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World trade has underpinned rising prosperity for half a century, but today it is falling for the first time in 25 years. So we have agreed to support international trade as a crucial driver of growth in countries everywhere. International trade is currently being undermined by a shortfall in trade finance, on which 90 per cent. of all world trade depends. So we have agreed today to make available over the next two years not $100 billion but $250 billion through G20 export credit and investment agencies.
So in total, we have agreed over $1 trillion of additional support for the world economy, and this will support trade, growth and jobs.
We remain committed to reaching an ambitious and balanced conclusion of the Doha development round, as we believe that this could boost the global economy by a further $150 billion a year.
The fifth element of the agreement today is a commitment to help the world’s developing and emerging countries. We reaffirmed our historic agreement to meet the millennium development goals and to each achieve our respective pledges on aid, debt relief and development. This action, and the decisions that we have taken today, will increase the resources available to low-income countries by $50 billion—for social protection and long-term food security, for example.
We will act and do everything possible to build a fair and sustainable recovery. We agreed also to make sure that when we support our economies, we do so in a way that also protects the environment. We will support investment in clean, innovative and resource-efficient low-carbon technologies.
We will also support those affected by the crisis by creating job opportunities and through income support measures. We will support employment by stimulating growth and investing in education, and through active labour market policies that focus on the most vulnerable.
This is a global crisis, and today there has been a global response. We will play our full part, and I commend this statement to the House.
Mr. George Osborne (Tatton) (Con): I sincerely thank the Chancellor for coming to make this statement today, before the House rises for the Easter recess. I speak for Members on all sides of this House when I join him in thanking the police for the very good job that they have done, in very difficult circumstances. We are grateful to them for keeping London safe.
I turn now to the communiqué which, as the Chancellor said, has only just been published. What has been achieved by today’s meeting, and what has not? Those are the questions, and I shall deal with both.
The substantial increase in the resources available to the IMF was widely trailed and is very welcome. It will help economies in trouble at a time when credit is scarce, and $500 billion is pledged from member states. Of course, it is a credit facility, so is there an estimate of how much of it is expected to be drawn on over the coming year, as that will determine how much individual countries’ taxpayers—including British taxpayers—might have to provide?
Will the Chancellor confirm that the $250 billion increase in the IMF special drawing rights is in effect a form of quantitative easing, or creating money, on a global scale? What analysis has been made by the G20
of the long-term risks for inflation? What conditionality will be attached to those funds for the poorest countries? That has long been an issue of concern to development organisations and those countries themselves.
The Chancellor mentioned a timetable for reform of governance and voting rights in the IMF, as he has before. He mentioned 2011. Is that timetable now actually matched by a hard commitment from some of the countries with large voting rights— because they had larger economies relative to the rest of the world in the 1940s—that they will give up those rights and make sure that the IMF reflects in every sense the true balance of economic power in the world?
Earlier today, the Financial Secretary said that he wanted to reduce the stigma of going to the IMF. Exactly what did the Chancellor have in mind when the Financial Secretary said that?
The commitment on trade finance is welcome, too, but how much of the $250 billion in credit lines and guarantees that the communiqué talks about has actually been announced already by national Governments and how much is a new commitment? Clearly, it looks as though the $50 billion for the World Bank is, but what about the remaining $200 billion?
When will all that finance be available? As we have all seen in Britain, announcements are all well and good but what saves businesses and jobs is schemes that are actually up and running and operational. When will that happen?
Trade finance will help to reverse the dramatic fall in global trade that is doing so much damage. Of course, rapid completion of the Doha trade round would have done even more and provided a huge stimulus to the world economy. It is a shame that—in my view—the issue was ducked in the communiqué, rather than directly addressed. Indeed, the communiqué talks of reaffirming the commitment made in Washington not to raise new barriers to investment or to trade in goods. However, since Washington, 17 of the 20 countries that sat round the table there and signed the communiqué have increased trade barriers and protectionist measures.
The Chancellor talked about new World Trade Organisation reporting requirements and the like. Well, the WTO has reported that 47 protectionist measures have been taken around the world, so why will this communiqué be any more effective than the communiqué signed in Washington last autumn?
On financial services, the regulation of the shadow banking system and systemic hedge funds—I suspect the word “systemic” will be important—action on tax havens and principles on bankers’ bonuses are all welcome, although of course it smacks a bit of closing the stable door after the horse has bolted. [ Interruption. ] Those who supported the Government over the past 12 years should reflect on that.
There is a distinct lack of detail. Will the Chancellor tell us whether there is now a clear timetable for introducing at international level some co-operation on counter-cyclical capital rules and reforming the pro-cyclicality of the current Basel 2 accords? Has he, and indeed the world, now taken the view that the Greenspan approach of waiting for the boom to turn to bust and then mopping up is not wrong?
One of the principles the Chancellor set out was on toxic assets. So far, different countries have adopted different approaches. Switzerland has tried a bad bank, the US is trying to leverage in private finance and the UK has its insurance scheme. If those are all encompassed by the new principles, just how meaningful are they?
Finally, the great thing missing from the communiqué is the one thing that the Prime Minister lobbied hardest for—that is, a new commitment to a significant second fiscal stimulus, so that the Chancellor would have cover to announce one in the Budget later this month. That commitment is very obviously not there. Indeed, the $1 trillion being trumpeted today is $1 trillion of loans, credit lines and guarantees. We welcome that, because we, too, have talked about loans and credit guarantees. What it does not contain is a single extra dollar or pound of additional fiscal stimulus. In the communiqué it is explicitly left to individual countries to decide for themselves what their own public finances can support.
The communiqué says that the signatories should put in place “credible exit strategies” from the fiscal position that they are in. That is exactly as it should be. It is a vindication of the argument made by the Conservative party in recent months. It must mean that the Chancellor now pays attention to the advice of the Governor of the Bank of England and rules out a significant second fiscal stimulus in the Budget.
It is right that the richer countries of the world come together to help those most in need, and we support the commitments entered into today, but the question that the British people will ask tonight is what it all means for them, once the world leaders have left. There is still the small business that cannot get credit. There is still the mother working in the high street shop who fears for her job. There is still the family who fear for their home. The G20 will seem very remote for them. No $1 trillion boost for the IMF and trade finance will help us to deal with a £1 trillion national debt, which we are leaving to our children, thanks to this Government. The truth is that Britain will be clearing up the economic mess created by this Government long after the G20 show leaves town.
Mr. Darling: The hon. Gentleman raises nine very sensible points, and one that is not terribly sensible, but let me deal with all of them. First, he asks about the IMF and the figures. He rightly says that there was an expectation that the IMF resources would be increased; many people thought that they would be doubled. Actually, we have substantially increased the IMF resources by more than that. That is a tribute to the work that my right hon. Friend the Prime Minister has done over the past few weeks and months, at times being widely criticised by the Opposition. Having seen the proceedings today, I can tell the House that he was able, even in the last few hours, to extract from those there more commitments to helping people throughout the world, and he deserves support for having done that.
The hon. Gentleman asked about special drawing rights, and he also asked a question about conditionality, which is important and has been debated in this House many times before. I think that there is a general feeling that at this time, it is important to get money into those emerging and developing economies as quickly as possible, and that to spend month after month discussing terms and conditions might be counter-productive. That is
not to say that conditionality is not important. We have got to be sure that the money is spent in the right way, and we have got to have safeguards, but it is important that we make sure that the support comes through fairly quickly.
The hon. Gentleman asked about a timetable for reform; I said that in terms of the quota, the next review needs to be brought forward by the beginning of 2011. I should add that in addition to looking at the resources and the governance of the IMF, the summit also agreed that we should consider the terms of reference for both the IMF and the World Bank, because there is a feeling that, more than 60 years after they were established, what they actually do needs revisiting as we enter the second decade of this new century.
On the question of stigma, the hon. Gentleman will have noticed, as I am sure others have, that Mexico was able to access funds largely without comment, because, I think, people are beginning to realise that it makes sense at times for the IMF to intervene earlier, and to help countries and provide them with support. It does not necessarily mean that there is any sign of an immediate problem. That is where we want to get to—a position where the IMF helps countries as a matter of course.
On additional funds, the hon. Gentleman is right: the test will come when making sure that those funds are made available as quickly as possible. He also raises the important matter of the trade round and Doha. That was discussed, both at the preliminary meetings and at a meeting this morning. The House will be aware that there were times, during the course of the last year, when many people thought that it might have been possible, if we had been prepared to go the extra mile, to get an agreement.
Principally, there are problems on the part of the United States and India. President Obama made it very clear this morning that the US Government are anxious that the matter should come back to the G20. He says, however—and it is probably not an unreasonable request—that they are a new Administration and that they need to take stock of where they are and to consider how best to proceed.
Equally, India is facing a general election this year. That means, I suspect, that for the next few months those countries will want to take stock. But no one in that room was in any doubt that it is in all our interests to get an agreement on the Doha round as quickly as possible. I hope that that explains why the reference to Doha was more limited than it might otherwise have been.
The hon. Gentleman asked about the WTO and the need to police protectionism. He is right; we are signed up to a strong declaration opposing protectionism, but that will work only if it is honoured by countries and if the WTO can act where there is a breach.
The hon. Gentleman asked about financial services and the inclusion of hedge funds. I deliberately said that those were of systemic importance. I note what he said about pay and horses bolting; I am bound to say, though, that a fair number of Conservative Members were supporters of some of the horses that did the bolting. The hon. Gentleman should be careful about what he says on that. There is reference to the reform of the Basel II agreement, and that is important. Equally, the point made about reform of accounting standards is
very important because we need to address the problem where the operation of the rules could exacerbate the situation. We need to address that.
The hon. Gentleman asked about the different approaches to impaired bank assets. He is right; the approach we have adopted with the asset protection scheme is different from the approach in the United States and Switzerland. But at the end of the day, they are all doing the same thing—trying to isolate the bad assets. As I have said to the hon. Gentleman on many occasions, I do not think that there is an ideological right or wrong on the issue; what is important is that we find a way to get bank credit flowing again.
The hon. Gentleman’s penultimate point was about fiscal stimulus. For the last few days, and even before that, there has been much speculation that there was somehow a stand-off between the Germans and the French on the one side, and the Americans and us on the other. The truth is that there is support right across the G20 to make sure that we both strengthen and reform the financial services and banking systems and do whatever it takes to support our economies at this time. The declaration explicitly commits the G20 countries
“to deliver the scale of sustained fiscal effort necessary to restore growth.”
The only people who oppose that are the Conservative party.
The hon. Gentleman asked what difference this makes for men and women throughout this country. I will tell you, Madam Deputy Speaker, what difference it makes. This is an absolutely essential step, here and across the world, to protect jobs and make sure that we do everything we possibly can to help people at this time of extraordinary difficulty. We are prepared to play our full part; I am sorry that that is not a view shared by the Conservative party.
Dr. Vincent Cable (Twickenham) (LD): I thank the Chancellor for his help in getting the information this afternoon. This was a crucial meeting, part of a process of restoring confidence in a great crisis. The Prime Minister and the Chancellor deserve some credit for some of the positive outcomes; they would get rather more credit if they had not exaggerated expectations in advance of the meeting. None the less, there were some good results in respect of the funding of the IMF and the World Bank, in terms of trade credit and the commitment to fighting protectionism.
I want to ask a series of specific questions, one of which relates to what was evidently a failure—the inability to realise an accord on the stimulus needed to growth and employment. If the French and Germans are not able to agree to a fiscal stimulus, have they specifically agreed to a monetary stimulus in Europe? Can the European Central Bank engage in quantitative easing, as described in paragraph 7? If so, how much is it proposing to do?
In relation to the so-called “credible exit strategies” mentioned in paragraph 11, can the Chancellor explain why the British are proposing an exit strategy in 2010-11 given that the Government are committed to reverting to a deflationary fiscal policy while all the other major countries are committed to expanding it beyond that date?
Paragraph 27 refers to a “green” stimulus as part of the fiscal package. Why is the British environmental stimulus as part of that package half the international average?
In relation to tax havens, I welcome the agreement as far as it goes. Can the Chancellor say how many of the countries listed today by the OECD as non-compliant are British dependent territories? Why, over the past 10 years, have the Government tolerated tax evasion and criminal money laundering in British territories, and will that now stop? Can the Government give an assurance on tax policy that no company, bank or otherwise, will come for help from the British taxpayer, be it in cash or guarantees, unless it gives an absolute assurance that it will stop tax avoidance and the use of tax havens, which companies have used in the past?
Paragraph 15 of the communiqué has an ambitious commitment to what it describes as
“tough new principles on pay and compensation”.
What does that mean for the British banks, particularly the nationalised banks? I was told today that the Royal Bank of Scotland is proposing to double the pay of its senior management from an average of £150,000 to £300,000 to compensate for the loss of bonuses. Is that true, and, if so, will the Government stop it?
One of the clear conclusions to emerge from this meeting is that we now have a fundamentally different international order in which there are two superpowers—the United States and China—and other countries, such as Russia, Brazil and India, which are very firmly part of the major powers as regards economic and other matters. Was not, however, the European Union badly divided, with grandstanding and squabbling on a major scale? Does the Chancellor agree that if the European Union, including Britain, is to be listened to in this fundamentally changed order, there must in future be a unified approach, which was manifestly lacking on this occasion?
Mr. Darling: I thank the hon. Gentleman for his appreciation, albeit qualified, of the efforts that we put in. We need to be realistic about what we have achieved today, but there are also grounds for optimism. Even six months ago, I would have found it difficult to imagine that we would be able to get together 20 countries representing 80 per cent. of the world’s largest economies and come to a substantial agreement that will, over time, make a significant difference to the prospects of the world economy. That is a very important step.
The hon. Gentleman asked about fiscal stimulus, particularly in relation to Germany and France. He will know—I think that he made this point the other night—that Germany has put in not just one fiscal stimulus but two, and has put in slightly more than us, even taking into account the automatic stabiliser effect of increased benefits and reduced tax take that both our countries show. France has also put in a fiscal stimulus. It is not a case of their saying, “Do nothing”, as some argue—they have done something. As I have said on many occasions, it must be up to each country to decide how much it does and when it does it.
The hon. Gentleman asked about credit easing—quantitative easing. Of course, within the eurozone that would be a matter not for Germany and France but for the European Central Bank, which is yet to make any proposals in that regard.
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