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This issue has not yet been touched on, but what action are the Government going to take to address the mania for securitisation, collateralised debt obligations and all the other opaque and dodgy financial derivatives that have so dramatically and comprehensively destabilised the markets? Despite all their deregulating instincts, do the Government not acknowledge that stricter regulation of the financial markets is now necessary if the frenzy—it will no doubt go into abeyance for a time because of the
current crisis, but it will return—for newfangled financial instruments that are deliberately designed to be deceptive about risk and value is to be curbed?
That is all about one section of society—the élite end—but what about the other end? There again, the checks and balances against the arbitrary use of power have been and remain severely restricted. Civil liberties have been eroded, as we are all aware. The introduction of ID cards and two months’ detention without charge, both of which I deplore, are still being mooted. Workers who have been in their jobs for less than two years can still be arbitrarily dismissed without any rights, while temporary and agency workers remain an exploited underclass. Of course, that is mainly at the behest of the CBI; and if I may say so, the Government should stand up to the CBI rather more resolutely. Accountability or, indeed, any redress for alleged misdemeanours by the police, judges, banks, private utilities or big corporations is, as all hon. Members will know from their surgeries, often hard to get, if not almost impossible. It is not unfair to say that powerlessness is widely felt to be endemic throughout society. I believe that the Prime Minister and the Government want to deal with that, but doing so will require a great deal more than focus groups or citizens’ juries.
A second commanding theme that the Government —this Labour Government—should prioritise is a fair, balanced, participatory society. That means dealing with the scandal—it is no less than that—of excessive inequality that has now reached grotesque levels. The Chancellor was absolutely right to say that the Government have a highly creditable record on child poverty. They have reduced it by more than 600,000 from the record level of 3 million that it reached under the Tories, and they have made it clear that they intend to go much further. The problem is that, while poverty has been reduced, the income and wealth of the rich have increased disproportionately, and inequalities have therefore grown. We have now reached a position in which a worker on the minimum wage gets about £200 a week, and if he happens to work for one of the top FTSE 100 companies his boss will be getting a staggering £70,000 a week, according to the latest surveys. That is 350 times more. I defy anyone to justify that.
Given the present private equity excesses—they will no doubt be blunted by the banking crisis—and the fact that capital and business taxation is at its lowest for a century and direct and indirect taxes are now pretty regressive, we are now in danger of returning, unless we are very careful, to the polarised—income-polarised, at least—class system of the Edwardian era. Redistribution is a taboo word that has been banished from the political vocabulary for far too long, but it needs urgently to be reintroduced. It was not helpful that in the pre-Budget report the 6 per cent. richest in our society who pay inheritance tax were handed a gain of some £1.4 billion a year, while working tax credits for the poorest children were increased by only 40p a week.
Mr. David Gauke (South-West Hertfordshire) (Con): Will the right hon. Gentleman give way?
Mr. Meacher: I will, but I have to say that the hon. Gentleman’s own party has very little right to intervene on this matter, on which it so badly misbehaved during its 18 years in office.
Mr. Gauke: One of the changes in the pre-Budget report that will favour some of the wealthiest in society is the reduction in the capital gains tax rate that will apply to non-business assets. That will mean that those of us who own second homes will be paying less capital gains tax on any profits made on those properties. Does the right hon. Gentleman oppose that policy?
Mr. Meacher: I do think that the reduction from 40 to 18 per cent. needs to be looked at very carefully. I know that what has excited the City has been the increase from 10 per cent. to 18 per cent., but as the hon. Gentleman points out, there is another dimension to this issue, and given the costs involved, we ought to consider very carefully whether this is what we intend. The reform was aimed at tackling the increase for those who gain massively from private equity transactions, and I do not think it was aimed at the other side. We ought to look into this matter further.
The imbalance to which I have just referred needs to change radically. Indeed, it has to if the Government’s other laudable aims of reducing social disorder are to be achieved. There is abundant cross-national evidence that, in societies where income differentials between rich and poor are smaller, there is less violence, including substantially lower homicide rates, prison populations are smaller—an important issue for this country—community life is stronger, people are more willing to trust each other, health is better, life expectancy is several years longer, there is more social mobility, and educational attainment at schools is higher. That might sound like a wish list. Indeed, I found it difficult to believe until I read several surveys from different countries that illustrated those facts. The truth is that there will be no vision to excite a political response in this country until this fundamental divide, which has now grown so wide, is tackled.
I do not want to duck the question “What would you do about it?” which has been rather prevalent in this debate. I believe that, first and foremost, what is needed is much greater transparency. That might involve establishing a pay commission to set down guidelines for a reasonable range of incomes between rich and poor, and applying incentives, of which I am all in favour as long as they are applied consistently right across the range from rich to poor, not just at the top.
Equally, people should be asked whether they think it right that, in all large and medium-sized organisations, the representatives of all the main grades from the boardroom to the cleaners should, at an annual meeting of the company—a private meeting, not a public one—have to justify the pay claims that they are making at the expense of potential pay increases for all other grades. That is my view, but the proposal should be tested more widely. If people believe that it is right, implementing it would inspire a vision of real fairness unmatched by so much of the rhetoric of today.
The third component for a vision that is sorely needed in Britain today to redress the slide into privatised power and money is a renaissance of the
high ideal of public service. Putting some of the largest US health care operations in charge of commissioning the bulk of NHS services, as is now happening, and spreading privately sponsored academies throughout the education system—with, according to the latest evidence, distinctly mixed and counter-productive results—has much more to do with market dogma and business lobbying than with improving performance on the ground.
That applies equally—I say this with real feeling, given the situation in my constituency—to housing, where there is a serious breakdown involving 1.6 million people being on local authority waiting lists. In my constituency, there are 11,000 people on the waiting list yet the total number of council houses after all the sell-offs is only 12,000 or 13,000. There are also 100,000 homeless people in this country. As the Chancellor has said, the Government are trying significantly to increase house building, which I strongly welcome, but the extra 40,000 homes a year is still greatly inadequate. The Government still seem to put too much emphasis on private owner-occupation, when the poorest quarter of the population will never have the necessary wage levels and job security to pay a mortgage.
Other areas of concern include the privatising of the probation service and the outsourcing of local government functions through the euphemistically named strategic development partnerships. Something else that really distresses me is the swingeing cuts at the BBC. I am all in favour of value for money, but those cuts are being made on such a scale as to put the whole concept of public broadcasting at risk. I think that those are areas where there is a strong case to call a halt and undertake a full-scale review, as I believe my right hon. Friend the Prime Minister seemed to be hinting at and recommending.
John Mann (Bassetlaw) (Lab): Before my right hon. Friend goes any further, I want to clarify what he was saying about the purchase of council houses. Is he saying that working-class families in my constituency living in council housing or former Coal Board housing should not have the same right to buy a house that he, I and every other hon. Member has? Is that the policy that he is suggesting the Labour Government should introduce? If so, I suggest that he is in a tiny minority.
Mr. Meacher: Of course I believe that people who live in council houses and have the capacity and wish to buy their house should be able to do so. What I also strongly believe, however, is that the proceeds from those sales should not be extracted centrally and should be available to local authorities so that the total stock of housing in the area is not reduced. The problem is that, as in my constituency, the supply has been so drastically reduced that it is impossible to house people who can afford only rented housing. It is not possible to get it from private landlords on anything like the scale required. As I keep having to tell people who come to my constituency surgery in agony and with desperate needs, the houses are not available. I tell them that the Government are trying to deal with the problem but that it will take many years.
To conclude, I believe that a good case can be made for restoring the ethos of public service in all those areas. Its ethos of accountability, equity, universality, professionalism and altruism would resonate with the British people and would be highly politically popular. I believe that it is a good Queen’s Speech, but that there is also a real need for a distinctive vision in Britain today. The three themes that I have tried to outline would, I hope and believe, go a long way to meet that challenge.
3.31 pm
Mr. John Maples (Stratford-on-Avon) (Con): I have not heard a speech like that in this place since the 1980s, so I am feeling quite nostalgic. The right hon. Member for Oldham, West and Royton (Mr. Meacher) was making the same speech back then, when I first came to this place. The difference is that there were then about 350 Labour MPs making that sort of speech, whereas now he is the lone and authentic voice of those days. I shall not follow him in all the issues that he raised, but I do want to talk about Northern Rock. In fact, I shall talk only about Northern Rock.
To provide some credentials for this debate, I was a junior Minister at the Treasury when BCCI—the Bank of Credit and Commerce International—was closed and went under and when we had a banking crisis. I am very glad that I did not have to take the decisions. The Chancellor’s decisions then—I assume that that is so of decisions taken in the past month—were some of the most difficult that a Chancellor ever has to make. I had a front-row seat, as I was at all the meetings with the Chancellor and the Bank of England—and they often took place daily. I think that Normal Lamont would say that those were the most difficult decisions that he ever had to take. At the risk of incurring some displeasure in my good friend the shadow Chancellor—perhaps the Financial Secretary will convey this sentiment—I expect that the Chancellor’s recent decisions were the most difficult that he will ever have to make as Chancellor, unless he has another banking crisis on his hands in the near future, which we all seriously hope he does not.
There has been a lot of criticism of what various people have done, but it has to be placed in the context of having a bull market for about 15 years, in which there has been easy credit and easy monetary conditions. Those things always end in a credit crunch of one sort or another, and the marginal players go to the wall. They find that they are either not making money and are insolvent—that was not the case in this instance—or become illiquid and cannot raise the funds to replace their debt as it rolls over. That always happens and it was to be expected that it would happen. One can never predict exactly where and how the impact will occur, but it is one of the inbuilt weaknesses of our very sophisticated and developed financial markets. It would be interesting to debate whether that is a good or bad thing. Most free-market economists would, I think, say that it was a good thing—a self-correcting mechanism—but one of the unfortunate by-products is an occasional banking crisis.
Let me deal with the Bank of England first. It has been criticised on two counts. One is that it should have injected liquidity into the market earlier; the second is
that it should have been much quicker in making a loan to Northern Rock. It would have liked to have been able to do that covertly rather than overtly, and it blamed the regulations. I am not sure that it would have made any difference if it could have done that covertly, as it would have become known very quickly.
The Governor of the Bank of England gave an eloquent exposition of the moral hazard of injecting liquidity into the market. My understanding of the moral hazard is that bailing people out from their mistakes just encourages them to make more. I think that it was Burke who said that protecting people from the consequences of their folly just populates the world with fools. There is a fine and difficult line to be drawn between where we should bail people out because we are worried about the system going under, and where we should stop bailing them out because we are worried about provoking more of the foolish behaviour that created the problem in the first place. The Bank of England is not open to the kind of blame that has been attributed to it. The Financial Services Authority certainly looked a bit slow—
Mr. George Mudie (Leeds, East) (Lab): The hon. Gentleman is making a thoughtful and welcome speech. I do not think that it is the Governor of the Bank of England’s decisions that are under attack but his inconsistencies, which are not helpful. Does the hon. Gentleman not agree that the market wants above all good judgment and consistency from the Bank of England and its Governor?
Mr. Maples: I am not sure whether good judgment and consistency necessarily go together. I certainly agree that good judgment is needed, but such situations are almost all one-off and ad hoc, and a judgment must be made on the day. The judgment made today might be different from the one made tomorrow. I suspect that judgments would have been different if a really big bank had been in trouble, rather than a small secondary bank of the kind that went under in the 1970s, to which the right hon. Member for Oldham, West and Royton referred.
Furthermore, the Bank of England has a balance sheet of about £40 billion or £50 billion, and there is no way that it could have made the loan without the Treasury guaranteeing it. Therefore, it ultimately came back to the Chancellor to make the call. I think that he made the right one, although whether he made it at the right moment is a slightly different matter. It is difficult to know whether the Financial Services Authority could have changed the situation by acting earlier. A faulty business model had gone badly wrong, and if that could have been caught in time—I shall come back to what regulators should try to do in the future—it might have made a difference. I do not expect, however, that acting two or three weeks or even months earlier would have helped. The Bank of England Governor, to be fair to him, was making speeches about the dangers in the short-term credit markets some time before this problem occurred.
As for the Treasury, the Chancellor has been criticised for waiting from 14 to 17 September, over a weekend, to offer his guarantee. I saw this problem at close hand during the BCCI crisis, and I remember one meeting involving the Bank of England, Treasury
officials and the Chancellor at which we decided that we would, if we had to, guarantee the liabilities of the major banks—there was a cut-off point in relation to the smaller ones. At the end of that meeting, somebody said, “I think that we have just agreed to underwrite all the liabilities of the British banking system.” That is a huge decision. The consequences of it going wrong and the banking system unravelling are horrendous. One ends up not only with a horrible recession and probably a depression, but with a hole in the public finances that it will take a long time to repair.
I therefore have some sympathy for the Chancellor. If he had moved too quickly he would have been criticised, and if he had moved too late he would have been criticised. It was a weekend, and ultimately everything was all right—the banking system seems reasonably intact. It was a tough call, and we are arguing about whether he should have made it on the Saturday or Sunday rather than the Monday. Anyone who thinks that that is an easy decision has never had to face it. When they do have to face it, they will realise that it is an extremely difficult one.
One thing that was different previously was that the Bank of England was responsible for bank regulation. Therefore, when the Bank of England Governor and his people sat in a room with the Chancellor and his people, the Bank of England Governor knew everything that there was to know about the banks. The Bank knew exactly when big deposits were maturing and when banks were likely to face liquidity difficulties.
One of the mistakes that the Prime Minister made in giving the Bank of England independence was in taking away bank regulation and giving it to the FSA. He did it because he thought that the Bank of England would be far too powerful if it had interest rate-setting power as well as responsibility for regulating the bank system. When a lender of last resort must make a judgment about the markets, when to inject liquidity and when to call on the Chancellor to guarantee loans, it is enormously helpful if it has a much deeper understanding of the banking system than it now has without its regulatory responsibilities. One policy change that I will suggest at the end of my remarks is that those two functions should be brought back together.
We were faced with a tough situation. In retrospect, as with all these things, perhaps it could have been slightly better handled. I have a lot of sympathy, however, for the Chancellor and the Governor of the Bank of England, given the problems that they faced.
Mr. Geoffrey Robinson (Coventry, North-West) (Lab):
As I understand it, the hon. Gentleman’s proposal is to re-merge the Bank and the FSA, if that is the entirety of it. There were two reasons for not leaving the Bank with its regulatory role when it was granted independence. One reason was that we wanted to make the Monetary Policy Committee a national focus of great importance, as it has become, and that element of the Bank’s work was sure to be done much better if it did not have a much wider responsibility including raising funds in the gilt market. The other reason was that the Bank had not been terribly successful in its regulatory role. We felt that an organisation that brought all that together and focused on it would give us a better chance of being certain and comprehensive in the regulatory function.
Re-merging the two organisations would be a huge step, and I look forward to hearing what the hon. Gentleman has to say.
Mr. Maples: I do not know whether the hon. Gentleman was referring to BCCI when he said that he did not think that the Bank had been performing its regulatory function very well, but that was also a tough call. The call then was not “When do you rescue a bank?” but “When do you close it?” The criticism was that the bank should have had its licence suspended a few months earlier. I was there at the time, and saw the papers. The hon. Gentleman knows what happens in such cases: the Chancellor makes the decisions, but we can go to the meetings and see the papers.
That was a tough one. Whenever the bank was closed, some people were going to get badly hurt, although I am happy to know that in the event most of the creditors have had most of their money repaid.
Mr. Robinson: What about Barings?
Mr. Maples: I do not think that the issues are the same when it comes to smaller banks without retail depositors. I think that the Government could let a small bank go. I do not think it would be appropriate to say where the line was drawn when we considered which banks to save, but certainly the smaller merchant banks would not have been included. They were professional investors who were taking their own risks and were perfectly capable of making the decisions for themselves. It is in relation to retail depositors that the issue arises.
Yes, I am going to suggest that the bank regulatory functions of the Bank of England should be restored to it. It is responsible for the
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