The accelerated integration of the CNDP into the Congolese army is more or less complete but it is by no means irreversible. MONUC, the United Nations mission in the DRC, will continue to play an important part in supporting the progress that has been made. The commitment of Egypt, Bangladesh and Guatemala to make extra troops available to MONUC is therefore hugely important. We hope to see them deployed in the east as soon as possible.
My hon. Friend has done the House a great service by raising, once again, the issue of further support to the DRC and the particular horror of the sexual and gender-based violence that bedevils the eastern part of the DRC, in particular. My hon. Friend asked the Government to continue to focus on those issues and I assure him that we shall certainly do so. The Under-Secretary, my hon. Friend the Member for Bury, South, is planning to visit the region later this month and to assess the situation for himself. I will draw the comments made by my hon. Friend the Member for Falkirk to his attention. I hope that my hon. Friend will be reassured that the Government continue to focus on the concerns with which the House is now more familiar as a result of his securing the debate.
Question put and agreed to.
House adjourned.