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Will the Chancellor follow up his comments on monetary easing and the joint approach to credit expansion? Why is it that in Britain, the Government and the Bank of England are following a pattern of buying up gilts, which drives down the yields on gilts and causes serious problems for pension funds and pensioners trapped in compulsory annuities, while in the United States corporate bonds are being bought up? Why is there such a big divergence in how these two important countries are
pursuing the same policy? Is there some reason for it, or has it just happened by accident?
My final point relates to the wider global picture. I totally endorse the comments that the Chancellor and the shadow Chancellor made about the future of world trade and trade negotiations, but can I ask the Chancellor what was done at the summit about the collapse of trade credit, which is the counterpart of the collapse of credit insurance in our own economy? That, rather more than protectionist measures, explains the downward spiral in world trade.
Mr. Darling: The hon. Gentleman raises five separate questions, and I shall try to deal with them.
In each of the Budgets since 1997, we have introduced measures to cut tax avoidance. By its very nature, tax avoidance must be dealt with all the time. As we close one loophole, there are those who will seek to find others, which need to be closed down. It is important to have a code of conduct partly, as the hon. Gentleman says, because of the very complexity of banking and the way in which investment banks and others have sometimes sought to develop instruments in order to avoid paying taxes. That has, in itself, posed a systemic threat to the system, which is one of the reasons we need a code, so that people abide by the letter and the spirit of the law. That is very important. I cannot talk about individual institutions because the principle of taxpayer confidentiality is important, but I think that given that the public are supporting the bank system, they would expect banks to be prepared to abide by that code. Our intention is to produce a draft code, probably at the time of the Budget, and then to consult with a view to getting it introduced as soon as possible.
The hon. Gentleman asked about regulation, and he is absolutely right that there is now a consensus. Ironically, there was a consensus 10 years ago, when he himself was also talking about light-touch regulation. It is important now that people see that our regulatory system recognises the reality of the fact that we are the home regulator to some very large institutions, which could bring a lot of wealth into this country; they certainly provide a lot of employment. However, it is important that the regulatory system should be up to the mark and take account of developments today and in the future.
The hon. Gentleman asked about the Glass-Steagall split. The last time that he raised the issue, I said that it would have more strength if the problem had simply been confined to the investment banks. It was not: retail banks in this country and others got into trouble as well. There are arguments for what the hon. Gentleman said, and they need to be looked at, but I am not sure whether a 1930s-style solution is readily transmissible into what is needed in the early part of the 21st century.
In relation to quantitative easing and what the Bank of England is doing, I should say that the Bank is also buying corporate bonds, which we regard as important. The hon. Gentleman will know that in the letter that I sent to the Governor of the Bank of England earlier this month authorising him to undertake these activities for monetary purposes, I said that I wanted us to maintain the purchase of corporate bonds.
Finally, yes, the question of trade credit was raised at the weekend. It is an increasing problem, although I suspect that it will have to be dealt with country by country rather than our trying to find a simply international solution. The hon. Gentleman is absolutely right: trade credit is a problem not just for large companies but for small ones as well. That is why we are seeing what we can do in this country to try to get that insurance in place.
Mr. Geoffrey Robinson (Coventry, North-West) (Lab): I assure my right hon. Friend that on this side of the House we congratulate him on the leadership that he has shown in these matters. Furthermore, we commend his stamina and cool in the face of the diabolically difficult and complicated problems that confront the whole world economy at this point in time. That all stands in marked contradistinction to the do nothing approach of the Conservative party.
The Chancellor mentioned Lord Turner’s report, which is awaited with great anticipation on both sides of the House. Will my right hon. Friend pay particular attention to part 2, which deals with bonuses and remuneration linked to risk management? Might there be a chance of our finding in the report a solution to the Sir Fred Goodwin pension issue?
Mr. Darling: In relation to RBS, I said that UK Financial Investments, which holds shares on behalf of the bank, is discussing with RBS how that problem might be dealt with. I also said that there was widespread agreement in the discussions at the weekend. In the past, a lot of Governments said that the payment of bonuses and incentives was a matter for the individual banks. There is now a recognition that in many cases that distorted the activities of the banks so that they got into more and more risky areas, and the staff involved were very heavily rewarded. That did not just bring down one or two banks, but had very severe and substantial effects on the wider economy. As the Financial Services Authority recognised last year, and as other countries increasingly recognise, as they did this weekend, we need to make sure that we take action so that such distortion of behaviour does not happen again.
Sir Peter Tapsell (Louth and Horncastle) (Con): Is the Chancellor working towards a pan-European banking regulatory regime, with statutory authority within the United Kingdom?
Mr. Darling: The hon. Gentleman will be aware that Jacques de Larosière has prepared a report for the Commission. It raises a number of issues that we need to discuss, because we recognise that most of our banks will trade across the European Union, just as many EU-based banks such as Banco Santander and Deutsche Bank trade in this country. Therefore increased co-operation and making sure that there are similar rules within the European Union is important.
However, as I said in my statement, we have to be clear about who is responsible for the regulation of individual institutions. I therefore think that national regulators will continue to have a very important role. My view is a pragmatic one—what works and is effective is important, and we should not get too hung up on the theology of these things. It is important that we continue to talk and see where we need to co-operate and concentrate within the home state.
Kelvin Hopkins (Luton, North) (Lab): It was reported in The Independent on Sunday, and possibly elsewhere, that there were quite serious differences of view with Chancellor Merkel about the fiscal stimulus. My right hon. Friend read out the figures for the proportions of GDP that different countries are committing, but if wide differences did open up, that would be very unfair, particularly on those countries that had a bigger fiscal stimulus and took more of the burden of reflation. Could he elaborate a bit on what differences there were?
Mr. Darling: The agreement that we reached was signed up to by all 20 Governments, including the German Government, who were well represented at the meeting at the weekend and signed up to the same communiqué as everybody else. It is perfectly fair to say that whatever Governments do, they should ensure that they do it quickly and that it is implemented. However, it is also important that we recognise that as the situation continues to develop—remember that we have seen over the past few months a series of figures which show that there is a continuing deterioration in Germany, and in other countries too—it is absolutely necessary that each and every one of us should not only sign up to ensuring that we implement what we have announced but do whatever is necessary to ensure that we support our economies, come through this and get into recovery far more quickly than would otherwise be the case.
Mr. Iain Duncan Smith (Chingford and Woodford Green) (Con): The Chancellor talked about everyone essentially agreeing on the same plate about all the proposals. However, is not the reality that many other countries—Germany, Canada, and others besides—believe that Britain is entering this in a worse state than any of them and do not wish to be driven by the British to give them cover for a panic set of measures? Does he not accept that that is why the Germans are critical and he has to make a very bland statement at the Dispatch Box?
Mr. Darling: I never cease to be amazed at how the right hon. Gentleman, who has spent most of his career here getting about as far away from Europe as he possibly can, seeks to pray in aid the Germans when he wants to make an opposite case. The answer to his question is no, he is not right at all.
Mr. James Plaskitt (Warwick and Leamington) (Lab): I welcome what my right hon. Friend has said about the emerging consensus on the reform of banking regulations. Does that consensus extend to abandoning the old Basel approach to banking regulations—in particular, the internal risk-based approach? On lessons being learned, is there a sense that aspects of the wholesale abolition of credit controls and the big bang in the City in the 1980s might have been unwise?
Mr. Darling:
I think that there are lessons to be learned in respect of a whole lot of reforms that have been made over the past 20-odd years. In relation to the Basel process, I would say two things. First, the models that we have adopted in relation to how banks are regulated obviously need to be looked at again. Secondly, the Basel process, which, among other things, governs the amount of capital that banks need to hold, should certainly be looked at, because the rules tend to exacerbate an already difficult situation, and that needs to be dealt
with urgently. It is unfortunate that the Basel process took 10 years to reach fruition, and the year in which it was implemented was probably the worst possible year in which that could have happened. Therefore, this needs to be looked at again, and urgently, and it is not altogether clear that the Basel process is capable of doing that at the present time.
Sir Peter Viggers (Gosport) (Con): If banks can be criticised for taking over other banks without undertaking due diligence, how much more culpable are the Government, who spent a vast amount of public money undertaking commitments that they do not fully understand? Will the Chancellor undertake that no further public money will be spent unless there is first a careful analysis of the assets and liabilities to be taken over?
Mr. Darling: If I had followed that advice last October, when I was confronted with the imminent collapse of the banking system, and said, “No, I’m not going to do anything for several months while I carry out some due diligence”, we would have been left in absolute chaos. I agree with the hon. Gentleman that when we take on guarantees, as we have done in relation to RBS and the Lloyds group, which we announced a couple of weeks ago, there needs to be proper diligence. Perhaps he will understand that that is why there was a gap between my announcing the principles of the scheme on 19 January and its implementation. That delay was condemned by many of his hon. Friends. If he is saying, “Yes, you’re right—it is necessary to carry out due diligence”, then I agree with him on that point.
Mr. Jim Devine (Livingston) (Lab): Was there any discussion of capping interest rate charges, as they do in France and Germany? It is a waste of time for us to put money into people’s pockets when there are store cards and bank cards and when National Provident is charging interest in excess of 183 per cent. and rising, even though the Bank rate is 0.5 per cent. That is a big issue, and I wonder whether there was any discussion of it.
Mr. Darling: Individual credit cards and store cards were not discussed, but of course the general problem of credit and the burdens faced by people in all the countries that were represented were discussed. We need to ensure that when people take on obligations they are treated fairly, that they can afford to meet those obligations and that the repayment rate is realistic and fully understood.
John Mason (Glasgow, East) (SNP): I noticed that the Chancellor said in his statement that we should ensure that banks do not over-extend themselves. Will he now accept that the big mistake that Lloyds TSB made was to over-extend itself when it took over HBOS?
Mr. Darling: As I have said before, that decision was taken by the shareholders of both Lloyds and HBOS— [Interruption.] Opposition Members can groan, but I was recently reminded of the fact that the shadow Chancellor made his position clear last October, which I had forgotten. He said:
“I spoke to both of the chief executives today of the two institutions and made it clear the Conservatives support what they’re trying to put together”.
Obviously, as on so many other things that the Tories have said, they changed their mind when it became inconvenient. In response to the hon. Member for Glasgow, East (John Mason), that decision was taken by the shareholders of both institutions.
Rob Marris (Wolverhampton, South-West) (Lab): The Conservative party is, of course, in government—in Canada, which is a member of the G7 as well as of the G20. In relation to the question asked by the right hon. Member for Chingford and Woodford Green (Mr. Duncan Smith), can my right hon. Friend confirm that Jim Flaherty, in his federal budget in Canada on 21 January, announced plans for a fiscal stimulus amounting to 3.2 per cent. of GDP in the next two years? That comes from a Conservative Government, unlike the do nothing Conservatives here.
Mr. Darling: My hon. Friend is quite right that Jim Flaherty and Mark Carney, the governor of the central bank in Canada, were very clear that Governments have a duty to support their economies. But then I have always found that the knowledge of the right hon. Member for Chingford and Woodford Green (Mr. Duncan Smith) of things beyond the shores of this country is somewhat hazy.
Mr. Michael Fallon (Sevenoaks) (Con): Will the Chancellor now answer the shadow Chancellor’s point about all these new initiatives? Could he give us one example of a scheme announced since Christmas that is actually helping businesses in our constituencies—a scheme that has been announced and is actually working?
Mr. Darling: Yes, I am very happy to. For example, the scheme to allow businesses time to pay their tax is now helping about 85,000 companies. There are other examples: the VAT reduction is in place, the reduction in basic rate income tax will come in in April, and many schemes have been implemented and are helping people. When the hon. Gentleman asks about such proposals, he must reflect on the fact that he opposes each and every one of them. If the Conservatives had had their way, not one of them would have been in place, because they were not prepared to put a single penny piece towards ensuring help for people and businesses in this country.
Ms Sally Keeble (Northampton, North) (Lab): I very much welcome my right hon. Friend’s statement, especially the recognition of the impact of the recession on developing countries, where 7 per cent. year-on-year growth is needed to make any inroads into poverty. What concrete commitments were given by the G20 partners to support developing countries and to follow the notable lead that this country has given in tackling world poverty?
Mr. Darling:
My hon. Friend is right that that is important. That is why we got a commitment to increase the IMF’s resources substantially. I do not think that that commitment would have been readily forthcoming a few weeks ago. It has taken some time not only to persuade countries that we need to increase those resources substantially, but to gain recognition that that means that people need to step up to the plate and produce the
means of doing so. I am hopeful that we will be able to complete that process in the fairly near future. It is totally unacceptable simply to stand by and see maybe 90 million people go into poverty because of what is happening. That is another example of why countries need to do something, and why doing nothing is morally wrong in this case.
Mr. John Redwood (Wokingham) (Con): What, if any, should be the limit on the amount that the UK Government print and borrow to avoid a run on the pound, a debt crisis or a trip to the international moneylenders?
Mr. Darling: If the right hon. Gentleman is referring to quantitative easing, he knows that I set out limits in the publicly available exchange of letters between me and the Governor of the Bank of England the week before last.
Kerry McCarthy (Bristol, East) (Lab): I managed, with impeccable timing, to leave the Treasury Committee just when things started to get interesting. However, when I served on it, I asked regulators whether they could analyse and measure the risk in a system—not only systemic, but institutional risk. They assured me that they did that, but it is now obvious that they did not. How can we ensure, when people with PhDs in mathematics—the rocket scientists—devise new derivative instruments and other products, that some of the regulators can do the same and know what they are up to?
Mr. Darling: I am not sure whether we need more rocket scientists; sometimes we need to apply plain common sense. Adair Turner’s recommendations will be published on Wednesday, and I hope that they will provide a firm basis on which we can build. As I have said previously, we will publish a White Paper, setting out the Government’s intentions for legislation and other matters, at the time of the Budget.
Alistair Burt (North-East Bedfordshire) (Con): To revert to what my hon. Friend the Member for Tatton (Mr. Osborne) said about reform beginning at home, when the Chancellor lectured his colleagues on the evils of the off-balance-sheet mentality, did not the slightest blush colour his cheek as he remembered how the Government treated the private finance initiative? What sort of moral example does he think that that set financial institutions?
Mr. Darling: If I were the hon. Gentleman, I would not make too much of that. I think that he was in government when PFI was invented.
Mr. Michael Jack (Fylde) (Con): The Chancellor mentioned quantitative easing in his statement. What steps is he taking to ensure that banks that are beneficiaries of that scheme make additional liquidity available to Britain’s businesses at, importantly, a price they can afford?
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