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The Chancellor of the Exchequer (Mr. Alistair Darling): The action we took in October prevented the collapse of the banking system. That, together with the measures that I announced in the pre-Budget report, continues to support businesses and families in this country.
Chris McCafferty: I thank my right hon. Friend for that reply. Given the amount of toxic debt in the system, will he consider creating a public-private investment fund, designed to remove toxic debt from financial institutions’ balance sheets? Or perhaps he favours the Credit Suisse model of banks creating internal hedge funds in which they put their toxic debts to pay directors’ bonuses.
Mr. Darling: My hon. Friend is right that different solutions are being developed across the world to deal with the basic problem, which is that far too many banks have assets that either turn bad or have clearly reduced in value because of the economic downturn.
The new United States Administration have proposed the first suggestion that my hon. Friend made—a joint venture by Government and the private sector—although the details have still to be worked up. I said on 19 January that, in this country, we wanted to develop an insurance scheme, whereby the Government could provide back-stop insurance for some assets. That would remove some of the uncertainty in the system, which holds back banks’ ability to lend to businesses and people in this country. I also said that we have not closed our minds to the creation of a so-called bad bank. Indeed, we did precisely that in the case of Bradford & Bingley—we split the bank between the part that took deposits, which is still viable and was sold to Santander, and the long-term liabilities, which have been kept and run down. There are a variety of solutions to the problem.
The main problem, as I said in reply to the hon. Member for Twickenham (Dr. Cable), is that we need to get banks to realise and disclose the extent of the liabilities as soon as possible. Until that uncertainty comes out of the system, banks will continue to be reluctant to lend to each other and to their customers, not only here but throughout the world.
David Davis (Haltemprice and Howden) (Con): The proper test of the effectiveness of the recapitalisation scheme is the willingness of the banks to continue viable lending. Unfortunately, the failure of that willingness has led to a viable, profitable, long-term and well respected company in my constituency having to declare 1,000 job losses, 400 in my constituency and in that of the Health Secretary. That is a failure of the recapitalisation regime, of the credit guarantee regime and of the Treasury, in not intervening. Will the Chancellor undertake now to intervene in the case of the finance company Cattles, to ensure that the credit guarantee scheme underpins it?
Mr. Darling:
There are two issues there. First, I do not agree with the right hon. Gentleman in relation to the recapitalisation scheme that I announced in October. It was there primarily to stop the banking system collapsing. That was the scheme’s purpose, and it was supported by all parties in the House at the time. I appreciate that since then it has been convenient for his party to run away from that, but that is why the scheme was there. In relation to his general point about lending, he is right
that the crucial thing is for us to try to get lending going as quickly as possible. The recapitalisation was of course necessary, because if there were no banks, there could not be any lending. That was the first stage. The measures that I announced in January are designed to do more to get lending going.
In relation to Cattles, I am aware of the problem, which has been raised with me by other hon. Members in the House. In relation to the credit guarantee scheme, that is available to banks. That is what it was set up for and it has been run by the Bank of England. I am aware of the Cattle scheme and I will continue to keep the House informed on it.
Mr. Jim Devine (Livingston) (Lab): Is my right hon. Friend aware that when the Conservative party was in power, unemployment in my constituency was 20 per cent.? Today it is less than 3 per cent. During that time we were told that high unemployment was a price worth paying and that if it was not hurting, it was not working. Is it not the case that today we are trying to prevent that scenario?
Mr. Darling: My hon. Friend is quite right. Yesterday’s unemployment figures surely demonstrate the need to do more, not less, to help people who lose their jobs. The lesson from the 1980s is that the Government waited almost two years before they started to introduce any help, and most of that help was aimed at people who had been out of the labour market for some considerable time. As a result of that delay and doing nothing at that time, a whole generation of people was written off, and many of them never went back to work again. My hon. Friend and, I suspect, hon. Members in most parts of the House will have personal experience of knowing people who were in precisely that position.
That is one of the reasons we set up Jobcentre Plus. We set it up in the good times, when unemployment was falling rapidly. We have given Jobcentre Plus more resources, in order to help people. Even today, the majority of people get back into work within six months of losing their jobs. We will continue to ensure that we put more money into the system to help people get back into work. There are nearly 500,000 vacancies in the economy. There are jobs; it is our job to match people up as soon as we can, preferably before they leave employment, in the event of being made redundant, and help them get back into work as quickly as possible. That is another example of where the Government can make a difference for the good.
Mr. Philip Hammond (Runnymede and Weybridge) (Con): A moment ago the Chancellor told my right hon. Friend the Member for Haltemprice and Howden (David Davis) that the primary purpose of the bank bail-out was to prop up the banks, but that is not how he described it when he made the announcement last October. He defined the criterion by which the effectiveness of that intervention was to be measured in these words:
“The purpose of these proposals is to get lending started again and to get the economy moving forward.”—[ Official Report, 8 October 2008; Vol. 480, c. 280.]
Since then, survey after survey has shown that lending has dried up, and the published data show that the economy is shrinking. In the Chancellor’s own definition, has the bail-out not been a failure?
Mr. Darling: No, and the hon. Gentleman well knows that what he is saying is absolute nonsense. The primary purpose of our intervention last October was to stop the banking system collapsing. Indeed, that is why he and his hon. Friends on the Front Bench supported us, so it is no good their now saying that they were not in favour of it and would have done something different. Of course, if there are no banks in the first place, there will be no lending, so propping them up was a precondition of getting lending going again. That is no more than a statement of the obvious.
Since that time, there has been a substantial downturn of economies, not just here but in every country in the world. We can see that in all the forecasts and in all the figures that we know about at the present time. That is all the more reason for us to ensure that we get lending going again and help to fill the gap that has been left by foreign banks withdrawing from lending, not only in this country but in other parts of the world. It is also all the more reason for the Government to step in to help to support businesses and families.
That approach is supported right across the world, and the Conservatives are virtually isolated as far as that is concerned. It has been backed by the independent Institute for Fiscal Studies—which is often favourably cited by the Conservatives when it suits them—and, even yesterday, the Bank of England’s inflation report made the case that if Government support comes through, it will make a substantial difference to the position that would otherwise be the case. We are clear that supporting the banks and supporting our economy are absolutely essential, and I am sorry that the Conservative party cannot bring itself to give that support, because it is pretty essential for the future of our country.
Regional Development
4. Andrew George (St. Ives) (LD): What assessment he has made of the effect on the economy of EU regional development aid drawn down in the last 12 months; and if he will make a statement. [256285]
The Chief Secretary to the Treasury (Yvette Cooper): The UK has already benefited to the tune of more than £5 billion in the 2000 to 2006 round of programmes. Final applications under the scheme are still being dealt with, and they are likely to increase that figure further.
Andrew George: In that case, why did Treasury Ministers turn down the offer of an extended package of European regional aid to all the UK’s poorest regions as part of an EU fiscal stimulus package? I note that Treasury Ministers accepted an extension to the regional aid package for Scotland, Northern Ireland and Wales, but failed to take up the offer of the package of support for the UK’s poorest region—Cornwall.
Yvette Cooper:
As the hon. Gentleman will be aware, the Department for Communities and Local Government looked in detail at the possibilities, to determine whether the package would have a beneficial impact on the UK, including Cornwall. Having looked at the offer from the EU, the Department concluded that it had come too late and that it was too inflexible, in practice, for many programmes to be able to qualify. It would also have incurred significant extra cost and diverted resources from other key programmes. However, there are still
applications in the pipeline for Cornwall—including grant funding to support the transition of Newquay airport from military to civilian use—which, if agreed, would increase the European regional development funding awarded to Cornwall county council from £11.7 million to £14.4 million.
Miss Anne McIntosh (Vale of York) (Con): In the past, did not North Yorkshire and Yorkshire and Humberside get substantial amounts of money from EU regional development funds? That money is no longer available, yet we are now funding huge cohesion funds for other European countries. Will the Minister stand up for the regions of this country to ensure that we get our fair share?
Yvette Cooper: The hon. Lady will be aware that we support substantial investment in the UK regions. Clearly, the criteria for EU help for particular regions changes over time, which reflects the changing positions in the regions, not only in the UK but across Europe. She will know, as a fellow Yorkshire MP, that we have seen substantial growth and investment in the Yorkshire economy, and that the Yorkshire regional development agency, which gets substantial investment from the Government, has been critical in helping to support Yorkshire businesses through the downturn and through the pressures that we face. That is the kind of investment in the regions that we never had in the past, and there is a substantial difference between the way in which we are responding to this downturn and the way in which the Conservative Government responded in the 1980s.
Fiscal Policy
5. Mr. Adrian Sanders (Torbay) (LD): If he will take steps to ensure that his Department’s fiscal policy prevents women from being disproportionately affected by the recession. [256286]
The Chief Secretary to the Treasury (Yvette Cooper): We believe that it is right to try to support everyone through the difficult times, and that includes looking at the different impact of problems on women and men through the recession. The £60 pensioners’ increase in January and the bringing forward of child benefit will particularly help women and families.
Mr. Sanders: Like many seaside resorts, my constituency has an above-average number of women in employment. Sadly, a high proportion of them are the main breadwinner. That is why this is an important issue for my constituency. The TUC has said that “creative means” will be required to protect women’s jobs and to increase the opportunities for new vacancies. What creative means does the Minister have planned to ensure that jobs for women are protected or created?
Yvette Cooper: The hon. Gentleman is right to say that we want to support jobs, and people, through this. That includes, for example, the fiscal stimulus—cutting VAT and putting billions of pounds into the economy to help us through. Had that been done by the then Government in the early ’90s, it could have helped to protect 300,000 jobs. The fiscal stimulus is hugely important, as recognised by Governments across the world. It is about helping to support jobs, and it is unfortunate that other parties have not supported it.
Ms Sally Keeble (Northampton, North) (Lab): In looking at reports suggesting that the recession has impacted particularly on women’s employment, is my right hon. Friend concerned about the very many women who work, often part time, on the front line in the financial services industry and who do not get bonuses and are on modest salaries? I speak as a woman who has sat through many hours listening to male bankers talking about the crisis that they precipitated, so does she agree that a bit more diversity on the boards of these banks might actually help to improve the quality of the decision taking?
Yvette Cooper: My hon. Friend is right. Investigations have been launched, as she will know, to look at issues around diversity in the City and the way in which men and women have been paid, including bonuses, in the financial services industry. It is also, I think, important to recognise that there may be differences in the impact on employment. So far, unemployment over the past 12 months has increased by less for women than for men at the national level, but there are very wide variations at the regional level. My hon. Friend is also right to highlight the importance of looking at part-time employment. It is also the case that the tax credit system might help some people who see a cut in their wages, for example, as it can help to cushion them from the impact of what might otherwise be difficult circumstances.
Mark Lazarowicz (Edinburgh, North and Leith) (Lab/Co-op): I received an e-mail on this issue this morning from a constituent who strongly suggested that the bonus culture in some financial institutions—I do not mean at the top, but much lower down—has an inherent tendency to discriminate against women who, as a result, tend to suffer from lower pay and are more likely to be chosen for redundancy. In looking at the bonus culture, will my right hon. Friend ensure that we focus not just on what happens at the top but on how it works down throughout these organisations? Changing the boards in the way my hon. Friend the Member for Northampton, North (Ms Keeble) suggested might provide a way of ensuring that this matter is taken seriously by the banks and other financial institutions.
Yvette Cooper: My hon. Friend makes an interesting point about the way in which performance-related pay or different bonuses may be decided on and raises questions about whether there might be discrimination or unfairness as those decisions are taken. It is thus right that, in addition to looking at how to prevent an unfair bonus culture that overly rewards excessive risk across the financial sector, we should also look at whether any discrimination is taking place. My hon. Friend may be aware that my right hon. and learned Friend the Minister for Women and Equality has instigated work in this area.
Global Economic Situation
6. Ben Chapman (Wirral, South) (Lab): What discussions on the global economic situation he had with Chinese Ministers during the recent visit of Premier Wen Jiabao to the UK. [256287]
The Financial Secretary to the Treasury (Mr. Stephen Timms):
The talks on the economic crisis with my right hon. Friends the Prime Minister and the Chancellor
addressed preparations for the London summit, avoiding protectionism, moving towards a low-carbon economy and reform of international financial institutions. Both countries aim to double UK exports to China over the next 18 months.
Ben Chapman: Given the importance of the relative slowdown of the Chinese economy, was the opportunity taken to discuss with China the scale and nature of its financial stimulus package and its likely speed of effect so that it improves the Chinese economy and, with it, that of the rest of the world?
Mr. Timms: Yes, that certainly was discussed. My hon. Friend knows China extremely well, so he will know that it recently became the world’s third largest economy. It is going to be one of the fastest growing this year, but it has been deeply affected by the crisis, and some 20 million migrant workers have returned home after losing their jobs on the east coast. I was in China last month for the G20 preparations and I discussed with officials and others in Beijing what was happening in the Chinese economy. I can say to my hon. Friend that China will be a key participant at the London summit—committed, with others, to a successful outcome, which is so important for China as it is for the rest of the world.
Mr. David Gauke (South-West Hertfordshire) (Con): The Government tell us that their growth forecasts are dependent on international co-operation with China and elsewhere. They also claim that other countries are following the United Kingdom’s lead in economic policy. If that is the case, presumably the Minister will stand by the pre-Budget report’s forecasts on growth—or does he agree with most commentators, including the Governor of the Bank of England, the Secretary of State for Health and the Secretary of State for Children, Schools and Families, that the recession will be much deeper?
Mr. Timms: As the hon. Gentleman knows, we will publish updated forecasts at the time of the Budget, as normal. They will include a full assessment of developments and prospects for the United Kingdom and the global economy.
Just a couple of weeks ago, the Institute for Fiscal Studies said that
“our central forecast is that the UK will avoid deep and prolonged recession thanks to the enormous monetary and substantial fiscal stimuli already announced.”
We are taking the action that is needed domestically, which contrasts with the do nothing policies of the hon. Gentleman’s party.
Kelvin Hopkins (Luton, North) (Lab): The globalised neo-liberal economic model has proved to be inherently unstable, and has brought mass unemployment to China as well as elsewhere in the world. Did my right hon. Friend discuss with the Chinese the possibility of a fundamental reorganisation of the world economy, perhaps on Bretton Woods lines, and did he read Anatole Kaletsky’s article in The Times on Monday, calling for what he called a “paradigm shift” in economic arrangements?
Mr. Timms:
There are lots of interesting ideas around at the moment. What I can tell my hon. Friend is that, as I indicated earlier, the reform of international financial institutions was one of the topics discussed by my right
hon. Friend the Prime Minister with Premier Wen in London, and it is certainly one of the topics being considered in preparation for the London summit. I think that we shall need to see some significant changes.
Mr. Mark Field (Cities of London and Westminster) (Con): What steps is the Minister taking to work closely with the Chinese businesses based here in England—both large and small—which will play an important part in ensuring that we retain the links between our two countries, not just now but in the decades ahead?
Mr. Timms: The hon. Gentleman has made an extremely good point. The United Kingdom economy benefits substantially from Chinese investment in the United Kingdom; I believe that we are the biggest recipient in the European Union. We also have the China-Britain Business Council, which does important work. The relationship is very important to us economically, and also, as Premier Wen emphasised, very important to China.
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