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Housing and household repossessions also need to be addressed. The biggest growth industry in Somerset is in the courts dealing with repossession orders: there are
not enough people to hear the repossession cases in order to clear the backlog, and the position is worrying. I have been warning for many years about the situation in my constituency, which has one of the country’s highest ratios between average house price and average earnings. The fact that people are paying such large multiples of their average wage to keep a roof over their head is unsustainable—indeed, many people cannot have a roof over their head, at least not in the village or small town in which they were brought up.
Foreclosures are now occurring, and it is not clear to me that what the Government are proposing and what we are being asked to support will reduce them. Measures could be taken to do so: we could offer to take equity in houses in order to keep people in possession of their own homes. There are ways that the banks, building societies and others could make a real difference, but it is not clear that such measures are included in the proposals before us.
Mention has been made of local government and the difficult position that so many councils face in respect of their investments in Iceland. I looked at the list of such councils, and I could see no discernible political difference between the councils that had invested in Icelandic banks and those that had not done so. Many of the local authorities involved are considered to be the most astute in the country at financial management, so something has gone wrong with the advice they were given. I find it difficult to blame councillors of any political persuasion on this matter, unless I have evidence that they acted rashly. I suspect that most councillors will have had no part in the decision-making process. When I led a council, we were given regular reports on the investments of our pension fund, but they were in generic terms; such reports dealt with the sectors rather than the day-to-day management of investments. I would be worried if elected members had direct control of the route by which investments were made. Although I do not attach blame directly to councillors—or even to councils, provided that they were shown to have taken proper precautions—we must do something to get the assets back.
It is very important to get those assets back, despite the fact that, compared with the turnover of the councils, the investments are relatively small. The figures sound huge when they are quoted down the pub, but they are only a small part of the annual spend of large county authorities. However, the sums are significant and need to be returned. The Government and the Local Government Association—and anybody else who can help—need to be fully engaged in ensuring the return of those assets, because if they are not returned, the money cannot be used for investment in the local community, be that in the direct provision of services or in long-term capital investment and so on. Thus, the return of those assets is an imperative.
Mr. Graham Stuart: Does the hon. Gentleman agree that the Financial Secretary owes the House an explanation of the guidance given to local authorities so that the House and the British people can better understand how local authorities, police authorities and others invested so much public money in Icelandic banks?
Mr. Heath:
That is right. We need to look at the work of the rating agencies as a whole, because if the advice that they were giving was so inadequate they are not
carrying out their primary function. We should be aware of that and should perhaps take with a pinch of salt any advice that they proffer in the future.
Mr. Bone: I am listening with great interest to the hon. Gentleman’s very powerful speech. I did not touch on this issue in my speech, but does he think that the out-of-turn supplementary estimate should have a provision equivalent to the amount of money that local government has lost to Iceland, in case it is necessary to resort to that? As he said, it is not the fault of individual councils that such things have happened—it is just pot luck.
Mr. Heath: It is difficult to answer that, because I want to see that money returned from where it is sitting. I do not want to pre-empt the argument and, to an extent, if we made provision for that money as a bad debt we would be pre-empting the position. I urge the Government and everybody else involved to show the utmost vigour in ensuring that those assets are returned because they are of such value to local communities.
I want to conclude, but let me deal with two more areas of concern. One has been mentioned several times, but I shall repeat it. I fully expected in the recess that the first thing we would come back to would be a statement about how the Government would respond to the ombudsman’s report on Equitable Life. In fact, I said in writing to my constituents that although we did not receive such a statement before the recess, we would of course hear one in October and that the Government would tell us how they would respond and that they would make appropriate recompense to those people who were so badly let down by the regulatory authorities. We still need that statement. We need it even more urgently because, quite rightly, people will ask how such measures can be taken for some people while in the case of the people affected by Equitable Life, who have a clear independent arbiter’s review that shows they have been let down by the regulatory authorities, the matter is apparently not even to be mentioned, let alone dealt with. That is a matter of urgency.
The other statement I fully expected to hear this week was an explanation of the details of the insulation grants announced by the Prime Minister over the recess. It might be said that that issue is very far removed from the supplementary estimate, but it is not. The single biggest financial problem faced by many of my constituents is how to heat their homes over the winter. Telling my constituents that they can have grants for cavity wall insulation, when most people have houses with solid walls because it is a country area and the houses are built of rubble stone, is not an adequate response to the huge increase in heating costs. That increase in costs is a particular problem with heating oil, which is another difficulty in rural areas that perhaps does not apply in some suburban and urban areas. Those old-age pensioners who will see the value of their investments, if they have them, reduced and are on a fixed income will find it very difficult to get through the winter.
When this is all over—when the war is over—big questions need to be asked about the regulatory process. I agree that we do not want heavy-handed regulation, but we want regulation that works and that is effective. It is clear that we have not had that. We want to see financial products that are properly transparent. I cannot begin to understand the intricacies of some of the financial products that have been marketed over recent years. We seem to be piling one bet on another on
another until we reach the point where we cannot possibly have any trail of understanding that allows people to know what exactly they are investing in. People take a pride in the complications that they have introduced into financial products. It is all very clever, and I am sure it looks good when calculating the bonuses in the short-term financial environment, but it is not good business. It is not sound business, but that is what banks ought to be engaged in.
I agree absolutely with the point made by the hon. Member for Chichester about the role of boards of directors and how they should be strengthened. We all know that some people have 25, 26 or 27 directorships, but they are not doing justice to their fiduciary role as directors. They cannot be. One cannot devote that many hours in each day to the proper care and governance of companies. We need a much clearer idea of the role of directors, and in particular the role of non-executive directors in asking the difficult questions.
Finally, I do not think that the point about the complete failure of audit has been made sufficiently. It is incredible that we have auditing systems across the country that are so incompetent in advising shareholders, potential investors and anybody else on the strengths or otherwise of a company’s position, including the position of the banks. My suspicion is that that has something to do with the conglomeration into the big three—or big four, or however many there are—large auditing firms, which seem to be unhealthily close to the companies that they audit. What I want to emerge from the situation is a hard look at the process of audit and at the strength of the auditing system. Perhaps rather than Chinese walls, there could be some real separation between auditors and the companies that they audit so that candid advice is available about the strength of a company’s balance sheet and its position. Banks, building societies and financial institutions are meant to be the bedrock of our economy, and we are having this debate today and proposing to spend £42 billion because we cannot live without sound financial institutions. We have allowed them to rot from inside, and that is not good for the British economy.
3.7 pm
Mr. Graham Stuart (Beverley and Holderness) (Con): I apologise for not being here at the beginning of the debate. I share colleagues’ disappointment about the number of Members who are present for such an important debate.
We have been lucky in the quality of the speeches we have heard—that has certainly been the case since I entered the Chamber. The hon. Member for Somerton and Frome (Mr. Heath) and my hon. Friends the Members for Wellingborough (Mr. Bone), for Chichester (Mr. Tyrie), and for Broxbourne (Mr. Walker) made thoughtful speeches, and all raised many questions. We look to the Financial Secretary, who is an experienced Minister and has served on the Treasury Bench before, for more answers than we received at Prime Minister’s questions earlier today—I thought that the failure to answer some of the key points that were put was worrying. There are many questions to which we need answers this afternoon.
One key question being asked is about the pledge to return to the lending levels of 2007 for the banks in which the Government take stakes. Perhaps that was
just an off-the-cuff remark that was meant to reassure people that when the banks were taken over the Government would ensure that money flowed. Members have asked that question already, but we have had no answer from Ministers. We can all accept that there has been a deep crisis and that Ministers have struggled, at times, to control their panic and that of the markets. However, given the importance of the messages going out to markets, we deserve an explanation from the Financial Secretary of what the promise of the return to 2007 lending levels means. Perhaps it would be more sensible if the Financial Secretary were to alter that promise this afternoon and give us a clearer steer on the issue.
There are also questions about the time scale of the vast public investment going into ensuring our banks’ liquidity. We all recognise that it is difficult for the Minister to give any tight promises today, but I hope that he will give my constituents some reassurance. They have seen inordinately large sums go into the City of London, and they need some idea of when the money will be returned to them.
Many hon. Members have remarked on the fact that it will be those in our society with least who will find themselves paying for the expense incurred for so many years to come. You, Mr. Deputy Speaker, will be aware that this country only in the past few years finally paid off its debts to the US incurred under the lend-lease arrangements following the second world war. My constituents want to hear from the Minister about the extent and time scale of the moneys committed by the Government in the past fortnight. Are their children going to be paying additional taxes to pay for the bail-out, or their children’s children? We need reassurance from the Minister about that.
I spent Saturday morning and afternoon knocking on doors in Thorngumbald in my constituency. It is a village on the A1033 east of Hull, and people there are a bit like the residents in the constituency of the hon. Member for Somerton and Frome. They feel very distant from the world of merchant banks, Lehman Brothers, Barclays, wealth and the rest of it, but they are aware that a dark cloud is coming towards them. They pay their taxes on time and always try to meet their obligations. They have been brought up not to borrow money that they are not confident they can repay, and they want to know what penalty they will pay because those in pursuit of vast wealth have gambled and lost. I hope that the Minister will address all the people, wherever they are in the country, who are sitting and worrying this afternoon.
On Saturday, the people in Thorngumbald repeatedly told me that this country has not been put in a strong position to weather the economic storm. They are starting to pick up on the fact that, although the problem is global, not every country has been affected the same. In some countries, the banks have been regulated more tightly. Regulators in those countries and, effectively, the head of finance—or in our case the Chancellor—have ensured a more prudential basis for lending by the financial institutions than there has been in this country. My constituents are aware that this country has been spending money based on a false boom and that the coming bust will cost them dear, and probably in their public services.
In particular, my constituents want Ministers to put up their hands and accept some responsibility. So far, that has not happened. When the Prime Minister has spoken about the crisis, he has sounded as though it had been visited on us from out of space, and as though he was not one of the world’s leading financial secretaries, influencing colleagues around the world and working with them nearly every week on the problem of regulation in the financial markets. He has been in that position, and my constituents want to hear the Government accept some responsibility for the weaknesses in our system, whose results we are now seeing.
Colleagues have mentioned the fact that the Government promised an end to boom and bust, and that there would be stability for ever more. They note that the Prime Minister, who used to be the Chancellor, began to believe that he had some unique financial Midas touch that had been denied to all those who had ever served in that post. As so often happens, that hubris has been shown up as a hollow failure. The Minister would go a long way to reassuring people that they will be able to trust the Government more in future if, on behalf of the Government, he sounded a note of humility or apology this afternoon.
Other hon. Members have touched on the subject of accounting standards. In the EU, the European Commission is rapidly working up some proposals for changing accounting standards to tackle some of the systemic weaknesses in our system. May I suggest to the Minister that he work with colleagues to ensure that we do not look for any quick-fix solutions? We do not need the equivalent of Sarbanes-Oxley legislation to be visited on the City of London by a remote, unelected European Commission, when the British people are given no opportunity to vote out those who would be responsible for it. I ask the Minister to have caution in that regard.
There has been a great debate about whether the current crisis is a body blow to capitalism and free markets. It has been suggested that the global Thatcherite revolution that brought the end of socialism has hit the buffers, with people realising that, after the nationalisation of the banks and so on, we need greater state control. However, I do not believe that. We have had a failure of regulation—a subject to which I hope the Minister will return—but we have also had a form of depersonalised capitalism. The people in the City responsible for pension funds and the directors of our largest companies tend to work with, spend and risk other people’s money rather than their own. It is the lack of personal accountability and ownership of assets at the very heart of the capitalist system that has contributed to the irresponsible behaviour of the past few years. That has been fuelled, as I have said already, by the former Chancellor’s hubris.
My hon. Friend the Member for Chichester and the hon. Member for Somerton and Frome commented on the need to strengthen boards. Every time a problem threatens British business, Members of Parliament rightly want the boards of our companies to be strengthened. They believe that imprudence would somehow end if only we had more independent non-executive directors.
I have some sympathy with that view, but the real problem is that there is a herd instinct in our depersonalised capitalist system. It means that people do not keep their jobs, get appointed to other boards or remain as investment
analysts if they go against the herd. As a result, they all move together: they use other people’s money, without being cognisant of the risks.
Useful though independent non-executive directors can be, that herd instinct places massive pressure and responsibility on the regulator. Only the regulator has the overall framework responsibility for ensuring that our financial system, and the entire economy on which it relies, is soundly maintained.
I have a number of questions for the Minister, but in particular I should like to know whether he agrees with my hon. Friend the Member for Chichester that the Chancellor of the Exchequer is ultimately responsible for the regulation of the UK economy and the risks that are taken. Nothing has shown so clearly as the events of the past few weeks how failures in that systemic risk management affect everyone in the country. It is essential that that responsibility is held, and is seen to be held, by an elected politician, in the form of the Chancellor of the Exchequer. I hope that the Minister will make a comment on that.
However, the problems that we have seen are not all due to greedy bankers or failed regulators. They are also down to a failure of personal responsibility—and many of us will have been guilty of this at times—with people borrowing money that they could not pay back. There has rightly been criticism of banks that have given 125 per cent. mortgages, but for every one of those there has to be someone who signs the form and pledges that the money will be paid back. It is important that we send out the message that all of us, not just those who lend the money but those who borrow it irresponsibly, accept some responsibility for what has happened.
One of the key principles behind creating a sounder system for the future will be that there must be greater transparency. We are all aware that the complex financial derivatives that have been created are often not understood by the directors of the banks trading in them. Most famously, of course, Barings crashed because of that.
The principle of transparency needs to be maintained across the system. So far, no Minister has explained why the Government, acting on behalf of taxpayers, are taking on those enormous liabilities but not making them part of the national debt. I hope that the Minister will explain that to the House this afternoon, so that we can understand it. Off-balance-sheet borrowing guaranteed by the taxpayer—Enron economics—leads, in the private sector, to prison sentences. In this country, now in the 12th year of a Labour Government, private finance initiative projects have gone ahead specifically because they are designed to keep borrowing off the Government balance sheets, even though the Government are ultimately responsible for that finance.
Mr. Stewart Jackson (Peterborough) (Con): Is my hon. Friend aware that, if we add the off-balance-sheet PFI scheme debts to the liabilities that now encumber every taxpayer in this country, it adds up to about 54 per cent. of the United Kingdom’s gross domestic product? As he will no doubt be aware, the last time we had that level of public debt, which was under a previous Labour Government, the International Monetary Fund was forced to step in and insist on swingeing public expenditure cuts. Does he agree that that would be a very serious development, but that it is very likely to happen, unless the Government take drastic action in the next year or so?
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