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What is the Government’s solution? The VAT cut cost £12 billion, and in the words of President Sarkozy it has “absolutely not worked”. The Monetary Policy Committee has cut interest rates to a record low without benefits being passed on to businesses and borrowers. I learned in a recent meeting with the Essex branch of the Federation of Small Businesses that many businesses are having either facilities withdrawn or spreads widened. A case in point is an automotive parts manufacturer in my constituency that has a £2 million loan outstanding. Notwithstanding the economic climate, it is still generating £2 million a year of cash flow, yet an internal decision taken at its bank that automotive loans should be withdrawn has meant that a perfectly healthy business is facing closure.
The banks are not reciprocating taxpayers’ continued trust and investment in them by maintaining support for perfectly healthy businesses in my constituency, in Essex and up and down the country. The Government have made a number of headline-grabbing proposals, including those noted in the motion: the working capital scheme, the national internships scheme, the asset-backed securities guarantee scheme, the homeowners mortgage support scheme, the car manufacturers finance guarantee and so on. None of them has yet been implemented.
In the meantime, by scrapping the 10p tax rate the Government are hurting some of the lowest paid in our country. The problem is compounded by the record low interest rates, which are hurting millions of pensioners up and down the country, some of whom are receiving 0.1 per cent. interest on their savings accounts. Only two years ago, in a speech on 11 May 2007, the Prime Minister said:
“If you work hard, you’re better off. If you save, you’re rewarded. If you play by the rules, we’ll stand by you.”
However, in all their proposals the Government are doing absolutely nothing for those who have been thrifty and saved all their lives, especially pensioners.
On 21 March 2007, again only two years ago, during his Budget statement the now Prime Minister reiterated his mantra that we would never
“return to the old boom and bust.”—[ Official Report, 21 March 2007; Vol. 458, c. 816.]
Yet today we face one of the worst budget deficits in living memory, record borrowing both on and off balance sheet, a collapse in sterling, unemployment breaking the 2 million barrier—as the hon. Member for Coventry, North-West (Mr. Robinson) acknowledged, it is likely to climb to 3 million—and an economy shrinking both this year and next at a rate greater than almost any other western economy.
Still the Prime Minister refuses to acknowledge that if he is not the cause of the collapse of UK plc, he is its architect. For that, at least, he should come to the House and apologise to the British people for taking Britain from boom to bust.
6.15 pm
Mr. Robert Syms (Poole) (Con): I declare my interest as stated in the Register of Members’ Interests.
The debate has been interesting. I was at school in the early 1970s, when there had been a liberalisation of credit and a property boom. In 1973, 1974 and 1975, we had a bust. The difference was that the Bank of England created a lifeboat so that Slater Walker was wound
down, along with several other banks and institutions. I think we had a problem with Burmah Oil, which ran out of cash and lost its shares in British Petroleum to the Government, who bailed it out.
The crisis was similar, but the difference was that the Bank of England knew what was going on, got money together and sorted out the banking system in a few years. The changes that the Prime Minister made when he was Chancellor to the independence of the Bank of England have made a difference to our regulatory regime. Had the Bank of England retained its former role, I cannot conceive of being where we are today.
Having said that, the City is a vast institution and we have some sophisticated banks. Our country rather depended on our property values and there were imbalances in the world economy, in which many countries generated too much in savings but Britain did not save enough. Savings flowed into our British economy and our banking system used them to sustain a property boom. Inevitably, the bust followed.
To be fair, no one could foresee that the billions of pounds in the wholesale money markets would disappear as quickly as they did. If one is honest, one must recognise that that has probably caused an unprecedented problem. However, it has always been clear that that sort of money is hot money and that, in the long term, the most sustainable form of investment in the economy is savings and people putting money in banks in an old-fashioned way.
There is now a massive hole in the British economy, which must somehow be plugged. It means a major adjustment to housing prices—the sooner that occurs, the better, so that the market can start to function normally again. Sterling has been devalued, and although I have mixed feelings about it, we can say, “Thank God we’re not in the euro,” because it means that the British Government can use economic and monetary policy by reducing interest rates and, to some extent, letting the currency take the strain. We also have the automatic stabilisers and the modest economic stimulus that the Government introduced, although I am not sure that the latter will make much difference.
Three things have caused a major problem. First, as the crisis has unfolded, the Government have been behind the curve because they have come back with progressively bigger bail-outs and further help for the financial system. That has knocked confidence because people do not know where it will end and there have been a few surprises. My right hon. Friend the Member for Haltemprice and Howden (David Davis) set out what happened in Sweden, where everybody had to come clean to ascertain the damage at the beginning of a crisis. That would have been a far better way of dealing with the damage to our financial system.
Secondly, although many of the Government’s announcements have been broadly welcomed, it is a fair criticism that the detail was not worked out before the announcements were made. There has been a tendency to try to get headlines in the newspapers. Even when the schemes have been worked out, many people in the banking system and various other parts of the economy are not always aware of the detail. Many bemused businesses and constituents who have read about schemes in the newspapers have approached me to ask, “What’s going on? Can we get it?” There is genuine confusion.
Not only do more details need to be worked out, but there has to be more collaboration with the financial system and a system for disseminating information. In times gone past, benefits have been advertised in order to increase take-up among people. The Government ought to consider advertising as a means of getting across the message about where people can access schemes. The Minister has talked about a website; perhaps advertising the website would be a way of getting that message across. When people are in need and they think that some help is out there but cannot find out where it is, that tends to cause confusion and make them feel rather dispirited.
Thirdly, the Government have to give a clear lead about where we are going. It does not help that at each stage of the economic crisis the Government have tended to go for a rosy scenario. The last full Budget was a “hope for the best” Budget. The growth figures in the pre-Budget report looked unrealistic even then, and they will need to be revised. The economic situation is deteriorating, but that was always likely to be the case. We will have a new Budget in April that will contain even more red ink detailing the Government deficit and Government debt, and the predictions of growth will probably be downgraded again. That knocks confidence.
My hon. Friend the Member for Tatton (Mr. Osborne), who made the first speech that we heard this afternoon, put his finger on the main problem, which is the fact that the banks have had a bail-out but have been given mixed messages about what to do. We all have evidence that ordinary banking involving making loans to companies—many of them viable and profitable companies—is not occurring. There is a credit crunch in the British economy that is having an effect on businesses that are long-term and viable, but which face real problems in the short term.
The Government have to iron out their version of the relevant scheme to try to get money moving in the economy. I have been in business for most of my life—I have a background in construction and property—and I have never known a situation like this. It is dire out there. Many people are hanging on by their fingernails. We need clear leadership from the Government about where they are going and clear information about the schemes that they are promoting, because we are going through a very difficult time indeed.
We have had the financial shock and now we have the shock of the recession, with many people losing their jobs. However, levels of personal debt are substantially higher today than they were in the early ’90s. That means that if people’s incomes are diminished, it does not take very long for them to get into serious financial problems, even with the help that is available through the various schemes. That will eventually create a problem for the banking system, too.
We are in for tough times. I agree with my hon. Friend the Member for Tatton that our economy might be configured very differently at the end of this recession and that we may look at things differently. We have to use our good offices to resist protectionism, which is a cul-de-sac, but we also have to get our banking system working properly; otherwise the long-term consequences and the damage to the social and economic fabric of our nation will be dire.
6.23 pm
Mr. Peter Bone (Wellingborough) (Con): It is a great pleasure to follow my hon. Friend the Member for Poole (Mr. Syms), who made a powerful speech about the issues that affect people. I was particularly taken by his remarks about the pound. The pound has gone down from $2.11 to $1.35, which represents other countries’ views of how bad our economy is. However, we are talking about a market mechanism that has worked well, because it means that our exports are now cheaper in America. American imports are more expensive in this country, which is also the market working. However, as my hon. Friend said, that would not have happened if we had been in the eurozone.
I refer Members to my entry in the Register of Members’ Interests, and particularly to the fact that I am a fellow of the Institute of Chartered Accountants in England and Wales. I want to say from the beginning that I do not think that auditors have come out of this series of events with great credit.
I have learned a lot from sitting here for several hours today. The speeches from both sides of the House have been useful, new ideas have come up, and things that I had not thought of have been mentioned. I find it disappointing, however—I say this with sadness—that the Chancellor was not here today. It is also particularly disappointing that we have not had a debate on the economy in Government time. All these billions of pounds have been spent without the issue being discussed in detail in the Chamber. I want to say to the junior Minister that I think it unfortunate that the Chancellor was unable to attend. I notice that he was here for Prime Minister’s questions, but I am sure that he had a pressing engagement in a television studio somewhere in the country afterwards. I am making a serious point about what I see as a discourtesy to Parliament.
I want to turn first to unemployment. I have run a manufacturing company and a service company, and the most difficult thing that I ever had to do in business was to tell people who had worked for me for years that they no longer had a job. I had sleepless nights beforehand, and sleepless nights afterwards. It was the worst thing that I ever had to do in business, so it gives me no pleasure at all to read out these figures. In February 1997, there were 2,063 people unemployed and claiming jobseeker’s allowance in Wellingborough. Unfortunately, the figure today is 3,098. That represents a 50 per cent. increase since 1997.
I recall that the Conservatives were thrown out of power in 1997 on a landslide, partly because of what had happened in the economy. I think that we have now reached a desperate situation in my constituency, and I say that with no satisfaction. We face a real problem. Thinking back to that rather nice little tune, “Things can only get better”, I can tell hon. Members that they certainly have not done so in Wellingborough. We are significantly worse off than we were in 1997, and I fear that that situation is spreading across the rest of the country.
I recently received a phone call from the managing director of a large employer in my constituency. I will not mention the name of the company for obvious reasons. It is a very good, well-established company that employs a lot of people, but, like everyone else, its orders have gone down because of the downturn in the
economy. So what did one of the banks that we now own do? It went along to that company and said, “By the way, because your level of interest to turnover has fallen below a figure that we don’t like, we are going to increase the interest on your borrowings by 2.5 per cent., or £750,000, a year.” That could force this very good company either to lay off staff or to go under. That cannot be—I know that it is not—what the Government intended the banks to do, but that is what is happening in Wellingborough now, and it worries me greatly.
One of the reasons that that is happening, in general terms, is that the banks had two options. One was to lend money to companies; the other was to get their capital ratios up by reducing such lending. The banks have gone for the latter incentive to improve their capital ratios. There is a strong argument for the Government giving a lead in the other direction on this. We cannot ask the banks to do both; it has to be one or the other, and they need some direction. I shall come back to the banks later if I have time.
I want to talk about the business of bringing forward capital projects to increase employment. I see that as a very good idea. If capital projects could be brought forward, we would get the benefit of employment as well as a capital asset at the end of the day, which seems perfectly reasonable to me. In Wellingborough, however, we have a very strange situation.
The further education college was given the go-ahead for a major redevelopment and it spent £1 million just getting it all arranged. Unfortunately, this major redevelopment also means knocking down the existing premises, moving on to a car park and allowing for the whole redevelopment of the town centre in Wellingborough. The go-ahead was supposed to be given on 17 December, but when 17 December came, no go-ahead was given. It was supposed to come last week, but the same thing happened again. We are told that the reason for the delay is that a Government quango had said to too many colleges that they could expand, so they have been left without the funds. Well, if now is not the time to bring forward funding for FE colleges, I do not know when is. I ask the Minister to address that. The Government said, quite logically, that something was going to happen, but it has certainly not happened on my patch—indeed, just the reverse.
The bringing forward of capital projects does not seem to be happening in the NHS. My constituency is seeing the closure of an out-patient facility. In fact, a quarter of the people in Rushden wrote to me to complain about the closure, but the replacement facility, which is in another constituency, is not going ahead; there is a delay. That new facility could go ahead in my constituency right now; the land and plans are available, so why is it not being done?
Let me deal with an issue where I think the Government have made a complete mess of investment in the banks. They have gone into the mode of saying, “We must do something; we must do something. We must get a press release out; it does not matter what it is, but we must get a press release out.” I do not expect the Minister to nod in agreement, but I am sure that some wise heads in the Treasury were saying that the schemes must not be announced until they are place. However, I also bet that some spin doctors were saying, “We must get it out; we must get it out”. I think that is what has happened.
On the wider front, all this started with a mere £37 billion investment into a few banks. I know that it has ballooned into billions and billions more, but if we go back to that initial £37 billion, the share subscription documents that the Government drew up must have been drawn up on the back of an envelope. They produced preference shares and we were led to believe that that was how this would go forward—with a 12 per cent. coupon, non-cumulative, that was going to be redeemable after five years. That was impossible; that was never going to happen. Those preference shares have now been converted into ordinary shares.
In my view, this Government have had no strategic policy and no confidence building; they have been running around like headless chickens.
6.34 pm
Mr. Philip Hammond (Runnymede and Weybridge) (Con): The country is facing its biggest economic crisis in a generation. In the last 24 hours, we have heard from the International Monetary Fund not only that Britain’s recession is deeper than that of any other western country, but that next year, while they will be growing, we will still be shrinking. We have seen unemployment figures rising at the fastest monthly rate since the 1930s, topping the 2 million mark. According to many commentators—indeed, according to the hon. Member for Coventry, North-West (Mr. Robinson)—that figure is heading rapidly towards 3 million.
Mr. Geoffrey Robinson: I did not give the forecast that the hon. Gentleman has quoted and I did not use the word “rapidly”, but it is true that some forecasts point in that direction.
Mr. Hammond: The hon. Gentleman said that unemployment would rise by another million. We shall all read the record avidly when it is published tomorrow.
Of course, if the Government had not put off the Budget until the end of April, we would have had more bad news. We would have had an updated projection for next year’s budget deficit, which—I do not think anyone will bob up to disagree with this—is likely to be nearer £140 billion than the £118 billion that was projected just four months ago.
We have also seen Lord Turner’s devastating critique not just of the financial regulatory system that the Prime Minister put in place but of his model of economic growth, based on global imbalances, huge bank leverage, and unsustainable levels of public and private debt. Against that backdrop, we have had to debate the economy in Opposition time—and we are debating it without the Chancellor, who cannot even be bothered to turn up to defend himself and his boss, and his own policies, and respond to the momentous economic news that we have heard today, although he was in the Chamber for Prime Minister’s questions not 10 minutes before this debate began—so much for the Prime Minister’s commitment to restoring the supremacy of Parliament. People listening to and watching this debate will draw their own conclusions about the Chancellor’s motives.
In fact, we have had no debate on the economy in Government time this year. Even when stung into reaction by the announcement a couple of weeks ago of today’s debate, the most that the Government have been willing to concede is a general debate on the economy the week after next, on a non-substantive motion.
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