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Two major conclusions come out of the Turner report, one of which has already been mentioned. There is now general acceptance that the regulation of banks and bank lending has to operate on a counter-cyclical basis. The Conservative shadow Chancellor repeated that, and he is right; it is an important policy development. If he were more generous, he would acknowledge that my party was saying that five or six years ago, but none the less, we are on the same page, and that is the correct way forward. The other major issue that Turner is ambiguous about, unfortunately, is the much more important question of splitting banks so that the British Government and the taxpayer are not responsible for global banks, many of which have a large “casino” operation, as it was called by the Governor of the Bank of England. It is striking that it is not just distinguished Conservative
Foreign Ministers and Chairmen of Select Committees who are arguing for a British version of what was called the Glass-Steagall approach; crucially, the Governor of the Bank of England has waded in, saying that that must happen. The only person on the record as opposing it is the Prime Minister, and I sincerely hope that the Government will take a fresh look at the matter.
David Davis: As the hon. Gentleman knows, I am a supporter of a British Glass-Steagall approach. Does he recognise that if we go down that route, it will allow much lighter regulation for large parts of the financial service sector, which is, after all, one of its main benefits?
Dr. Cable: The right hon. Gentleman is absolutely right, and some of the hedge funds, for example, continue to operate in a reasonably lightly regulated way, provided they have proper capital, if there is a system issue involved and provided that they are transparent. That is an important justification. It is not just a question of more severely regulating the retail operations of the banks.
Mr. Redwood: Will the hon. Gentleman explain why it was the independent investment banks without commercial banking arms that went bust or got into deep trouble in America?
Dr. Cable: That rather illustrated the fact that those independent investment banks, like the investment banks that were part of RBS— [Interruption.] There is the case of Lehman Brothers, but whether they were inside or outside banks, they were high-risk institutions that posed a great risk to the system. Separating them from conventional high street banking seems a necessary step to bring greater stability to that system. Of course the right hon. Gentleman is right that both independent and integrated banks posed that problem.
Mr. MacNeil: The hon. Gentleman mentions regulation. Perhaps he will recall the Prime Minister’s speech to the CBI conference in 2005, which called for regulation to be limited and even suggested and hinted that perhaps there need not be any regulation at all. Would he care to speculate on whether that was a Stalin or a Mr. Bean moment?
Dr. Cable: I have already made the point about the balance of regulation, and I shall not pursue it.
Although it is important that we talk about bank structures and the rest, the key issue today is unemployment. That is why it is absolutely essential that we pursue two major objectives. One is getting lending flowing again. The Government now have no excuse for not doing that, because they already own two of the largest banks in the country directly. The other is having not just a stimulus for the sake of spending public money but a stimulus that is effectively targeted at job creation, using the potential that is available, particularly in the construction industry.
Madam Deputy Speaker: Order. I remind hon. Members of the 12-minute limit on Back-Bench contributions.
3.30 pm
Mr. Geoffrey Robinson (Coventry, North-West) (Lab):
What a pleasure it always is to follow the hon. Member for Twickenham (Dr. Cable). In a previous debate on a
similar topic, I complimented him on his prescience on these matters, which as we have seen today is matched only by his omniscience. I compliment him also on the national reputation for both that he has built up. If he has been so consistently right throughout these difficult times, it can only be for the wrong reasons in some cases. That, of course, is the cardinal sin. Whatever the details of the past, it is not worth going into them today. I do not even want to get into whether the situation started in America or here, because no doubt that will be a matter for historians. For the moment, the point is surely what we are going to do to confront the biggest crisis for 100 years or perhaps longer.
The House has done itself a good service in its discussion of debt in this debate. It might have been a bit too technical, but underneath it is the fundamental point that we must consider: how serious are the debt levels that we have built up? Although debt will increase as a percentage of gross domestic product, all the best forecasts that I have seen are still projecting that when we are out of the recession in 2011 or 2012, we shall have a considerably lower debt as a percentage of GDP than Japan. The figure is out of all proportion there at more than 100 per cent., which is where we were under Supermac. I believe that the figure here will be less than that of the Germans and probably the United States as well. As a percentage of GDP, the figure is not so terribly frightening.
I take the point, however, that everybody has made about debt. The Chancellor. spelled it out with great courage and good sense when he said that we would have to correct the deficit in the medium term, because it would not be sustainable for the level of debt to continue climbing during the recession. He said that it would not be tenable for the country to get into that level of debt.
The Tories have tabled a motion stating that we have to deliver on the promises that we have made, every single one of which they opposed—from Northern Rock and the reconstruction of the banks to the fiscal stimulus. The cheek of it is quite unbelievable. The Conservative party must reconsider its untenable position of now supporting the Government’s policy and condemning them for not delivering it, and at the same time saying that it is not working. I do agree that there has been some delay in getting those measures into the marketplace.
Mr. Cash: The hon. Gentleman and I have had some altercations about the level of debt over the past few months. On 7 October last year, I disputed the figures given by the Chief Secretary when she said that debt was 37.3 per cent. of GDP. By the pre-Budget report the figure had risen to 43 per cent., according to Government figures. I believe that the hon. Gentleman described what I was saying at the time as apocalyptic nonsense, but does he not accept that the Office for National Statistics itself states in its current estimates that the amount of debt is a minimum of £2.2 trillion, which represents 150 per cent. of GDP? Can he not accept that from the ONS?
Mr. Robinson:
I was making comparative judgments about other countries. If we treat their debt on the same basis as the Office for National Statistics treats ours,
theirs rises pretty much in line with ours. I think that the hon. Gentleman was referring to the private finance initiative— [Interruption.] I beg to differ and we can continue the debate on another occasion.
Mr. Robinson: I will not give way again—we have only 12 minutes and I want to concentrate on the one policy that the Conservative party has presented. They have clung to it and been almost mesmerised by it, but we know almost nothing about it except that it would encounter the same difficulties of implementation as our policies.
The Opposition propose to guarantee £50 billion to industry—that is a big number. They claim that they will rely entirely on the banks’ commercial judgment to administer it. Who in their right mind would go to the country at this time and say, “We’re taking £50 billion off you taxpayers, on top of everything else you had to put into the banks, and we’re going to trust the banks unconditionally to administer it”? It would not carry any element of credibility. The Opposition must do better. [Interruption.] If the hon. Member for Runnymede and Weybridge (Mr. Hammond) listened, he would learn that the Opposition must establish criteria and get whatever collateral and the best security they can. I underline the latter point to my right hon. Friend the Chief Secretary.
One cannot dole out public money without taking whatever collateral one can get. I agree with my right hon. Friend the Chief Secretary that we will not get the best collateral in the current climate. We are in that position because assets are wobbly, cash flows are uncertain, unemployment is rising and it is difficult for companies to borrow in the normal way through bank lending. Banks have been smashed by their irresponsibility in the duff loans that they have made. Yet the Opposition ask us to trust those very people to administer a scheme of £50 billion. That does not stack up.
The Opposition have the further brazen cheek to say, “This won’t be Government spending.” So not one pound of the billions of pounds that the Opposition propose to spend, administered by banks, will be lost. Who could believe that? It is incredible that the Tories are pushing the Government to deliver on promises that mean spending billions of pounds while simultaneously claiming that they would not spend that money, but give some quango £50 billion to give to the banks to give to any old industry they think fit.
The House must soon confront the problem, which is all over the papers, of LDV in the west midlands, where I am happy to represent a constituency. I do not want to prejudge the outcome of the case, but the company has been closed since December and had made losses in recent years. By its own account, its forward projections were entirely dependent on producing an electric van. It started off by saying that it needed £30 million or £40 million. Let us imagine that we took the Opposition’s £50 billion, gave it to a bank and said, “Go ahead—save this company for us”. It would be the height of irresponsibility. I do not know how the Government will come out of the case, but it shows the sort of difficulty that huge Government schemes pose.
We must consider the balance of risk. Are we to risk taxpayers’ money in a case, which one knows in one’s head will not work a few years down the road, but will
get through the next 18 months—after that, the money will be eaten up and the company has to close anyway—or are we to stand up in a recession and say that we cannot help? I do not want to prejudge the LDV case, but it shows the difficulties that can arise with Government-guaranteed funds. Such money should be counted as expenditure and a large element of public accountability must be built into the process. Difficulties are arising with that.
Mr. Redwood: Why is our proposal more risky than taking over £3 trillion of assets and liabilities, including some dodgy ones, and running everything, as the Government are doing, through two banks?
Mr. Robinson: The £3 trillion is thanks to the commercial judgment of the relevant banks, to which the Conservative party would give another £50 billion. Attempting to establish control over such expenditure and setting out criteria, procedures, targets and minimum amounts of collateral, constitutes a much more sensible approach. It is as simple as that.
Let me deal with the Turner report. I do not have a lot of time left—nor have I read the report in detail—but Turner attempts to deal with the problem of risk management and reward for it in the financial sector. If everything else fails on the wretched problem of Sir Fred Goodwin’s pension, which will not go away, will my right hon. Friend the Chief Secretary consider introducing a Budget measure and make clear to him what we would do? That could be done by using a Ways and Means resolution to establish a new class of pension that would be taxed at a much higher rate. The new class would define precisely Sir Fred Goodwin’s position, specifying the age at which the pension would become available, the time at which it would become available and its amount, and spelling out the rate of taxation that would be appropriate.
I know all about the problems of hybridity—my right hon. Friend and I well remember the problems that we had in defining a class for the windfall tax, which was very tricky. We could not cover the ROSCOs——the rolling stock leasing companies—or the National Grid Company, which had not been privatised by flotation. I do not know how wide she would want to go, but in this case a class could be established—it could be a class of one person, if necessary—through a Ways and Means resolution in the Budget in such a way as to avoid hybridity. That would not be using a sledgehammer to crack a nut, but we are trying to crack a very big nut, and it is one that rankles with the public. My right hon. Friend only has to look at how President Obama stood up in the case of AIG—he made it clear that every legal means would be used to bring the great fraud of all those bonuses being paid to order—to see that the issue eats away at people until a boil appears. Until that boil is lanced, it will not go away.
David Davis: I agree with the hon. Gentleman. We all feel aggrieved at Fred Goodwin’s pension, but his proposal will not work. Laws aimed at one person are invariably struck down by the courts. If he wants to get the measure of that, he should look at what happened when we tried to silence Brian Haw in Parliament square. The courts said that we could not have a law against one person.
Mr. Robinson: We would therefore simply have to extend the scope a little. Such a law would not be made against one person; it would be made against a class of people who fit certain criteria, even if only one person happened to fall into that class. That is a moot point, and we would have to fight our way through. However, I am sure that it is better that we are seen to be doing something rather than absolutely nothing and letting Sir Fred Goodwin walk away with several millions of pounds of his pension in what I suppose is a capital commutation, or whatever it is.
Let me speak frankly to the Government about the delay in bringing forward the various schemes. All of us who have been in government or seen Governments working—most of us have in one way or another—know that getting decisions out of Governments is very difficult. On such big issues, which are cross-departmental and on which the Treasury has the ultimate responsibility, it is particularly difficult. The issues for the working capital guarantee would be the same as those for the national loan scheme, whatever happens, although I think that ours is much better, because it is targeted and timely.
Whichever way we look at the VAT cut, it was timely and targeted, and it could be made straight away. That was the great thing about it. Whichever way we look at it, that is £12 billion going into the economy. VAT applies to 70 per cent. of prices and we calculated that the cut is worth £275 a year to families. I do not have a problem with the money going into independent companies and private sector profits, because a profitable private sector is what we need. We might come out of this recession with a private sector devastated and the public sector relatively healthy, and that cannot be good. Even if the money goes into profits, it has to go somewhere. If the consumer is not picking it up, it has to go into companies. If that is the case, fine—it will help the private sector.
Let me return to the dyspepsia that seems to be affecting a couple of the big programmes—my right hon. Friend the Chief Secretary knows which ones they are. I would guess—I speak now without any knowledge of the situation—that the problem is the security that the Treasury is looking for. In a recession—this is going to be a deep one and some forecasts point to another 1 million unemployed still to come—the Government cannot get the sort of security that they can reasonably expect in a normal trading environment. In a normal trading situation, the Government will get good assets and take full charge of all the assets that they can get hold of.
In the present situation, however, we might have to relax the strict criteria that the Government normally apply, in relation not only to the working capital guarantee—it is crucial that we get that out there and working quickly—and to the automotive programme. At the moment, that programme is drawn up in a very restrictive way, in that the capital investment needs to involve new, green technology in order to qualify. If we apply that criterion too strictly, however, it will probably impede access to the programme. Perhaps we need to take a more generic view. I congratulate the Government on the £27 million capital gift to Jaguar, which proves this point. Almost anything that any of the major car companies is doing today is favourable to the environment,
whether it involves cutting down on emissions or weight, or decreasing petrol consumption. Everything that car manufacturers do now is directed towards being eco-friendly.
I therefore have two points for the Government. On security, they need to get what they can get, but we must get the programme going, and they should take a fairly broad view of what constitutes an eco-friendly investment. Lastly, will they please not wait for full order books, but get the schemes going now? They are there, and the criteria have been set; we could get them going now, even if only on a modest scale to start with.
3.46 pm
Mr. Michael Howard (Folkestone and Hythe) (Con): It seems to me that we cannot arrive at the right prescription for the future of our economy unless we gain a clear view of why we are where we are. We cannot expect to be led out of our current crisis by a Prime Minister who puts his head in the sand. Before prescription, however, there must be diagnosis, and it is in that spirit that I offer my remarks this afternoon.
Of course it is true—we can all agree on this—that we are in the throes of an international recession, or something worse. Of course it is true that almost every other country is affected in one way or another, to a greater or lesser extent, but we are almost uniquely vulnerable. We are almost uniquely ill equipped to deal with the calamity that has befallen the world, and we need to consider the reasons for that. They are not too difficult to identify.
My right hon. Friend the Member for Witney (Mr. Cameron), the Leader of the Opposition, was quite right, last Friday, to accept responsibility for the things that we got wrong. We certainly failed to anticipate that the crisis we now face was anything like as serious as it has proved to be, but there are two main reasons for our present plight. Both of them were directly the responsibility of the Prime Minister, and, in respect of both of them, we certainly warned of the consequences. I have looked at the record, and I am in a position to answer the question posed from a sedentary position by the Exchequer Secretary earlier, when she asked, “Where were you?” I shall do my best to answer that question during the course of my observations.
The first of the main reasons for our present plight that I, at least, have identified was the ill-advised decision, taken by the Prime Minister in 1997, to transfer supervision of the banking sector from the Bank of England to the Financial Services Authority. The Bank of England had hundreds of years of experience and expertise in supervising the banking sector of our economy. The Financial Services Authority was new. It had none of that experience and none of that expertise, and, as we know, it has since admitted that it fell down on the job.
It has been suggested that the Conservatives criticised the transfer to the Financial Services Authority only with the benefit of hindsight, but that is simply not the case. When that catastrophic decision was taken, my right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley) was shadow Chancellor of the Exchequer. In the debate on the Second Reading of the Bank of England Bill on 11 November 1997, he said:
“With the removal of banking control to the Financial Services Authority...it is difficult to see how and whether the Bank remains, as it surely must, responsible for ensuring the liquidity of the banking system and preventing systemic collapse.”
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