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Mr. Stewart Jackson (Peterborough) (Con): What discussions will the Secretary of State have with staff at
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Luton Jobcentre Plus about reviewing the benefit entitlements of the Islamist extremists who so disgracefully disrupted the Royal Anglian Regiment’s homecoming in Luton last week, given that, self-evidently, they were not available for work?

The Minister for Employment and Welfare Reform (Mr. Tony McNulty): The benefit entitlements of any individual are determined by Jobcentre Plus, but I share the implied anger in the hon. Gentleman’s question at the disgraceful protest by these individuals. We will take up the question of how such demonstrations will be policed in future with Bedfordshire police and the Association of Chief Police Officers.

David Taylor (North-West Leicestershire) (Lab/Co-op): The direct payments to carers initiative has been very useful in many ways, but what is the position of people whose spouses are in the final stages of dementia and who do not want to be bothered with the forest of administration and paperwork that is associated with that initiative? The alternative is a high charge from the local authority to do it on their behalf. I wonder whether my right hon. Friend would discuss that serious dilemma with me, and especially a specific constituency case that cropped up this very weekend.

James Purnell: I am happy to do that. My hon. Friend knows that nobody is required to use the direct payments service. If people are happy with the service that they get from their local authority or health service, they can continue with it, but the right to control—which is in the Welfare Reform Bill for consideration tomorrow—is important because it gives people the ability to spend the money as they see fit if they are not getting the service that they want or if they think that they could improve on it. I trust that my hon. Friend will support us on that tomorrow, as he will support the whole Bill.

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G20 Finance Ministers’ Meeting

3.31 pm

The Chancellor of the Exchequer (Mr. Alistair Darling): With permission, Mr. Speaker, I wish to make a statement about the meeting of G20 Finance Ministers and central bank governors held on Friday and Saturday, to prepare for the meeting of leaders and Finance Ministers in London next month.

Since November, when the G20 last met in Washington, we have seen a collapse in international trade—a much deeper and more widespread economic downturn—with every country in the world affected. In October, the International Monetary Fund was forecasting world growth this year of 3 per cent. Now it is predicting negative global growth for the first time in 60 years.

At the meetings, it was clear that every G20 country was determined to act together to restore growth and take steps to restore bank lending, as well as prepare for recovery. There was unanimous recognition, too, that we must take action to help emerging and developing economies deal with this global downturn. We agreed on the following.

First, to support our economies, we agreed that we must take whatever action is necessary, for as long as it is necessary, to boost demand and support jobs. Many countries have already taken substantial steps to support their economies. The IMF calculates that, in the United States, this year’s fiscal stimulus is worth 3.5 per cent. of GDP; in Germany, 3.2 per cent.; in China and France 2.6 per cent.; and here too, our fiscal stimulus is 3.4 per cent. of the economy. We agreed that we should be ready to do more if necessary—not all countries in the same way or at the same time, but whatever is needed to deal with today’s problems and prepare for recovery.

Secondly, to support people and businesses, it was recognised that it is essential to restore bank lending. It was agreed that countries need to consider the full range of options available, including liquidity support, recapitalisation, and dealing with assets for which there is no market or whose value has fallen significantly. On dealing with these assets—something that we, America and other countries are already doing—while there is no single solution or overnight fix, we developed a common framework, so that countries can use the full range of options when dealing with the immediate problems in their banking systems.

Thirdly, on monetary policy, we welcomed recent reductions in interest rates, and G20 central bank governors made a commitment to maintain lower rates for as long as is needed. That is important, as it sends a clear signal that central banks all over the world will keep interest rates low to support economic recovery. It was agreed that central banks can also use measures other than interest rates, and that is why the Bank of England, the US Federal Reserve and the Swiss Central Bank are currently putting money into the economy through their credit easing programmes.

It was also agreed that the financial supervisory and regulatory regimes need to be strengthened, both nationally and internationally. There is significant consensus emerging, here and across the world, that we need to reform the system of banking regulation. That is why I asked Lord Turner, when he became chairman of the Financial Services Authority in the autumn, to come forward with
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recommendations on how to strengthen our regulatory regime. He will publish his proposals this week. I expect his overview of the system to cover four broad themes: first, capital and liquidity rules; secondly, remuneration and the links to risk management; thirdly, how better to anticipate risks to the wider economy presented by problems in the financial sector; and, fourthly, rather than our abolishing our single regulator, how the FSA can be strengthened to regulate large complex institutions.

It was clear at the G20 meeting that financial regulation in most countries needs strengthening. In particular, all important financial institutions should be regulated, including those hedge funds that are systemically important. Wider regulation must be complemented by strengthening prudential oversight in looking not only at individual banks, but at how they contribute to wider risks to the economy. In future, banks throughout the world must have sufficient reserves at all times, and regulators need powers to ensure that banks do not over-extend themselves.

We must also improve international co-operation, building on the 25 supervisory colleges set up since last year to supervise banks that trade across the world. We also need a joint international early warning system that will enable us to deal with emerging problems sooner. That means working within the European Union and recognising the need for co-operation, which we have been demanding for some time, while recognising the essential role of national regulators.

We also agreed a range of other measures on international banking supervision. All credit rating agencies need to be regulated. There needs to be full transparency of off-balance sheet exposures. Accounting standards need to improve. Regulation will cover payment and bonus systems. We agreed that tax havens must be opened up, and we welcomed recent announcements by Switzerland, Hong Kong, Andorra and Singapore that they will share tax information according to OECD guidelines. Here at home, we expect banks to comply fully with their tax obligations, and I can tell the House that I have asked Her Majesty’s Revenue and Customs to publish shortly a draft code of practice on taxation for the banking sector, so that banks comply with not just the letter but the spirit of the law.

The World Bank currently estimates that 129 developing countries, many of them in sub-Saharan Africa, are facing financial shortfalls, and up to 90 million more people could fall into poverty as a result of this global crisis. We agreed that we must minimise the impact of the crisis on developing and emerging economies, many of which—they include India, Indonesia, Turkey and South Africa, for example—were represented at the G20. We agreed that that would require a very substantial increase in resources for the IMF, and that the development banks have the capital that they need. Agreement on total levels of support will need to be reached next month.

We remain committed to fighting protectionism and maintaining open trade and investment. That is essential if we are to avoid a prolonged downturn. It is also imperative that the international institutions reflect the reality of the day; the IMF and the World Bank were set up 60 years ago. Once when we talked about the global economy, we meant the west and Japan, but not any more. For example, China is already the world’s third-largest economy. Emerging and developing countries need to be at the top table too, so we agreed that the next review
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of IMF representation should be concluded by January 2011, while World Bank reforms must be completed by next spring. We welcomed the recent decision to extend the Financial Stability Forum to cover all G20 member countries.

The G20 leaders and Finance Ministers will meet again in three weeks’ time. We must seize the moment to make a real difference, supporting our economies, dealing with the banks’ problems, and preparing for recovery. Ours must be a time for renewal to tackle the downturn and build a more sustainable future. I commend this statement to the House.

Mr. George Osborne (Tatton) (Con): I thank the Chancellor for his statement, and we look forward to the Prime Minister giving a similar statement on the day after his G20 meeting. The meetings are an important opportunity to work together to tackle the financial crisis, and to try to prevent it from happening again. Of course we must send the clearest possible signal that globalisation is not on the retreat, but surely the Chancellor must share some of the quite widely felt disappointment about the fact that the Finance Ministers’ meeting this weekend did not produce more concrete proposals and ducked some of the most difficult issues.

Let us take international trade first. The communiqué says—the Chancellor repeated this—that all countries

but I am sure that he remembers that in the last G20 meeting in November, something almost identical was said. Since then, of course, the US Congress has introduced the “Buy American” programme, the Indians have increased agricultural tariffs, and our own Prime Minister has gone around talking about British jobs for British workers. Has the rest of the G20 given up on the prospect of putting further pressure on America and India in particular to try to conclude the Doha trade round this spring, which would provide the greatest stimulus of all? If completing Doha is out of their reach, what about at least trying to freeze tariffs at their existing level, rather than allowing them to increase, as current trade rules allow.

On the reform and financing of international institutions, again I fear that the communiqué ducked some of the toughest issues. For example—again, the Chancellor repeated this—it says that IMF resources should be increased “very substantially”. The communiqué issued after last November’s G20 meeting said almost exactly the same thing. Perhaps the Chancellor could say something about how much the increase should be, and who exactly is going to pay for it. Would it not help if western powers such as Britain had the courage to give up some of the power that we have at the IMF so that countries such as China, Brazil, India and South Africa have a much greater say, instead of putting it off until 2011? Did he note that the Brazilian Finance Minister said this weekend that his country

Should that imbalance not be resolved?

We see the same fudge on future financial regulation. I am delighted that there is now growing agreement on the need for counter-cyclical capital requirements, which
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I am sure the Chancellor remembers we proposed more than a year ago. Promised future action on the credit rating agencies, off-balance sheet vehicles, stronger macro-prudential regulation, tax havens and bankers’ bonuses is all welcome if it actually takes place. Indeed, the British Government can provide unique advice on off-balance sheet accounting. It is a shame that the Prime Minister, in the 10 years in which he turned up to G20 Finance Ministers’ meetings and other such meetings never proposed any of those things. It is striking that the Chancellor still defends the system of regulation that his predecessor put in place in 1997, as it has so palpably failed.

One thing that I concede that the Prime Minister talked about during those years was an early warning system. Given that the early warnings issued in 2003, 2005, twice in 2006, and early in 2007 by the IMF about Britain’s housing bubble and Government debt levels were completely ignored by the previous Chancellor, how does the current Chancellor plan to make sure that his early warning system is listened to in the Treasury?

Finally, I am pleased that the communiqué talks about the need to constrain leverage and the need for fiscal sustainability. I just wish that we could have some of that in Britain. The outspoken comments of various European Finance Ministers and the German Chancellor this weekend exposed the transparent attempt by the Prime Minister to secure some international cover from the G20 for his attempt to create domestic political dividing lines. It turns out that they do not all agree with the Prime Minister that countries such as Britain that are running huge budget deficits can afford yet another round of debt-funded spending splurges. Indeed, the Chancellor is busy briefing newspapers such as the Financial Times that he does not agree with the Prime Minister on this, either, which should make putting together next month’s Budget quite a challenge.

It would help if we started with a consistent Treasury definition of the size of the existing fiscal stimulus that he put in place. Today, he said that it was 3.4 per cent. of our economy, but in his pre-Budget report speech to the House he said that it was around 1 per cent. of our economy. Will he clear up exactly what the definition of the fiscal stimulus is in the Treasury? Did not Chancellor Merkel sum up the choice facing the Government when she said this weekend:

That is spot on. Months after Government schemes have been announced in a blaze of publicity and cheered by that lot on the Labour Benches, almost none of them has been implemented. The working capital scheme has not provided credit to a single business; the homeowners mortgage support scheme has not helped a single home owner; the Department for Business, Enterprise and Regulatory Reform is blaming the Treasury and the Bank of England for the fact that the car manufacturers scheme is not up and running; and no one has ever heard again of the national internship scheme. We will return to those issues when we debate the wider economy later this week, and I urge the Chancellor to turn up to that debate so that he does not just do statements and debates on international issues, but answers for his policies on the domestic economy as well.

We want the G20 to take action, but that means confronting the difficult decisions on trade and finance, not ducking them. I sincerely hope a great deal more
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progress is made in the next couple of weeks. If it is not, the Prime Minister’s claim that he is fashioning a “grand bargain” will look a little over-ambitious, and he will have to return to the real world and confront his failures here at home.

Mr. Darling: I look forward to debating the economy with the hon. Gentleman when we debate these matters on a Government motion at the end of the month and no doubt on many occasions in between times.

The hon. Gentleman raises a number of points that it is important that we deal with. First, I welcome what he says about resisting protectionism. I agree that we would very much like to see the Doha round completed. We have raised the matter with both the Americans and the Indian Government. We believe that a deal is within our reach, but it is important that countries engage in that. That would send a powerful signal to the whole world that Governments are serious about resisting protectionist calls at present and breaking down barriers in the future. We have raised—I personally have raised it with my US counterpart—the need to make sure in everything we do that we do not end up, intentionally or unintentionally, with protectionist measures, which would be hugely damaging, as we have seen in the past.

The hon. Gentleman is right to raise the question of the IMF resources. He asked why we agreed that the conclusion should be reached by 2011, which is two years away, as he said. The reason is practical experience. Simply to reach the agreement arrived at last year took several years of negotiation. What I want to avoid—what we want to avoid—is any delay in giving the IMF extra resources to intervene early and decisively when necessary. If we hold that up while we have arguments about the constitution and representation, people will not forgive us. When we realise that the countries badly affected by the downturn include many emerging economies, the urgent need for the IMF to have additional resources becomes clear. The hon. Gentleman asks who will contribute. Those discussions are continuing.

On financial regulation, I agree that we all need to learn from what has happened. It is important not only that we have a financial regulatory system that deals with institutions that have not been regulated up to now, such as hedge funds and credit rating agencies, but that we ensure that the system takes account of what is happening internationally. It is important that individual national institutions react when they detect that things are going wrong. That is one of the reasons why, for example, I want our regulators and other regulators to have back-stop powers to stop banks that are overreaching themselves exposing to risk not only the bank itself, but the wider system.

It is necessary, as I pointed out in the pre-Budget report, that we support our economy now, but it is also necessary to ensure that what we do is sustainable and that in the medium term all countries live within their means. There was a recognition at the weekend that that is necessary.

I disagree with the hon. Gentleman in his conclusion, which seems to be very much the conclusion that he reached last November. Faced with a choice between doing everything we possibly can to support our economy now or standing back and letting recession take its toll, he still believes that the do nothing approach is right. I think he is wrong on that and out of touch, especially
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when we consider that in the United States, Germany, France, Japan, China and countries across the world, there is a commitment and an acknowledgement that those countries cannot stand by, as Governments did in the 1930s, do nothing and let recession take its toll. That is a price that we are not prepared to see paid.

Dr. Vincent Cable (Twickenham) (LD): I thank the Chancellor for sending me his statement.

I represent an party that is internationalist, so I naturally welcome efforts to save the world, but saving the world does start here. Many of the activities discussed at the summit could be much better dealt with at a UK level. First, may I ask the Chancellor about tax avoidance and tax havens? The Government have had 12 years to identify many of the problems in this area, especially as many tax havens are in British dependent territories. Why did they not move on that problem earlier?

I welcome the Chancellor’s comment in his statement that he will produce a code of conduct on tax payments by British banks, but why can the Government not simply stop tax avoidance in banks that are being helped by the British taxpayer? Can he confirm that RBS has stopped its tax avoidance activities? Can he answer the question that I put to his Financial Secretary last week, which is whether Lloyds, now it has been rescued, has agreed to stop some publicly identified tax avoidance devices carried out on a large scale? Since the Chancellor is negotiating with Barclays on its tax avoidance activities, some of which I put into the public domain—indeed, I sent details to the Inland Revenue—can he make it clear that any assistance under that insurance scheme will be made absolutely conditional on Barclays stopping its tax avoidance activities?

There are clearly international regulatory issues, but the most important of them should surely be dealt with domestically. The Chancellor identified the most important issue in his statement: what he calls the regulation of large, complex organisations. Is not Britain in a unique position among the other countries at the G20 summit, in that three of the five largest banks in the world are British and are becoming the responsibility of the British taxpayer? They are so large because they combine British retail, high street operations with what have come to be called the large international casino operations, much of which are centred on investment banking.

There is a fairly wide cross-party consensus on this matter. It has been expressed in the Chancellor’s party by the Chairman of the Select Committee on Treasury, and Lord Lawson made a good statement for the Conservatives this morning on the problem, advocating a reform that splits the banks into their respective component parts. Why is it then that the Prime Minister, two weeks ago, quite specifically ruled out reforms of this kind—the so-called Glass-Steagall reforms? Why cannot the Government have a more open mind? Are they over-dependent on the advice of investment bankers?

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