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Frank Dobson (Holborn and St. Pancras) (Lab): Some people will feel that I am looking to the past, but we have to accept that the British economy, the world economy and what we call the real economy are in serious trouble because of the crash of the casino economy run by bankers for the benefit of bankers. It has become fashionable to say, Lets not be too hard on the bankers. I agree, because it is impossible to be too hard on the bankers. There are only two possible explanations for the mess they have got us into: either they could not tell the difference between liabilities and assets, in which case they are too stupid to be bankers; or they could tell, and they managed to sell liabilities claiming that they were assets, in which case they are fraudsters. Those are the only two possible explanations. If I may say so, there is no third way.
We are told that the bankers had to be paid millions because they were risk takers. We certainly could not deny that they were risk takers, but they were not taking risks with their own money. Many were not taking risks with their own jobs, and in some cases they were not taking risks with their own pensions. The consequences for many of them have been minimal, whereas for everyone else they have been dire. Other peoples jobs and pensions have gone; 25,000 jobs in financial services went in the last quarter of last year, but few of those jobs belonged to the people at the top who were really coining it. It is bank clerks jobs that have been disappearing. In that quarter, 160,000 jobs, including those of some of the regulators, went as a direct consequence of the stupidity and greed of the banking system. Jobs are not threatened because there is anything wrong with JCB equipment, Leyland-DAF vehicles or products in the aerospace industry; they are threatened because of the bankers. But people still argue that the bankers concerned are worth huge pay and bonuses.
We were told that if these people did not get huge pay and bonuses, they might go elsewhere, to Dubai, Mumbai or Shanghai. I am trying to envisage the interview. They might be asked, Who did you say you were working for in the City of London? Was it Lehman Brothers, Royal Bank of Scotland or HBOS? Were you helping Bernard Madoff, or were you working at Merrill Lynch? The idea that those people would be welcomed by any sane bankerassuming there is such a thingis quite ridiculous, but they still say that they ought not to be regulated, which is one of the arguments their apologists make.
Our Government, like other Governments around the world, have tried to introduce extraordinary measures to counter the extraordinary damage that these stupid, greedy people have caused, intending to limit the length and depth of the recession through tax changes, changes to monetary policy and monetary relaxation, and by trying to get credit flowing again. That means huge costs for the Government and for taxpayers. Needless to say, the Tory partythe political wing of the banking industryis spending all its time blaming the Government and attacking the Prime Minister as he makes the preparations for the G20 summit in London in two days time.
Frankly, the Tories hope that the G20 will failit would be to their political advantageand their friends in the press, TV and radio have been taking every opportunity to contribute. They even quoted on BBC TV, with approbation, the Czech Prime Ministers denouncement of the policy of Obama and the British Prime Minister, but they did not mentionand I think it was germanethat the preceding day, he had lost a vote of confidence in his own Parliament due to his ludicrous running of the Czech economy. That did not get a mention. He was treated like some economic guru by virtually everybody who reported him.
The G20 must try to shorten and lessen the depth of the recession. Different approaches will be suggested by different Governments, employing all possible methods, including trying to strengthen the International Monetary Fund to make it a trifle less stupid than it has sometimes been. As my right hon. Friend the Member for Airdrie and Shotts (John Reid) pointed out, we will need to toughen the regulatory system, both national and international, and make it much more transparent.
We have to act on tax havens, which we all know private profiteers and corporations exploit to evade tax due on transactions and profits in places where the transactions occur and the profits are actually made.
We also have to act against commodity speculators. The oil price shot up to $140 a barrel, but there was no shortage of oil. Sometimes, in the time it took a cargo of crude leaving the Gulf to get to Halifax, Nova Scotia or Rotterdam, it was bought and sold 10 times. There were massive speculative increases in prices, and that has to be stopped.
Worse still, the price of rice practically trebled at one point, which was attributed to the fact that the Chinese had started eating more rice. Actually, a lot of filthy speculators in this country, in the United States and in European exchanges were trying to get more money out of rice. I was in Bangladesh recently, and I was assured by some of the rice farmers that they had not been paid three times as much for the rice they produced. We have to stop those speculators, because what they do is also part of bankings greed and stupidity. We have had difficulties in this country because of the credit crunch, but in many parts of the third world, what is happening is at that horrid boundary between life and death. People will die because of the greed of bankers, and it is shameful that bankers have continued to do what they have been doing. We need a changed world system; we do not want to go back to the old system. We cannot leave such matters to lightly regulated bankers, or to the apologists for bankers.
Some of the apologists are unable to make up their minds. Some say they do not want regulation, but others say they were not properly regulated. They cannot have it both ways. The latest line is that the old ways were the best: Perhaps we could go back to the old ways when the Governor of Bank of England had influence. It is argued that people were constrained by the Governors raised eyebrows. Youve got to be joking. The only thing that would have restrained the worst offenders who caused this crisis would not have been the Governor of the Bank of England raising his eyebrows, but the police feeling their collars.
The Governors remarks were somewhat exaggerated by the newspapers, television and radio, and used to undermine the Prime Minister. The Governor expressed caution. Well, that is what Governors of the Bank of England doit is their job to express caution. I remind the Governor that he has some very undistinguished predecessors. One of the greatest contributors to changing the Wall street crash into the great depression was the great Montague Norman, who absolutely insisted on rejecting Keynes policies, which might have rescued the whole world from the 30s depression and Germany from Hitler.
I wish the Prime Minister well at the G20 in London and the subsequent G20 meetings. Nobody believes that things will be sorted out in one meeting, and there will be a long series of such meetings and many meetings of officials to thrash out the changes that are needed. If anyone does not wish him well and hopes that his efforts will fail, as I believe many Opposition Members do, they might be thinking about what is good for the Tory party but not about what is good for the people of this country.
Mr. John Maples (Stratford-on-Avon) (Con): The right hon. Member for Holborn and St. Pancras (Frank Dobson) had a good go at bankers, who are a pretty easy target, but there is nothing new in the behaviour of banks creating financial crises, which is why they need regulating. I think it was Warren Buffett who observed of this crisis that banks have spent the past 10 years inventing a whole load of new ways of losing money, which was completely unnecessary as the old ways were working fine. I am afraid that there is not much new in what the right hon. Gentlemans target has been doing.
I wish to spend my few minutes talking about how we go forward rather than how we got into this crisis. There has been a huge amount of analysis of how we got here, but what are the sensible things to do to get out of the crisis? I do not agree with some of the Governments policies, but I do with others. One must spend a moment reflecting on what happens in a recession, which is the hangover after the binge.
We have had years of excess monetary growth, which has gone into living beyond our means at both public and private level. There has been too much private sector borrowing, and the Government have been running deficits and living beyond their means. Monetary growth and excesses have found their way into asset prices, particularly houses and property, rather than into consumer price inflation. Those things have to be corrected, which will take some time and will not happen overnight. We have to move to an economy in which savings are higher, asset and house prices are lower, money is tighter in the long run and bad loans and investments are written off. That is a painful process, but the mistakes in policy are behind us. There are no options in front of us that could enable us to avoid that process happening, which it must.
We certainly want to help the victims of the recession, as the Conservative Government did in a recession and as this Government are doing. We want to help people who are unemployed or in danger of losing their houses.
Of course one wants to do that and to let the natural, automatic stabilisers work, but from what I have read they account for about 3 to 3.5 per cent. of GDP. The fiscal stimulus is an awful lot bigger than that. I do not believe that in the current circumstances, an additional fiscal stimulus involving the numbers being talked about will make any difference to the recovery from the recession. It is a monetary phenomenon with a monetary cause, and the correction will be in monetary policy.
This recession started in the banks, which is perhaps why it is unusual among the recessions that have happened in my adult political lifetime. Usually, recessions that start in the financial system last longer, because it takes the first year for the system to sort itself out, so the Government are right to concentrate on sorting out the banks and getting them back to lending. We can argue about whether their schemes could have been introduced better, sooner or cheaper, but certainly their strategy is right. However, those policies have to be given time to work. They have had only a few months, and there is a misplaced sense of panic about what is happening. If the panic had happened a year or two ago we might have been able to do something different, but from where we are now the measures taken in the monetary markets must be given time to work.
We need four things, the first of which is prudential regulation, which has been discussed a lot, including by the right hon. Member for Holborn and St. Pancras. Regulation has clearly failed, and it is no good anybody pretending it has not. What we need is not more regulation, more regulators or more money spent on them. As my right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley) said, we have had that in spades for the past 10 years. What we need is more intelligent regulation. The difficulty is that the people in the FSA are not as good as the people in the banks, who despise them and say that they are all 28-year-olds who do not know anything. With a lot of unemployed, smart people from the banks around, perhaps the FSA can employ some of them and be slightly better.
However, the next stupid thing that bankers do in making ridiculous loans will not be the same as they have just done, but something new. In the past it was the Latin American debt crisis, Russia, the far east and then the dotcom bubble. The next one will not be one of those, so it is no good regulators now shutting that stable door. They have to think about what is coming, and that is what I mean by more intelligent, rather than tougher, regulation.
Mr. Redwood: Was it not really very easy? All that one regulator had to do was read the balance sheets of the top half-dozen banks in Britain, and it could have seen that they were grossly over-geared.
Mr. Maples: Yes, although other things were going on, too. Monetary policy was too loose during that period, and the problems were pretty obvious from monetary statistics, without analysing the banks balance sheets.
Adair Turner has basically got his prescription right. I disagree with him about only one thing, which is the Glass-Steagall Act and the splitting of the casino from the utilityof the commercial banks from investment banking. That is worth considering, because the two are much more interrelated than they were, and in investment
banking there is a risk of counter-party default. As we saw with Lehman Brothers, if one bank goes down it risks dragging a lot of other securities institutions with it. However, the problem in the current case was irresponsible lending by commercial banks. If we can isolate the deposit-takers and their business from the business that investment banks do with either their own capital or money borrowed on the bond market, we can be much tougher on investment bankers. We can say, Right, you can write off your equity, and your lenders are not going to get their money back. However, we have a responsibility to protect commercial banks because there is a risk of system failure. I hope that the Government will insist on a tougher look at that.
We have discussed the remuneration structure, which led to people behaving rationally as individuals but produced a totally irrational outcomethe upside for a banker of taking risks and making money, which was his bonus, vastly outweighed the downside. The worst that could happen to him was not getting a bonus, or perhaps in extremis losing his job. Regulation of that area will have to be considered in future, but there is a danger of over-regulation. The City of London has, on the whole, been doing quite well for Britain and making money for 500 or 600 years. There is a danger that we and the United States will over-regulate our banking systems and lose what is good about financial markets to other places. If we could just stop what is bad that would be fine, but if we risk losing what is good through over-regulation, we will create a new problem. The City is a very important part of the British economy, and hopefully it is not going to go away.
All recessions are preceded by a monetary boom and lead to irrational lending, high asset prices and consumer price inflation or house price inflation. Recessions have monetary causes and monetary solutions. The Government and the Bank of England have put in place very low interest rates and a bank bail-out that is now worth £500 billion. Such amounts terrify mea hundred billion here and a hundred billion there, and pretty soon we are talking about real money. A vast percentage of our GDP is at stake and we must keep very tight control over quantitative easing, which is a wonderful euphemism for what we would call printing money if it were being done in Latin America. I am not trying to second-guess the Government on that, but a huge amount of money is being pumped into the system. I hope that when the recovery starts, we will be ready to start getting that money back out again. Otherwise, we will end up with huge consumer price inflation in two, three or four years time.
The debate has been about fiscal policy, which I believe is wrong, because the remedies are in monetary policy. We are already running a huge fiscal stimulus, which will be 9 or 10 per cent. of GDP this year and next. The idea that we are somehow not running a fiscal stimulus is completely wrong. As I have said to the Chancellor, we should have been running a surplus in the good years, although there might be room to do a bit more now, as the Germans are finding. However, the United States and Britain are in the almost uniquely weak position of having serious financial and balance of payments deficits. I therefore believe that the US President and the British Prime Minister are wrong about this. They should let the stabilisers work, but we simply cannot afford to spend so much. The Treasury has run out of our, the taxpayers, money. No more of it
can be used without seriously endangering the recovery when it comes. If we are saddled with huge quantities of debt that invade the corporate bond market, drive up yields, drive down the currency and leave the taxpayer with interest to pay for years to come, we will endanger the recovery. We have run a fiscal deficit of £200 billion over the past six years, and we look like running another £250 billion over the next two. Frankly, that is enough. We are getting into dangerous territory.
The recovery will come from the private sector, and I want to make a couple of suggestions about what the Government might do to help that. First, the Government have been regulation junkiesfrankly, they have been even worse than we were. A mass of regulation has been introduced and it has cost business a huge amount of money. That is a social luxury, which we can afford in good, but not in bad, times. Five EU directives on employment and four sets of UK regulations are in the pipeline, all of which will impose costs on business and deter job creation. The Government could score a lot of brownie points and do the economy much good through a moratorium on regulation that imposes costs on business or on the Governmentregulation imposes costs on the Government, toountil the recession is over. Afterwards, we can debate whether it is a good or bad idea.
The Government could help the private sector through tax policy. I do not simply mean tax cuts to put money in consumers pockets. We need to encourage private sector investors to start taking risks again. They are currently risk-averse and are trying to find the safest possible way of conserving their cash. We need to try to alter that equation for them. We could do that if, for example, we provided that any business investment in the next 12 months was free of capital gains tax, or that capital allowances could be enhanced for the purchase of business investments. We could also allow offsets on capital losses made on investments in, for example, the next 12 months, against peoples income tax. That would encourage people to invest in businessget investors investing againby altering the ratio of risk to reward in the tax system. I do not believe it will cost much. Without the investment, there will be no gains on which to pay the tax, but the Government could genuinely help the private sector to contribute to the recovery.
My final point is that the crisis is of the banking system, not of globalisation or free markets. We must not endanger free markets and free trade, which have given the world the most fantastic growth. They have taken more people in the third world out of poverty than any other system. We must not endanger that when addressing a crisis in the banking system.
Richard Burden (Birmingham, Northfield) (Lab): Time is short and I hope that the House will forgive me if I am a little parochial. I want to say a few words about the impact of the economic downturn on my region, the west midlands. The newly formed West Midlands Regional Committee is currently conducting an inquiry on that, and we hope to present a report before long. However, with the Budget approaching and given the severity of the economic downturn in our region, some key issues will not wait, and practical action can and needs to be taken. I want to illustrate that with examples from the region as a whole and, in some cases, my part of Birmingham.
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