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The West Midlands Regional Observatory noted that the fall in output in the west midlands is worse than the UK average and the worst of any UK region. It has experienced the sharpest job losses of any region in the past quarter and has the second highest unemployment rate of any UK region. The decline has been especially sharp in manufacturing20 per cent. of manufacturing firms expect to reduce their work force this quarter. That is not to say that the service sector has not also been hitthe equivalent figure is 11 per cent.
However, manufacturing has long been the bedrock of the west midlands economy and its centre is the automotive industry, with approximately 1,800 companies, 115,000 employees and gross value added of about £5 billion in 2006. Yet the manufacturing redundancy rate stands at 22.8 employees per thousand in the last quarter of last year, and there were more than 5,500 redundancies in the last quarter in 2008 in the automotive industry. In the region, redundancies between November 2008 and January 2009 were up 265 per cent. on the previous year.
I make those comments not to spread gloom or depressionsome parts of the regional economy are holding up well. However, I want to emphasise that the west midlands is not only suffering from a severe economic downturn, but that damage is in danger of being done to the foundations of the regional economy. If we lose those foundations now, we will not be in a position to respond when the upturn comes. We could lose not only strategically significant companies, but the skill base that they maintain, and that will not easily return.
Action is important to ensure that the west midlands gets a fair deal. I welcome the automotive package that Lord Mandelson announced on 27 January and I am pleased that my hon. Friend the Economic Secretary and Under-Secretary of State for Business, Enterprise and Regulatory Reform is here. He has done some great work in ensuring that applications under the scheme will be processed as quickly as possible. I cannot emphasise enough that we must ensure that help gets to where it is needed quickly.
We need to move quickly on matters that the Government are consideringI welcome the consideration, but decisions and action are required. We need to introduce a scrappage scheme in the automotive industry. There are different views on that, but the evidence from Germany shows that it has a positive effect on stimulating demand, and I hope that there is good news about that in the Budget.
I want to take up a point that the hon. Member for Twickenham (Dr. Cable) made and emphasise that a key part of ensuring that firms in the automotive industry and other parts of manufacturing can trade effectively is getting the trade credit insurance industry working again. It is not working, and that does tremendous damage.
We need to ensure that the strategic firms on which so many other firms depend get loans and loan guarantees quickly, not because they need bail-outs but because they need support to realise their potential. Other local Members of Parliament and I are therefore joining local papers, such as the Birmingham Mail, the Birmingham Post, the Coventry Evening Telegraph and others, to say that we must stand by Jaguar Land Rover.
Lorely Burt (Solihull) (LD): The hon. Gentleman knows that Land Rover is in my constituency and, like him, I am worried about the slowness with which European Investment Bank money is coming through. LDV is also in a precarious position and I am sure that all hon. Members hope that that company will survive. Does he agree that perhaps the Government could do a little more to try to ensure that the desperately needed money comes through speedily?
Richard Burden: I know that the hon. Lady has a great constituency interest in Jaguar Land Rover as a firm that is strategically important throughout the region and beyond. Discussions have been going on for some time between the company and the Government about ensuring that support is there and that the loans from the European Investment Bank come through. It is vital that those discussions are brought to a successful conclusion.
The hon. Lady mentioned LDV, which I intended to consider next. I often criticise the current administration of Birmingham city council because what it says about itself often exaggerates what it does in practice. However, it was right this weekend to announce waiving business rates for LDV, and it is looking to make orders for that companys products. That was the right decision, and I welcome todays announcement by the Chancellor on doing more about business rates. It is also important that Her Majestys Revenue and Customs is as flexible as possible in its dealings with LDV. We must all do what we can to ensure that the company gets the support that it needs from the EIB and that other public authorities use their procurement powers to buy the kind of vehicles it produces. In Britain, we have the capacity, skills and technology to produce the low-carbon vehicles of the future, but people and firms must buy them. Public authorities are in a great position to do that. We can also help stimulate investment in the private sector through purchasing those products in the west midlands and elsewhere. Some extension of annual investment allowance would help.
Let me make two other points. First, my hon. Friend the Member for Chorley (Mr. Hoyle) mentioned training subsidies and subsidies for short-time working. When an economic downturn happens, it is far better to invest to keep people in work and upskill them than to pay for the consequences of their losing their jobs. Contrary to the position in many parts of the country, the west midlands still invests in training. The figures there are still better than in a lot of other places, but we need to do more to help. A temporary wage subsidy for short-time working must be an important part of that. Part of providing the training is that we have to have the facilities to train people. That is why I want to mention something that straddles both training and construction.
There are genuine questions about how the Learning and Skills Councils capital programme has got into the position that it is in and about how it has become so over-committed. When investment in infrastructure in the third and fourth quarters of last year was still positive nationally, but dramatically falling in the west midlands, now is not the time to allow vital capital projects to go down, either for training reasons or for the construction industry.
A central plank of the regeneration of the Longbridge site in my part of Birmingham is the relocation of Bournville college to that site, with a state-of-the-art
building whose construction will provide new jobs in the short term and new opportunities for quality skills training for generations coming through. That will be a visible catalyst to enable south-west Birmingham not simply to win through the current economic downturn, but to deal with the continuing effects of the huge blow that local communities suffered in 2005 when MG Rover collapsed. People in and around south-west Birmingham deserve that kind of fair deal. Keeping faith with the Longbridge project, including Bournville college, is part of that.
My right hon. Friends in the Government face formidable challenges. Their job is made no easier by the sniping from the sidelines by Opposition Members, who complain about the effects of the economic downturn but will not commit the resources that are needed to beat it. Ministers do not have the convenient luxury of opposition, but that does not alter the fact that the west midlands region needs urgent action in the short term if we are to seize the opportunities for the long term. That means urgent action on the automotive industry and doing more on infrastructure, particularly those infrastructure projects that are about building the human capital of the region. Colleges are part of that, including Bournville college.
I want to say something about the origins of this crisis, the structure of the economy that we are now left with and the state of our public finances. So far as the origins of the crisis are concerned, I fundamentally agree with my hon. Friend the Member for Stratford-on-Avon (Mr. Maples). It is not a crisis of markets; it is a crisis of regulation and controls. It is Governments who control the allocation of credit through the central banks to which they give their mandates; it is Governments who control the holdings of capital through the capital adequacy rules that they require banks to follow; and it is Governments who have controlled lending, in effect, through the supervisory regimes that they have established.
Ten years ago, the amount that the major British banks lent out was covered almost exactly by the deposits that they held. By 2007, the gap was £625 billion and their assetsor perhaps we should say their loansamounted to three and a half times our GDP. I think it was my right hon. Friend the Member for Wokingham (Mr. Redwood) who put it so well: this country has become a banking business with a medium-sized state attached to it. Who allowed all that? Who encouraged it? Who cheered it on? It was the Prime Minister, as Chancellor, who set up and welcomed light-touch regulation.
Capital markets can and should help us manage risk more efficiently between sectors, over time and across national boundaries...there is a need to remove barriers to diversification of investments across borders
in Europe. In other words, he wanted more American-style investment houses here. He wanted more Lehmans in Europe. It was the regulator that he set up that failed us so badly and the rules that he agreed to under Basel that encouraged pro-cyclicality, drove the search for yield off the balance sheets and, by incorporating self-serving
rating agencies into the regulatory process, helped to downgrade the role of risk management. Those failings are now well understood.
Mr. Plaskitt: Does the hon. Gentleman not recall what his partys then Front-Bench spokesperson said in the debate on the Financial Services and Markets Bill, which introduced the Financial Services Authority? He said:
we believe that regulation should be minimal.[ Official Report, 28 June 1999; Vol. 334, c. 43.]
Mr. Fallon: My right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley) has already reminded us exactly what he said from the Front Bench at that time. It was a huge mistake to take banking supervision away from the Bank of England and give it to a supervisory authority that employs 2,500 people and will cost us £415 million a year from 1 April, but which assigned only three of those 2,500 people to look after Northern Rock, which allowed the Royal Bank of Scotland to expand and expand without lifting a finger to stop it, and which allowed HBOS to put 40 per cent. of its lending into property and construction alone and then to take equity stakes in the very businesses that it was banking. Above all that, there was a tripartite group that hardly ever met.
Those were British mistakes of regulation, made by British banks and British supervisors, under a system set up by the British Government. It is for us to put that rightto put the Bank back in charge of banking supervision, not just financial stability, as the lender of last resort and the institution that will sort out failing banks, and then to establish counter-cyclical rules for capital, tougher requirements for liquidity and a much better understanding of the risks that such institutions are taking on.
We have to rebalance our economy. I hope that there might now be support across the House for the view that we cannot build a long-term, sustainable, wealth-creating and reskilling economy on the back of an over-inflated housing market, an over-exuberant financial services sector and a bloated public sector, because over the past 10 years, all three have combined to distort how our economy is growing, frustrate innovation across different sectors and prevent the reallocation of resources in response to the change that we now face. All three of those sectors have also been created and sustained on a mountain of debtprivate debt in the housing market, to the extent that British households now have debt equal to 70 per cent. of disposable income; public debt, which I shall come to in a moment and which has sustained the vast expansion of the public sector; and commercial debt, which allowed the expansion of financial services.
We need to look again at how we treat debt in the commercial sector. I welcome the intriguing and thoughtful proposals made a couple of weeks ago by my hon. Friend the Member for Tatton (Mr. Osborne), the shadow Chancellor, about how we might move from a debt-driven economy to an equity-driven economy that no longer
has a tax system that favours debt over equity finance and which moves us forward towards reinforcing our skills base and building a better value-added economy.
We also have to put our public finances in order. With all the extra taxes from the boom yearsthe additional stamp duty from the housing market, the income tax from City bonuses and the corporation tax from the financial sectorthe Government were able to double public spending from £320 billion when they came in to £623 billion in the current financial year. However, the Government have failed in that period to balance the budget since 2001. That is not a deliberate strategic failure and the failure to control our public finances is not sudden or recent. On the contrary: in the 2003 Budget, it was planned that we would be in surplus by 2006. By 2005, that had slipped to 2008, and by 2007 it had slipped to 2009. By last years Budget, that target had slipped out to 2010-11 and now it appears to have been postponed sine diewhich, for the benefit of the House, means until a Conservative Government.
That matters, because in the end, unless we properly control the public finances, we cannot achieve our goals as a country, and we are failing to invest for the long term. It is that systemic failure to get a grip on our public expenditure that explains why no new power stations have been built, thus jeopardising our future energy security; why only half our school leavers achieve good GCSEs, thus risking our future competitiveness; why our welfare rules rose in the good years, well before the recession started; and why our dilapidated infrastructure continues to put us to shame in front of foreign visitors.
In conclusion, I think our economy is in very poor shape. I think it is badly positioned for the future. Our financial system has been badly regulated and our overall economy has been lopsided in its growth and dominated by debt on such a scale that it is undermining both our private and public finances. Once again, it will be left to a Conservative Government to clean up the mess.
Mrs. Anne McGuire (Stirling) (Lab): Like my hon. Friend the Member for Birmingham, Northfield (Richard Burden), I want to drill down a wee bit to the impact of the current situation on many small businesses in my constituency, and perhaps replicate the experience of other hon. Members, probably on both sides of the House.
We need to recognise that while we hold big strategic debates, there are actually real people out there who are deeply concerned about what is happening. When I heard the hon. Member for Tatton (Mr. Osborne) talking about the golden legacy of 1997, I remembered what that golden legacy was built on. It was built on the destruction of Ravenscraig and of Hillington and Bathgate in Scotland; it was built on the destruction of a mining industry and the decimation of a shipbuilding industry; and it was built on the fact that one in three of this countrys children were living in poverty. We should never forget the practical implications of that so-called golden legacy.
If there is one thing I hope the people of this country will congratulate my Government on, it is that we were not prepared to walk by on the other side when there
were dire straits. Sometimes when I look across to the Opposition Benches, I realise why I was angry in 1997 when I first came to this House. It was because of what I had seenand some of the very right hon. and hon. Members sitting in their places today were part of the architecture that created the decimation of communities, not just in Scotland but right across the United Kingdom. Frankly, our Government have had to pick up that legacy over the last 12 years.
Let me return to the local circumstances, as I want to reinforce the Houses knowledge that the majority of businesses in this country are from the small and medium-sized enterprise sector; certainly in Scotland, they comprise about 90 per cent. of all businesses, while 93 per cent. of all Scottish firms employ fewer than 10 staff. It is their size, agility and adaptability that make small businesses so ideally placed to react to market conditions.
Unfortunately, as many of us recognise, size is also a weakness. When it comes to the circumstances we are facing just now, small businesses room for manoeuvre is a little less flexible than it is for some larger businesses. I think we all recognise that credit provides the oxygen that allows these businesses to survive. As someone once said, small businesses are the sort of economic equivalent of the canary in the mine: they are the first to suffer when credit dries up, and they are a good indicator of whether help is getting through.
The Federation of Small Businesses in Scotland surveyed its members at the beginning of this year, and found three main reasons why they are suffering. Yes, they have seen a drop in demand; yes, they have also seen an increase in the length of time they have to wait for payment of invoices; and, lastly, they have seen their credit decrease over the last few months. In some cases, credit is almost impossible to come by.
My contribution to this debate is based not only on surveysno matter how crediblebut on the experiences of businesses in my constituency. One of my constituents has a small export business, employing 30 people, and has had a long-standing and little used credit facility withdrawn by the Royal Bank of Scotland. I am told that the business is not insolvent, but as an export business, it depends from time to time on overdraft facilities, which the bank will simply not renew this year.
Another of my constituents runs a small commercial property consultancy and has banked with the Bank of Scotland for 24 years. The business turns over a modest profit and, against the trend in the property sector, it is projected to break even this year, yet its overdraft facility has been reduced by 20 per cent. and it has been charged a fee for the privilege.
Another example is from the tourism industry in my constituency. For those who have never visited Stirling, I suggest they do as it is a massive tourist magnet. Every battle ever fought in Scotland appears to have been fought in my constituency: there are the battles of Bannockburn and Stirling Bridge, and the ghost of William Wallace runs around the area. The tourism industry is thus crucial to the local economy, but the tourism businesses have had their comfort facilities withdrawn, making it very difficult for them to meet contingencies during the winter and early spring period when there are so few tourists around to generate income.
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