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Mr. Hopkins: Will the right hon. Gentleman give way?

Mr. Letwin: In a moment. My hon. Friends and I have promoted—I think for the first time in Britain—a wide-ranging seminar among the lenders and those concerned with debt advice. No doubt the Treasury has seen both groups individually; we tried to put them together. Also, we have asked Lord Griffiths of Fforestfach—who, incidentally, has the distinction not merely of advising
 
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us, but of having advised the Chancellor on international debt issues, and who happens to be someone with real understanding of these issues—to look in fine detail, by going out and asking, at what really are the circumstances that give rise to debt spirals and to make recommendations, which of course we will share with the Government and with other parties, on how we can cure that problem.

Those are the short-term problems, as I see it, and I want to move on to a great big problem of a very long-term and deep kind, which is what has happened to savings in this country.

Mr. Hopkins rose—

Mr. Letwin: Before I do so, I shall give way—

Mr. John Redwood (Wokingham) (Con): Will my right hon. Friend give way?

Mr. Letwin: Of course, but may I give way first to the hon. Member for Luton, North, as he has been my most persistent questioner?

Mr. Hopkins: I thank the right hon. Gentleman for giving way yet again. He seems to be suggesting that we ought to tighten monetary policy. The effect of that would be not only to moderate house prices, but to push them down. If house prices fall, people could fall into negative equity and perhaps even have problems with sustaining their mortgage at all. Would that not make debt far worse and bring people to the situation that pertained 10 years ago in my constituency, which was the No. 1 for negative equity and repossessions?

Mr. Letwin: Let me be clear with the hon. Gentleman: I am not making a recommendation about monetary policy, because I believe in what he clearly does not. I believe in the structure that the Chancellor himself established; I believe in the independence of the Bank of England; and I believe it is right that decisions on monetary policy should be taken by a group of people removed from politics.

My argument is very clear: the Chancellor has created circumstances with his pre-election spree that are leading the Bank of England to a certain set of responses, which it is trying to engage in very delicately, subtly and carefully precisely to avoid circumstances of the kind to which the hon. Gentleman refers. There is no question at all but that members of the MPC are acutely aware of the dangers to which he refers and seek to avoid them, but the fact is that it would be better if the Chancellor had not put them in the position of having to respond as a result of the spending spree and the deficit financing in which he is engaging.

Mr. Redwood: Given the crucial nature of house prices in this country—they are central to economic well-being—is my right hon. Friend as disturbed as I am about the row that is clearly under way between the Governor of the Bank of England on the one hand, warning that house prices might fall, and, on the other,
 
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the Treasury, spinning like mad through the press, for obvious reasons, that they definitely will not, or at least certainly not before an election?

Would not it be better if the debate were held in the open and the Chancellor made both a statement on the subject and adjustments to the remit of the Bank of England, if he is as unhappy with what it is doing as he seems to be, because he is right in thinking that house prices are central to the future economic well-being of our country?

Mr. Letwin: As usual, my right hon. Friend is right, as well as being honourable. He accurately diagnoses a real problem. The Chancellor has set up the independence of the Bank of England, and presumably believes in it, but he does not like it when the Bank of England acts in the way that his remit asks it to. Of course, he does not want to say that, because it would be a mite embarrassing to set something up and then, when it does the thing it has been asked to do, get explicitly cross about it.

So, the Chancellor sends his henchmen out to say, inexplicitly, that he is absolutely furious about it, in the hope that, somehow or other, this message will, by osmosis, reach the Governor and that the Governor will desist from saying and doing what in fact the Chancellor has asked him to say and do. Of course, my right hon. Friend is absolutely right that it would be much more open if the Chancellor were to make a clear statement on his views about the Governor. I think that the chances of that occurring are exactly as high as those of pigs flying.

Now, savings. This is very serious stuff, because savings matter enormously to our economy and to our society. We cannot have a strong economy across the decades unless the domestic savings ratio is relatively high. Ultimately, the productive capacities of our economy across a long period are heavily determined by the degree to which we save and invest as a nation.

No Government in British history since the war have managed to achieve as high a savings ratio as many of us would like. I recall, as my right hon. Friend the Member for Wokingham (Mr. Redwood) will also recall, times under the previous Administration when we worried—I think we were right to do so—about whether the savings ratio was high enough. Little did we know.

At that time, the savings ratio averaged just over 9 per cent. That was the proportion of our national income that we saved on average between 1979 and 1997. We thought that that was not good enough, but since 1998, persistently, that ratio has been significantly lower. Between one point at the end of the previous regime and one point now, it almost halved. On average, it has gone down by a third. This is very worrying. It does not matter for six months; it matters an awful lot across a long period.

Why has it happened? There are all sorts of reasons, and it is important to disentangle the most important from the less important, and to try to get a clear picture of what Governments can and cannot do about it. There is a major accusation to be levelled against the current Government, and a major step that this country needs to take to resolve the problems caused by the Government in this area.

Before I describe those two points in more detail, let me say that it is very misguided, should Ministers or others wish to do so, to blame the savings industry
 
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primarily. The savings industry is not perfect—no industry is perfect, and nobody is perfect—but it tries on the whole to do its best. Most of the problems that afflicted the savings industry are on the way to being, to a considerable degree, cured. There is a vast expansion of a much more transparent form of saving through unit linking. There is no doubt at all that prices for savings products have been coming down. There is no doubt at all that the savings industry is now engaged in much more realistic risk assessment than previously, and although I am in some respects a critic of the Financial Services Authority, some of the credit for that goes to the FSA. We cannot stand here blaming the savings industry for the reduction in the savings ratio in recent years. Certainly, it is not the principal culprit.

When we turn to the Government, however, I fear that the position is different. First, there is the £5 billion a year raid on the savings industry. Recently, we have begun to see just how serious that was. Recent figures, which have come to light in the past few days, indicate that the extent to which that bit into what were otherwise tax advantages for saving was greater even than imagined at the time, when many Conservative Members complained vigorously and bitterly about the £5 billion raid. Evidently, when the Prime Minister claimed that the £5 billion raid was to be justified because equity prices were high, he was not to know, but he might have guessed, that there would come a time when equity prices were not so high. The £5 billion a year raid has a bizarre effect: as well as causing more trouble now that equity prices are not as high as they once were, it has undoubtedly contributed to the underperformance of the UK stock market, which has underperformed every other major stock market except Japan's in recent years.

Alas, the £5 billion a year raid is not the only item to discuss in terms of diminishing the attractiveness of savings in this country.

Mr. Redwood : My right hon. Friend makes an extremely powerful point. The main raider that has damaged the savings industry is the Government. Will he remind the House that the Opposition not only warned at the time that it would do damage but quantified it? We said that because the market then valued a stream of income from a company at 20 times the income, if the Government took £5 billion a year out of the stock market, £100 billion would be knocked off the value of shares earned by all those pensioners and savers in the country. It was a smash-and-grab raid, it took £100 billion off, and the Government should apologise and give it back.

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