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Mr. Meacher:
There are many reasons why the banks are not lending as much as the Government would like, one of which is that they have been given something of a conflict between lending to businesses and, at the same time, building up their balance sheets. The lowering of our interest rate—at the start of the crisis it was 4.5 per cent., which was one of the highest figures in the western world, and it is now 0.5 per cent.—was necessary, but I accept that there have been some perverse effects of the layering of different policies. I wish to develop this argument a bit further. As Paul Krugman, the American winner of the Nobel prize for economics last October, has said, the credit crunch is so drastic and the consequences so cataclysmic that it can be rapidly overcome only by taking temporary control of the banks. To be fair to the Government, they have already partly done that. The key point is that with the strength of the state
behind the banks, there would be no need for them to put their own interests first by consolidating their balance sheets as their first priority.
The Government, as temporary owner—I accept that it should be temporary, but it should also be for as long as necessary—would then be in a position to restore lending to pre-September 2007 levels, which was always the Government’s intention. The effect of that on the public finances would be dramatic. Instead of expending £1.2 trillion on propping up the banks, the Government could take them over at a fraction of the cost. The Government have spent £45 billion propping up the Royal Bank of Scotland, but they could have purchased it for £4 billion, which was its stock market value in January this year. Lloyds, which was valued at £35 billion a year ago, could have been bought on the stock market for just £6 billion last October. All of the major banks could have been taken over at a fraction of the cost.
The Government are now offering mind-blowing sums of taxpayers’ money to underwrite the banks’ toxic assets—£325 billion in the case of RBS and £250 billion for Lloyds, and Barclays is standing in the wings with a few further hundred billion. But given that the Government are the owners, they should either sell off or junk assets that are next to worthless and then redirect the rest into lending in the wider economy that so desperately needs it. I know that that is a drastic approach, but in such times we must adopt such policies.
That policy would transform the Budget prospects. The deficit a year ago was just £38 billion. By the time of the pre-Budget report in November, it had soared to £118 billion. It is now £175 billion, and unlikely to fall before reaching £200 billion. The interest charge on this debt was given in the Budget as currently £28 billion a year and the Chancellor expects it to rise to £43 billion a year. If the banks had not been bailed out so profligately and instead lending on a far greater scale had been pumped directly into the economy, thus sharply reducing the costs of business rundowns and rapidly rising unemployment, the rise in the national debt would be far more modest, and the rise in debt interest correspondingly far less.
It is reasonable to estimate that on that basis the national debt this year might have been reduced by between £70 billion and £100 billion, and the interest on that debt might have come down to below £15 billion a year. That would dramatically change the Budget’s bleak projections that investment spending must halve in the three years from 2011-12 and that total spending must be frozen over that period, with actual falls—as the hon. Member for Runnymede and Weybridge (Mr. Hammond) said—in real terms of more than 2 per cent. a year once fast-rising debt interest charges and sharply increasing unemployment costs are taken into account. The only way in which that could be avoided is by a review of policy along the lines that I have set out.
Mr. Leigh: Is it not ironic that the right hon. Gentleman is proposing a Thatcherite market solution to bank failure? Funnily enough, I agree with him: if a bank fails, it should be allowed to go bust, with depositors being protected. Do I detect a pincer movement on the Government from both sides?
Mr. Meacher:
I am somewhat inhibited about embracing the hon. Gentleman, but it is true that I am saying that no bank should be so large that it cannot fail. If banks
are manifestly bankrupt, they should be taken over as long, of course, as the depositors are protected. Whatever remains of the assets should then be employed as positively as possible. As for this colossal wave upon wave of credit derivatives that have turned out to be worthless, they should be junked. The idea of protecting the banks and their toxic assets is absurd.
If those policies were adopted, the much smaller hole in the public accounts would be much more manageable—
Mr. Love: Does my right hon. Friend agree that when we consider whether any bank is too big to fail, we must take into account the one example in which an investment bank was allowed to fail? The consequences for confidence in the markets were catastrophic, and that is a major consideration.
Mr. Meacher: My hon. Friend refers to Lehman Brothers, and it is true that the sudden decision to allow it to go bust—a reversal of US Treasury policy up to that point—was unquestionably a severe jolt to confidence, not only on Wall street, but across the world. However, we are in a different situation in this country. I am not saying that the banks should be liquidated out of sight, but that they should be taken over at the value that the stock market gives to them and reconstructed in a different direction. That would not significantly undermine confidence.
I cannot resist referring to the speech by the Leader of the Opposition to the Conservatives’ spring conference in Cheltenham a couple of days ago. As a means of encouraging his “new age of austerity”—his words, not mine—and to deal with the £175 billion hole in the public accounts, he proposed publishing details of all public sector salaries over £150,000 online. What a stunning idea. I am not sure that it would raise more than £0.0001 billion, but it is such a good idea that we should not confine it to the public sector. In the interests of getting everyone to do more for less, perhaps the earnings of bankers, managers, traders, lawyers and all the financial-industrial executives should all be published online if they earn more than £150,000. Why stop at pay, which is so small a part of their remuneration? On the say-so of the Leader of the Opposition we should also publish their bonuses, incentive schemes, fringe benefits and stock options. When I heard that suggestion, I could not help thinking, “Well, Dave, I really think you’ve started something.”
The Leader of the Opposition went even further. He said that those in the public sector who earn more than the Prime Minister—£195,000—should have to justify their pay to the Chancellor. I thought, “Wow! What a corker of an idea.” We should apply that across the economy, including the private sector. There is more joy in heaven over one sinner who repenteth than over 99 just men, but it never occurred to me that that would be the right hon. Member for Witney (Mr. Cameron).
To be serious again, there are three main ways in which that much smaller hole could and should be dealt with, without paring back front-line public services, especially health, education and housing. Housing, incidentally, is something that I think should not be decreased but should be substantially increased. First, some major spending projects have never been justified.
ID cards have a cost of £5 billion, while Trident has cost £70 billion over 25 years. There have been Government IT follies, such as the £6 billion Home Office communications super-database. I am glad to see that the Government are backing off from that. Such projects could be much reduced or entirely shelved.
Secondly, there could be a real crack down on tax havens, which, as all the authorities recognise, cost this country something in the order of £20 billion a year. We could certainly generate at least £5 billion to £10 billion a year in extra revenue.
Thirdly, the most popular part of the Budget, which clawed back a tiny part of the gains made by the rich in the past three decades, could certainly be extended. I have been checking on this. Tax could be increased for the 0.5 per cent. of the population that earns more than £150,000 to a rate of 60 per cent., which would raise a further £6.2 billion. For the 1 per cent. who earn more than £100,000, the rate could be 50 per cent. That would leave 99 per cent. of the population entirely unaffected. Higher rate tax reliefs could be removed in other sectors and not just in pensions. Capital gains tax could be modestly restored to parity with income tax, which is exactly where Nigel Lawson left it. Non-domiciled tax exiles could be brought within the tax net from which they should never have been allowed to escape in the first place. I also think—I have thought this for a very long time—that the case for a land value tax should be reviewed and concentrated on the large estates.
The bottom line for social democracy in this country remains that no cuts can be contemplated in front-line basic services, least of all to take the rap for the bailing out of the banks after they brought about the most reckless and irresponsible blow-out in modern financial history. The Government should look again at an alternative strategy, which could be less costly, far more effective and far less risky.
7.21 pm
Mrs. Jacqui Lait (Beckenham) (Con): It is always interesting to listen to the right hon. Member for Oldham, West and Royton (Mr. Meacher), even if it does rather remind me of the years pre-1979 or even the longest suicide note in history—
David Taylor (North-West Leicestershire) (Lab/Co-op): That was 1983.
Mrs. Lait: I thank the hon. Gentleman for that correction, which is much appreciated, but I know that. I lived through it too.
What fascinated me was that the right hon. Member for Oldham, West and Royton strongly advocated that the remuneration of high earners should be published online. For the last 20 years, all directors’ remunerations have been published in the report and accounts and those—surprise, surprise—are published online these days as are the remunerations of high earners in the City. I suggest that the right hon. Gentleman needs to come up to date and to recognise that this information is already in the public domain.
I was also fascinated that the right hon. Gentleman should advocate the wholesale nationalisation of the banking system, and I am rather glad that it is his Front Benchers who have to answer that question. May I also
point out that the Government have to deal with the issue of toxic debt? They cannot just write it off in the modern global banking system. I would have thought—I have spent some time thinking about this—that it would have been much better if the right hon. Gentleman had advocated a structure similar to the Resolution Trust Corporation that was set up in the ’80s to deal with the savings and loans banks in the States. In the end, the corporation returned to the taxpayer a net profit from similar toxic debts. A similar system was set up in Sweden, and, again, there was a small net profit to the taxpayer. In my view, that would be a much better way of getting confidence back into the banks so that they could clean up their balance sheets and get their credit ratings up so that the credit could start flowing again.
Credit will not flow until the banking system is clean and that, to me, is one of the big failures of the Chancellor’s never never land—or cloud cuckoo land—Budget. I did not know which it was when I sat and listened to it last Wednesday. Sadly, they are both too benign descriptions of what the Chancellor has done to this country. To a certain extent, I suppose that we should relieved that the Government are going some way towards admitting the appalling state of the economy that they have managed to create.
When we have a Labour Government, we always have a bankrupt Government and we always have to sort that out when we come back after a general election. Yet again, we are going through this horrible cycle. A Labour Government spend more money than they can afford and tax people so that they do not want to work in this country, and then we have to sort it out.
We must get a grip on public expenditure in this country. There is no point in expecting to be able to spend our way continuously out of trouble. Towards the end of the Budget, we got nothing other than expenditure. I am afraid that we cannot continue to spend at the reckless rate that this Government have spent at.
I thought it was very interesting that, at the end of the Budget speech, there was such a muted reaction from those on the Government Benches. In 20-odd years of observing this Chamber, I have never seen such a muted reaction to any Budget.
We keep on saying that we have the longest and deepest recession since the second world war. What came immediately before the second world war? The great depression. We should really be comparing events now to those events.
As many people have said, we have seen the fastest rise in unemployment on record. I went to my Jobcentre Plus in Bromley on Friday—many hon. Members will have made similar visits. Bromley does not usually have high levels of unemployment. It is a wealthy borough. We have seen an increase in unemployment of nearly 100 per cent. in the past year—my right hon. Friend the Member for Maidenhead (Mrs. May) mentioned this point earlier. The biggest increase in employment in my borough has been caused by Jobcentre Plus hiring people to deal with those who are now unemployed. Although the staff in the jobcentre are dealing with people as well as they can, they are used to dealing with people who are unemployed from £30,000-a-year jobs and finding jobs with wages of £30,000. The Government’s programmes are not geared towards helping the sort of people who live in the borough of Bromley, and so those people are not finding the help that they would expect.
Throughout this afternoon’s debate, in particular, I have been struck by the way in which the Secretary of State and others on the Government Benches have alleged that the Conservative Government in the ’80s did nothing about unemployment. I fought a by-election in Newcastle upon Tyne, in the Tyne Bridge constituency, in 1985. We had youth training schemes—the YTS—and the enterprise allowance scheme. My younger brother took up the opportunity offered by the enterprise allowance scheme very early on, and he is now running a very successful business, as he has done since the 1980s. The job clubs were introduced and there were a wide range of measures to help young people and other people who had lost their jobs. To say that the Thatcher Government did nothing to help people to get back into employment is a Labour party travesty of the highest order.
David Taylor: Will the hon. Lady give way?
Mrs. Lait: I will indeed, and I look forward to hearing the hon. Gentleman’s denial of those facts.
David Taylor: I am very happy to go along with the hon. Lady in one regard. At one stage, Mrs. Thatcher did reduce unemployment in this country by the simple device of transferring very many hundreds of thousands of people on to invalidity benefit, particularly in areas such as mine, which was then an active mining area.
Mrs. Lait: It is interesting that the hon. Gentleman talks about the alleged transfer of people to invalidity benefit in the ’80s while ignoring what is going on now. There are as many people on invalidity benefit now as there were then, and it is to the shame of the Government that they have still done nothing about it. One of the first things they did when they came in was to abandon the rigorous system we had set up to ensure that only people who were genuinely unable to work should receive that benefit.
Mr. Love: Will the hon. Lady give way?
Mrs. Lait: Just once, briefly.
Mr. Love: I want to comment on what the hon. Lady said about YTS and the other schemes of the mid-’80s. All the evaluations of such schemes have shown that they were virtually worthless. Why? Because the people on them never got a job. There were never any jobs so widespread cynicism developed about the schemes. Ergo, to answer that point, the Labour Government decided that after a year people would have either a training place or a job.
Mrs. Lait: I am fascinated by the hon. Gentleman’s point because the criticism of YTS was that if people did not get a job, they got more and more training. What will happen this time? The weasel words offered by the Government are that people will have a job or training. If I was a betting person, I would suggest that the hon. Gentleman should see how often people go from one training programme to another, because until the Government get a grip of the fundamental fault in the economy and get credit flowing again, jobs will not emerge.
Mrs. Lait: I do not want this to turn into a dialogue and I did say that we should be brief.
Mr. Love: I thank the hon. Lady for giving way again. I wanted to point out that there will be a significant stimulus in 2010 and 2011. We could go into the details about what it will consist of, but one assumes that it will create jobs for those people to take up.
Mrs. Lait: I am not entirely certain whether the hon. Gentleman is living in cloud cuckoo land or never never land. If credit is not flowing, businesses will not be creating jobs and we shall not see an increase in employment. With the greatest respect, I suggest that until credit is flowing through the system again and businesses in constituencies such as mine in Beckenham start to take on employees again, we will not get the economy going again.
The economy will not get going until the Government address the whole issue of borrowing. One of my concerns for the long term is their issuance of gilts. There is already resistance to gilt sales. The only way to sell the volume of gilts that the Government will have to produce will be to increase interest rates. The impact of increased interest rates will be an increased need to sell gilts, which means that borrowing will go up—as indeed will inflation, as night follows day. There is no recognition of that by those on the Treasury Bench, nor is there of the fact that if the issuance of gilts is resisted, the UK’s credit rating will go down and the Government will be issuing their own junk bonds—their own toxic debt.
The Budget did nothing to reduce the impact of public debt, apart from an attack on higher earners. We are all agreed that when we open the books, there will be more important things to do than dealing immediately with people who earn larger sums of money. It is unbelievably unfair of the Government to slap a national insurance increase on to the ordinary worker—the person earning £20,000 a year, which these days is not even the average wage. Relieving those people of such levels of taxation is much more important than dealing with anything else.
Ordinary people in my constituency will not just be hit by national insurance contributions. They are already complaining about the increase in fuel duty, for instance. Unusually, I have received a series of original complaints about the recent 2p per litre hike in the price of petrol. June Skeet, a pensioner, has written to complain. Natasha Osunde, who works on commission and needs her car, has written to complain. Peter Allchin, who is disabled, has written to complain. The new fuel increases will have a huge impact on people who are just trying to get by.
Pensioners are already under huge pressure from the reduction in interest rates and in their savings income. Businesses are complaining about the impact of the VAT cut; not only has it not increased sales, its implementation has cost them large amounts.
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