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First, I know that both the shadow Chancellor and the Leader of the Opposition have made much of saying that radical monetary action is necessary. I believe that such action is necessary, but those policies—to reduce interest rates, for example—are only part of the solution. As many have said, when interest rates come down, one would normally expect the impact of that to be transmitted directly into the wider economy and we would all benefit. Part of the current problem, however, as the Governor of the Bank of England, the International Monetary Fund and the OECD have said, is that these are not normal times and the normal way in which the effects of the central bank’s interest rates are translated straight into the wider economy is simply not happening. That is why I believe that, yes, it is important to have appropriate monetary policy, which has to be decided by the independent Bank of England, but that it has to
be supported by Government action to support the economy as well. In other words, fiscal policy has to support monetary policy.
I agree that it is important to get banks to start lending again. The recapitalisation process is part of that and our agreements with some of the banks will also help, but we need to go further. That is why I said on Monday that the Government are ready and willing to hold banks to account. The banks have got to understand that just as in the good times they are falling over themselves to get customers from businesses and individuals, so in these difficult times they owe it to their customers to treat them fairly and reasonably. If the Royal Bank of Scotland Group can help its customers, I think that other banks must do so as well. I made it clear on Monday that if that does not happen, we are ready to take further action to ensure that bank lending resumes.
Sir Peter Tapsell (Louth and Horncastle) (Con) rose—
Mr. Darling: I will give way to a fellow Keynesian in just a moment.
It is also important that the Government do more, which is why I extended the small firms loan guarantee scheme, which will provide another £1 billion for small and medium-sized businesses—it was opposed by the Conservatives. Our current credit guarantee scheme underwrites lending, and I am surprised that the shadow Chancellor should now try to adopt a policy he opposed as one of his own. We are taking steps to help small businesses and we will continue to do so.
Sir Peter Tapsell: We can all agree on the importance of monetary policy. Nobody wrote with greater authority or greater length on the subject than John Maynard Keynes. We need not argue about that, but the point is that when the bank rate goes down to 1 per cent., 0.5 per cent. or even zero per cent., as the Governor of the Bank of England was suggesting only yesterday, monetary policy enormously weakens. Anyone using that weapon alone is in a very serious situation. That is why the liquidity of the banks is now the crucial issue and the next most crucial and closely related issue is how we are to avoid mass unemployment in the years ahead.
Mr. Darling: As the Prime Minister said to the hon. Gentleman earlier, we largely agree with what he is saying, but his problem is that his Front Benchers do not agree with it. As to bank lending, the hon. Gentleman is quite right. A combination of low interest rates and the measures I announced on Monday to help the economy must be accompanied by two further actions. First, we need to do everything we can to get bank lending resumed, particularly to the small business sector, which is crucial. Secondly, the other thing that will help, and this is something that the Conservative party simply cannot accept, is that if other countries across the world stimulate their economies, there will be a far better chance of mitigating some of the worst effects of the slowdown so that our economies can start to grow far more quickly than they otherwise would.
Mr. Lindsay Hoyle (Chorley) (Lab): May I reassure my right hon. Friend that the memories of people across Lancashire whose minds were scarred by the complete destruction of manufacturing throughout the ’80s are intact and what happened has not been forgotten or forgiven. Will he reassure me and those people in Lancashire that when it comes to procurement—and this Government procure a great deal—the Government will support British jobs in manufacturing?
Mr. Darling: I agree with what my hon. Friend says and I very much hope that British firms will benefit not just from Government procurement but in the supply chain by the involvement of a wider number of companies.
Dr. Nick Palmer (Broxtowe) (Lab): I was elected as a new Labour MP with a business background. Up to now, I would not have supported intervention in the banks on the scale that may be necessary, but I believe that the overwhelming majority of my constituents support my right hon. Friend’s stance that the money given to the banks must be passed on and that national banking managements must tell their branches to resume lending to companies that need it.
Mr. Darling: I agree with my hon. Friend and I know that he speaks with considerable experience in business. It is important to encourage the banks to resume lending, as I have said.
Mr. Darling: Let me make a bit of progress.
It is not just that the Conservative party does not accept the case for helping and simply walks away instead; it is also that its position on borrowing is completely confused. The Leader of the Opposition said only a couple of weeks ago:
“Borrowing goes up. That is inevitable and you have to allow it to happen”.
A week later, the shadow Chancellor said that borrowing was “the wrong approach”, yet his shadow Chief Secretary, the hon. Member for Runnymede and Weybridge (Mr. Hammond) had said a day earlier that
“to increase borrowing to deal with an economic downturn is a perfectly sensible thing to do.”
He was absolutely right on that point, if not on any other.
Mr. Darling: I give way to the hon. and learned Member for Harborough (Mr. Garnier), but then I am going to make some progress.
Mr. Edward Garnier (Harborough) (Con): I thank the Chancellor. Will he give us his best estimate of the cost of interest on Government borrowing over the next five financial years?
Mr. Darling: What I would say to the hon. and learned Gentleman is that because interest rates are lower, the Government will benefit from it. I will also say something else to him: if we do not do anything, as we saw in the early 1990s when debt actually doubled, the cost to the Government and to every individual man, woman and child in the country will be far higher. That is why I believe that Government should intervene in order to help.
Mr. Darling: I am not giving way. I want to make some progress and deal with some important points.
Mr. Darling: All right, I will give way to the shadow Chancellor as a matter of etiquette, but I want to deal with some of the points that he raised.
Mr. Osborne: I am grateful to the Chancellor for giving way. He was talking about trying to get the banks to do more. Will he confirm that this afternoon Northern Rock, which he owns, increased its interest rate on a one-year fixed mortgage from 3.99 per cent. to 4.19 per cent.?
Mr. Darling: As the House will know, part of our business plan for Northern Rock—which, of course, had to be approved under the state aid rules of Europe—provides that it must reduce the number of people to whom it lends in order for the business to survive in the longer term. I must say that that was a bit rich coming from the shadow Chancellor, who opposed our nationalisation of Northern Rock and who would have done absolutely nothing to save the bank.
The shadow Chancellor claimed that our accounts and the figures that I gave on Monday were not right. They were right. We have set out a clear plan for how we will support the economy now: how we will help businesses and people, and, in the medium term, how we will raise the funds that are necessary for borrowing to be brought back down to a current balance by 2015. Unlike the Conservative party, we have set out a plan—a plan to help Britain now and to ensure that we have sustainable finances in the future.
Sandra Gidley (Romsey) (LD): The Chancellor mentioned businesses. Will he note that our French neighbours have injected €19 billion to boost bigger businesses such as the car industry, so that firms such as Ford in Southampton can have a more certain future?
Mr. Darling: I will say to the hon. Lady that Europe is very important.
I think it right for me to say a word about spirits. I refer to the spirits that we drink, rather than the ones that we might imagine. I said on Monday that I wanted to ensure that the level of taxation on alcohol and cigarettes remained the same, so that broadly speaking the reduction in VAT would be cancelled out by a change in duty. I think that, in relation to spirits, what we announced on Monday did not achieve that, so I am tabling a further order today to ensure that the duty on spirits is charged at a slightly lower rate. I think that that will hugely benefit the spirits industry wherever it is.
Miss Anne McIntosh (Vale of York) (Con): In the pre-Budget report, the Chancellor referred to increasing fuel duty on petrol and increasing national insurance. Those two measures alone will damage people who live in rural areas such as the Vale of York, and will push up the cost of delivering public services in those areas. How can the Chancellor say that he wants to help people when he is damaging those living in rural areas in that way?
Mr. Darling: The most damaging thing that we could do to rural areas would be to allow a situation to develop in which a recession became longer and deeper than it would be otherwise. I believe that the measures we have announced will help not just people—because of the reductions in income tax, the fact that we have been able to increase the amount going to pensions and pension credit, and the fact that we have been able to bring child benefit forward to January—but businesses. We have helped businesses in relation to loans, and we have helped the construction industry by supporting house building. All those measures will make a substantial difference to the country.
The one point on which I agreed with the shadow Chancellor when he spoke on Monday afternoon was this. The country does have a choice. The choice is between a Government who are ready to help people and businesses to ensure that we get through this and can seize the huge opportunities that we have for the future, and a Conservative Government who would simply walk away and abandon people and businesses.
The shadow Chancellor made much of this afternoon’s debate, but he had absolutely nothing to announce that would help this country and the people of this country. I believe that the measures I announced on Monday—a wide range of measures—will help people. We will continue, as a Government, to do everything we can to help our economy, to help businesses and to help people.
I believe that the people of this country, just like those in the House, will reject the postures of Conservative Members. They have no serious proposition to present, they do not know what their policies are, they are inconsistent and they are incoherent. I believe that the approach set out by our Government is the right approach, and we will see it through.
2.24 pm
Dr. Vincent Cable (Twickenham) (LD): I welcome the debate, and congratulate the Conservative shadow Chancellor, the hon. Member for Tatton (Mr. Osborne), on securing it. A three-hour debate does not really do justice to the magnitude of the problem, but we are grateful to you, Mr. Speaker, for agreeing to it.
The hon. Member for Tatton made several key points with which I agree. I agree that the figures for the economy and the public finances are poor, but at the same time they are optimistic—very optimistic. It is worth noting that Mr. Robert Chote of the Institute for Fiscal Studies, whom the Chancellor has already called in aid, observed yesterday that what is being hidden here was not so much a tax bombshell—although there may be one of those—as a drastic cut in public investment over the period to 2012-13. That makes complete nonsense of the Government’s claim to be borrowing to invest.
Mr. Richard Benyon (Newbury) (Con): The hon. Gentleman will notice that page 200 of the pre-Budget Report contains a line that sounds fairly innocuous:
“The uncertainty surrounding economic prospects in turn implies greater than usual risks surrounding the public finance projections.”
Does he agree that that is Treasury-speak for a very serious warning about the optimistic forecasts in relation to the length and depth of the recession that the Chancellor made on Monday?
Dr. Cable: The hon. Gentleman is right, and I shall develop that point further in a few moments.
The second point on which I agree with the hon. Member for Tatton—a point, indeed, that the Liberal Democrats have been making trenchantly—is that the banking crisis is almost certainly more important in terms of its impact on the economy, and we need to divert a good deal of attention to that problem. However, I disagree fundamentally with the hon. Gentleman’s belief that there is no need for a fiscal stimulus. I think that that is absolutely wrong.
The Conservatives—I shall say more about this later—are presenting themselves as the party of change which identifies with the change on the other side of the Atlantic, but while we sit here debating the issue, the incoming Obama Administration are discussing a fiscal stimulus that is 20 to 25 times bigger than what the British Government propose. It is also two to three times as much in relation to the American economy, and—in answer to the shadow Chief Secretary, the hon. Member for Runnymede and Weybridge (Mr. Hammond)—it starts from a point at which the Americans’ debt position in relation to GDP is worse than ours. Nevertheless, they have to apply it.
Mr. Frank Field (Birkenhead) (Lab): Can the hon. Gentleman tell us whether the President-elect is thinking of spending that money on VAT cuts or on income tax cuts?
Dr. Cable: I think that the emphasis is on helping low-income families—and I welcomed the right hon. Gentleman’s contribution to the debate in the form of a letter in this morning’s Guardian—but the emphasis is also on public investment. I shall say more about that shortly as well.
Ms Dari Taylor: Will the hon. Gentleman give way?
Dr. Cable: I must make some progress first.
Before we discuss the issues in detail, I want to refer to the terms of the overall debate. I think that the public outside the House are becoming increasingly disenchanted with hearing on the one hand the argument that this is all the fault of the Prime Minister, and on the other hand the argument that it is all the fault of the American sub-prime market and “nothing to do with us, guv”. The obvious explanation is that there are policy failures here, and an international crisis at the same time. Both those factors apply, and any reasonable debate must start from that assumption.
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