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Mr. Speaker: Order. In the nicest possible way, I must say to the hon. Lady, and other Members of Parliament, that reading out a supplementary is not acceptable, and I will stop that practice immediately. The other thing is that the supplementary is too long, and we are running over time.

David Miliband: Briefly, Mr. Speaker, we addressed the issue directly in the investigation that we undertook of all allegations of rendition through Diego Garcia, following my statement in February. A written— [ Interruption. ] The hon. Member for Kingston and Surbiton (Mr. Davey) shakes his head, but every single allegation of a flight being used was sent to the United States, and my statement made it clear that there was no evidence of any flight, other than the two that I announced to the House.

T8. [224352] David Taylor (North-West Leicestershire) (Lab/Co-op): Three months in, the joint United Nations-African Union peacekeeping mission in Darfur, UNAMID, is still well below planned strength, with UN members failing to provide 18 requested helicopters, despite a recent NGO report showing that Italy, Romania, Spain and the Czech Republic, among others, collectively have at least 70 suitable aircraft available. Will the Foreign Secretary take urgent steps to ensure that Britain and its European partners commit their full share of support to UNAMID operations, thereby protecting totally innocent civilians in Darfur from the murderous attacks to which they are currently being subjected?

David Miliband: My hon. Friend makes an important point. I share his frustration at the fact that the UNAMID force is now made up of 9,000 peacekeepers, not the 26,000 who were promised by the UN resolution. The issue was raised in New York with the Vice-President of Sudan, because it has important responsibilities. My hon. Friend is also right to say that the international community needs to deliver the helicopters. In that context, I am sure that he will be pleased that the Prime Minister’s discussions with the President of Ukraine yesterday yielded a strong Ukrainian commitment to make a contribution in this area.

T9. [224354] Dr. Stephen Ladyman (South Thanet) (Lab): The ceasefire in Gaza is far from comprehensive. There are still sporadic missile attacks on Sderot and other Israeli communities, and in the past 24 hours Hamas has announced that it will not recognise the legitimacy of President Abbas after 8 January. In those circumstances, what more can we do to keep the peace process moving and try to shore up the ceasefire?

David Miliband: The most important thing that we can do is to work with our international partners, including President Abbas, the leader of the Palestinian Authority, to ensure that when there is a new Israeli Government, they follow through on the negotiating process that has been started. Secondly, we must ensure that during any transition in the United States, there is no halt to the peace process and that, certainly from 20 or 21 January when the new Government are installed in Washington, the middle east peace process has a high priority from day one, and does not have to wait until later in the Administration.

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Mr. Chancellor of the Exchequer, supported by the Prime Minister, Secretary David Miliband, Secretary Jack Straw, Secretary Jacqui Smith, Mr. Secretary Hutton, Yvette Cooper, Stephen Timms, Angela Eagle and Ian Pearson, presented a Bill to make provision about banking: And the same was read the First time; and ordered to be read a Second time on Wednesday 8 October, and to be printed. Explanatory notes to be printed. [Bill 147].

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Opposition Day

[18th Allotted Day]

Government’s Fiscal Rules

Mr. Speaker: I inform the House that I have selected the amendment in the name of the Prime Minister.

3.35 pm

Mr. Philip Hammond (Runnymede and Weybridge) (Con): I beg to move,

The global financial markets crisis is dominating the news agenda, and of course presents an immediate and pressing challenge to policy makers, first to maintain the liquidity of the banking system in the face of an unprecedented squeeze in the inter-bank market, and then to ensure that the conditions are right for its recapitalisation, not in order to facilitate a return to the lending practices of the past decade—practices that the Prime Minister has rightly categorised as belonging to the age of irresponsibility—but simply to allow the restoration of the normal workings of the wheels of commerce, through the supply of overdrafts and loan facilities to businesses large and small, the extension of consumer credit to households wishing to finance the purchase of capital goods, and the resuscitation of new mortgage lending, which the latest figures show has almost completely ceased.

This is a national threat that requires a cross-party response. There will be time enough later to debate the causes and the failings of the past, and to identify the guilty and to hold them to account. The challenge now is to work together to support the tough decisions that may be necessary to preserve the banking system on which we all depend, and to protect the long-term interests of the taxpayer. We have made it clear that we will give the Government that support—not uncritically or unconditionally, but so that they know that any steps that are necessary to protect the integrity of our financial system will not be blocked or delayed by the kind of partisan posturing that we have seen in the United States Congress. That is our duty as a responsible Opposition.

Beyond the immediate financial markets crisis and the paralysis in our banking system, however, the UK economy faces other, longer-term challenges that leave it less well prepared than many of its competitors to deal with an economic downturn and likely to recover more slowly from that downturn. Those problems will remain to be addressed long after the financial crisis is resolved.

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It is, and remains, our duty to hold this Government to account for leaving the nation so ill-prepared to face the challenges that the credit crunch has precipitated, and to deal with the weaknesses in our economy that it has so brutally exposed. It is our task to put forward an alternative framework that will ensure that future Governments do not repeat the mistakes of the past decade.

The supply side problems that this Government claim to have identified—the skills gap, the productivity gap, the infrastructure deficit, and the need for reform in public services and in our welfare state—all remain largely unaddressed, so that during a decade in which the world’s economy has grown at an unprecedented rate, the UK has slid down all the league tables of international competitiveness. Over that period, our economy has become more unbalanced, losing more than 1 million manufacturing jobs and coming to depend on financial and business services for more than half our economic growth since 1997. That leaves us more vulnerable and less resilient than our better balanced competitors.

Mr. Brian H. Donohoe (Central Ayrshire) (Lab): Does the hon. Gentleman not remember that, under the previous Administration, unemployment in my constituency was virtually double what it is today? That was when the Tories were in power, not us. As a result of all that we have done in terms of jobs and the re-skilling of the work force in my constituency, the level of unemployment has reduced, and the level of employment has increased. Does he not understand that that is the reality of the life that we are living?

Mr. Hammond: The hon. Gentleman might want to hold on for a few months before he starts talking about the level of unemployment in his constituency. I remind him that the previous Conservative Government were clearing up the economic mess and chaos created by the previous Labour Government—a scenario that looks likely to repeat itself yet again.

Mr. Jim Devine (Livingston) (Lab): In 1992, 13 years after the Conservatives came to power, inflation was at 12 per cent., interest rates were at 15 per cent., unemployment was at 3 million, and record numbers of homes were being repossessed. Was that a good financial strategy?

Mr. Hammond: I remind the hon. Gentleman that in 1997 his party inherited an economy in which growth was rising strongly, unemployment was falling substantially and inflation was at less than half its current level. What have the Government done with that legacy? They have squandered it.

Mr. Oliver Heald (North-East Hertfordshire) (Con): Does my hon. Friend share my concern about the situation of pension scheme members? Obviously, pension schemes have been badly hit by the falls in the stock market, and someone purchasing an annuity is in a very difficult situation. Has not the Government’s £5 billion-a-year raid on the pension funds been masked to an extent by the rises in the stock market over recent years? Are we not now paying the price?

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Mr. Hammond: My hon. Friend is absolutely right. He draws attention to an important point, and I hope that the Chief Secretary is listening. Given what has happened in the stock markets over the past few weeks, people who are obliged to annuitise in the immediate future potentially face a lifetime of poverty or at least a substantially reduced expectation of income. Will she consider the challenge that that presents and see whether anything can be done immediately about it?

Mr. Mark Todd (South Derbyshire) (Lab): Will the hon. Gentleman give way?

Mr. Hammond: I will make a little progress first.

The greatest structural weakness in our economy, however, is the absence of effective fiscal discipline, which, along with the explosion of consumer debt and the asset price bubble, has been the root cause of the age of irresponsibility, of which the Prime Minister has spoken so eloquently. We have been living beyond our means, both as a nation and individually, and now the day of reckoning is coming. As we look to rebuild our economy on a stable, sustainable basis for the future, it is clear that Governments of all political persuasions will have to embrace the practice, not merely the rhetoric, of fiscal discipline.

Fiscal discipline was supposed to have been delivered by the Prime Minister’s much-vaunted fiscal rules, but they have failed to protect us from this Government’s fiscal irresponsibility. The Prime Minister said in 1998 that

Tell that to the people of Crewe and Glasgow, East. Those rules failed to constrain fiscal policy during the years of growth, and that failure is directly responsible for Britain entering this period of economic turmoil with the largest fiscal deficit of any nation in the world except Egypt, Hungary and Pakistan. They did not stop this Government borrowing right the way through the top of a boom, at a time when many of our neighbours were running budget surpluses, paying off debt, and getting themselves leaner and fitter to confront whatever the future held for them—fixing their roofs while the sun shone. A third of OECD countries are now debt-free. At the end of an unprecedented period of world economic growth, however, the UK has net debt at a higher proportion of gross domestic product than in 1997—without taking account of the billions salted away through Enron-style accounting practices, off the balance sheet, out of sight and out of mind.

It was not that the incoming Labour Government did not recognise the issue in 1997, or that they denied the importance of fiscal discipline. Far from it—the then Chancellor placed his fiscal rules at the heart of his economic strategy, alongside Bank of England independence, as one of the key building blocks in his claimed commitment to fiscal and economic stability. However, like the debt-fuelled boom, the fiscal rules have turned out to be an illusion. They failed. They did not do what a set of fiscal rules had to do to be credible: they did not prevent borrowing at the peak of a boom. On that there is now widespread consensus.

The journey of the fiscal rules from robust central pillars to widely derided and discredited rhetorical devices has been long and painful. It has been like watching a
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car crash in slow motion. It began in 2005, when the then Chancellor avoided breaching the golden rule by the skin of his teeth with an eleventh-hour announcement of a reassessment of the timing of the economic cycle. From that point on, reputable commentators and publications have progressively ceased to refer to the fiscal rules as a serious measure of Government performance on the public finances. By 2007, a Financial Times survey of independent economists found:

The final nail in the coffin came in July this year, when the Government announced that the rules were “under review” specifically to create room for additional borrowing, tacitly admitting that these were good-time rules only. Now we simply await the formal burial of the body.

The comprehensive failure of the fiscal rules leaves Britain’s public finances extremely vulnerable, at the mercy of a weak and divided Government operating without effective fiscal constraints, guided by political pressure rather than fiscal discipline. It was precisely the traditional practice of loosening fiscal policy at the first sign of political trouble that the fiscal rules were supposed to avoid. They were intended to be a constraint on Government, a discipline that would ensure that something was put aside in the good years so that Government would be able to support families and businesses when more difficult times arrived. Instead, once again we are watching a Labour Government running out of money and being singled out by the International Monetary Fund for fiscal irresponsibility.

Mr. Henry Bellingham (North-West Norfolk) (Con): My hon. Friend is explaining his case extremely cogently. He mentioned businesses. Does he agree that while the recent European package of £12 billion to help small businesses is welcome as far as it goes, the EU should be using this as an opportunity to reduce the amount of red tape and regulation being piled on small businesses and enterprise?

Mr. Hammond: I believe that the £12 billion had already been committed, and that its provision is merely being brought forward. We await with interest, as I am sure do thousands of small businesses across the country, details of how the money will get from the press conference in Paris into their bank accounts. If it is real money, it will be very welcome, but my hon. Friend is right: red tape is a real cost of business, and reducing the burden of red tape is as much of a boost to business as reducing the taxes that businesses must pay.

Mr. Brian Binley (Northampton, South) (Con): Will my hon. Friend give way?

Mr. Hammond: I will happily give way to my hon. Friend, who is an expert on this matter.

Mr. Binley: I think that my hon. Friend does me too much credit. Does he agree that, in truth, small business is in serious trouble, and that the Chancellor could do much more by attaching conditions to the support we are giving the banking sector—conditions such as treating small businesses fairly, ensuring that they are not lumbered with very heavy interest rates, and ensuring that the overdraft facilities on which many rely are not cut unnecessarily?

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Mr. Hammond: My hon. Friend has drawn attention to a crucial part of the mechanism by which the financial markets crisis, the credit squeeze in the banking sector, is transmitting itself to the real economy. Up and down the country small businesses are having overdraft facilities withdrawn, and those that can still obtain them are being asked to pay interest rates at what might be described as extortionate levels. My hon. Friend the Member for Tatton (Mr. Osborne) referred to this week’s announcement that one of the big high street banks is charging 15.8 per cent. to some of its small business customers. There are real problems in the small business sector, and we are beginning to see the fallout from the financial crisis directly affecting that sector.

Adam Price (Carmarthen, East and Dinefwr) (PC): In these difficult times, does the shadow Chief Secretary welcome the moves made by the enterprise Minister in the Scottish Government and the economy Minister in the Welsh Assembly Government to cut business rates so as to provide at least some breathing space for the vital small business sector, which in many of our communities is the backbone of our economy?

Mr. Hammond: Well, of course, at a time like this what Government should be doing is helping businesses and families under pressure. That brings us to the central point of this debate today: if the fiscal rules had not so comprehensively failed—if they had constrained Government policy so that we were putting something aside during the good years—then this Government would be able to intervene to help companies and families under the pressure they are feeling.

Tomorrow, the Chancellor will deliver his Mais lecture at the Cass business school. According to widespread reports, he will use the occasion to

using the credit crunch for cover, tacitly admitting that the Government have broken their own fiscal rules, and burying with a whimper, away from this place, the system that the Prime Minister announced with such great fanfare here just a decade ago.

Mr. Charles Walker (Broxbourne) (Con): Does my hon. Friend think that while the Prime Minister is doing this he will accept and acknowledge that he was wrong to say that he had abolished the boom and bust cycle?

Mr. Hammond: I doubt that the Prime Minister will acknowledge that, but I suspect that he is deeply regretting those words, not only because they will come back to haunt him politically, but because the message that he sent out for years that he had abolished boom and bust and that, therefore, there never would be a rainy day—with no need to put something aside or for consumers to prepare for the worst; they had only to look for the best—has in fact led to the precise behaviour that he himself now describes as “the age of irresponsibility”, and he must reflect long and hard on where the responsibility for that lies.

Several hon. Members rose

Mr. Hammond: I shall give way shortly.

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