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That is the Government’s assessment of the cost for loan guarantees: a “break-even basis”. The Economic Secretary is right in that judgment, which is also the judgment on which we rest our argument.

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What we have is a Prime Minister who presides over this economic wreckage, who clings to the seat of that aeroplane, who says that he has nothing to apologise for and who really believes it. That shows how detached he is. The country faces a fiscal crisis, yet all the anchors of fiscal policy have been cut loose. There are no fiscal rules and the spending reviews have been cancelled. It is the Opposition, therefore, who have to come forward with proposals for an independent office for budget responsibility and genuine restraints on public expenditure, so that this country lives within its means.

The country faces a crisis in the institutions of banking regulation. We have a Prime Minister who refuses to accept that anything went wrong because he happens to be the person who set up the system. It is therefore the Opposition who have put forward the detailed plans to give the Bank of England more power. The country faces a crisis of growth because the economy is contracting. The narrow engines of economic prosperity upon which the Government relied for 10 years—property and finance—have disappeared, yet in the words of the director general of the CBI, the Government have

about what to do next. It is the Opposition, therefore, to whom the country now turns to reform our education and welfare systems, wean our economy off its addiction to debt, provide support for savers, encourage low-carbon technologies, rebuild manufacturing and restore confidence in the economic prospects of our children. The truth is this: we are the future and Labour is the past. The sooner the country can vote for change, the sooner confidence will return and the recovery will begin.

Several hon. Members rose

Madam Deputy Speaker (Sylvia Heal): Order. May I remind all right hon. and hon. Members that Mr. Speaker has imposed a 10-minute limit on Back-Bench contributions?

4.47 pm

John Reid (Airdrie and Shotts) (Lab): We are facing problems the likes of which none of us here has ever seen during our time in the House. The shadow Chancellor referred to the legacy of the Blair Government. I share responsibility for that and I share pride in it. When I consider the 700,000 people who are not on NHS waiting lists now or the people who are not losing their sight waiting for a cataract operation or dying because they need heart surgery because we have reduced the maximum time between the doctor’s surgery and the operating theatre from some three years to 18 weeks and the average time to eight weeks, I think that, far from being useless expenditure, that is money well spent.

Let me also tell the hon. Member for Tatton (Mr. Osborne) that as we spend that money during the good times, so we aim to protect people during the difficult times. Although today the shadow Chancellor made a few telling points against the Government, who must share some responsibility, as everyone else does—indeed, as his party leader has said, the Conservatives share some—nevertheless, to take the position that during such a recession we will do nothing and ought to do nothing to protect ordinary people is not sustainable. I genuinely believe that the hon. Gentleman has not risen
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to the occasion that the opportunity gave him. When he said that he will be in his position as shadow Chancellor right up to the election, perhaps his ambition is too modest. I fear that he may well be in his position as shadow Chancellor well beyond the next election.

Let me turn to the great challenges that face us, and they are indeed great. We are dealing simultaneously with a fairly typical recession and, on the other hand, a very far from typical financial crisis. The first of these requires a huge stimulation of demand and the second—the financial crisis—requires intervention to ensure solvency, liquidity, oversight, regulation and transparency in the financial sector. That statement is agreed by just about everyone in the world so far as I can see—except for Conservative Members. Both those elements require the widest and most measured range of co-ordinated international action.

For most of the world, this is not actually a debate about whether we should borrow or not, or about whether we should have stimulus or not; rather, it is a debate and discussion about the extent, the quantity and the measure of that stimulus and of that borrowing. This debate is taking place with every Head of State who is arriving here and with every Prime Minister, too. The only people sitting outside the framework of that discussion are, unfortunately, Members of the Conservative party—with the exception of the shadow shadow Chancellor, the right hon. and learned Member for Rushcliffe (Mr. Clarke).

It is always easy to criticise the Prime Minister, as the shadow Chancellor did today. I think, however, that that is grossly unfair. The Independent on Sunday said that, and I agree; indeed, it not only unfair, but untrue. If the Prime Minister set his sights high and if the plans he pursued were of a magnitude unprecedented in the experience of most Members here, that is only because the challenges that we face are unprecedented. If the Prime Minister—it is the Prime Minister who is leading—fails to achieve everything he set out to achieve, or if he achieves only half of it, it will still be a light year away from what would have been achieved by a policy of doing nothing. The nation ought to be grateful for that.

So I believe we should avoid undue pessimism this week, as we tried to avoid the over-hyped press expectations last week. Let us remember three or four aspects of this whole debate. First, we have a range of weapons in our armoury, so the debate is not just about an additional stimulus. As I understand it, the Conservative party did not agree with the Governor of the Bank of England, because it objected not only to the next potential stimulus but to everything that has been done up to now, which is clearly different from the Governor of the Bank of England. We have automatic stabilisers, discretionary stimuli and quantitative easing, so we should not get particularly hung up on one specific example.

Secondly, let us remember that national predilections and preconceptions are not just irrational or political or ideological stances; they are shaped by the history of each of our countries. I do not blame a country such as Germany, with its sensitivity and great concern about the effects of hyperinflation in the light of what happened in the 1930s, for being rather cautious when it comes to the question of stimuli.

Thirdly, the point I made is absolutely correct. Even with that caution, Germany’s stimulus has been 1 per cent. above what has been done in this country up to
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now. In the UK, our stimulus has already been significant; although a discretionary stimulus amounts to only about 0.5 per cent., the automatic stabilisers brought in about 2.5 per cent. of gross domestic product of further stimulus. It is significant by international standards.

Mr. Redwood: Will the right hon. Gentleman tell us why, despite the slump, inflation is still 60 per cent. above target? Is he at all worried about printing lots of money?

John Reid: It is a matter of measure, is it not? Yes, I would worry if we printed too much money, but we have to take the advice of the Bank of England and others on quantitative easing, as we have to do on other matters. Again, there is no issue about whether we should have quantitative easing or printing of money; the debate is about the extent, the application and the effect they will have.

I want to speak about an issue that has unfortunately not been mentioned in either of the speeches so far. When it comes to the second area—that of financial regulation—I shall express my view about the leaked communiqué. I do not usually like using such communiqués, and my right hon. Friend the Chancellor will know that for many years I condemned anyone using leaks; on this occasion, this was thrust into my hand as I approached the Chamber. Sections 14 and 15 are, in my view, very weak on a question that I believe is vital to the oversight and regulation of the financial sector—I refer to the word “transparency”.

I believe that the three Graces that are necessary in order to revitalise that sector effectively are oversight, regulation and transparency, and the greatest of these is transparency. It is a crucial area with which to enhance oversight and regulation, but it must be done in a way that works with, rather than against, the market. That should be one of our primary objectives, because if regulation becomes an imposition—a punishment, a central diktat—that effectively tries to run the markets, rather than regulation, oversight and transparency being a means of assisting the rational workings of the market, we will end up not curing, but killing, the patient.

Mr. Cash: Will the right hon. Gentleman give way?

John Reid: Let me avoid Europe for now, as I shall address it later.

I say to the Chancellor that I hope he and the Prime Minister will set down as one of our primary G20 objectives the restoration of a degree of confidence in the financial sector by doing, in so far as is possible, the following four things: first, we must make sure that the information necessary for market transactions is available to everyone; secondly, we must ensure that market participants have access to all data; thirdly, that must not be restricted by cost; and fourthly, the data and information must be provided from neutral sources. If we do not achieve that, I do not believe we will go any way towards having significant oversight, regulation and improvement in the financial sector. This—

Mr. Cash: Will the right hon. Gentleman give way?

John Reid: I have two minutes and 30 seconds left, and I hope the hon. Gentleman will accept that I must make some progress because, unlike the Conservative party, I want to put forward concrete proposals.

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I urge the Chancellor to recommend the following key principles when he meets world leaders at the G20 later this week. First, there is the principle of non-discriminatory access to pre and post-trade data, which includes accuracy and timely data, an essential ingredient for transparency. Secondly, data should be made available at reasonable cost as described under the European legislation, MiFID—the markets in financial instruments directive. There must be clearer guidance on what constitutes reasonable cost. Thirdly, there should be high-quality raw data; that is imperative for sound decision making, and I believe greater transparency is needed to identify who is submitting incorrect data. I come to this subject having never held a Treasury post among my nine Ministries. That is not a statement of avoidance of responsibility; it is a confession of relative inexperience in this area. However, it surprises me that sourcing data do not exist in financial markets. Finally, there must be effective consolidation of raw data, and in Europe that is currently impeded by an absence of common reporting.

I believe these principles should be introduced in the discussions and that the Government should set up an ongoing transparency group under the auspices of the G20 to assist in the implementation of the principles agreed at a global level. Why? Because of liquidity. I have previously spoken about inter-bank lending. As we look further into the opacity of some of these deals, through derivatives and into the credit default swaps, it will become clear that it is impossible to return confidence to the market unless there is more transparency than exists at present. The most obvious example of this is the market in credit default swaps. Some of the information that is put out in this most difficult of areas is largely controlled by the banks. If ever there was a case of people marking their own homework, it is in the credit default swaps market, where there is lack of both transparency and control of regulation. I believe doing this is essential for confidence, and that it should be a major element this week. I commend this approach to my right hon. Friends the Chancellor and the Prime Minister.

4.59 pm

Dr. Vincent Cable (Twickenham) (LD): I welcome the debate. I know that the Chancellor has to leave for another meeting, but his participation was welcome. I specifically welcome the one proposal he made, which was in relation to business rates and the smoothing out of the increase. It has been called for by the Federation of Small Businesses and the CBI and it is absolutely right. I hope he will follow it up with the suggestion made by my hon. Friend the Member for Somerton and Frome (Mr. Heath). We know from surveys that half of all small businesses are not even aware that they are entitled to business relief; it is very much dependent on the activism of local councils to bring it to their attention. If this could be done automatically, it would save a great deal of grief among small companies.

Listening to the contributions that we have heard from both sides, one gets the impression that the dominant issue in economic management is the size of the fiscal stimulus, which is a very odd perspective, regardless of whether one is in favour of it or against it. The International Monetary Fund has just published a very interesting analysis of what is happening in the British economy and where the stimulus is coming from, and it puts
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things into an interesting perspective. The IMF calculates that the value of the Government’s fiscal stimulus over a three-year period is about £20 billion and contrasts that with some £90 billion of stimulus that is coming from interest rate cuts and monetary easing and with the stimulus that dare not speak its name—devaluation—which is providing an extra £40 billion. Although the Government do not acknowledge it, and nor do the Conservatives, for their own reasons, what is actually happening is that the Government are very carefully following the doctrines of Milton Friedman and we have, in essence, a monetary response to the crisis, which is absolutely right, provided it is effective and gets money into the economy. The argument about the fiscal stimulus, although it may be amusing and politically interesting, is fundamentally a sideshow.

While we are discussing the sideshow, I just wish to reiterate the view that Liberal Democrats have been expressing, which has been reinforced by experience and by the conviction of a growing number of Labour Members. It is that although the VAT cut may have seemed a bright idea, as the Government needed to do something in a hurry, it was not the best way of using £12 billion of taxpayers’ money. There is a strong argument for simply stopping it and using the money instead for a much more carefully targeted programme of public investment aimed at social housing, insulating people’s homes, and public transport, so that at the end of it there will be assets, many of which will produce an income, which will directly stimulate employment and also do something for the environment.

An interesting survey has just been produced by HSBC on the environmental impact of the Government’s fiscal stimulus, small though it was. It estimates that about 70 per cent. of that package contributed to environmental improvement, as opposed to figures of 15 per cent. internationally and 80 per cent. in countries such as South Korea. The Government have covered themselves in this mantle of the green new deal, but their policies are nothing of the kind and are completely bereft of any environmental value.

Before I leave the fiscal stimulus, I should note that it was interesting that the Chancellor threw out a challenge to the Conservatives when he said that they were proposing a cut—a negative fiscal stimulus—of about £5 billion. That is probably correct, but what he did not mention was that the Government, according to their own figures, are proposing a negative fiscal stimulus in the next financial year, because, of course, public investment has been brought forward and will be cancelled next year. If unemployment is astronomically high next March, as many of us expect it to be—it could be 3.5 million or 3 million; it will certainly be very high—and we are still in a recession, this Government, who seem to attach so much importance to fiscal stimulus, will be proposing that we have a negative one. I do not know whether that was intended or whether it was just the way the arithmetic came out, but the Government will have to solve this problem of how to sustain their commitment to the economy should this recession continue and not be a temporary blip, as they initially thought it would be.

I turn now to the quantitatively much bigger issue of the banking system. The following question was asked by Members from several parties yesterday: how much
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are we now exposed to the banks as a result of the various takeovers and the commitments that have been made? The total balance sheet of the British banks is about £8 trillion—about five times Britain’s gross domestic product—and we are now liable for most of it. A lot of that is the gross value of derivatives and if we take them out, the figure becomes quite a bit less; but none the less we are talking about commitments that are several times bigger than the British economy.

The IMF has, again, produced some helpful estimates, although they are very speculative. It estimates that when this banking crisis has finally resolved itself, total losses of about £200 billion will have to be absorbed by the British economy and, in effect, by the British taxpayer. Now, it is not quite as bad as that, because—as the hon. Member for South Thanet (Dr. Ladyman) intervened to point out—there may be a gain from selling the banks, if they are run properly. That might happen in 10 years’ time, so the net cost may be a good deal less, but the taxpayer’s commitment is substantial, even if it is phased over some years.

The question that the Liberal Democrats would ask is whether we are getting value for our money. We profoundly disagree with the way the Government are pursuing their involvement in the banking system, because we have the worst of all possible worlds, with large-scale public investment in the equity of the banks, but without effective public control and without the banks being run in the national interest. I thought that it was pathetic when the Chancellor waved a bit of paper and said that he had an agreement of some sort from RBS and Lloyds bank to lend a bit more money. Well, he told us that in October. We have no idea what the banks are doing, and whether they are lending more or less. What we do know is that the banks are doing what they think they have to do, which is to be obsessed with their tier 1 capital.

Nobody on the board of the banks, in UKFI or in the Treasury is asking how we can maximise taxpayer value. That is the question that should be asked, and it is not being asked because the Government are desperately trying to maintain an arm’s length relationship with the banks. As a result, there is no pressure on the banks to ensure that they lend to solvent British companies with a liquidity problem. We know that there are many of those because the companies in our constituencies all tell us the same story—whenever they try to raise money, even if they have a good business or a full order book, they cannot get money from the banks; or if they do, it is on punitive terms with large arrangement fees and demands for massive amounts of security. The Government should intervene to stop that.

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