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I concur with the comments made by the right hon. Member for Oldham, West and Royton (Mr. Meacher) that it is a shame that the anger and fear that many of our constituents feel as they face the fall-out of the recession cannot be represented by Members here tonight in the Division Lobbies. It is typical of this Government
that we have now gone all bar a day of the first quarter of the first full year of recession without a debate on the economy in Government time, and when we do get one it is on a non-substantive motion without a vote at the end of the debate. They do not want to vote and they do not want to debate.
When we do debate the economy, my right hon. and hon. Friends one after another expose the Government’s share of responsibility for the mess the world is in, their culpability for failing to prepare Britain for the challenges it now faces and the ineffectiveness of their response to those challenges. Of course we have heard from the Chancellor—I am glad he has made it back from his important meeting—and I am sure we will hear from the Financial Secretary in a moment excerpts from what might be called the authorised version of events: the “Brown as innocent bystander” version. In this fairytale, there is a land in which boom and bust has been abolished. Economic growth was strong, unemployment low, credit was cheap and plentiful; and all this was due to the genius of a great economist who had managed that nation’s finances for many years.
As my hon. Friend the Member for Chichester (Mr. Tyrie) said, the citizens of that land were encouraged to follow the example of their Government, to borrow because they could afford to do so, and they were discouraged from saving. What is the point of saving when boom and bust have been abolished? Predictably, asset values boomed and the wise leader of that happy nation spent his time explaining to all his neighbours what idiots they were for not following that brilliant economic model. Then, we are told, that happy scene was rudely invaded by the credit crunch, which is an alien creature, blown in on the wind from America, the product of very bad practices by dodgy American banks.
I am glad the Chancellor is present, because I would like to tell him that everybody on the Conservative Benches has understood from the beginning, and everybody in the country understands now, that Britain’s failures are part of the cause of the global problem—not its only cause, of course, but part of the cause—and Britain’s problems must be solved by addressing those failures in the management and governance of our economy.
As my right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley) reminded us, if we do not understand the cause of our problems, we cannot avoid them in the future. Of course, collaborating with other major economies is sensible, and avoiding the slide into protectionism is essential, but the crisis that we face will not be resolved by a clampdown on tax havens and tax evaders, however desirable that may be. Notwithstanding the rather predictable suggestion from the right hon. Member for Holborn and St. Pancras (Frank Dobson) that tax havens, greedy bankers and speculators are entirely responsible for our problems, there are no such easy scapegoats that avoid the need to address the fundamental imbalances and the excessive leverage that now have to be corrected in the British economy.
Frank Dobson: I never said that at all. I blamed the banks.
Mr. Hammond: I think the right hon. Gentleman will find that the record will show that he gave responsibility in equal measure to greedy bankers, speculators and tax havens, but perhaps we can have a discussion tomorrow when the Official Report is published.
Those were imbalances that the Prime Minister not only allowed to occur but, as my hon. Friend the Member for Sevenoaks (Mr. Fallon) reminded us, actively encouraged to generate the illusion of a sustained boom, an illusion that has turned to the reality of a bust, with all the pain and hardship of unemployment, business failure and repossession, which we have heard about this evening. The Prime Minister’s posturing on the international stage is designed to reinforce the official message that this is not a British problem, to try to underscore his pointing of the finger at everybody but himself.
Let me remind the House that this is the man who controlled single-handedly the management of British economic policy for the past 12 years, not an idle bystander, not even really able to hide behind collective responsibility—plenty of his colleagues are only too willing to tell us in private conversations that he does not do collective—but an active micro-manager of the British economy and happy enough, as I recall it, to take credit for just that role when things were going well.
It was the Prime Minister who stripped the Bank of England of its responsibility for levels of debt in the economy as a whole. It was he who implemented the disastrous tripartite regime that failed so spectacularly to spot the absurd risks that British banks were taking. It was he who abandoned genuine fiscal prudence—Conservative fiscal prudence—at the turn of the millennium and replaced it with a bogus set of fiscal rules that have proved utterly worthless, because they did not stop him running up the huge and unsustainable pro-cyclical deficits that my hon. Friend the Member for Chichester referred to.
It was the Prime Minister who presided over an economy running on empty, living on tick, with both Government and households supporting their spending habit with cheap, easy credit, the whole precarious edifice balanced on the myth of inflated asset values, the origins of which my hon. Friend the Member for West Suffolk (Mr. Spring) touched on in his contribution. As my right hon. Friend the Member for Hitchin and Harpenden reminded us, it was also the Prime Minister who secured the knighting of Fred Goodwin for services to banking and of Alan Greenspan for services to financial stability.
When the crunch came, and the inevitable reassessment of risk occurred across the world while lending criteria suddenly tightened sharply, the Prime Minister’s model fell apart. The emperor, whose claim to the throne was exclusively to have managed the British economy competently and successfully for a decade, was naked. Every action that he has taken since—every initiative, every announcement—has been designed to cover that nakedness and conceal the truth.
But the British people have seen through the Prime Minister; they know that Britain is not, as he claims, best positioned to weather the storm of recession. On the contrary, report after report shows that Britain’s economy is facing a longer recession than any other major economy, and that our recession will be deeper than most. The people also know, ahead of the G20, that whatever else stronger global institutions might do, they would not have prevented the policy mistakes that the Prime Minister made here in Britain. There is no point in his calling for a stronger IMF to act as global
policeman when he consistently ignored the IMF’s warnings about Britain’s fiscal position and housing market bubble—in 2003, 2005, twice in 2006 and again in early 2007.
The people are now seeing the downside of the chronic imbalance in the structure of the UK economy as a result of years of uncritical Government focus on financial services to the exclusion of almost every other sector, including tourism, as my hon. Friend the Member for Bournemouth, East (Mr. Ellwood) reminded us. That has left the UK economy desperately exposed to the icy winds of this global slowdown.
What the country needs, as the traumatic effects of deleveraging work their way through the economy, is leadership. I am thinking of leadership with a focus on the medium and long-term solutions that will sustain Britain’s recovery and leadership with the strength of character to refrain from short-term posturing that denies the reality of the situation. The country needs a clear framework for the introduction of proper fiscal discipline in the upturn and a vision for a more resilient, more diversified economy that will be less vulnerable in future. It needs a plan for financial stability that will recognise and reverse the disastrous mistakes of the 1997 tripartite settlement and recession-fighting strategies that will enhance rather than undermine the economic recovery when it comes. Above all, the country needs a willingness to recognise the mistakes that have been made and to abandon the policies that have failed. In short, it needs a readiness to apologise and move on.
However, we have a Prime Minister resolutely focused neither on the long-term economic interests of the nation nor even on the short-term political interests of the Labour party—which would almost certainly imply his immediate resignation from office—but on his own short-term political interests. His response to the economic crisis has been to focus on creating the illusion of an activist Government. There has been a whirl of summits, appointments—some of which have been more successful than others, it appears—foreign trips and half-baked schemes. Every other day of the week there are yet more announcements of brilliant initiatives to resolve the crisis and bring relief to the nation. However, as my hon. Friend the shadow Chancellor spelled out, half the time they do not deliver the help that the attendant press releases promised.
The end result of all that frenetic activity is the exact opposite of what is required. It has not delivered the reassurance that restores consumer and business confidence, but it has given a credible impression of a headless chicken. The stamp duty holiday was followed by an acceleration in the fall of house prices. Last October’s bank bail-out was supposed to get lending moving to businesses and households, but, as the right hon. Member for Oldham, West and Royton told us, it is not delivering. At a time of massive discounting, the VAT fiscal stimulus cut prices by 2.5 per cent. to little effect across the retail sector. That fiscal stimulus stimulated no one and has been universally derided at home and abroad; tonight, the hon. Member for Chorley (Mr. Hoyle) demanded its abolition. That stimulus has added £2.5 billion to our ballooning national debt: a burden on future generations as a result of this Government’s policy failures.
The Prime Minister must shoulder his share of the blame for the global crisis and take responsibility for the failure to prepare Britain for the recession that it is now enduring and for his recklessness with the public finances. He must be accountable for the ineffectiveness of the responses to the recession, which have failed to address the real challenge of getting credit flowing in the economy again and reconnecting real interest rates to official rates, which my hon. Friend the Member for Stratford-on-Avon (Mr. Maples) identified as being at the root of the problem. Crucially, the Prime Minister must be held to account for his failure to recognise his own failure. He still will not acknowledge the fatal flaws in his tripartite regulatory system; the weakness of his fiscal rules; the recklessness of his public borrowing; the terrible error of his claim to have abolished boom and bust, which has led to so much reckless behaviour both public and private; or the mistaken focus on fiscal stimulus when the problems lie in the supply of credit.
The Prime Minister has built his reputation on a model of economic growth based on unsustainable external deficits, unsustainable fiscal deficits and unsustainable household debt, which has brought us to the catastrophe we face today. That reputation is now destroyed, at home and abroad. Yet he tells us, in his own words, that he has “nothing to apologise for”. This country remains a democracy, so if that is his position, let him put it to the test of public opinion. Let him fight a general election under the slogan, “Nothing to apologise for”. Let the people speak, and “Nothing to apologise for” will become his political epitaph.
9.46 pm
The Financial Secretary to the Treasury (Mr. Stephen Timms): I apologise to you, Mr. Speaker, and to the House, as I was detained outside the House at the start of the debate for the reasons that the hon. Member for Runnymede and Weybridge (Mr. Hammond) acknowledged.
We have had a wide-ranging and interesting debate. It is clear that Members disagree across the Chamber. The Government’s approach is to support the economy through the difficulties and to tackle the downturn on an international track and on a domestic track. As we have heard, the international track will culminate in the meeting of G20 leaders later this week. The leaders of the world’s biggest economies will meet in the London borough of Newham—which they may not have visited before, but to which they will return for the Olympic games in 2012. At the heart of the recession in this country are worldwide problems that need to be addressed through worldwide co-operation. The Prime Minister and the Chancellor have therefore been leading worldwide discussions on how best to co-ordinate action to tackle the global credit crunch. The G20 Finance Ministers and central bank governors made progress in Horsham on 14 March; we want the leaders to go further still on Thursday.
Alongside the international track, we have been taking decisive action on the domestic track, bringing real help now to families and to businesses. Our response has had four steps: step one, last October, was to save the banking system from collapse; step two was to deliver a stimulus to the economy, which we did before Christmas in the pre-Budget report; step three was to take action in January to support bank lending, with further details
and agreements set out earlier this month; and step four, in the Budget ahead, will be to prepare to make the most of the upturn when it comes.
Mr. Fallon: A few hours ago the Chancellor was asked what had happened to the working capital scheme and why it had not been put into effect by the end of March, which is today, as promised. Can the Minister tell us why?
Mr. Timms: It will be in place next month.
We listened with interest—as always, of course—to what the hon. Member for Runnymede and Weybridge had to say, and we understood from his speech that he disagrees with the Government. What many people are puzzled about, though, is why the Conservatives have so little to offer in this crisis—a point made very powerfully by my right hon. Friend the Member for Oldham, West and Royton (Mr. Meacher). Why have they so failed, over a period, to set out some vision for the future—a credible response to the unprecedented economic challenges that we face?
One reason is simple: recent events have destroyed a linchpin of Tory ideology, and the Tories have not yet found anything to put in its place. The Tory party is ideologically wedded to deregulation. When we legislated for the Financial Services Authority 10 years ago, the then shadow Chief Secretary to the Treasury said:
“we believe that regulation should be minimal”
and that one of their concerns about the Bill was
“the danger of over-regulation.”—[ Official Report, 28 June 1999; Vol. 334, c. 42-44.]
The Tory critique was that the FSA was an example of over-regulation.
Mr. Timms: I would be delighted to give way to the hon. Gentleman, who led the charge at the time.
Mr. Tyrie: If that was the Conservative policy, it certainly had the full support of the then Chancellor of the Exchequer, now the Prime Minister, who said to the CBI:
“I want to work with you so that over time we apply the concept of risk...to the decision as to whether to regulate at all.”
“I want us to do even more to encourage the risk takers.”
In 2006, he said to the CBI that we need
“stability through a...light-touch regulatory environment.”
Where was the Prime Minister during this period when you were opposing these policies?
Mr. Speaker: Order. It is not for me to oppose policies, and the hon. Gentleman should not refer to me.
Mr. Timms: I am delighted that the hon. Gentleman gives me the opportunity to trade quotes across the Dispatch Box. Let me read something he said during the Committee on that legislation, where I was the Minister. He said:
“If the FSA gets into the business of regulating risk, it is perilously close to substituting for the fundamental job of the industry itself.”—[ Official Report, Standing Committee A, 15 July 1999.]
He was not arguing that somebody else should do the regulation; he was arguing that nobody should do it. The hon. Members for Sevenoaks (Mr. Fallon) and for West Suffolk (Mr. Spring) claimed that the Government had pressed for light-touch regulation when the FSA was introduced, but their party was pressing for lighter-touch regulation. That was their whole approach, and it has been the consistent Tory theme.
Mr. Cash: Will the Financial Secretary give way?
Mr. Timms: I am not going to give way at the moment.
Just 18 months ago, the Tory economic competitiveness policy group produced a 200 page report, “Freeing Britain to compete”. Its attitude to financial services regulation is interesting, and it is well summed-up in section 6.1, “Do We Need All This Regulation?”:
“Government claims that this regulation is all necessary. They seem to believe that without it banks could steal our money”.
Well indeed, Mr Speaker. At the Tory party conference, the shadow Chancellor hailed the prescription in this report, to “cut government regulation” in order to “liberate our economy”—and, let us remember, this was after the collapse of Northern Rock. They were still saying that we should scrap regulation.
The same report included the now notorious call for the abolition of mortgage regulation. I say to my hon. Friends that that report is still on the Tory party website and it repays study. If we had gone down that road—as the Opposition have consistently urged over the past 12 years—things would be a great deal worse than they are today. The mortgage code of business rules that we introduced with mortgage regulation prevented the deep discounting of mortgage charges that have been so damaging in the US. If regulation had been abolished, there would have been no such rules.
With that cornerstone of the Tories’ ideology turned to dust by the events of the past two years, and with nothing to put in its place, they have nothing substantial to offer in this debate. Financial services regulation does not need to be cut, it needs to be strengthened. Nobody will dissent from that at the G20 on Thursday. The US Treasury Secretary said, in an interview in the Financial Times today, that the United States is ambitious for regulatory change. Tory party ideology has been found wanting. There has been no sign at all in this debate of anything to put in its place.
The hon. Member for Twickenham (Dr. Cable) asked where we stand on the asset protection scheme and the code of conduct for banks. My right hon. Friend the Chancellor has called for a voluntary code of practice for the whole banking sector in relation to tax avoidance, to ensure that it abides by the spirit as well as the letter of the law. We are talking to the sector about that ahead of the Budget and will announce further details then.
The hon. Gentleman asked why tax avoidance should be dealt with by the G20. I suggest he examine the remarkable series of announcements made leading up to the G20, culminating in the announcement by the Swiss Government that they would abandon decades of commitment to very strong banking secrecy. That announcement was made the day before the G20 Finance Ministers met, which shows clearly why it is right to deal with that issue at the G20 and welcome the progress there has been.
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