As I was saying, our independent office for budget responsibility will tell the country the truth about things such as the components of national debt. There is an alternative to the generation of higher taxes that we
have had under Labour. This matter is not just about future recovery, but the current recession. The public are not fools. They can see the bills that they will pay for Labours failure, and they fear Labours increase in national insurance on the incomes of everyone earning more than £20,000, which is a tax on the incomes and jobs of middle Britain. The public fear the Labour Governments plans for a permanently higher VAT rate, which the Treasury so helpfully leaked to us. They fear Labours lack of credit; they fear the rise in unemployment under Labour, and they can see what is coming down the track.
A survey from the Bank of England today showed that that lack of confidence in the future is holding many families back from spending today. Britain needs a Government who can inspire confidence in the future and in employing people without the fear of higher employment taxes. Britain needs a Government who will inspire the confidence needed to buy a house without fear of further measures that might damage the housing market, and who will enable people to plan for their familys future without the threat of having a generation weighed down by national debt. That confidence is not coming from this tired and failed Government, who have brought about the greatest failure in economic policy for a generation and given Britain the prospect of the worst recession in the industrial world. By their own admission today, this is the deepest recession we have ever known. The Government are failing to offer any confidence of recovery: they have had their chance and the British people should have the chance to get rid of them.
The Chancellor of the Exchequer (Mr. Alistair Darling): Yet again, the shadow Chancellor was pretty thin on what he would do in the face of the global downturn with which we are faced, but I will return to that matter shortly.
I welcome the fact that the hon. Gentleman has again promised support from his party for the Banking Bill, which is essential as we continue to deal with the fallout from the credit crunch. I hope that the Conservatives now regret that they opposed the Bill to nationalise Northern Rock in February last year, without which it would not have been possible to deal with the problems at Bradford & Bingley during September, in the summer recess.
The proposals in the Queens Speech for welfare reform will also be extremely important. At a time like this, when people are likely to lose their jobs, it is important to do everything that we possibly can to help such people get back into work. My right hon. Friend the Secretary of State for Work and Pensions will discuss that when he speaks to the House at the conclusion of this debate.
There are also measures to continue to build a fairer society, to help victims of crime, to tackle discrimination and to help with training and apprenticeships, and further NHS reforms, all of which have been debated during the past few days. I also welcome the shadow Chancellors welcome for legislation to ensure that the Government meet the obligation to eradicate child poverty. Let me just say this: a commitment to eradicating child poverty is important, but so too is a commitment to
producing the means to enable us to do that. I do not think that a future Conservative Government could provide such a commitment.
Next year, we will, of course, continue to work with other countries to tackle climate change, as the Prime Minister made clear earlier, and we welcome the agreement reached by the European Union leaders last week. The Climate Change Act 2008, which imposes a legally binding obligation on British Governments, is important and shows that we can set an example to other parts of the world. That is yet another example of how we work with other countries to deal with international problems. Of course, we continue to work with other countries to deal with the problems that have arisen as a result of the credit crunch, which affect every single developed country and other countries.
That is why it is important that we continue to work with other countries as we hold the presidency of the G20 next year. We have an opportunity not only to address some of the problems of the past that have helped to cause the problems we now face, but to ensure that we reduce the likelihood of such events happening again and, crucially, that Governments across the world act together now to reduce the impact of a recession and help our economies get through this downturn as quickly as possible.
Adam Afriyie (Windsor) (Con): The Chancellor is talking about international co-operation and the international context. The European Commission and the International Monetary Fund have both said that the UK recession will be deeper than that of any other developed country. Does he agree with that and if so, why?
Mr. Darling: We are going to be affected more substantially in relation to the loss of revenues that we are now experiencing because of the lack of profitability in the financial services sector. London is the major financial services sector of the worldsomething that was welcomed in all parts of the House. Of course we are likely to be more severely affected as a result of profitability being reduced, and I have made that point on many different occasions in the House. We are also affected by the downturn in the housing market, because of the reduced revenues from stamp duty.
Of course we are being affected, but the other point is that there is not a country in the world that is not being affected, whether it be America, in the eurozone, China, India or in south America. This truly is a global problem. The only person in the House who does not want to recognise that is the shadow Chancellor. The fact is that the problem started in America, as the Americans themselves admit.
Alistair Burt (North-East Bedfordshire) (Con):
But we are trying to make a keen distinction. Was the Minister for the Olympics right today to recognise that the recession is deeper than any that we have previously known? Notwithstanding the fact that all countries face
a problem, why does she think that the recession here is going to be deeper than any that we have previously known, which therefore means that we were less prepared than anyone else?
Mr. Darling: What I know is that my right hon. Friend the Minister, like everyone on the Labour Benches, supports the measures to ensure not only that we tackle the causes of the recession, but that we help people and businesses through this difficult time. That is the difference between the two major political parties at the moment.
We are prepared to take action to help people and businesses; the Conservative party has made it clear that it is not and that it would not be able to produce the means to help people through this time. That is the big difference between us.
Mr. George Osborne: I am grateful to the Chancellor for giving way. My hon. Friend the Member for North-East Bedfordshire (Alistair Burt) asked a very specific question. The Minister for the Olympics, who attends Cabinet, said today that Britain was
facing a recession deeper than any that we have known.
Mr. Darling: I have made it very clear that we, along with every other developed country the world over, face a huge challenge because of the current economic downturn, the like of which we have not seen in generations. I have been saying that for months. Indeed, the hon. Gentleman may remember that in the summer, when we were both pursuing our aquatic summer holidays in our own way, I encountered a degree of turbulence when I said what I said, but I meant it, because we facedas we all know we still dosevere problems right across the world, because of what is happening in every corner of the world.
It is pretty clear that the difference between the two sides in the House is that the Government are prepared to take action to help people, whereas the Conservative party is not. What we are also seeing is the massive contradictions in the Conservative partys approach. The Conservatives are not leading the debate; they are simply following it. Even today, I noticed that the Leader of the Opposition gave a speech in which he called for more regulation of the financial services industry. I agree that we need to strengthen the supervision and regulation of the financial services industry. However, I also came across what the shadow Chancellor said in April 2006:
Regulation ... inhibits enterprise. For example, speak to any business in financial servicesfrom the largest investment bank to smallest independent financial adviserand the threat of future regulation from Whitehall and Brussels is now their number one concern.
Most people recognise that the regulatory system needs to be strengthened. However, just at the time that the problems in the sub-prime market in the United States were starting to emerge, the shadow Chancellor told the Tory party conference, in October last year, that the report from the right hon. Member for Wokingham (Mr. Redwood), who had been commissioned to advise those on the Conservative Front Bench on these matters,
sets out how we liberate our economy to compete with the likes of India and China ... cut Government regulation, planning restrictions and red tape.
We see no need to continue to regulate the provision of mortgage finance, as it is the lending institutions rather than the client taking the risk.
Today, the Conservatives try to tell us that, during the past 10 years, it was they who were calling for tighter regulation all along, yet they were the party of self-regulation in the 1980s and the 1990s. We were the Government who introduced the Financial Services Authority, bringing together a disparate range of regulators, and we are also the party that will bring forward proposals to help to strengthen the system of supervision and regulation.
Mr. Pelling: That might be effective criticism of the Conservatives for the purpose of putting out leaflets, but surely the problem is that the huge powers of regulation that the Government gave to the FSA have proved entirely ineffective. Regulation did not work; it regulated the wrong things and ignored the huge leverage that was taking place in the financial markets. We should have had focused regulation to prevent this disaster from taking place.
Mr. Darling: As I said a few moments ago, there are obviously lessons to be learned from what has happened, not just here but in the United States, in Europe and right across the world. All of us need to learn lessons from what has happened. The other people who need to learn lessons are those sitting in the boardrooms of the banks, who should have asked themselves whether they really understood the risks to which they had allowed their institutions to become exposed.
Stewart Hosie: I am following the Chancellors argument on regulation, but given that regulatory failure was beginning to be understood in the summer of 2007, why did he say in his pre-Budget report speech that, while he was going to look at regulation and supervision, he would not have proposals put before him until spring 2009? Why have this interminable delay in doing the right thing?
Legislation aimed at strengthening the supervision and regulation of the banks is already going through the House. I am sure that the hon. Gentleman is aware of itor perhaps notbut it is
also clear that we will have to take further action. That is why I have said that we need to make further proposals to strengthen the system of supervision and regulation.
I thought that the hon. Gentleman was perhaps going to raise a slightly different point. Sadly, there are two examples in Scotland of banks that should have realised the risks to which they were becoming exposed, and perhaps taken different decisions that would have produced a different result from the one that we now see. Fortunately, we have been able to intervene, but I have to say to him yet again that the Scottish economy would not have been able to support the degree of intervention that the UK Government were able to bring to bear in order to help the RBS and HBOS. It simply would not have been able to do it [ Interruption. ] The hon. Gentleman can discuss this for ever and a day, but it will not alter the fact that the strength of the United Kingdom greatly benefits Scotland.
Stewart Hosie: The strength of the United Kingdom is in the borrowing of £1 trillion in order to fund some of the proposals that the Chancellor is now talking about. That is not about the intrinsic strength of the United Kingdom. Does he agree that HBOS and the RBS were almost brought to their knees by the failure of this Government to take decisive action in the way that the Irish did when they guaranteed all deposits? The Irish have seen no runs on any of their banks, and no bank losses.
As I was saying, since September we have clearly seen a deterioration of the situation in relation to the banking sector. That was, perhaps, typified when the United States bank Lehman Brothers finally collapsed. Indeed, since March every single Wall street investment bank has collapsed, merged or had to change its business mode, such is the scale of the problems that we face. More than $30 trillion has been wiped off the value of share prices across the world this year: that is twice the size of the United Kingdom economy.
Here, we recapitalised the banks in October. We also introduced a credit guarantee scheme to guarantee new lending between banks. Earlier this year, through the special liquidity scheme, we ensured that banks had sufficient liquidity. Up to £200 billion was guaranteed. Those steps were absolutely necessary to prevent the collapse of banks in this country. Since the schemes were introduced, no United Kingdom bank has failed, and not one saver in a British bank has lost out. The £50 billion of new capital, both public and private, will be taken up by the eight major banks and building societies, and the measures that we have introduced to maintain financial stability at home have been widely copied throughout the world. Those measures were essential to maintain the stability of the banking system, and they have helped to ensure that banks are beginning to extend lending. A great deal more needs to be done, but to assert that what we have done has made no difference whatsoever is quite simply wrong.
Mr. Tyrie: Surely the Chancellor can at least see that the bank recapitalisation package has failed to restore lending to anything like normal levels, and that the main reasonor a major reasonfor that is the terms of the preference stock, at 12 per cent. Does he accept that it is now essential for the Government to present a revised set of proposals, even if that means eating humble pie, to get the banking sector working again? Without such proposals, we shall be stuck with very little lending.
Mr. Darling: The hon. Gentleman refers to the 2007 levels of lending, which both the RBS group and the Lloyds-HBOS group must maintain. That is part of the agreement. We also want to ensure that other banks extend their lending. The RBS has promised not to increase overdraft prices for small and medium-sized enterprises. Lloyds has agreed to pass on its rate cuts to its SME borrowers. HSBC has announced substantial increases in borrowing for both home owners and small businesses. Today, Barclays has indicated that it will increase the amount of credit available to the small and medium-sized sector by £1.5 billion. What we are doing is having an effect, but clearly a lot more needs to be done.
I can tell those who said that the credit guarantee scheme would not work that we expect some £100 billion of guaranteed credit to have been issued by the banks and building societies by the end of this year. The take-up is as strong as we expected. Moreover, the rate at which banks lend to each other and which drives the rate at which they charge their customersLIBORis down by more than 3 per cent., and the cost of insuring against bank failures, which is another measure of assessments made in relation to banks, is down by about 40 basis points for the RBS and HBOS. So what we are doing is having an effect.
The hon. Member for Chichester (Mr. Tyrie) referred to preference shares, and mentioned a figure of 12 per cent. The House will no doubt remember that when I made my statement in October and set out what we proposed to do in relation to bank recapitalisation, many Membersparticularly Conservativesfell over themselves to demand that we extract a sufficient price from the banks to ensure a fair return for taxpayers. They were right, but the hon. Gentleman is confusing what was charged in relation to the preference shareswhich was to ensure that we did not just lend money to the RBS or HBOS which would then pass straight to the shareholders without benefiting the strength of the bank as a wholewith the cost of actual borrowing, which, as I have said, is driven largely by inter-bank lending.
Mr. Ellwood: The Chancellor needs to explain why he set a coupon rate of 12 per cent. When we look at the American and German systems, we see that they have set an interest rate of just 5 per cent. Unless the Chancellor is willing to return here with another set of plans, I fear that it will not be long before he goes cap in hand to the International Monetary Fund, just as Denis Healey did a number of years ago.