I am concerned that the Mayor of London may prioritise public subsidy of low-cost home ownership projects. I accept that many families in my constituency aspire to become home owners in future, but Housing Corporation research shows that London has a surplus
of those projects, with almost 10,000 shared ownership properties standing empty in London because Londoners cannot afford to buy them and the banks will not lend on them. In monetary terms, that represents more than £600 million-worth of public investment currently doing nothing to help the homeless and overcrowded families who need it most.
While I am on the subject of overcrowding, I would like to remind the Government of the promise, made during the progress of the Housing and Regeneration Bill, to introduce secondary legislation to change the definition of overcrowding to a bedroom standard. The Under-Secretary of State for Communities and Local Government, my hon. Friend the Member for Hartlepool (Mr. Wright), committed to introducing such secondary legislation. Committee members were told that secondary legislation could be introduced in 2009. Well, 2009 is upon us.
Having encouraged the new Minister for Housing, who attends Cabinet, to act on overcrowding and home building, I urge her to assist the Government in their aim of poverty eradication. I also ask her not to consider any late amendments to the Bill that would downgrade the security enjoyed by council and housing association tenants. Stories in the press suggested that she might do that. Perhaps the stories were placed to bounce my right hon. Friend into backing plans to scrap secure and assured tenancies, but thankfully, the lady was not for bouncing. My hon. Friends and I were greatly reassured by her willingness to dismiss those back-door briefings as
speculation ... to put it mildly.
John Hillss detailed research, published last year, made it clear that the reasons for disproportionate rates of worklessness among those in social housing are complex and manifold. Anyone who doubts that need only look at how much higher the rates of worklessness are among homeless families placed in non-secure, expensive temporary accommodation. Housing benefit often drives people further from the job market and deeper into the poverty trap. That is why I welcome the commitment by my right hon. Friend the Secretary of State for Work and Pensions to undertake a housing benefit review to look into the difficulties associated with the housing benefit taper. The consequences of no reform in that area will certainly have a negative impact on the Governments commitment to halving and then eradicating child poverty in London.
Before arriving in the Chamber today, I had an extremely productive meeting with the Under-Secretary of State for Work and Pensions, my hon. Friend the Member for Burnley (Kitty Ussher), in which we discussed that very issue. I am grateful to my hon. Friend for her time and her intelligent analysis of the extremely problematic issues. I am genuinely hopeful that a solution will be found to help families who cannot afford both to work and to keep a roof over their heads, and the heads of their children.
My contribution today has, of necessity, been short, and short contributions can mean that arguments are not fully developed. However, I hope that I have highlighted some of the challenges and complexities
that will need to be addressed if we are to ensure that the Government meet their commitment to eradicating child poverty by 2020.
Mr. Andrew Pelling (Croydon, Central) (Ind): First, may I declare that I am an RBS pension holderI hope to be paid a pension at some stageand I hope that my NatWest overdraft will continue to be provided. More importantly, I do some work in the City, and I provide services to customers such as the World Bank and Scandinavian local government funding agencies, which are involved in the debt markets that I shall discuss.
I was pleased by the remarks of the hon. Member for Gosport (Sir Peter Viggers) about the attractions of pursuing the bad bank solution. There are strong arguments for pursuing that means of dealing with the difficulties in the financial markets, which may be more cost-effective than the routes pursued by the Government. I was taken with what the right hon. Member for Birkenhead (Mr. Field) said about the importance of the Government being cautious about the way in which they spend their money. What is happening is a bit like a hunter who has been disturbed in the middle of the night by a bear outside, and bravely jumps out and starts shooting in the dark, not entirely sure that they are going to hit the target, and in great danger of running out of ammunition by the time the time the bear is upon them. The Government have acted with great vigour and rigour, but unfortunately, they may not always have the right solution.
Bob Spink (Castle Point) (Ind): My hon. Friend is discussing the financial market, and he will be as concerned as I am about the Madoff swindle, which could cost HSBC and the Royal Bank of Scotland alone a sum approaching £1.1 billion. How will that impact on hedge funds, and what should the Government do about that right now?
Mr. Pelling: It is important that we debate that issue on the day on which the extent of the Madoff scandal and fraud has come to light. At over $50 billion, it is much bigger than the amount of the fiscal stimulus proposed by the Government. To provide confidence in the hedge fund industry in the UKmy hon. Friend is right to emphasise the fact that the crisis is attacking the financial industry here in Londonit is important that proper work be done as a matter of urgency to audit hedge funds in the UK.
The Government try to make a great merit of the importance of fiscal stimulation. I strongly believe that the fiscal approach must be the premier approach compared with monetary policy, but fiscal stimulation must be more effective than the 5p reduction in VAT on the £2.35 price of a Costa coffee. The reduction in VAT to 15 per cent. has a minimal effect on the price of the coffee. Normally, one would expect to buy nine coffees before being given one free, but now one must be particularly hyper, consuming 47 cappuccinos at £2.30 each before seeing a tangible return on ones discounted morning pick-me-up. Perhaps that is what the Government meant by stimulating the economy.
Unfortunately, the figures that the Government face in the crisis are serious. Despite the determined way in which Ministers have acted since the crisis fell upon them in the autumn, someone was definitely asleep at
the wheel when it came to regulation. UK bank assets more than doubledup 125 per cent. in seven yearsand one of our leading banking institutions had a leverage rate of 60:1. The Government make bold statements about the fact that it is their intention to ensure that the extent of lending in 2007 is maintained but, unfortunately, that is a quixotic aim, because it was the securities marketsecuritisationthat provided liquidity for the economy, and we must bear in mind the fact that over the past seven years, the amount of annual liquidity provided to the markets by UK securitisation rose from £13 billion to £257 billion, so £240 billion a year has gone out of the lending market as a result of the destruction of the securities market. We must acknowledge just how challenging the Governments task is. It is difficult to criticise the banks for not lending when one realises that they are in fact lending more, but the securities market has been destroyed, so what we as Members of Parliament see at constituency level is a huge contraction in the credit supply.
The Government need to think carefully about how they set about providing additional liquidity. I am disappointed by the announcement today by the Government that it is their intention to extend further Government guarantees for the public issuance of debt by banks. It must be remembered that British banks using the guarantee are issuing that debt at the equivalent of 1 per cent. more per year in interest rate costs than the equivalent LIBOR gilt yield rates.
That has the effect of greatly increasing the cost of that money to the Government. It would be better for them to secure funding for the UK banks 1 per cent. more cheaply through issuing gilts directly, and lending that money directly to the banks. That would give the Government greater control over the banks, which we as Members of Parliament crave, and would not allow the standing of Government debt to become so debased by being issued at the ridiculously high rate of LIBOR plus 90 basis points.
The sum of £250 billion is what the Government intend to allow the banks to borrow using the guarantee of Her Majestys Government, but we could theoretically save 1 per cent. a year on that borrowing by deciding that that borrowing should be issued directly through gilts. Over the three-year period that these bonds are allowed to be issued, that would save a total of £2.5 billion, which could be better spent on schools or hospitals, or perhaps even paying for a minute part of a further recapitalisation of a bank. It must make sense in the context of the approach that is being taken. I had a great deal more to say, but many other Members wish to speak in the debate, so I am happy to conclude now.
I shall concentrate on the economy and the impact on my constituency and region, the west midlands. Economic historians will debate for many years the culpability for the current international economic crisis. The central problem seems to be that international finance and the
mechanisms and tools used to move money round the world have outstripped the national and international supervisory and regulatory bodies. It ill behoves Opposition Members to criticise the Government for not regulating the finance market properly, when the Opposition were advocating total deregulation of the market.
In the end the public will judge us not on who is culpable, because it clearly is an international crisis, but on what the Government do about it and what mechanisms they are prepared to adopt to deal with the probleminterest rate monetary policy, or monetary policy plus fiscal stimulus. From my discussions with electors and above all with local manufacturers, it is clear that a combination of the two is needed.
People in my constituency and the black country as a whole remember the monetary policies of the early 80s, which were devastatingand happened within an international economic context far more benign than the problems with which we are dealing at the moment. The manufacturers whom I meet do not talk about balanced budgets. They talk about the availability of credit and needing loans, as well as about needing rate relief on empty properties which the Government have now delivered. Above all, however, those manufacturers say that there is no point in providing companies easier access to credit if those companies do not have an order book to respond to. Order books can be built up only if the economy in general is stimulated. I believe that the VAT £12.5 billion stimulus will provide that stimulation, as will the public works that are being brought forward.
At the end of the day, small companies face diminishing order books and the necessity of laying off workers. The only legacy of the 1980s that the manufacturers remember with any regard is, ironically, the one interventionist Thatcherite measurethe short-time working directive, when workers were subsidised for not leaving the employment of a small company. It is absolutely essential that we preserve our manufacturing base. If we do not have any industry when the upturn comes, we will not be able to take full advantage of it. Areas such as mine in the west midlands are in many ways a litmus test of the sort of policies needed to keep our industrial base intact.
I turn briefly to the car industry, which represents about a quarter of the manufacturing output of the west midlands. Land Rover-Jaguar alone employs 13,000 people, and including the automotive components industry, car industry employees make up a huge section of the west midlands work force. The Government have rightly intervened in providing money for the banks; that was essential to stop our national finance system seizing up. However, over and above that, we have to recognise that vital industrial sectors may need supporting in a way that has not so far been envisaged. We have tried to get cheaper credit through the banking system, and we may need to consider industry-specific measures designed to provide cheap loans from the finance arms of the car companies, to stimulate the purchase of cars, which are such a vital and strategic part of our industrial base. Similarly, we may have to look to measures to preserve the cutting-edge research and development in our car industry.
Although I praise the Government for their work so far, I finish by reminding them that that work is not over. The issue is about saving not just the banking
sector but our industrial sector; so much of the work done with banks will be lost unless we do the latter. I ask the Government to take that on board, andif necessaryto be bold.
Mr. Philip Dunne (Ludlow) (Con): It is a great pleasure to follow the hon. Member for West Bromwich, West (Mr. Bailey), who is a worthy champion of the motor manufacturing industry. Many of the small manufacturing companies in my constituency supply some of the major motor manufacturers in his, and we work together on those issues.
I should like to start by injecting a note of blame. Some other hon. Members have chosen not to blame the current economic crisis on the Government, and that surprises me. Today, we heard the Chancellor delivering a speech while presiding over what is, as one Minister admitted today, the worst recession. The Chancellor is presiding over a currency in free-fall and a public sector debt that is to double in the next five years. Yet despite the Governments having been in power for more than 10 years, Labour Members say that that is not the Governments fault. I find that extraordinary.
It is particularly extraordinary to claim that this is all down to global causes and that other economies are suffering alongside the UK, because none is suffering as badly as ours. Sterling has fallen further and faster than any other major currency this year. Why is that, and why has it happened particularly in the past few weeks? It is because currency markets increasingly lack confidence that this Government will be able to borrow what they need to borrow, by their own admission, over the years to come. That is why the currency is collapsing.
The Chancellor was not prepared to admit, when challenged today, that he is doubling the public sector debt under his watch. If the gilt markets are not prepared to fund the Governments borrowing, two things could happen: interest rates will rise to the point whereby that funding becomes available or the Bank of England will print money to enable the Government funding to be established. Either way, we are heading for significant deflation or stagflation, neither of which Labour Members should feel any comfort about. Commentators are now asking themselves whether the UK will have to follow the path of the Seychelles or Ecuador by defaulting, or they are starting to talk about returning to international agencies to bail the economy out of a prolonged period of Labour Government, as has happened before.
I should like to talk briefly about the banking crisis. Government measures have led to a succession of errors helping to compound the problem, in our economy in particular. We have heard much talk about the regulatory problems being not of our making. I remind Labour Members that the new banking regulatory system, which was put in place 10 years ago by the then Chancellor, now Prime Minister, and the then Chief Secretary, now Chancellor, was found wanting a year ago when the Northern Rock crisis took place and the Financial Services Authority itself admitted that it had not regulated properly.
When Conservative Members argued in favour of the independence of the Bank of England, we were not arguing in favour of the FSA taking over banking regulationthat was not how we saw it then or see it
today. When Northern Rock got into difficulty last year, the Government were unable to take the swift decisions necessary in order to deal with the crisis as it arose. Despite ministerial denials ever since, they dithered and shilly-shallied and did not take the opportunity to place Northern Rock into the safe hands that were on offer.
The bank recapitalisations of this autumn have also been poorly executed. As other Members have said, they have been funded by an extraordinary series of preference share issues which have provided terms that would prevent anybody else from participating, so should those banks require funding in future there will be no sources of capital other than the Government available for them to dip into. The recapitalisation has created a structure in which, by definition, only money from the Bank of England or the Treasury will be able to continue any sort of bail-out. It is not helping the real economy, because the banks have been faced with conflicting signals. On one hand, the excessive borrowings of the past decade widened their capital adequacy ratios dramaticallyaccentuated in some cases, as the hon. Member for Warwick and Leamington (Mr. Plaskitt) said, by the Basel II regulations, the classic example being Northern Rock. The expansion of the loan books had been so significant that, whereas in the 1970s the gross assets to common equity ratio was in the order of 15 times, in recent years it has been in the order of 90 times, on the narrow definition of common equity.
There has been a dramatic expansion of risk in bank balance sheets, which is why many of the assets that banks invested in require recapitalisation when they turn sour, either out of profits, which banks find extremely difficult to generate in the current environment of falling interest rates, or capital, which will not be forthcoming other than from the banks. The banks are being encouraged to lend by the Government but at the same time they are trying to generate capital to cope with the asset write-offs that they can see coming, and that circle cannot be completed.
Mr. Jim Cunningham (Coventry, South) (Lab): I was very interested in what the hon. Member for North-East Bedfordshire (Alistair Burt) had to sayhe is not in the Chamber any morebecause I seem to remember that he was the Minister who introduced the Child Support Agency a long time ago as part of John Majors Government. He may cast aspersions on others tonight, but some of us have long memories, and people have been trying to put the CSA right ever since.
I represent Coventry, and we in the west midlands have been concerned about manufacturing for a long time. Over the years, certainly under the previous Government, the industrial base was eroded to the point where the west midlands now provides in the region of 25 per cent. of this countrys manufacturing. We are obviously very concerned about that, and when we consider that the west midlands produces about 10 per cent. of this countrys wealth, we see that it is an area to be reckoned with.