| Previous Section | Index | Home Page |
Such a scheme would bring investment into a bank, and that bank should be run by the Post Office. It could provide a guaranteed return to people who save with it, and it would ensure competition for the major banks. We own a bank—Northern Rock—and we should use that. The Royal Mail does not have a banking licence, so we should use the bank that we already own. We need to ensure that there are banking services in rural and urban areas, and we need a bank that will take on the likes of RBS, challenge them and show them what a
bank should be. Our bank should look after businesses, its customers and its investors. Pensioners need to know that their money will be safe and protected. We should have a guaranteed minimum return on savers’ money. We could fund that by reversing the VAT cut early. The cut has served its purpose, but it should now be reversed.
We are the party that should be standing by people. We should stand by businesses. We have lots of good ideas, so let use those ideas. Let us work together to formulate a future for our constituents and businesses. Manufacturing needs our help. Up and down the country people are losing their jobs. Nobody should have to lose their job when we can do something about it. My proposals would be a good way forward and protect manufacturing. Let us drive forward together and bring it on.
7.3 pm
Mr. Andrew Tyrie (Chichester) (Con): It would be ridiculous to say that the Government are responsible for all Britain’s economic problems, but it would be equally ridiculous to say that there is no connection between the policies that they have pursued and the crisis that now confronts the country. But that is what the Prime Minister is saying. The public can see that he is in denial about his role in aggravating the crisis. Whether it is in the interests of his party to be more frank is a matter for him, but I am confident that frankness is required to help the Government get the policy right. The country will not believe a Government or a Prime Minister who are in denial about the causes of the crisis that we are in. The Government will have no credibility on their emergency measures or for longer-term proposals for reform.
The Government share the responsibility for the crisis in three important respects. The first is the regulatory system, largely designed by the Prime Minister. It is very important not to assume that, with a better regulatory system, we could have wholly avoided the crisis. There are considerable limits to what can be achieved by regulation, as the Governor of the Bank of England pointed out recently. Excessive regulation may reduce economic performance, but too little will lead to systemic collapses.
The Government aggravated the crisis by introducing a new regulatory framework in 1997 that simply did not work. They created the tripartite committee system, which manifestly and predictably failed. During the passage of the Financial Services and Markets Act 2000, when we debated the memorandum of understanding that explained the new tripartite arrangement, I questioned whether those new arrangements—which left no one in overall charge in a crisis—were sustainable. I pointed out the risk of conflict between the FSA and the Bank in a crisis—exactly what we have experienced. I pointed out that banks tend to act like sheep, like the Gadarene swine, ploughing over the cliff all together. When banking problems come, I reminded the Committee,
“they come not as single spies, but in battalions.”—[ Official Report, Standing Committee A, 13 July 1999.]
In response, all I got from the then Minister was a claim that a great deal of time had been wasted on the matter. I was not the only one raising such concerns. Howard Flight did so, from the Front Bench, as did my right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley).
On Report, I said that the new tripartite system was
“wholly untested. If it is tested, I worry that it might be found wanting.”—[ Official Report, 27 January 2000; Vol. 343, c. 609.]
It was found wanting. That system led us to the extraordinary position of not even collecting liquidity statistics for the banks. The Bank of England thought that it was no longer its responsibility to do so, and the FSA had not yet got round to doing so. The plain fact is that the tripartite arrangement, with its division of responsibilities, leaving no one with clear overall responsibility for leadership in a crisis, was an accident waiting to happen, and it happened with Northern Rock.
The second important respect in which the Government aggravated the severity of the crisis was by running a huge deficit during the boom phase of the cycle. That was, as far as I know, not just folly, but unprecedented folly in modern economic history. We have heard a lot from the Government, and especially the Prime Minister, about the need for, and the value of, a fiscal stimulus. We have heard more such talk today from several hon. Members. Setting aside the issue of whether we need such a stimulus over and above the automatic stabilisers, the plain fact is that Britain is extremely badly placed to increase the size of its deficit. That is why the Governor took the unusual step of cautioning against any further substantial discretionary easing last week.
Ms Sally Keeble (Northampton, North) (Lab): Does the hon. Gentleman accept that the Governor has always taken a very precise attitude towards his responsibilities and those of the Monetary Policy Committee? It is our responsibility to look at the wider social implications of the recession and to deal with those, and that is where the requirement for the fiscal stimulus comes from.
Mr. Tyrie: If the argument for the fiscal stimulus is not economic, but social, let the Government make that case. We are repeatedly told that the fiscal stimulus is needed as part of the package of measures to rescue us from our share of global deflation—a completely separate argument.
The third respect in which the Government aggravated the crisis was in the language that they used to describe their economic policy to businesses, the markets and the public in the past decade. When the Prime Minister, as Chancellor of the Exchequer, said, I am told, 120 times in the House of Commons alone that he had put an end to boom and bust, he may have thought that he was making a clever reference to Conservative policy, but he was also sending a strong message to those taking decisions about their mortgage and business lending.
One of the reasons why Britain’s personal indebtedness is so high is that by saying he had abolished boom and bust, the then Chancellor was reassuring the public that it was safe to go and borrow to the hilt, and that is what happened. The combined effect of a large fiscal deficit and a massive rise in personal borrowing is now highly toxic for the British economy. Millions of borrowers will need to rebuild their savings, slowing the pace of any recovery. The Government will have to close the gap between spending and taxation, and that is going to be extremely difficult to achieve. It will be painful for many years to come if Britain’s creditworthiness in international markets is to be sustained.
I sometimes wonder whether the Prime Minister was foolish enough to believe his own rhetoric about boom and bust. Why did he embark on such a spending spree after 1999? Did he, too, believe that he had put an end to boom and bust? At that time, many people in the City and the House warned him that that would be an illusion. Here, if I may beg the tolerance of the House for a moment, is one of my efforts to warn him:
“Labour talks as if it has abolished the business cycle when it refers to the end of boom and bust”—
I was saying this in the House nearly a decade ago—
“but the business cycle has always been with us. There will be a recession. I do not know when, but I guarantee that there will be one. It may be sooner or later, but, when it comes, the relatively incautious fiscal position that I have described will be found to be extremely vulnerable.”—[ Official Report, 20 April 1999; Vol. 329, c. 784.]
The Government, led by the Prime Minister, still persist in arguing that this crisis was largely an American one. We heard more of that today, but the severity of the crisis and the difficulty of a recovery, is very much part of the Government’s responsibility. The Prime Minister’s plain denial of all that is getting in the way of sorting it out, clouding the Government’s judgment and corroding their credibility with the public.
Let us compare this situation with the poll tax. That was a mistake—not such a big one, but still a mistake. The Conservatives, albeit with a new leader, owned up to that mistake. That honesty undoubtedly contributed to the election victory of 1992. So far, I see no evidence at all from this Prime Minister, who is also a new leader, that he understands that simple point. I do not worry whether his denial is damaging Labour’s prospects, but I worry very much that if it persists, it will damage the country’s ability to deal with the crisis. That, above all, is why this Government have to go and why it will fall to a Conservative Government to clean up the mess.
7.12 pm
Mr. Michael Meacher (Oldham, West and Royton) (Lab): I have listened to the speeches made from both Front Benches, and the yawning black hole in this debate is the Opposition’s lack of any serious positive alternative way of handling the crisis. Having said that, I think also that the Government’s policies are not working adequately in accordance with the objectives that they have set, and that is what I want to address.
The Government have now committed at least £1.2 trillion to shore up the banks to get lending flowing again through the economy to businesses, jobs and home owners. They have tried reducing interest rates to their lowest rate since the foundation of the Bank of England in 1694. They have thrown gargantuan sums of taxpayers’ money at the banks through special liquidity, credit guarantees, bank recapitalisations and asset protection schemes. They have provided a huge fiscal stimulus, which I support, even when the deficit on the public accounts was already enormous. They have now started to print money—the so-called quantitative easing—even at the risk of severe inflation in years to come. I respect the huge efforts that they have made to get on top of the crisis, but the truth is that the purpose of all that action—lending—has deteriorated sharply. It is not increasing at all.
In August 2007, when Northern Rock collapsed, lending by the banks and building societies to businesses and home owners—I am referring to the M4 money
supply—was growing at an annual rate of 17 per cent. In September 2008, a year later, when the Wall street banks collapsed, the rate of growth had fallen to 9 per cent. Last month, despite the eye-watering sums committed to the banks to get lending going again, it was down to a disastrous 4 per cent. None of the policies, sadly—tragically—is working or at least working adequately.
The House must ask whether there is an alternative. There certainly is, but despite this being the biggest crisis that Britain has had to face for nearly a century, the Government—so far, at least—appear unwilling to consider it.
Why has bank lending largely stalled? All the policies employed have been based on the premise that the banks are keen to extend credit and that the real problem is a lack of sufficient reserves. That might have been true initially—it probably was—but it certainly is not true now. They are reluctant to lend now because they fear that they might not have enough capital to meet the losses from their existing loans. Indeed, given the liquidity scares of the past year or two, they may well prefer to hold more reserves in relation to their deposits. For that reason, the latest boost through quantitative easing might prove rather limited in effect. Even if the supply of money were increased, as the Government desperately hope, the velocity of circulation, which they cannot control, might fall. That would leave spending unaffected.
We have committed £1.2 trillion—a sum equal to 80 per cent. of our GDP, which, if fully called in, would almost bankrupt the country. Moreover, any further major fiscal stimulus has now effectively been ruled out by the comments of EU leaders in advance of the G20 meeting, let alone by those of Mervyn King. However, the state, on which the banks utterly depend, is still not requiring the banks to raise their lending to businesses to the level necessary to contain unemployment and save the real economy, which is the whole aim of the exercise.
Ms Keeble: Does my right hon. Friend accept that the intention of quantitative easing was to bring down long-term interest rates? That first stage has started to flow through in the 0.5 per cent. fall in the long-term interest rates referred to at the start of the debate.
Mr. Meacher: I accept that quantitative easing has not had a chance to be developed; it was put into operation only a few weeks ago. The Government put £75 billion in and still hold another £75 billion in reserve. We cannot reach a judgment on that. There are very good reasons for thinking that its effect will be rather limited and nothing like enough to restore lending to the levels of one or two years ago. That is the problem.
Even when the Government hold a majority of the equity, as they do in RBS, they are still allowing bailed-out banks, in effect, to dictate the terms. As part of the bail-out, RBS agreed to increase lending to £25 billion—a mere 3 per cent. of its total lending to non-bank customers. President Obama sacked the chief executive of General Motors as a condition of the company’s receiving greater aid, but nothing has been done in this country to remove failed or discredited bank executives.
While the US Congress capped executive pay and imposed a 90 per cent. tax on bonuses, the Government’s latest quango, United Kingdom Financial Investments Ltd, is pussyfooting around the bonus culture and the continuing scandal of the massive use of tax havens by bailed-out banks. There is a great danger that UKFI could be captured by the banks it is supposed to be disciplining.
The Government have socialised the banks’ losses while continuing to privatise their control. That is the essence of the point, and the hon. Member for Twickenham (Dr. Cable) made it. The only way to stop this haemorrhaging of the nation’s finances is to take temporary—temporary—control of the banks that either cannot or will not increase lending on anything like the scale required to halt the unfolding collapse of the economy. Toxic assets that are virtually worthless should be sold or written off; they certainly should not be underwritten by colossal amounts of taxpayers’ money. Boards of directors guilty of gross mismanagement should be removed, and replaced by new managers with a different system of governance and a different set of goals. The new boards, with the security of the backing of the state behind them, should give absolute priority to restoring, as nearly as possible, the full 2007 level of lending to businesses and home owners.
I repeat: that is not an ideological stance. Nobody is proposing public ownership for its own sake—I am certainly not. It is simply a common-sense, temporary mechanism.
Mr. Andrew Pelling (Croydon, Central) (Ind): Does the right hon. Gentleman agree that the problem is that we have zombie banks that are unable to lend because the toxic assets have not been removed from their balance sheets? The approach that he proposes is not a matter of ideology: one of its attractions is that it would allow us to cleanse the banks, restore confidence in our financial system and get lending going again.
Mr. Meacher: I could not agree more. All the enormous financial inducements given to the banks have not succeeded in removing, or even identifying, those toxic assets. My point is that we need to have direct control if we are to achieve the objective that the hon. Gentleman has described. That is simply the only way to get the restructuring that the private sector either cannot or will not achieve—to change banks’ governance and operational rules, and to change their top management to bring about the mandate to implement these alternative principles.
Why, therefore, do the Government not exercise that control? One answer that I have heard is that the policy is not about saving the real economy at all, but about saving the banks. If so, it might be said to have been moderately successfully, but I do not believe it is.
Another possibility is that the Government—and, given the speeches that I have heard, almost certainly the Opposition—believe that a bit of firm tweaking here and there, a successful G20, and a bit more regulation, perhaps flooding the banks with money and raising capital ratios, will mean that we can somehow return to the status quo ante, and that the engine of financialised capitalism can roar off again.
That is an absurd fantasy. The neo-liberal model of leaving things to the markets because they know best is irreparably bust. Whatever financial architecture emerges
from the wreckage, there will have to be a fundamental restructuring: unquestionably, the financial sector will have to shrink dramatically.
The third answer—and the only other one I can think of—to why the Government do not exercise control of the banks is that the rejection of nationalisation and of giving direction to banks even temporarily is so embedded in the new Labour emotional and psychological mindset that it is simply not seriously considered. If that is so, we are in an almost Alice in Wonderland situation.
If the liabilities of RBS and Lloyds are included, as they have to be, public debt is now reaching a staggering £1.7 trillion to £2.2 trillion, according to the Office for National Statistics. That is up to 50 per cent. more than our entire GDP and, with all the implications that has for our national solvency, I find it incomprehensible that we are still not taking command of the situation. We face the impending collapse of the real economy, and tens of thousands of otherwise viable companies may collapse and unemployment may well reach 3 million to 3.5 million, so we should be using our power to direct the banks. I am all in favour of trying all the other policies first, but we must give absolute priority to restoring full-scale lending to businesses and home owners.
I conclude with a point about parliamentary accountability. We have not had a Government debate on the economy in the past six months, in which there has been a gathering storm of momentous peril, both for our country and globally. Even today, the debate is being held on a motion for the Adjournment of the House: there is no substantive motion and no vote.
It has been a fascinating debate, but what is the point of a talk shop if we cannot debate—and vote on, and made decisions about—key economic policy options? This is the most important issue this House has faced in the past five or 10 years. Ultimately, it is not just a question of economic direction: it is even more an issue of parliamentary accountability. That is what Members of this House need to address now.
7.25 pm
Stewart Hosie (Dundee, East) (SNP): It is a pleasure to follow the right hon. Member for Oldham, West and Royton (Mr. Meacher). Of all the tasks that the Government must get right, one would imagine that handling the economy, including taking steps to measure and mitigate risk, would come top of the list. That means that they should have put laws on the statute book in good time to deal with failing banks. Instead, we have had emergency measures, and we have only just got the Banking Act 2009.
The Government should be transparent about their actions, especially when it comes to spending or committing vast sums of public money. There should have been transparency about PFI liabilities, and the various schemes they have announced—many of which I support—should have been fully worked up, costed and ready to go before the press releases were issued. People remain disappointed that they cannot get proper access to some of the funds, not least the enterprise finance guarantee, if they do not offer a further guarantee to the banks. That has made the whole thing almost worthless, an issue to which I shall return.
| Next Section | Index | Home Page |