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Mr. Darling: The reason we imposed a charge was to ensure not only that the taxpayer got value for money, but that the money we put into the banks did not simply get passed straight through to the shareholders, which people would rightly have complained about. I made it clear last month that we would look at this scheme, and that we would do so before Christmas. The hon. Gentleman was slightly ahead of himself, because just over an hour ago we announced some changes to the credit guarantee scheme. We will lengthen the scheme from three to five years’ maturity, lasting until April 2014. We will also widen the range of currencies in which banks can borrow the guarantee, and lower the fee used for the credit scheme while still keeping it on commercial terms.
All these measures will continue to help to ensure that we get bank lending going again. It is difficult because, as the shadow Chancellor said, and as I said to the Select Committee last week, there is potentially a tension between the need to get banks to recapitalise and build up their strength and the need to encourage them to lend to the wider economy. None of these things would have been possible, however, if the Government had not been prepared to take action, and to ensure both that we made money available to strengthen and recapitalise the banks and that the banks had the funds so that they are available to the wider economy. As I said, many other countries across the world are now doing exactly the same thing.
Mr. Dunne: On the Chancellor’s recapitalisation plan, was he surprised that in the case of the Royal Bank of Scotland, for example, not a single external shareholder, as far as I am aware, chose to invest at that point, and therefore the Government have shouldered the entire burden of that recapitalisation? Was that his plan?
Mr. Darling: It is what we expected. It was obvious that in the conditions prevailing in October it would be highly unlikely that RBS would be able to raise money on the markets in the normal way. That is why we set up the scheme in the first place. Indeed, if we had thought it would be possible for all the banks to raise money on the markets in the normal way, we would not have had to introduce the scheme, so the answer to the hon. Gentleman’s question is unequivocally yes, I was expecting it—and, indeed, I was absolutely right.
Mr. Stephen Dorrell (Charnwood) (Con): From what the Chancellor has said over the past two or three minutes, I am unclear about something: is he going to revisit the matter of the 12 per cent. coupon or not?
Mr. Darling: As I have said, I will keep all those things under review, because I want to ensure two things—that banks can lend because they have the funds and can lend into the wider economy, and that the taxpayer gets a return for what is a very substantial investment.
As I said, the central difference between the Conservatives and the Government today is, as it has been for some considerable time, whether we should take further action over and above monetary policy—reductions in interest rates—in order to support the economy. Countries across the world—the United States, France, Italy, Spain, Japan, Korea, Australia, New Zealand and China—have signed up to putting more money into their economies to
support them. The shadow Chancellor had some fun when he mentioned Germany in his speech, but the fact is that Germany, too, has already put in place a fiscal stimulus of almost the same size as our own. That demonstrates that countries all over the world are doing what we are doing: supporting their economy, supporting businesses and supporting people, because that is absolutely essential.
People will ask themselves why the Conservative party seems so ready to repeat the mistakes it made in the 1980s and 1990s, when it did precious little to help an entire generation of people who were simply written off as the Conservatives sat back and let the recessions take their course.
Rob Marris: Does my right hon. Friend agree that it is a sad day for democracy when we have an official Opposition who are against fiscal stimulus and want a low-debt, low-tax economy, but who will not tell the electorate what they think UK Government spending should be in the medium term as a percentage of gross domestic product? Is this not a sleight of hand?
Mr. Darling: I was just going to come on to that point, because the shadow Chancellor made pretty heavy weather of trying to answer the question put by the hon. Member for Twickenham (Dr. Cable) about whether he supported the borrowing that arises as a result of the automatic stabilisers of the loss of revenues and the increased cost of benefit.
Of course, in October the Leader of the Opposition said:
“Borrowing goes up. That’s inevitable and you have to allow that to happen.”
If he believes that, he has to accept the consequences—that is it necessary to meet the cost of that borrowing.
Mr. Dorrell: Will the right hon. Gentleman give way?
Mr. Darling: No, I want to make some progress; the right hon. Gentleman has just intervened.
The Leader of the Opposition also said, in July, that what the Government ought to be doing is cutting taxes—that they should be giving a fiscal stimulus to the economy. If he still believes that those two things are right, how can he justify his position today, when we are doing precisely that? Indeed, in September, he also said:
“The lightweight thing to do would be to make unrealistic promises about slashing Labour’s spending”
levels, and yet what happened just last week? The shadow Chancellor said that, whatever spending limits I announced, he was going to cut them further. Yet when he was asked on “Newsnight” on 9 December what he would do—he was asked on 19 separate occasions what cuts he would make, or what he would reduce—he could not, or would not, say. On 13 different occasions he was asked the same question, and he could not answer. Rather like the right hon. and learned Member for Folkestone and Hythe (Mr. Howard), who had that difficulty during the last general election, the shadow Chancellor could not say, or, more likely, would not say. Well, he may not be able to say today, but he will at some point before the next general election have to spell that out. If he really believes that he wants to cut public spending, especially at a time when the economy will still be suffering from
some of the effects of the downturn, surely at some stage he is going to have to say where exactly he is going to get that money from.
Mr. Binley: Has the Chancellor just given a hint of the date of the next election, or is he saying that his projection that the recession will come to an end by the third quarter of next year is wrong? Which is it? Will we have an election before that, or is the projection wrong?
Mr. Darling: What I am saying is that taking money out of the economy this year or next year is the wrong thing to do because it would be extremely damaging to people in this country, and that seems to be what the shadow Chancellor is signed up to.
Mr. Jim Cunningham (Coventry, South) (Lab): What I found very interesting during the shadow Chancellor’s speech was the lack of an alternative. More importantly, he talked about decent housing, looking after families and so forth, but equally, he never said how he was going to do that. What we have had today is an absence of an alternative policy from the Opposition.
Mr. Darling: Indeed, and that is precisely the problem that the shadow Chancellor has. It was not that long ago, although it seems like light years away, that he was talking at this year’s Tory party conference and promising more beds in the NHS, yet there was a funding shortfall of about £8 billion. He was calling for new school places; there was a funding shortfall there. He is still talking about cuts in inheritance tax, at a time when many people would think that there are other priorities that a Government might have, and there is a shortfall there of about £2 billion. He had a whole list of promises that he was making. Even on the loan scheme that he was outlining this afternoon, he does not have the money to pay for it, because he says that there would be no more money under his proposals. Yet somehow he offers the prospect of additional funding for companies and firms in this country.
On looking at all the proposals made by the Leader of the Opposition at the start of this debate on the Loyal Address, we see that he is in no position to implement any of them, because he has made it clear that under the Conservatives, there would be no more support for the British people or for British companies. He is not in a position to make these promises, because he simply does not have the funds to pay for them.
Mr. Brooks Newmark (Braintree) (Con): Can the Chancellor confirm that Labour will be doubling our national debt in just five years to more than £1 trillion, which is more than 80 per cent. of gross domestic product?
Mr. Darling:
It is the case that debt and borrowing will rise. The shadow Chancellor was complaining about what we have done over the past 10 years. We reduced substantially the amount of debt that we inherited from the last Conservative Government, which meant that we are able to spend on front-line services. At the same time, we spent more on public services—on schools, hospitals, police, transport and housing. All those things needed more money after many years of underinvestment. We did increase public spending, but at the same time we reduced debt. Let us consider the position today.
Despite all the things that we have had to do to support the economy, our debt will still be less than that of the United States, Japan and Italy. No one wants to be in a position where they have to borrow any more than they need to, and we want to keep debt at as low a level as possible, but to take money out of the economy now at a time like this, if that is what the hon. Member for Braintree (Mr. Newmark)—
Mr. Darling: No, sit down. To argue that money should be taken out of the economy now would be completely ridiculous and irresponsible.
Mr. Darling: As I used a slightly stronger tone than I am accustomed to using, I shall certainly give way to the hon. Gentleman again.
Mr. Newmark: I am simply asking the Chancellor to confirm that over five years he will be doubling debt to a sum figure of £1 trillion. Is the answer yes or no?
Mr. Darling: The debt is increasing, as I have said to the hon. Gentleman, just as debt doubled in the 1990s during the recession then. The difference is that because we were able to reduce debt substantially over the past 10 years, when we met the fiscal rules that we set, we have now been able to increase borrowing because it is the right thing to do to support people.
Mr. Michael Howard (Folkestone and Hythe) (Con) rose—
Mr. Darling: The right hon. and learned Gentleman was not here —[Interruption.] I think I am right in saying that he was not here when I referred to him, but as he is here now, I shall certainly give way to him.
Mr. Howard: I am most grateful to the Chancellor. I have come into the Chamber because he has just said that at the last election I was unable to identify the savings in Government expenditure that I was proposing. His memory is playing him entirely false. Does he not now accept that when I proposed £35 billion of savings in Government spending it was all set out in detail in the James report, in which he and his colleagues were entirely unable to pick a hole during the whole of that campaign—a figure that is almost identical to the savings now proposed by the Government?
Mr. Darling: I think that the electorate came to the view that we were able to pick rather a large hole in it. The right hon. and learned Gentleman was not here at the time, but I was referring to the fact that in the same way as the shadow Chancellor had an uncomfortable time on “Newsnight”, I seem to remember that the right hon. and learned Gentleman had a very uncomfortable time, being unable to answer questions for some considerable time.
John McFall (West Dunbartonshire) (Lab/Co-op) rose—
Mr. Darling: I shall give way to my right hon. Friend and then I shall make some progress.
John McFall: I wonder whether the Chancellor can help me. By accepting the automatic stabilisers, the official Opposition have accepted that public debt will increase. Given that the Government’s GDP fiscal deficit next year is to be 8 per cent., can the Chancellor confirm that 7 per cent. of that will result from the automatic stabilisers and that 1 per cent. will result from the fiscal stimulus, and so what the official Opposition are debating is the amount of money given to people to help them through this recession?
Mr. Darling: As I said to the House, the shadow Chancellor, having said that he accepts the need to allow the automatic stabilisers to rise, must accept the consequences of that. I think that we need to do more than that; we also need to put an additional fiscal stimulus of 1 per cent. into the economy. Of course a lot of our public spending is in the form of maintaining capital spending investment—it is at its highest level for about 30 years—which will make a big difference to our economy in the future, especially as we come through this.
Mr. Darling: I am going to make some progress. As I was saying, it is important at such a time that we take action to help people. We have reduced income tax for 22 million basic rate taxpayers—that will be worth £145 each from April next year—and I brought forward the payments being made in relation to child benefit and made additional payments for pensions. It is all very well for the Conservatives to say, “Yes, we welcome them,” but they have to answer the second question, “How do you pay for them?” There is no point in making promises if they are not willing to produce the means to pay for them.
In addition, we have brought forward capital spending, which will, among other things, help jobs in the construction industry. We have also introduced substantial measures to help businesses in relation to guarantees for loans for small firms, guarantees for small exporters, money from the European Investment Bank and measures to help businesses that are having difficulty with their taxes. Those are all measures that will make a substantial difference.
Chris Huhne: I am grateful to the Chancellor for giving way, particularly on the point about the likely debt that will result from the fiscal stimulus. Is not this the first time in a recession that the Treasury has assumed that we will lose 4 per cent. of output for ever and that a large part of the debt resulting from the projections arises because we will not regain the previous trend? Is that designed to keep No. 10 in check? If not, why is it that the Chancellor has failed to persuade the Paris-based OECD of the same phenomenon? Its estimates of the structural deficit are substantially lower than his own.
Mr. Darling:
The estimates that I set before the House reflect the fact that, as I said earlier, we have a large financial services sector here. It built up quite rapidly over the last decade and it is quite substantially affected by what has happened. It is sensible to proceed on the basis that the revenues we get in will be reduced
and it will take time before the economy comes back. Anyone setting out their prospectus for how we ought to proceed over the next few years has to take account of those realities, just as they have to take account of the fact that we have to pay for the additional spending that will come from increased benefits and other expenditure resulting from the economy slowing down.
Mr. Dorrell: Will the Chancellor give way?
Mr. Darling: Not just now. The hon. Member for Eastleigh (Chris Huhne) is right, but if we are to ensure that we come through this with less pain—helping people and businesses—it is important that, in addition to supporting the economy in the normal way, we do more. That is the difference between us. I believe that we need to take action to help people and to help businesses. People expect their Government to do that at times like this. Indeed, it is only the strength of Government that can enable us to do it.
Like every other country in the world, we face a difficult period. I am confident that we will get through it, and I am confident because we are taking the right action. We have low interest rates now, compared with the 15 or 17 per cent. interest rates that we saw in the 1990s and the 1980s— [Interruption.] Yes we did. Interest rates were sky high in the 1980s and 1990s, and this country paid a very high price for it.
Next year, we will also see inflation coming down. We will benefit from the reduction in oil prices, which will pass through to what people pay at the pump. We want to see the benefit of that in relation to gas and electricity prices as well. We will get through this because we are taking the right action. We are prepared to support people. We are prepared to support businesses in this country. That is the difference between us. That is why I commend the Gracious Speech to the House.
5.48 pm
Dr. Vincent Cable (Twickenham) (LD): I welcome the opportunity to return to some of the issues in an economic situation that is deteriorating rapidly, and is already significantly different from the environment that we discussed three weeks ago in relation to the pre-Budget report.
Before I move on to deal with the big economic issues, I want to say a little about one aspect of pensions. One thing the Government need like a hole in the head is another administrative disaster like the loss of computer discs, but I am afraid that they have one with public sector pensions. I was rung up 10 days ago by a journalist from Radio Ulster about a story that she had picked up regarding a company called Xafinity Paymaster, which pays out public sector pensions to former members of the armed services and the national health service, among others. She understood that this company had been paying out excessive public pensions, probably to hundreds of thousands of public sector pensioners, and that this error had just been discovered, and that the company was about to start retrieving the money from the pensioners.
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