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Mr. Stuart: I agree with my hon. Friend, and in some ways I am even gloomier than he is. I feel that the costs are being masked. Ministers are suggesting that we will get all our money back. They have almost suggested that there will be a profit to the taxpayer as a result of the Government’s intervention in the markets. I fear that there will be heavy costs for the taxpayer, and that the dark clouds will visit places such as Thorngumbald in my constituency.
The earlier Labour Government who my hon. Friend mentioned were, of course, in exactly the position that he described. We had to be bailed out like a third-world country, and there were swingeing cuts to public services. We all remember the unburied bodies, and the rubbish cluttering our streets, yet here we are again. It is the 12th year of a Labour Government, and the Bank of England is again running out of money, with the only option being to print more of it.
A Labour Government are impoverishing this country. Fortunately, a Conservative Government will come to power, but, unfortunately, they will yet again inherit an economic mess left behind by Labour utopian politicians. However, those politicians fail to deliver that utopia and, most importantly, spend the hard-working taxpayer’s money. They always visit misery on those with the least. [Interruption.] Labour Members do not like to hear that. At the end of that 12-year period, the gap between rich and poor has actually widened. The gap between the educational outcomes of the poorest in our society and those of people at the top have widened under a Labour Government. Health inequalities have widened under this Government. The hon. Member for Glasgow, North-West (John Robertson) may want to laugh because of his arrogant assumed moral superiority to those of us on the Conservative Benches, but I am proud of the fact that health, education and wealth gaps were narrower when we left power than they are today. That is before the cost of the Prime Minister’s spending spree and irresponsibility is taken into account. However, it will come home to roost, and will have to be paid for by the British taxpayer.
I would like the Minister to comment on the issue of transparency, and on the need to declare, on the Government books, the liabilities that the Government are taking on. In a similar vein, it is absolutely essential that we have some idea of the risks that are being taken. What is the extent of the liabilities? I know that the Chancellor was asked whether any limit would be put on liabilities. The Economic Secretary to the Treasury, when winding up yesterday’s debate, said in response to that question that the Government would “do whatever it takes”, repeating the mantra of the Prime Minister and the Chancellor. Is there to be no limit to the liabilities to which the Government are prepared to sign up, and no limit to the number of future generations who will pay additional taxes because of the bail-out, which resulted from the Government’s failure of regulation? I hope that the Financial Secretary to the Treasury can reassure us on that point, because the issue should not, and cannot, be avoided. The House needs to hold the Executive to account, and if it cannot do so on the issue of vast liabilities, it really serves no purpose at all. The various hon. Members who commented on that point this afternoon were right to do so.
I hope that the Minister will answer the question on Lloyds TSB and HBOS. The issue has been mentioned by others, so I mention it only in passing, but to repeat
the argument briefly, the whole reason for bringing the two banks together, and for ignoring competition regulations, was to stop HBOS from failing, and to prevent a domino effect in the wider financial community. Now that the Government have intervened, that rationale is no longer there, and there will be loss of competition on the high street. If the Minister cannot give an answer today, please will he work with his colleagues on the matter and bring some common sense to it? It cannot be right for the consumer to have less choice on the high street while the state is intervening in our banks.
I hope that the Minister will allow me to ask him this once again: what advice was given to local authorities? Why did so many of them leave their money in the Icelandic banks? The hon. Member for Somerton and Frome said that none of them could be blamed for doing so, and he may well be right, but when I telephoned my mother a few days ago, she said that she had considered the Icelandic banks. She had looked at their interest rates, which were very attractive, but thought that they looked a bit too good to be true, so she stuck with the Royal Bank of Scotland, with which she has shares. Admittedly, she said that she was equally disappointed with it. She accepted a lower rate of interest because she reckoned that if an offer seems too good to be true, it normally is, and that if one has savings that one cannot afford to lose, one should put them somewhere sensible and safe. She thought that the Royal Bank of Scotland was sensible and safe, and I hope that it will be in future. I would be interested to hear from the Minister on that point, and on why so much public money was invested with those Icelandic banks.
I know that the Minister is aware that local authorities face a real crisis in social care provision. Already, people with moderate needs have lost their right to social care in the home. I have disabled constituents who can no longer get any support from the local authority because their needs are not severe enough; only those with critical or severe needs are getting that care. The loss of local authorities’ money might lead to the withdrawal of even more of that social care. I know that Members on both sides of the House will spend time each week working constructively with their local council to try to ensure that vulnerable people get the support that councils struggle to provide from their budgets. I hope that we can count on that.
I should declare an interest, as I am still an owner and director of a small business. I remember talking to others who ran businesses, whether in the pub or elsewhere, about the rapacious, greedy, fat, selfish, lazy banks and how they dealt with most small businesses. I always used to say, “There’s only one thing worse than lazy, fat, rapacious, greedy banks, and that is bust ones.” Banks may behave in the way that I describe, and they may, as the old saying goes, offer you an umbrella only when the sun is shining, but at least when they are in business they can lend money. In answer to the question asked by the hon. Member for Somerton and Frome, to whom I seem to be referring constantly, banks are in a different category. Without them, British business does not survive and prosper. The main banks therefore cannot be allowed to fail. That has been shown in the past weeks by the Government’s action. The question is how the Government
will ensure quid pro quo. How will they ensure that the banks are regulated and carry out their business prudentially? How will they ensure that there is no loss of creativity or innovation? We would not want that. So I welcome the fact that the banks are being saved, because they are absolutely necessary.
I forgot to mention Equitable Life, and many of my constituents have written to me on that topic. Within the billions of pounds that are being spent to sort out the financial system, surely it would be right to rectify the injustice that has been visited on so many people who tried to be prudent. They saw Equitable Life as a safe place for their money. They had researched the matter, and they were not being greedy and wanting the highest possible returns. They had looked to place their money somewhere sound and safe, and they felt that they had had promises from Governments, Conservative and Labour, that regulation would protect them. As the Financial Secretary well knows, they have not been protected. The ombudsman found against the Government and those people cannot believe that this Labour Government, who claim to deliver justice for people, can continue to ignore their righteous pleas for fairness.
The other comment that I remember from the streets of Thorngumbald on Saturday was from someone who said, “Surely your priority”—they see me as part of this place and of government in all its forms—“should be to protect those who are trying to pay their mortgages?” I agreed, and he asked, “Why then are you spending hundreds of thousands of pounds of taxpayers’ money through the EU on a pay-off for the new Trade Secretary who has voluntarily moved to a new job?” How can that be right, especially for the Labour party, which claims to be on the side of ordinary people like my constituent, who is struggling to pay his bills and his mortgage?
3.30 pm
Mr. Timms: We have had a wide-ranging debate, and several points have been made to which I wish to respond. I shall aim to do so briefly, given that I opened the debate. I wish to emphasise again that the motion has two parts. The first part is designed to replenish the contingency fund, which has been drawn on for the reasons that I set out. On a technical point, I should clarify a matter raised by the hon. Member for South-West Hertfordshire (Mr. Gauke). We are not drawing on the contingency fund for the recapitalisation programme. At £37 billion, that is much larger than the entire contingency fund. So the first part replenishes the fund after the calls that were made on it because we think that it would be imprudent to wait until the normal point of repayment late in December. We want to replenish it now, in case we want to make further calls on the fund over the coming weeks.
The second part of the motion is in respect of the additional capital required—the £37 billion—for bank recapitalisation. Several hon. Members have queried the way in which that sum will be treated in the national accounts. It will be for the independent Office for National Statistics to make that judgment and decide how the deals will be classified in the public finances. In the case of Northern Rock, the decision was that the figures should count as part of the public debt, but the ONS will also decide how the subsequent deals should be accounted for.
It is worth underlining the fact that the impact for the taxpayer and the public finances will be exceptional. It will mainly be temporary, but the liabilities being placed on the public sector balance sheet will be backed by financial assets. Our view—and it is widely shared by, for example, the Institute for Fiscal Studies in its comments on this issue in recent months—is that the sums should not be counted in our assessment of fiscal sustainability against the sustainable investment rule. We will, of course, produce an update on where we stand against the sustainable investment rule at the time of the pre-Budget report, and all the figures will then be in the public domain. Not to have taken action would have exposed the taxpayer to greater risk, and that is the basis for the package that we have put before the House.
In the debate, the hon. Member for South-West Hertfordshire and others mentioned the relative proportions of preference shares to ordinary shares. We did say last week that the Government would also consider acting as underwriter for ordinary shares, so the announcements that we have made are in line with that. Following detailed discussions between the Treasury, the banks and the FSA, it became clear that it would be necessary to build up the core tier 1 capital ratio in the banks that intended to take advantage of the arrangements that we had proposed. That required the proportion of preference shares to be limited. The desirable proportions of preference shares to ordinary shares have appeared in the announcements, and Opposition Members have read out the numbers of preference shares and ordinary shares for the three banks taking advantage of recapitalisation.
Mr. Gauke: If the Financial Secretary is saying that it was necessary to make the arrangements in the way in which the Government have with the proportion of ordinary shares that he has set out, why was that not clear when the deal was reached at 5 o’clock in the morning on Wednesday? That supports the widely held view that the deal was put together quickly. My hon. Friend the Member for Chichester (Mr. Tyrie) has pointed out the lack of preparation for recapitalisation.
Mr. Timms: Events certainly moved very quickly, and the Government had to respond very quickly. The conclusions that were reached and the precise figures that have been quoted in debate were the outcome of detailed discussions and analysis between the parties to which I have referred. I think that the judgments were right. We made it absolutely clear last week that we were open to underwriting ordinary shares as well. The package reflects not, as has been suggested, memorandums and articles, constraints or things that were not clear at the outset, but an assessment of the position in each of the institutions.
Mr. Timms: I cannot give way that often, but I will give way to the hon. Gentleman.
Mr. Tyrie: I am grateful to the Financial Secretary for giving way. Will he say when he first saw a worked-up plan for bank recapitalisation?
Mr. Timms:
The hon. Gentleman knows that I returned to the Treasury only 10 days ago. [Hon. Members: “Hear, hear.”] I am grateful to my hon. Friends and
others for their support—one or two Opposition Members have made some kind remarks, for which I am grateful. I did not see anything before I returned to the Treasury. Indeed, I did not see the hon. Gentleman’s article, so it was interesting to hear his comments. One can only wish that he had a greater degree of influence over Conservative Front Benchers when they reflect on these matters.
We thought it important to safeguard the interests of taxpayers. The directors, who will appointed by the Government, will be qualified and independent, and they will not be civil servants. I see no reason why, for example, they should not sit on remuneration committees, which picks up a specific point raised in the debate. There will be no cash bonuses for directors this year, which is right.
There has been a little bit of misunderstanding around the point that we do not want to return to the 2007 volume of lending. Lending has completely stopped to important parts of the economy, and we want it to resume. We want it to be available as it was in 2007, and we want to see marketing and competitively priced products.
Mr. Bone: I am grateful to the Financial Secretary for remaining in the House for the whole of the debate. Having heard what he has said, the documents must be changed, because they clearly require lending to return to the 2007 level or more for three years. I do not know whether he has given an undertaking to change the offer document.
Mr. Timms: The hon. Gentleman is right about three years. We want to see lending start up again, because it has completely ground to a halt. Last year, there was lending to small businesses and home owners, and we want that to be in place again. As he has rightly said, we have required it for three years.
The hon. Member for South-West Hertfordshire asked about the details of the £600 million. It is probably true that those have been given on the Floor of the House for the first time in this debate. However, earlier this week my right hon. Friend the Chancellor set out the details in a written statement. We made a payment to ING Direct for amounts in the Icelandic banks not covered by the Financial Services Compensation Scheme; that is how the £600 million figure arose.
The hon. Gentleman asked about the increase in repossessions by Northern Rock. Northern Rock is managed at arm’s length from the Government on a commercial basis; its repossession policy is a matter for the bank itself. In passing, however, I should point out that, at 1.18 per cent., Northern Rock’s residential arrears level is below the average among UK members of the Council of Mortgage Lenders.
We are setting up an arm’s-length company to manage these taxpayer investments. Investment decisions will be made on a wholly commercial basis; there will be no ministerial interference of any kind. The company will be managed transparently and it will report regularly to Parliament. The Government-appointed directors to the banks will be independent and non-executive.
The hon. Member for Twickenham (Dr. Cable) made a characteristically thoughtful contribution to the debate. I want to pick up on a specific point that he made. In due course, the Government will lay an order relating to
compensation for shareholders and others whose rights may have been affected by the transfer of Bradford & Bingley into public ownership. I did not hear the debate that the hon. Gentleman had on the radio this morning, but we will bring that measure forward.
The hon. Member for Gosport (Sir Peter Viggers) made some interesting points; he has made a number of interesting interventions in the debates of the past couple of weeks. It is very difficult to value illiquid assets in the context that we are talking about. The hon. Gentleman referred to his experience at Lloyd’s. There is a real problem with asymmetries of information. If the taxpayer proceeded on that basis, they would be almost bound to lose out. However, the different arrangements that we have announced and that have been widely supported—and copied elsewhere—allow taxpayers to benefit from the upside.
It being three hours after the commencement of proceedings on the motion, Mr. Deputy Speaker put the Question , pursuant to Order [14 October].
That, for the year ending with 31st March 2009, for expenditure by HM Treasury—
(1) further resources, not exceeding £1,000, be authorised for use as set out in HC1061, and
(2) a further sum, not exceeding £42,200,000,000, be granted to Her Majesty out of the Consolidated Fund, to meet the costs as so set out.
That a Bill be brought in on the foregoing resolutions: And that the Chairman of Ways and Means, Mr. Chancellor of the Exchequer, Yvette Cooper, Stephen Timms, Angela Eagle, and Ian Pearson do prepare and bring it in.
Consolidated Fund (Appropriation) (No. 3) Bill
Mt. Stephen Timms accordingly presented a Bill to authorise the use of resources for the service of the year ending with 31 March 2009 and to apply a sum out of the Consolidated Fund to the service of that year; and to appropriate the supply authorised by this Act for the service of that year: And the same was read the First time; and ordered to be read a Second time this day, and to be printed. [Bill 148]
CONSOLIDATED FUND (Appropriation) (no. 3) Bill
Order for Second Reading read.
Question, That the Bill be now read a Second time, put forthwith, pursuant to Order [14 October] and Standing Order No. 56 (Consolidated Fund Bills), and agreed to.
Bill accordingly read a Second time.
Question, That the Bill be now read a Third time, put and agreed to.
Bill accordingly read the Third time, and passed.
Local Government
3.44 pm
The Minister for Local Government (John Healey): I beg to move,
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