The Chancellor of the Exchequer (Mr. Alistair Darling): The measures that I announced in October have stabilised the banking system, and inter-bank lending rates have fallen. The three-month LIBOR rate halved to just over 3 per cent. this week.
Harry Cohen: In the present circumstances, a Government who intervene are far better than one who would sit on their hands, and the Government have been right to rescue the banks, get funds to small businesses and bring forward capital spending. Will they now consider creating more public sector jobs, providing funding for partnerships between public authorities and businesses, and taking a public stakeholding in businesses that need it and have a viability beyond the current downturn?
Mr. Darling: I agree that it is important for public expenditure to support the economy at this stage. As my hon. Friend says, we have brought forward spending in relation to housing, transport and other matters, and we will continue to do whatever is necessary to support our economy. The difference between the Government and the Opposition is that we believe that Government have a role here. We are prepared to increase expenditure to support the economy, as I announced in the pre-Budget report, and we will continue to do that.
Mr. Michael Fallon (Sevenoaks) (Con): Given the deputy governors warning yesterday and the evidence that credit is continuing to contract, will the Chancellor look again at the capital requirements applying to banks, and indeed the terms of his October rescue package for the Scottish banks, to ensure that spending really is getting through? Will he inject some urgency into this process to prevent hundreds of thousands of jobs from being lost unnecessarily?
Mr. Darling: The hon. Gentleman raises a very real issue relating to bank recapitalisation. In October, the Financial Services Authority, along with the Bank and ourselves, agreed that it was necessary to recapitalise the largest banks in the country. The FSA is considering that level of capitalisation, and, as part of the Basel process, it is also, along with others, considering the effect of the requirements of capitalisation in relation to the current economic circumstancesthe procyclicality, as it is described. I agree with the hon. Gentleman that the issue needs to be looked at.
As for the two banks in which we have shareholdings, the House will know that there is a requirement for them to maintain the availability of lending at 2007 levels. Since the announcement, RBS in particular has said it will ensure that it treats its small business customers far better than in the past, and that they will benefit from the interest rates being offered.
There is a lot more to be done. The hon. Gentleman is right to speak of urgency, given the situation that we face at present. Wethe Government, the FSA or the Bankwill continue to do what is necessary to help to ensure that sufficient lending comes into the economy, while at the same time ensuring that the banks are resilient enough for the future.
Mark Durkan (Foyle) (SDLP): Is the Treasury tracking the behaviour of banks in Northern Ireland, including Ulster bank, a wholly owned subsidiary of the RBS, which is not offering business customers the standards, terms and rates offered by the RBS here? Can the Chancellor assure small businesses that they will not be caught in a vice between tax demanded and money unavailable for borrowing next month, which marks the beginning of a new VAT and PAYE quarter and the deadline for tax returns from those who are self-employed?
Mr. Darling: We monitor the lending of banks in every part of the United Kingdom. If the hon. Gentleman knows of specific instances in relation to the Ulster bank, I should be grateful if he would tell me about them. We have a lending panel that examines the concerns of small businesses, which is regularly chaired by my noble Friend the Secretary of State for Business, Enterprise and Regulatory Reform.
As for the problems relating to payment of tax, the hon. Gentleman will recall my announcement in the pre-Budget report that Her Majestys Revenue and Customs was introducing a scheme that would give people time to pay not just VAT, but corporation tax and income taxindeed, all taxes. That facility is now available, enabling people to pay their bills over an extended period, and I am glad to say that it is being well used. We are aware of the problems that would otherwise be caused to small businesses cash flow.
Mr. Graham Brady (Altrincham and Sale, West) (Con): Does it remain the Chancellors policy that it is better to use public resources to get the banks lending again than to use them to give direct support or subsidy to particular industries?
I do not favour what is sometimes termed a one-club approach. I think that it was right for us to use public money to recapitalise the banks where that was necessarysome of them had raised money
privatelyand we will continue to do that. As for direct lending, in the pre-Budget report I announced the provision of £1 billion to help small and medium-sized enterprises specifically. I also said that we would think about how we could implement the Crosby report and support mortgage lending.
A variety of measures are needed, but they are all doing the same thing: they are all aimed at supporting different parts of the economy. I must tell the hon. Gentleman, however, that if we are to do any of these things, it is also necessary to be prepared actually to spend the money. Otherwise this will become merely an empty promise, like the promises being made by his Front-Bench colleagues.
Mr. Dennis Skinner (Bolsover) (Lab): Does the Chancellor agree that one of the quickest ways to get people back into work is through the construction industry, and is he aware that a number of local authorities are ready, willing and ableand have got the landto start building council houses again? Bolsover district council, for example, has made representations to replace some old bungalows and to build some more as well. Will he encourage these local authoritiesLabour controlledto get moving again?
Mr. Darling: I agree with my hon. Friend that it is important that the public sector supports the construction industry; if public money were not going into housing, and into schools, hospitals and other construction projects, the industry would be in a far worse position than it is in even now. That is why we have brought forward permission for local authorities and other public bodies to spend money. That is very important, and if councils are not doing that, people should ask them why not, because we have made it clear that we are prepared to allow spending to be brought forward in all parts of the country. We have also made it clear to the devolved Administrations that they, too, can bring forward their proposals, and we look forward to receiving them.
Mr. Tobias Ellwood (Bournemouth, East) (Con): The Chancellor said he will do what is necessary to help the British economy, but it is now clear that we will have the worst recession of all the G7 countries. Does the Chancellor feel that it might be necessary to visit the IMF and ask for a financial bail-out?
Mr. Darling: Because of the sheer size of the financial services sector in this country and because the financial services sector is affected by a global recession right across the world, we are, of course, bound to be affected by that, but, as I said to the House at the time of the pre-Budget report, I am confident we will get through this. I have set out how I believe we can do that, and it involves the Government being prepared not just to borrow to support what are known as the automatic stabilisersthe rising benefit payments and so forth that we get in any downturnbut to do more than that by putting £20 billion more into the economy, as that is the right thing to do to support the economy and therefore to support jobs.
Dr. Vincent Cable (Twickenham) (LD):
Following the revelation only this week that taxpayer-supported and guaranteed banks lost hundreds of millions of pounds in a pyramid selling scheme, I want to ask the Chancellor about curbing gambling activities. There is a certain
amount of emotional appeal in the Conservative leaders proposal that bankers should be rounded up and put behind bars, but is not a more practical and immediately useful suggestion that the banks should be required to divest themselves of their high-risk investment banking operations and concentrate on mainstream lending to British households and firms currently being deprived of credit?
Mr. Darling: I agree with the hon. Gentleman that there are serious questions to be asked in the United States about the particular matter to which he refers, and I think I am right in saying that the chairman of the American Securities and Exchange Commission has indicated that there needs to be a thorough investigation there. However, I also think it is important that all banksthe boards of all companies, in factshould know and understand the risks to which they might become exposed. The evidence of the last year is that far too many banks were not fully aware of those risks or did not make sufficient provision against those risks turning bad. The hon. Gentleman is right that we need to learn the lessons of what has happened in the past, which is why I said I wanted to bring forward proposals in the spring to look at aspects of our regulatory system, but that must also be done across the world. The G20 group of leaders and Finance Ministers discussed that at the meeting in Washington in November, and we will discuss it again when we reconvene in London in April.
Mr. Philip Hammond (Runnymede and Weybridge) (Con): Now that the Government have accepted the recommendation that we have been making for some time to reduce the cost of inter-bank guarantees offered by the Government, will the Chancellor also now accept our advice to reduce the cost of the preference share capital offered to the banks?
Mr. Darling: In relation to the cost of the scheme, I said when we made the announcement that we would keep all the terms and conditions under review. We were the first into the field. Since then, other countries have come up with schemes of their own, and it is right that we keep these matters under review. As I said in the House when asked about preference shares on Monday, we will look at that, but I want to make sure that we balance the need to ensure that the banks lend to the business community and individuals with the fact that the taxpayer must get a fair deal. The Conservative Front Bench raised that in October, and it is right to do so again now as that concern has not gone away.
I note the Chancellors comments. Given the responses that we have had from him, the future looks bleak indeed. Does he agree with the German
Finance Ministers view that this Governments policies will saddle the country with debt
that will take a...generation to work off?
Mr. Darling: No, I do not. I wish to say three things on that. First, Peer SteinbrĂ1/4ck is an extremely charming man and I enjoy working with him very much. Secondly, I fully supported him when he introduced a fiscal stimulus into the German economy of about 1 per cent.that is almost exactly the same as what we have donesome time ago. Thirdly, our debt levels are lower than Germanys.
Mr. Adrian Bailey (West Bromwich, West) (Lab/Co-op): The business community in my constituency has emphasised to me that the Governments priority must be to have measures to sustain our manufacturing base, so as to maintain our tax base for the future. Can my right hon. Friend assure me that he will not listen to the scaremongering and siren voices from Opposition Members, and that he will ensure that support for business is maintained as the Governments priority during this economic downturn?
Mr. Darling: I agree with my hon. Friend that it is important that the Government support business. That can be done in a variety of ways, both indirectly and directly, as appropriate. Of course, we need to balance that with a need to ensure that we have proper regard to the public finances and the interests of the taxpayer. He is right to say that at a time such as this all the measures that the Government are examining are designed to help businesses get through what is undoubtedly a difficult period.
Mr. Mark Field (Cities of London and Westminster) (Con): Despite the record levels of debt that the Chancellor is predicting for the next five years and beyond, he continues to assert that Britain is uniquely well placed to deal with this downturn. On what basis has he come to that conclusion?
Mr. Darling: The hon. Gentleman is right to say that our debt levels will rise over the next period. That is partly because it is inevitable in any downturn such as this that the Governments revenues will fall and the unemployment benefit payments that we have to make will rise. The operation of the automatic stabilisers, to which I have referred, is supported on both sides of the Houseindeed, the Leader of the Opposition said that he supported itand it accounts for the major increase in the Governments expenditure. As I said, it is also necessary for us to put more money into the economy. If we look ahead, we will see that during the next year we will have low interest rates and far lower inflation than in the past, and energy prices will continue to fall, which will help in relation to what people pay at the pump and must also affect the amount that people pay for gas and electricity. Of course, in addition, we reduced the amount of debt from the level that we inherited when we took office in 1997, and we will continue to do everything we can to support the economy.
Mr. Andrew Love (Edmonton) (Lab/Co-op):
Is this not rich coming from the Conservatives, who, as my right hon. Friend has said, support the automatic stabilisers,
which account for the vast majority of the increase in debt and borrowing, and who have two major recessions behind them? Is it not outrageous that, as the official Opposition, the Conservative party is the only one in this House that does not support
Mr. Darling: I agree with my hon. Friend. The difference is that whereas during this downturn we are prepared to take action to help people and businesses, that simply did not happen in the 1980s and 1990s, and the country paid a very heavy price.
Mr. Darling: As the hon. Gentleman knows perfectly well, the market for trading in Government debt is pretty thin and it really cannot be compared with the trading of Government debt in relation to companies.
Mr. Andy Reed (Loughborough) (Lab/Co-op): Although there is a great deal of risk in not doing anything, there is a certain amount of risk in what is taking place. Does my right hon. Friend agree that even a 1 per cent. financial stimulus in the economy may not be enough? Will he comment on the possibility of considering further financial stimulus in the new year because of the level of the global economic downturn and its effect in constituencies across this country?
Mr. Darling: The announcements that we made in the pre-Budget report were right. As my hon. Friend says, the risk of not doing anything was far outweighed by the advantages of taking action. In the current climate, there is no Government in the world who are not looking every day at what else they need to do, but while it is right to allow borrowing to rise now, we must ensure that we take the right action to ensure that borrowing falls and that we come back into current balance within a reasonable period. That is what I said in the pre-Budget report and that remains the Governments position.
Mr. Mark Hoban (Fareham) (Con): The Chancellor plans to increase taxes by £40 billion to reduce Government borrowing, but will not the planned £5 billion tax hike on jobs hamper our recovery? Does he not realise how much damage this borrow now, pay later policy will cause?
Mr. Darling: Assuming that the hon. Gentleman agrees with his partys leader, he supports the decision to allow borrowing to rise through the operation of the automatic stabilisers, and that accounts for about £60 billion of the borrowing. I know that he does not agree that we should go further, but his approach is just plain wrong. We need to ensure that as the economy comes out of this periodas it recovers and starts to growwe bring our borrowing back down. It is better that we should do that and I set out in the pre-Budget report a fair way of doing so.
The Financial Secretary to the Treasury (Mr. Stephen Timms): The impact will be very strongly positive. The package addresses small businesses cash-flow problems, their access to credit and management of their tax liability. The fiscal stimulus will be crucial in encouraging economic recovery.
Dr. Iddon: My constituency has a fair number of large multi-storey former cotton mills, the basements and upper floors of which are difficult to let. How temporary will the 70 per cent. relief on non-domestic properties be, and how will it affect a business man who owns one of those mills, pays the business rates and then sub-lets to a multitude of other smaller businesses?
Mr. Timms: My hon. Friend is right to draw attention to the benefits of this measure. It is a temporary increase, to £15,000, for next year only2009-10in the threshold at which empty property becomes liable for business rates. As he says, some 70 per cent. of empty properties will pay no rates next year as a result. He asked about subdivided properties. Their position will depend on the nature of the division and whether the property constitutes a separate, self-contained hereditament for ratings purposes. A landlord who is concerned should check the liability with the Valuation Office Agency.
Mr. Julian Brazier (Canterbury) (Con): Does the Minister accept that for small businesses this is a relatively small package compared with the overwhelming effect of the unwillingness of many banks to lend to them? Does he also accept that the Government mis-structured their huge package in such a way that the banks have an incentive to pay it off as quickly as possible and to get their loan books down rather than up? It is that circumstance that is driving the recession more than anything else.
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