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The roots of the current crisis lie in the 1980s and 1990s, but their effect is only now hitting home. We all remember, from reading learned newspapers, smart talk of “post-Fordism”, of how we were moving into a
post-industrial age, and how the provision of services was the way forward and the production of things something from the past. We were told that Britain was in a uniquely strong position in this new economic order because of the history, experience and international reputation of the City of London, and that the City, and all that it brought with it, would be the golden goose for the economy. This is clearly not true.
Like the industrial revolution, the financial revolution has affected us in every corner of our lives. Let us take our attitude to housing. A home is now a speculative investment, a source of access to greater credit or a piece of equity that can be realised at some point. Housing has become a national obsession, and that has severely distorted the economy. I saw some figures suggesting that, at its peak, the buy-to-let revolution “contributed”—I use inverted commas—four times more to the UK economy than the motor industry. To pick up on the comments of the hon. Member for Aldershot, I believe our economy is dangerously unbalanced and needs adjusting.
What situation are we in today? Is this merely a re-run of the 1980s? I would argue that it is a re-run of the 1930s. There is evidence of a 1930s-style downturn. The current decline in financial markets has continued for 17 months to match the rate of decline after 1929, which is the most severe recorded. The decline has not yet carried on for as long, but it is following the same path.
I was going to look at the effects on the real economy. The latest figures released by the Organisation for Economic Co-operation and Development for world trade up to December 2008 stand out. They suggest that the economic downturn is set to be the worst since 1929. We have heard from my right hon. Friend the Member for Oldham, West and Royton about the huge sums of money that have been put into the banking system. It is now clear that the banks should be nationalised, and they should be driven in their investment policies by social need, not the need for profit. I was also clear—I warned the Chancellor about this some time ago; not that he listens to me—that the bankers would take the money and put two fingers up at us. That is precisely what has happened. I am glad that the Treasury Committee Chairman has effectively called for the nationalisation of the banks.
In conclusion, this is a political crisis. I started off by discussing Ronald Reagan, and I shall now draw on something that Roosevelt said in 1931:
“What is the State? It is the duly constituted representative of an organized society of human beings, created by them for their mutual protection and well-being. ‘The state’ or ‘The Government’ is but the machinery through which such mutual aid and protection are achieved.”
I hope that new Labour can inject some of that into its backbone.
5.25 pm
Mr. Oliver Heald (North-East Hertfordshire) (Con):
Consumer confidence is one of the most important aspects of this recession and where it is going. I agree with the hon. Member for Elmet (Colin Burgon) that when we look at the problems of the 1930s and what President Roosevelt did, we find that consumer confidence was right at the heart of what he was trying to achieve with the new deal. The aim was to rebuild consumer
confidence after the crash, and he largely succeeded, although I should say that a lot of the myths about the new deal are wrong, as my right hon. Friend the Member for Haltemprice and Howden (David Davis) made clear. The Americans did not have many shovel-ready schemes—to use the jargon of the time—which meant that they were not able to put as many people to work as quickly on those great schemes as they had hoped; in fact, it was five years before the main schemes were working.
The key effect of the new deal and the way in which President Roosevelt announced it and pressed it forward was to build consumer confidence; people felt that there was a plan and a way forward—a definite approach. That certainty of approach led to the rebuilding of confidence; companies started to take on labour, and projects that were nothing to do with the Government started to be undertaken and commerce started to revive. The steady hand on the tiller was as important as those new deal schemes.
What worries me about the current situation—the hon. Member for Newcastle upon Tyne, North (Mr. Henderson) made this point—is that it has not been clear to many people exactly where we are with this recession, as it gradually seems to get worse with every piece of news that we get. I was talking to some American officials at the embassy last week, and they were describing their shock at the fourth quarter unemployment figures in America. They said that to lose 651,000 jobs in one month was shocking; in fact, President Obama called the set of figures “astounding”. Standard & Poor’s had been expecting a relatively modest recession in terms of the number of job losses, and its chief economist, David Wyss, said:
“Up until the third quarter, we thought we were on track for a relatively moderate recession, but then in the fourth quarter, everything fell apart”.
That makes the point quite well.
This country is in danger of underestimating what we are dealing with. Yesterday, I was surprised to read in the Evening Standard that the Secretary of State for Work and Pensions was saying proudly that unemployment was rising more slowly than in the previous recession; it was as if he could be sure about that. Yet, today we were given the worst figures ever for a rise in unemployment—the 0.5 per cent. increase was higher than the previous record, in March 1991.
The Government need to bear in mind the effect that unemployment has on consumer confidence. Someone who has just lost their job, whose home is on the line and who is worried about a repossession is not going to go out and spend money. My goodness, such a person would be careful; they would try to repay debt and so on. The Government are working against a moving picture—every month’s delay at the moment means another 70,000 people unemployed and looking for work. It is an urgent problem that needs tackling, but the Government’s schemes for jobs and homes seem to take for ever to put in place. Sometimes we just have to act. The Conservatives have been saying for months that you—I am sorry, I mean the Government. I am getting over-excited—
The Exchequer Secretary to the Treasury (Angela Eagle): Calm down!
Mr. Heald: Well, I am actually very worried about what is happening to unemployment and the economy. We need a sense of urgency, and to get a good quality scheme on loan guarantees in place soon.
Mr. Edward Timpson (Crewe and Nantwich) (Con): My hon. Friend is making a passionate speech on behalf of his constituents and of everyone who thinks that the situation is getting worse and that we need to see some action. Does he agree that one of the problems with the overload of initiatives that we have seen the Government announce in an attempt to tackle the recession is that rather than do the planning before making the announcement, they have done it afterwards? That is why we have seen such a delay once the initiatives have been announced and before the people who need the help have been able to get it.
Mr. Heald: I could not agree more. It is classic new Labour spin: they say “Let us make an announcement and get it in the media,” and of course it is half-baked and not ready to go. That saps confidence and people do not believe that there is a steady hand at the tiller. We saw with Northern Rock all the dithering and not knowing what to do, and how damaging it was for public and consumer confidence. All these schemes are announced, but they do not come in on time. They are not even being advertised properly to the high street banks, as we have heard, and that is just not good enough.
We will pay a huge price. People remember previous levels of unemployment, and Labour Members have had much to say about that. Indeed, the Prime Minister spoke in his maiden speech of mass unemployment as
“the grossest affront to human dignity”.—[ Official Report, 27 July 1983; Vol. 46, c. 1240.]
For years he has spoken about unemployment, but it is time that he got real about what we are facing. He is likely to leave office as this country has the highest level of unemployment in its history. The record so far is 3.1 million, and he is likely to exceed that. He is already following the old-fashioned Labour Government route: they always leave a higher level of unemployment when they leave office than when they came in.
Angela Eagle: Will the hon. Gentleman admit that although today’s figures are extremely difficult and worrying, there are still more jobs in the economy and more people in work now than when we came into office in 1997?
Mr. Heald: The hon. Lady knows that most of the 2 million extra jobs did not go to people who were here and looking for work when her party came into office. In fact, the number of unemployed fell by 300,000, but the number of jobs rose by close to 2 million. That is another issue.
Unemployment is a scourge for young people. To have young people, with their hopes for the future, unable to find work and even facing the prospect of long-term unemployment, is such a worry. It is important that the Government get the loan guarantee scheme in place and gear up for the unemployment challenge ahead. Just reversing the cuts in the Department for Work and Pensions—keeping the current number of offices open and increasing staff numbers—will come
nowhere near meeting the challenge. More funding will also be needed for the flexible new deal if it is to go ahead in its current form, as the Select Committee on Work and Pensions has said.
It is time to wake up, smell the coffee and realise that the country feels a deep sense of insecurity. Urgent action is needed, and it is no good just going along with a civil-service type approach, examining everything very carefully and circulating documents round the Cabinet and junior Ministers. Sometimes it is necessary to stop dithering and get a grip—the time to do so is now.
5.34 pm
Nick Ainger (Carmarthen, West and South Pembrokeshire) (Lab): I was surprised by the comments of the hon. Member for North-East Hertfordshire (Mr. Heald). The opening speech made by his Front-Bench spokesman made no proposals other than the perpetually fed-out idea of a £50 billion loan guarantee system. There was nothing else. Where was the beef? This was an opportunity for the Opposition to set out what they would do if they were in government, and they have come up with one scheme that my hon. Friend the Member for Coventry, North-West (Mr. Robinson) was able to start picking holes in during the debate.
Thirty-two years ago this week, on 19 March, my daughter was born. On 20 March, I was made redundant. Understandably, that had an enormous impact on me. In my political life, I have always argued that everything and anything should be done to avoid unemployment and to keep as many people in work as possible. I would never want what my family went through—thankfully for a relatively short period—to happen to any other family if it was avoidable.
Although my hon. Friend the Member for Newcastle upon Tyne, North (Mr. Henderson) said that he thought that the Back-Bench speeches had been good, I was disappointed because one thing seemed to be missing from the Tory Back-Bench speeches—we have not heard anything from Lib Dem Back Benchers, because they are not here—and that was a plan of action. We simply heard the claim that the £50 billion loan guarantee scheme would suddenly release funds into the economy and everything would be hunky-dory. It is quite clear that although lending is enormously important, we have a global recession and the real economy is starting to be hammered, too. That shows that the solution is not just about providing greater lending in the economy. I want to say a few words about how we got here.
I am a member of the Treasury Committee and we have taken hours of evidence—first on Northern Rock and now on our latest inquiry into the banking crisis. One thing that has come out is that although serious mistakes and errors have been made by the FSA—Lord Adair Turner is certainly tackling those issues in his report, which was published today—blaming a politician or the FSA is rather like a serial burglar claiming when he comes before the magistrate that he robbed so many houses because the police were ineffective. The problem is that for possibly two decades—and certainly in the last decade—a “get rich quick” culture has developed in the financial services industry and the banking industry, where early profit was rewarded and no one minded about the longer-term issues.
That situation was highlighted for me by some of the evidence that we received from academics and those who work in the financial services sector—commentators as well as practitioners. One example concerned the complexity of the derivatives that have been developed in the past two decades and the complete failure of senior managers to understand the risks involved. The classic example of how we got into this mess involves Lord Aldington, the UK chairman of Deutsche Bank. His bank had to write of billions of dollars worth of dodgy derivatives—collateralised debt obligations—the week before he gave evidence to the Committee. The Chairman asked him to explain what a CDO squared was, but Lord Aldington said that he did not deal in that sort of detail.
However, it is not just the banks’ boards or senior management who are responsible, because shareholders too have not been active enough in asking the necessary questions. To be fair, some financial institutions such as Legal and General were trying to persuade the RBS board in early 2008 to sack Fred Goodwin and Tom McKillip as the bank’s chief executive and chairman. They felt that the bank was following a model that was far too risky, and they were proven absolutely right.
Mr. Bone: I am listening to the hon. Gentleman with great interest. He is saying that the problems with RBS lie in part with the regulator and in part with the bank’s board of directors and shareholders, but does he not think that the Government should also share some of the blame?
Nick Ainger: I listened with interest to what Opposition Members said about how removing the regulatory role from the Bank of England has led to the present difficulties, but the same situation exists in the US, Japan and across Europe. Yes, there have been serious failures of regulation, and I accept that the FSA and other regulators got into a tick-box culture that meant that they were not looking at the big picture.
The classic case that should have sounded the warnings was Northern Rock. That involved another tick-box culture where everything, according to the regulator, was in order, yet its business model was totally dependent on the wholesale credit market. As soon as that dried up, Northern Rock’s business plan collapsed, after which the bank went belly up and had to be rescued.
The problem was that the regulators were not looking at the other banks either. The revelations about HBOS, for example, clearly show that it was getting into virtually the same position as Northern Rock. In addition, we now know that RBS was massively leveraged and that the ABN Amro takeover was a disaster that created real instability in that institution. Yet because the FSA was merely ticking boxes and not looking at the bigger picture, it missed the real problems that the banks were heading for.
I want to say something briefly about the role that the banks are playing on what might be called the front line, where small businesses are having real problems accessing some of the loans schemes. The Treasury Committee took evidence in Leeds, in a session that highlighted that particular difficulty. We were told that a very successful company in Humberside needed an extension of its overdraft, but that its bank was being extremely difficult and unco-operative. It turned out that the local
regional manager of the bank involved was the fifth to hold the post in the past two years. He did not know really anything about the region or its particular companies, and I believe that the banks’ loss of direct contact with businesses, and of the knowledge and understanding of what they do, is causing real problems.
I urge the Government to get to grips with the banks. They must do so at the macro-level—the aim is to get the money out as quickly as possible—but they must also look at how the banks are operating at the micro-level, because that is where many of the problems lie.
I should like to mention an issue in which I am particularly interested, although since the collapse of Lehman Brothers and the real onset of the global recession, it has gone out of the headlines. It is the huge commodity spike that took place in late 2007, which peaked when the oil price reached nearly $150 a barrel in July 2008. My concern is that when we come out of the recession, there will be another commodity bubble, which will prevent or delay recovery. The Government, through the G20, should look for a way to ensure that commodity markets are far better regulated.
Finally, the G20 is a real opportunity for us to ensure that there is quality regulation throughout the world; to be seen to be acting together to address the problems, particularly in the developed world; and to look at how we can co-ordinate fiscal stimulus. At the end of the day, manufacturers here and in, say, Germany are dependent on both countries’ economies to create demand for products, whether those products—cars or whatever—be German or British. Co-ordination is a key to that. I am sure that the Government will do what they can to ensure that the G20 is a success, both on the regulatory front and when it comes to addressing the overall problem in the economies of the world.
5.46 pm
Mr. Stephen O'Brien (Eddisbury) (Con): I ask the House to note my entry in the Register of Members’ Interests.
I want to congratulate my hon. Friend the Member for Tatton (Mr. Osborne) on a really impressive opening speech on an important motion. Although we are talking about a very complicated area of policy and politics, he expressed how people feel today. He set out how they view the Government’s activity, and how they rate its effectiveness—or, more precisely, its ineffectiveness.
I had not intended to make this point, but I want to mention the Chief Secretary to the Treasury’s somewhat smug reply to my hon. Friend’s speech, in which she referred to the early ’90s. I do not know where she was in the early ’90s, but I was there; I know what unemployment looks like, and I know what redundancy looks like. Moreover, I know that it does not help the people who are in the thick of it—in the construction and building materials industry—when those who were not there think that they can preach to others. Those of us who have been through a recession know what is absolutely essential: confidence, stability, the cost of capital and, above all, having capital available. Whether a business person is on the shop floor, out there making the roads or even in the boardroom, what makes the difference when they take their risks and make their decisions is knowing that those things are in place.
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