Let me make a point to the hon. Gentleman about the reserve currency issue and see whether he has a response. In fact, economic history tells us the exact opposite of the point that he has just made. Reserve currencies are, in fact, most vulnerable to crises. The great sterling crises in our economic history happened precisely because we were unwinding our reserve currency role. The hon. Gentlemans point is exactly, 180°, wrong.
Mr. Gauke: I do not agree with the hon. Gentleman, but I will not get into a lengthy debate with him. I appreciate that he does not want to be the economic spokesman for his partyhe is aiming somewhat higher than that.
Mr. Hendrick: If the hon. Gentleman agrees with the International Monetary Fund that the recession will hit this country harder than most other countries, why do Conservative Members oppose a stimulus? What would they do to alleviate the suffering that job losses, business failures and everything else that is associated with a deep recession causes?
Mr. Gauke: Essentially, we have a credit crunch and a monetary problem, and we believe that we should focus on monetary policy. That view is also held by, for example, Christina Romer, President Obamas chief economic adviser. The mainstream view is that monetary policy is the most effective way of tackling the problems. Given the UKs fiscal positionthanks to the Governmentwe do not have a realistic option.
The Exchequer Secretary to the Treasury (Angela Eagle): The hon. Gentleman claims that the Opposition believe that the problem is monetary, and strongly implies that the only reasonable solution is monetary. If interest rates get as low as they have done in Japan and the US, where is monetary policy then? Is he asking for quantitative easing?
Dr. Cable: Let me follow up the Exchequer Secretarys question. I agree that monetary expansion is an important part of the package, but quantitative easing is now the only way of achieving that. I understood the shadow Chancellor to say a few weeks ago that the Conservatives categorically oppose that policy. Will the hon. Gentleman clarify that?
Mr. Gauke: Our position on quantitative easing is that it is the last resort. We have consistently said that it cannot be ruled out. However, for months, we have called for an effective national loan guarantee scheme. This country needs that. [Interruption.] The Exchequer Secretary says that that is not monetary policy, but it is. It is about getting money flowing through the economy and giving credit to businesses. That is a monetary policy, which we need, and that answers the intervention of the hon. Member for Preston (Mr. Hendrick).
Susan Kramer (Richmond Park) (LD):
The hon. Gentleman is generous in giving way. Does not he agree that, at least in my constituency, banks are not lending,
not because they perceive companies as too high a riskit is not a guarantee issuebut because they simply refuse to lend? Perhaps the reason for that is that they are not aware of the bad assets on their books and they cannot tap the broader financial markets.
Mr. Gauke: There is an issue about greater transparency in the banking systemI agree with the hon. Lady to that extent. However, it is vital that we restore confidence if we are to get the economy working again. The amount of debt and borrowing into which the Government are taking us will not restore confidence for a long time.
The governments ballooning budget deficit will soon require it to issue debt on a scale last seen at the end of the second world war.
In the context of perceiving the fiscal stimulus as an enormous help, it is interesting to examine the work undertaken by Oxford Economics, which believes that the fiscal stimulus means that 35,000 fewer jobs will be lost in 2009 than would otherwise be the case. However, it also states that the VAT rise, which will occur to return VAT to its previous level, will cost 30,000 jobs in 2010 and lead to a neutral year in 2011, and that the increase in national insurance will cost 91,000 jobs in 2012 and 84,000 jobs in 2013. This is a short-term measure that leaves the UK in a vulnerable position.
Mr. Harris: I am grateful. The hon. Gentleman has explained in careful detail what his party is against. The only policy that he has come up with in order to alleviate the current recession is a loan guarantee scheme. Is there anything else? Is that it? Given that his party has fulminated against the problem of debt, is the only solution that he is offering a system of lending people more money?
Mr. Gauke: We have set out a series of policies to help small businesses, such as a VAT deferral, which the Government have to some extent taken up. We have set out proposals for national insurance contribution cuts and a council tax freeze. The essential problem is to get lending going again.
I am grateful to my hon. Friend. It is an extraordinary position, is it not, that the Labour Government came into power on the basis that finally the Labour party had understood the need for fiscal responsibilitythat they could spend only the money that they had coming in? Prudence was their watchword, when they first came in, to restore confidence, but now they have reverted to type. They are making the country run out of money and they think the only response to
any problem is to throw money at it. That undermines confidence, which is the single most important thing we need to restore the economy of this country.
Mr. Gauke: I agree with that intervention. It appears that this is a Labour Government in reverse. Normally they come in, are reckless, and are forced to take more conservative measures. The present Government appear to have done the reverse.
I return to a further point about public works, which is essentially a practical argument. I will not develop the argument in great detail, but all parties would agree that where, within existing budgets, it is possible to bring forward projects, given that land and labour are relatively cheap and available at present, it is sensible to do so. Indeed, on the subject of social housingthe point was made earlierwhere there are no rigid rules preventing private housing development which has been mothballed from being taken into social housing use, there is a strong argument for considering that.
There may well be merit in the proposals set out by the Liberal Democrats, but they are not a response to the recession. They are not a way of pump-priming the economy. For example, one of their proposals is a five-year programme to insulate schools and hospitals. That may be a sensible policy, but it is not a response to the recession. They advance an argument for improving railway infrastructure. There may be something to be said for that. I looked at the set of schemes that they proposed, the various lines that would be improved or doubled, and the destinations and areas that those serve.
The list is interesting. Can the House spot a link? It includes Oxford, the Lake district, Lewes, quite a few destinations in the west country, Southport, Chesterfield, Hazel Grove, Cheltenham, Colchester, and a double whammythe line from Eastleigh to Romsey. [Interruption.] The list is not exclusive. I did not see any reference to Wolverhampton, but perhaps that is the least of the worries of the hon. Member for Wolverhampton, South-West (Rob Marris). The policy is not focused on the recession. It is focused on the Focus leaflet.
The problem of getting public works expenditure to tackle the recession is not unique to the UK. It is worth quoting what the US congressional budget office found when it examined the $356 billion spending proposals as part of the fiscal stimulus in the US. It concluded that only 7 per cent. would be spent in 2009 and 31 per cent. in 2010. There is a practical pointplanning permission and various details need to be dealt with. It is not easy to do that quickly.
Mr. Philip Dunne (Ludlow) (Con): On public spending, does my hon. Friend recognise this critique of the relevance of public spending, which was issued barely three months ago, when an hon. Member said that
it is entirely wrong for the Government to assume that the economy should be stimulated by yet more public spending rather than tax cuts?
Mr. Gauke: I am sorry I missed that one, so I am grateful to my hon. Friend for highlighting it. Let me match that quotation from one Liberal sage to conclude with a quotation from another Liberal sagethe Liberal sage, Lord Keyneswho wrote in 1942:
Organized public works, at home and abroad, may be the right cure for a chronic tendency to a deficiency of effective demand. But they are not capable of sufficiently rapid organisation (and above all cannot be reversed or undone at a later date), to be the most serviceable instrument for the prevention of the trade cycle.
Mr. Ian McCartney (Makerfield) (Lab): I support my right hon. and hon. Friends on the Front Bench. Irrespective of the crisis that we face in international banking and the financial sector, the strategy of co-ordinated investment in social and economic regeneration over the past decade has worked and continues to work. Without it, communities such as my constituency would still have Dickensian schools, hospitals and GP surgeries, and we would have had construction workers on the dole for the past decade and more. If we are serious about regenerating communities and engaging the private sector to reinvest in communities, the public sector requires a co-ordinated approach to replenishing the public realm.
I invite my right hon. Friend the Financial Secretary to visit us in my area of Wigan. For the past decade, we have worked with the private sector to reinvest in our townships, abandoned by the last Conservative Government, and our pit villages and our textile communities, left almost overnight with no economy and a disinvestment in our public services. That caused great social and economic dislocation. Some parts of our community are still grappling with the consequences a decade or more later.
It is important that we do not look for merely a short-term fix to get us out of our fiscal difficulties because of the failure of the American and other banking systems. We must sustain our investment for social and economic good. If we are serious about re-skilling and up-skilling our work force and giving every kid in Britain the right to be the best they can be, we need a co-ordinated approach at local level, with public investment linked to engagement with the private sector in order to develop our infrastructure and encourage investment in communities where previously the private sector had disinvested for a decade and more.
In our community, the local authority worked with the private sector to encourage the creation of public sector campuses in our small townships and our larger ones. We want the Government to utilise capital investment in the NHS, the education system, housing and local government, and to bring those investments together, instead of allowing investment by individual Departments to be made in a pepper-pot way. We need to bring forward those investments to ensure a better-resourced outcome from public investment.
During this crisis, the Government have established a National Economic Council. Before Christmas, we in Wigan met the banks, building societies and private sector developers to create our own economic council to ensure that work introduced at the top line happens locally, on the front line. I say to the Exchequer Secretary that when top-line announcements are made, we must have the capacity to ensure that they are followed through at a local level. We will be judged by communities when they can see what we talk about in this place
making a difference in their everyday lives. When we say that we will invest in schools and colleges, we have to ensure that that investment is set out in an effective way over the next two or three years, and that we are certain that local authorities can invest in them. We have to be sure about investment in housing, whether it is social housing or public-private investment to bring back private sector housing into public use, such as old stock that needs refurbishing, or new stock that cannot be sold in the marketplace today. We need a time scale that ensures that people can see the differences made.
It is important that alongside those public investments, we ensure that the banking system generates enough resources, so that where public investment with the engagement of the private sector is needed, the private sector can work in sync with us. That is critical to the LIFTlocal improvement finance truststrategy for NHS investment, particularly in primary care. We can get an agreement with the national health service, but without investment to encourage the private sector to engage in big infrastructure projects, and without banks agreeing to participate with private sector developers as part of the LIFT company, some of the Governments priority projects will be delayed. It is important to listen to voices at ground level to ensure that top-line announcements by Ministers are delivered on the bottom line, in the local community.
We must not allow the Conservatives to get away with what they have attempted to get away with tonight. They have made it absolutely clear that there would be immediate removal of capital investment in this country under a Conservative Government, leading to dislocation for the private and public sectors. The consequences for public services, and private sector companies engaged in public services, would be double what they were under the last Tory Government during the 1980s and 1990s. It is not rocket science. The policies advocated by the Tory Front-Bench spokesman, the hon. Member for South-West Hertfordshire (Mr. Gauke), were those pursued by the last Conservative Government during two recessions. At that time, the consequence of those policies was a laying waste of my community and its public services. We were trying to provide public services in our community at a time when nine out of 10 people on council estates had to rely on some form of state benefit. That was the level of dislocation caused the last time the Conservatives put into practice the policies that the hon. Gentleman advocated in relation to this recession. These are siren voices: they were wrong then, and they are wrong now. It is important, in arguing our corner, that we do not just become administrators of Treasury policies. We should be enthusiastic and tough in arguing our corner on public service investment.
My final point is about the banks, and it is not an easy hit. It is important, having rightly saved the banking system from meltdown, that the system does not revert to type. We saved the banking system for a simple reason: to protect the long-term future of business and commerce, and to protect pensions and other assets. It is no job of ours to sit back if a bank allows 12,000 jobs to go to the wall, as one bank in my constituency is doing. Why is that happening? Because the bank will not implement the strategy that the Government rightly outlined weeks ago. It is our task not only to ensure that
public services invest in the way we want them to, but to make sure that the banking system fulfils its side of the bargain. Good businesses in our constituencies are going to the wall not because they have failedthey have notbut because they need support from the banking system to get them through this recession into better days.
I hope that, in her response, my hon. Friend the Exchequer Secretary gives a clear indication of how the Government are ensuring, alongside local authorities, that public sector investments will take place in a time scale that will make a difference. They must take further action, if necessary, to protect individual companies when the banks are acting inappropriately and putting those businesses at risk.
The Financial Secretary said that the colleges programme is steaming ahead, but oh no, it is not. If the Exchequer Secretary does not believe me, I invite her to come to Colchester, where phase 1 of the Colchester institute is about to finish. In a few weeks time, the entire work force will leave the site to join the dole queue because the much-promised phase 2 does not have the necessary finance. Given some of the interventions we have heard, I imagine that that story is being repeated in other constituencies.
I made two interventions on those speaking on behalf of their Front-Bench teams, when I asked about renovation and restoration before demolition, and about new build. Let me set out the significance of those comments. I welcome public investment in my constituency whether it is £100 million or £150 million, as promised by the Conservative-led Essex county council for new schoolsor at least I welcome part of it, because some of it will not provide value for money. One of the aspects that will not provide value for money is the demolition of a perfectly good secondary school opposite the Colchester institute. The people of Colchester want phase 2 of the institute to be built before we start demolishing buildings to provide new ones. We need a bit of joined-up government.
Many hon. Members will know that I have been badgering the Government for 12 years about the resumption of council house building. It is a fact that Conservative Governments have built more council houses since the second world war than Labour ones. I made that point to Brother Blair and to the then Deputy Prime Minister, and I have made it to the current Prime Minister. We need to invest more in existing housing stock that stands vacant. In my constituency, the Government have in excess of 200 houses standing empty, for which they are paying rent approaching £750,000. Those 200-plus family houses could accommodate some of the families for whom the waiting list has virtually doubled under Labour. The houses are under the control of the Ministry of Defence, and I make a particular plea for the Government to engage in a bit of joined-up thinking, so that some of those families can move into houses that currently stand empty. I am sure that there are other houses standing empty across the country which should be brought back into use, and we could also buy up houses in new developmentsbut not flats, please. We need family houses, and I urge the Government to take that line.