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“signs that the financial situation is stabilising and credit conditions and confidence are starting to improve, partly in response to the vast resources which government has thrown at the problems.”
The ITEM Club has some merit, although that will not necessarily be reported tomorrow.
Before I move on from the speech made by the right hon. Member for Fylde, I should say with the utmost sincerity that he made a fine point. I am the Second Church Estates Commissioner and have to look after the portfolios of the Church of England. The significance of corporate bonds and their returns is not lost on me, nor on the sophisticated investor. One can get a fine return. The right hon. Gentleman mentioned Tesco,
and I can say—again, as a sad case—to him that Gazprom is paying 6 per cent. on its corporate bonds at the moment. Linking an ISA with that market is not a bad idea, and I hope that the Treasury will take it up. It is one of the most constructive ideas that I have heard from a speech on the Budget.
I forgive you, Mr. Deputy Speaker, but I was sorry that you did not call me immediately after the speech of the right hon. Member for Wokingham. His speeches are a centrepiece of the Budget debates in the House, and his one today would have been excellent—if it had come from the Republican party in 1930. It would have been a fine example of Republican sentiment. He said that we should not have saved the banks; in the 1930s, the United States refused to save the banks and 12,000 of them went to the wall. We had six or seven years of recession, which became a depression. Truth be told, we got out of it only because of the second world war.
The idea that we should not have saved the banks was excellent: every bank in the country would have failed. In his mild way, the right hon. Member for Fylde contradicted the right hon. Member for Wokingham by mentioning inter-banking. The inter-banking business in the banking sector is such that if one major bank, such as the Royal Bank of Scotland or Lloyds, had collapsed, every bank in the country would have gone. Let us make no bones about it—every depositor in the country would have lost their money and we would have had the most enormous crisis. The right hon. Member for Wokingham seemed to overlook that point—“Let the banks go, and let the markets take their toll.” That was not an option for the Government.
David Davis: This is not just a yes-no issue. The Government’s whole approach to dealing with the banks has been similar to that of the Japanese Government nearly 20 years ago. The alternative is to do what the Swedes did. They identified the bank losses that were beyond recall and rescued the banks that could be rescued; they defended the system rather than individual banks. The question is not about whether to defend the banks but about how we can most economically rescue the system and then return to a system of financial confidence.
Sir Stuart Bell: I agree entirely with the right hon. Gentleman, but the luxury of that kind of reflection was not available to the British Government—and was certainly not available to the United States Government when they allowed Lehman Brothers to collapse. The Chancellor referred to that event in his statement. The markets were in difficulty as a result of the sub-prime mortgage crisis. However, allowing a bank of the stature of Lehman Brothers, which was the landlord of a building in Canary Wharf, to collapse sent the economy of the United States and the rest of us into recession. That was the one significant event, and, to get back to the right hon. Gentleman’s point, the US Government did not have the time to think it all through, just as we probably did not.
What we had to do, which the Government did, was to work on the principle that we had to save the banks even if it meant nationalising them. We made the commitment at the time, and we repeat it, that the time will come when we will return those banks to the private sector. The right hon. Gentleman’s point is a good one.
We did not have time to think, but the result was what we expected and wanted. No investor in any bank in our country has lost a penny. We should not overlook that fact but repeat it at every opportunity.
Mr. Mark Field: On the question of no investor losing money, shareholders have lost an enormous amount of money in the banks. I accept that bondholders have not; that is an issue that my right hon. Friend the Member for Wokingham (Mr. Redwood) would take some account of. Clearly, depositors have not lost money, but shareholders—the real investors in banks—have lost tremendous amounts over the past year.
Sir Stuart Bell: I entirely agree with the hon. Gentleman’s point. I was talking about investors who had savings—deposits—in banks. If you are a shareholder, Mr. Deputy Speaker, you pays your money and you see the show. Twice in my life I have sat in a hotel room looking at The New York Times and discovering that my shares had lost half their value—not once but twice. I know all about it. I put my money on the stock exchange and lost it, and I then decided to wash my hands of the whole thing and never invest again. I am therefore sympathetic to those who lose their money on the stock exchange, but I do not put them in the same category as those who have investments—money deposits—in the banks, and those have been saved.
The right hon. Member for Wokingham—I apologise for continuing to refer to his speech, but it was so excellent that I cannot really not do so—talked about boom and bust. He had huge criticisms of off-balance sheet financing and the private finance initiatives that we launched as a Government in 1997. I am proud of the fact that the very first public-private initiative that we launched was to build James Cook university hospital in Middlesbrough, which is now the finest regional hospital in the area. When I first became an MP, people had to go to Newcastle for a heart operation; now, they come from Newcastle to us. The Duke of York came to open it, and I was very proud to be there. That was an example of the off-balance sheet financing and public-private initiatives which we as a nation can afford and which render a significant service to our economy.
The right hon. Gentleman talked about the retail prices index, and said that we moved from one form of evaluating inflation to another. In fact, the Chancellor referred both to the retail prices index and to the fact that the inflation rate under that indicator was 3 per cent., so it is not overlooked at all.
The right hon. Gentleman made no mention of the global recession: we were an island surrounded by fishes, to be sure, although the fishermen are complaining about the fisheries policy. In fact, we are not an island—no man is an island unto himself—but part of the global economy. He did not mention the 20 million people in south China who have lost their jobs or the 500,000 people a month losing their jobs in the United States. People refer to our unemployment rate rising to 2.1 million, but in 1983 I fought a general election, which the Conservatives won, with unemployment at 3 million. Unemployment was never a political issue. Even in the ’30s, when we had the Jarrow march, the Conservatives still won the election of 1935.
Mr. Ian Taylor: I cannot resist intervening on the hon. Gentleman to remind him that next year he will probably be fighting an election—or at least the Labour party will—with 3 million unemployed.
Sir Stuart Bell: I will refer to the forthcoming general election later in my speech. Clearly, this is a great day for the Opposition. They have never had to speak in the House on Budget day under a Labour Government when there has been a global recession. I can well imagine that they will make as much hay as they can while the sun shines. I would not say that that is wrong. We would have done exactly the same—we probably did, and were then disappointed when the election results came in. Who can tell what may be the case next year?
The right hon. Member for Wokingham talked about the public sector borrowing requirement. He made a huge distinction between public sector and private sector workers. I am not sure that those who work in the public sector would be very happy about that. In Middlesbrough, we have public sector workers in health, education, social services and local government. They are there not only to serve the community but to help the disadvantaged people in that community and to try to get them into work. One cannot balance public and private sector workers like some kind of see-saw. They are all a significant part of our community and society.
Getting back to when there was a Tory Government, when I was a city councillor in Newcastle, Michael Heseltine was Secretary of State for the Environment and came up there. We had 20,000 workers working for the council and he said, “I want it reduced next year.” When he came back the next year he asked, “How many do you have?”, and we said, “22,000.” It is not as easy as simply saying that we should get rid of people from the public sector and put them in the private sector. That is not a possibility, as there has to be a balance in society between the public and the private. The right hon. Member for Wokingham missed that.
It seems a long time since the leader of the Liberal Democrats, the right hon. Member for Sheffield, Hallam (Mr. Clegg), spoke. He began by talking about the best of times and the worst of times. It was not lost on us that he was referring to the opening sentence of the novel by Charles Dickens, “A Tale of Two Cities”. He did not really take us very far or make a contribution that I would wish to refer to. If I had a reference to it in my notes, I have lost it, so I shall have to move on.
My right hon. Friend the Member for West Dunbartonshire (John McFall), who is not in his place, mentioned the section of the Budget about banking and the business community. He said that there were difficulties in the banks getting money to the business community and that the business community was not getting the service that it required from the banks. My information is that that situation is easing now, and that the lack of confidence in the business sector is holding up the traffic between the two. Getting confidence back in the business sector will be a major element in restoring some kind of equilibrium.
It is very clear that we will never go back to where we were before. A comment was made about people not getting overdraft facilities, and those days will not necessarily come back easily or quickly. One Member asked whether the sovereign debt market can absorb the amount of
debt that is on the market and coming through in bonds. I have to say that all the studies show that the market is holding up well. The ratings agencies are still giving us triple A ratings, and the essence of the Budget is to balance out what we are doing in the short term, how we will deal with the situation in the long term and what the markets foresee. By the markets, I mean business, private and international investors in our community. I was with a major state investor last night, who told me that they were very confident in the British economy and were keeping their investment going.
The Leader of the Opposition asked whether there was an additional fiscal stimulus in the Budget. There is a fiscal stimulus in it, but it is small compared with the major ones. However, it is there—there is £2 billion for one particular project, but I did not quite catch which one from where I sat. In my view the fiscal stimulus has gone as far as it can go, and I would not wish to see any further fiscal stimulus at this time. The balance is right between the stimulus in the economy, how we project ourselves forward and how we pay for our debt as time goes by.
As I said to the right hon. Member for Fylde earlier, in considering how a Budget looks we have to look perhaps 10 months or six months into the future. A Budget has many facets, and we will have to assess the full significance, impact and importance of this one in the current climate of economic downturn. That is the essence of it all—we must have a strategy, and the Chancellor put his strategy forward. The essence of it is the core values of fairness and opportunity.
In considering the Budget, we must ask whether it is good for families. Is it good for those in employment? Is it good for helping those who have lost their jobs back into employment? Does it stimulate the economy and reform our taxes? How is it received nationally and internationally, and can it have the confidence of investors? At a time when public debt has risen to accommodate the recession and to lessen its impact, how does the Budget reassure the markets in the medium and long term? My assessment is that the markets will be reassured by the Budget. They will see that the Government are taking responsibility at this difficult time. In my view, the Budget lays the framework, not for now until the next pre-Budget report—it is a Budget that defines the economy’s direction not for a year, but for several years.
The hon. Member for Esher and Walton (Mr. Taylor) mentioned the general election. The Budget does not set the scene for a tax-cutting Budget next year; that was never on the cards. We know that next year is an election year, but we have already announced increases in income tax and national insurance for 2010-11 and 2011-12, and the Chancellor said that he would raise the higher rate of tax from 45 to 50 per cent. for the 1 per cent. who are the country’s highest earners. I believe that that will be well received in the country; it is an appropriate measure at this time.
On competitiveness, the Budget must be construed not as a stand-alone, but in conjunction with the policy of the Department for Business, Enterprise and Regulatory Reform. We did not hear much about the industrial side of our policy today, but Lord Mandelson explained it in his policy paper “New Industry, New Jobs”, which calls for the development of industries such as biotechnology,
high-tech manufacturing, green technology, advanced materials and carbon capture and storage. The Chancellor referred to them all.
The House should welcome the emphasis on new industries and the proposals for a 3i-style investment fund. The original 3i fund was set up in 1945, with £10 million of finance, and has since expanded to incorporate £6 billion of assets, including venture capital buy-outs and investments worldwide. The new vehicle, which is putatively an industrial and finance corporation, will be ideal for balancing the demands of industry with those of the banking sector, thus creating equilibrium. I agree with Richard Lambert, director general of the CBI, that the fund should have a financial base of at least £1.5 billion. I am sure that he will welcome the scheme on behalf of the CBI, as should the Institute of Directors, which pressed for it in the first place, and has done since Lord Mandelson was appointed to his high office.
Only the right hon. Member for Wokingham used the dreaded word “socialism” in this august Chamber. We may hear it more later, but he is the only Member to mention it so far. However, I welcome Lord Mandelson’s proposals and the fact that his concept of industrial activism and policy accepts that the so-called free market, unfettered, cannot pull the economy out of a recession. We cannot go back to the proposals of the right hon. Member for Wokingham—I have a mild obsession with him and his speech. He had the wonderful view that everything should be left to the market—which reminded me that when we set up the Financial Services Authority some years ago, he opposed it because he believed that the market should be unregulated. We have moved away from that. The view of the G20 is that a free and unfettered market is not the way forward for an economy. I believe that we have learned the lessons of the 1930s: that message emerged from the G20 meeting in London.
However, I stress the difference between intervening in a country’s economy to give it direction, and interfering in the marketplace. We make a distinction between intervening and interfering. We do not believe in interfering in markets, but they should be given a proper direction, especially in a global recession. We want markets to evolve, with flexibility, in a global environment. The right hon. Member for Wokingham mentioned the European Union, even in the Budget debate. He criticised the Government for allowing a portion of the rebate, which Lady Thatcher negotiated some years ago, to be returned. We must admit that we did that. We paid some of that rebate back—we own up to that—and we did it to help eastern European countries that are much poorer than we are. The right hon. Gentleman said that we gave the money to countries that were richer than us. That is not the case. We gave it to countries that were less rich than us, as part of the European Union concept. In order to deal with the irrational exuberance of the markets that has led us to the predicament that we are in, we need the economic and industrial activism that we have now heard about.
I want to refer to the north-east of England. My right hon. Friend the Member for Edinburgh, East (Dr. Strang) referred in his speech to the situation in Edinburgh. We have to look at where we are in the north-east. Let me start with our steel industry. Although we accept the concept of a new economy, with biotechnology and the way in which environmental issues affect the economy,
we must not overlook the fact that steel was once the backbone of the north-east of England, along with coal and shipbuilding. Teesside Cast Products is a producer of steel on Teesside. The plant reduced output by 30 per cent. at the end of last year to safeguard jobs in the short term. At present there are talks between management and unions to revisit the company’s cost structures.
In their overall Budget strategy and their emphasis on new industries, the Government must not overlook traditional industries such as steel which provide work and which, in some cases, are the backbone of the local economy on Teesside. I fully accept the Government’s position that subsidising wages in any sector during a downturn would be untenable. Rather, the emphasis is, and should be, on youth employment schemes and on getting young people who have lost their jobs back into work as quickly and efficiently as possible.
The Secretary of State for Business, Enterprise and Regulatory Reform and the Prime Minister were in Loughborough on Monday making important speeches that set the background for this Budget. The Prime Minister said that we have to ensure in the present recession that a time of crisis is a time of opportunity—those are my words, not his. We should use this opportunity to make our economy more competitive. Such competitiveness lies with the development of a skilled labour force, transport infrastructure and innovation.
On infrastructure, building on the Prime Minister’s speech on Monday, as well as the contents of the Budget statement, I invite the Government to take on board the proposed Tees valley metro scheme. It is a project that would put £30 million into improving our rail network on Teesside and would underpin our planned regeneration at this time of recession, with a £50 million investment in the Darlington-Saltburn line and a £130 million investment in the Hartlepool-Nunthorpe line, a major infrastructure project in keeping with the Prime Minister’s thoughts this Monday.
The Government can make a start by sorting out who pays the £1.5 million for design work that could be included in a regional programme and the appropriate appointment of a senior responsible owner. Both matters have been discussed with Lord Adonis, the Transport Minister, and would be fully in keeping with the aim of the Budget, in maintaining our competitiveness, strengthening our infrastructure and ensuring that Teesside remains an attractive venue for business.
I would like to touch on the scrappage deal—but first I welcome you to the Chair, Madam Deputy Speaker; you came in silently, but it was noticed. Talking of Teesside, I welcome the proposed scrappage deal, although I would have preferred a more elegant title to describe the proposal. I am reminded of a comment that the Leader of the Opposition made in his speech. He castigated the proposal and called it everything under the sun, but his comments were churlish, curmudgeonly and not thought out.
In my area in the north-east of England alone, there are some 2,000 workers who work in car dealerships. They will be very grateful for the so-called scrappage deal, which gives a £2,000 discount for trading in cars more than 10 years old. The scheme has worked in France and Germany. Just to amuse the right hon. Member for Fylde, who produced a copy of an editorial
this week from the Financial Times, I can say that I agree with Brian Groom of the Financial Times that “scrappage deal” is not a very good name for the scheme. He said that it should be called a “car scrapping deal”—but you have to say that very carefully, Madam Deputy Speaker, because it could come out in a different form, with different connotations; I will leave it to Hansard to work out what that might be.
In one car dealership in Middlesbrough alone—Jennings of Middlesbrough—there are 470 people who work there, and throughout the north-east. It invests in the latest equipment and it services and maintains our cars and vans. This helps to make our small and medium-sized enterprises viable. Anything that helps such businesses to continue, including the scrappage deal, is welcome. I predict that while it is available, it will have the same impact as the similar schemes in France and Germany, and that the 30 per cent. loss of sales by car dealers will be rectified. We should not overlook the fact that our car dealerships play their part in the local community. They are, for example, investors in local charities. This will be a welcome proposal for them.
We heard a brief reference earlier to how VAT had been reduced by 2 per cent., and how that measure was time-limited, as the car scrappage deal will be. However, the Centre for Economics and Business Research has shown that the VAT reduction has boosted retail sales this year by £9 billion. So it has had an impact, and that will continue. I promise that I will make no further reference to the right hon. Member for Wokingham after this one—but he mentioned the green shoots of recovery, a phrase that goes back to Lord Lamont. It is, of course, metaphorical, as are such phrases as “stepping up to the plate” and “throwing a curve ball”. These are all part of our literary debate in the Chamber, and they widen the debate on economics and finance.
The Group of 20 has met in London, and global measures have been announced. We are using the lessons learned from the depression of the 1930s. It is a measure of our times that the following statement by David Miles, the newest member of the Bank of England’s Monetary Policy Committee, was to be found in a paragraph tucked away on the inside pages of a local newspaper:
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