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Mr. Ainsworth: There were other pressing requirements for current operations that we needed to get into the programme-most significantly, the Lynx Mk 9. I would
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have thought that Members in all corners of the House recognised that we urgently needed that upgrade to our helicopter capability for current operations, which was a greater priority than keeping the then profile of the carrier. Yes, of course there were cost increases in stripping the carrier, but was it the right thing to do? I believe that it was, and that the helicopters were important enough for us to make those adjustments.

Mr. Bernard Jenkin (North Essex) (Con): The Government are to be commended for commissioning this report; the report itself is commendable and the Secretary of State has said nothing unreasonable in response to it. However, I sense a lack of urgency. The report says nothing that the Defence Committee has not been saying for a great many years about the unaffordability of the existing programme, and we need to make decisions now. What are we going to do to prevent a period of paralysis from gripping the Government until a general election?

Mr. Ainsworth: We are examining affordability in the current spending round, and more action will need to be taken as part of the strategic defence review. The defence budget will have to be brought back into balance.

Bob Spink (Castle Point) (Ind): With fast-changing technology and military requirements, there will always be cost and delivery overruns, whatever Government are in control-it is not a political issue but just a matter of fact. We know that the Trident project is already unaffordable; in the light of the Gray report, will the Secretary of State now abandon it?

Mr. Ainsworth: No. Our position was set out in the White Paper of two years ago, and it has not changed. We should not-I say this to the hon. Gentleman with the greatest respect-look at the UK's deterrence policy off the back of short-term financial issues. This is a strategic decision to be taken by the nation, and it should be considered and taken in that light.

Mr. Brian Jenkins (Tamworth) (Lab): I welcome the report, as do many Members. However, having served on the Public Accounts Committee for four years, I remember the projects that were running then and the legacy of overruns in costs and delivery times. Where do we find someone brave or foolish enough to say no to the defence chiefs?

Mr. Ainsworth: Getting the strengthened system of governance in the Department so that projects are not allowed, in any circumstances, to enter the programme without realistic costings, and having the skills in order to make those costings, will bring the appropriate focus at the start of the process instead of halfway down the line, as I am afraid often happens with very long projects. Some of these projects take 20 years to come to fruition. People are focused on the capability improvement at the start of the process; only part-way through it do the costs begin to kick in to the full extent. We have to get that balance right.

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Point of Order

4.34 pm

Mr. Douglas Hogg (Sleaford and North Hykeham) (Con): On a point of order, Madam Deputy Speaker. I have given Mr. Speaker notice of this point of order, which relates to Wednesday's debate on Equitable Life. Many right hon. and hon. Members, myself included, suffered financial loss as a result of the failure of the Equitable, and therefore we have a pecuniary interest in the outcome of the report on the matter and the Government's considerations. We are going to need some guidance, if Mr. Speaker can give it, as to the propriety of voting on matters in which we have a pecuniary interest, and whether it is possible in some way to register that interest. Otherwise, we will be voting without the public knowing that we have a pecuniary interest, which is intrinsically rather difficult to justify.

Madam Deputy Speaker (Sylvia Heal): I understand that there is in fact long-standing advice on the matter from the Registrar of Members' Financial Interests. If a new point has arisen, perhaps the right hon. and learned Gentleman would write to Mr. Speaker. I suggest that he take his point to the registrar, who will give the necessary advice.

Mr. Hogg: Further to that point of order, Madam Deputy Speaker. I tried some time ago to register with the registrar the fact that I had a pecuniary interest, namely that both my wife and I suffered loss as a result of the failure of the Equitable. I was not able to register it, as it was decided not to be an appropriate subject for registration. I therefore have some difficulty in seeing how Members can declare to the public that we have such pecuniary interests.

Madam Deputy Speaker: In view of the points that the right hon. and learned Gentleman has raised, I will ensure that inquiries are made and that he is informed of the advice given.

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Opposition Day

[18th Allotted Day]

Economic Recovery and Welfare

Madam Deputy Speaker (Sylvia Heal): I inform the House that Mr. Speaker has selected the amendment in the name of the Prime Minister.

4.36 pm

Mr. Kenneth Clarke (Rushcliffe) (Con): I beg to move,

These are terrible times for British industry of all kinds, and certainly for more than 2.5 million unemployed people in this country. We are coming to the end of probably the worst recession that anyone living can remember, and I certainly hope that a weak and feeble recovery is at least on the point of starting now or during this winter. What we obviously need to do as a country is start straight away to recreate the economic and business conditions that can restore economic growth and employment opportunities to more normal levels, although I am afraid that it may take some years before we are able to do that. I agree with the latest quarterly report of the Bank of England, which foresaw a long and slow recovery ahead of us. I think it will be quite a few years before we get back to what we used to call "trend growth" in the British economy.

Unfortunately, because of political events, we face a winter in which all that is being presided over by a Government of the living dead, as someone once described them. They are a weak Government, who no longer have any particular policies and do not feel able to take any initiatives in any area. The Prime Minister, in particular, is obsessed by the day-to-day management of news handling and the press, and there is very little sign that anybody is determinedly trying to tackle the underlying problems, not least because that would require some startling changes of opinion.

Mr. John Redwood (Wokingham) (Con) rose-

Mr. Clarke: I will give way in a moment, but I do not know whether my right hon. Friend read The Sunday Times last weekend. I am indebted to it for a short story showing that the Secretary of State for Business, Innovation and Skills is mainly concentrating on the branding of the confused range of schemes that he has produced, using the Government's party political slogans in various publications, which shows where that master of marketing's true priorities lie. At least on that he will be in full agreement with the Prime Minister.

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Mr. Redwood: In the economic competitiveness review that I and colleagues produced for the Conservative party, we said we thought the growth rate the Government were achieving was entirely artificial and built on excessive debt, which would have to be corrected. We said that the trend rate of growth was now unfortunately well below 2 per cent. Does my right hon. and learned Friend agree that not only will it take a long time to get back to the old rate, but that we might not do so because of the damage that the Government have done?

Mr. Clarke: I always used 2.5 per cent., but was always tempted to put it up because the combination of our supply side reforms and globalisation in the mid-1990s made me think that 2.75 per cent. might be possible. The Government finally started accepting 2.75 per cent. in the middle of a crazy boom, which they were taking credit for, but they have collapsed from that.

I must say that since my right hon. Friend the Member for Wokingham (Mr. Redwood) carried out his review, I have not sat down and seriously thought what the trend growth is likely to be. He thinks 2 per cent. could be trend for some time. We have certainly destroyed a lot of capacity as the recession has gone on, and the important thing to realise is that although we all hope we are about to see at least the first statistics showing signs of recovery, it will be a long, hard road ahead and normality does not mean returning to the bubble conditions of two or three years ago. At that time, I was saying that any growth we were sustaining was entirely buoyed up by a sea of debt, both public and private. That has turned out to be the case. Many others said the same, and all the warnings were ignored.

We must face up to reality, but this Government will not do so. The Prime Minister thought that the boom was a triumph for his personal management of the economy and constantly took credit for it. When the crisis first came, he denied its existence, then he said it was caused solely by sub-prime mortgages in the mid-west of the United States, although the state of our mortgage market showed that something very similar had been flourishing here for some time and was indeed about to crash. When the crisis hit us, it was nothing to do with the Prime Minister, his handling of economy or the system of regulation that he put in place for the City, and the fiscal deficits that he was accumulating were quite irrelevant to the problems!

The recovery may start soon. The statisticians are on our side: the economy went off a cliff in autumn last year, so minuscule growth, compared with where we were 12 months ago, becomes, statistically, an increasingly likely outcome. When that tiny first shining growth comes, the Prime Minister will claim that he saved the world from calamity and that the recovery is under way, whereas we have seen him panic-stricken and overwhelmed by events throughout the crisis ever since it started.

It is therefore up to the country to start to look to what we can do to restore our economy. Now we need a Government who will face up to the reality of our problems honestly, and who will, with determination, restore our hopes for a quick return of confidence to businesses, followed by some recovery in economic activity in this country. Probably most important of all, we need opportunities for the army of unemployed people-not just for young people, but perhaps particularly for them because they are the innocent victims of the mad events of the past four or five years.

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This is not an economic debate, but we must take into account the economic background to what we are talking about, which is obviously the main menace to business. Such recovery as we are achieving is, in my judgment, almost wholly dependent on the low interest rates and the printing of money in which the Bank of England has had to engage. Quantitative easing is probably necessary-I do not think I would terminate it rapidly, but that is a matter for the Bank-and probably must continue. However, we have no signs yet of a return to a private sector-led, confident recovery in the real economy.

Of course, what is happening at the moment, particularly the quantitative easing, cannot be sustained. It is altogether an experimental, emergency measure. The Government are able to finance their deficit only because the Bank of England "buys" the gilts that it issues. That is printing money to stop the money supply sinking into a black hole. As a short-term policy, I think we agree with it. I certainly think it should probably be continued for the time being and stopped as soon as possible. It is not a long-term basis for recovery. Even President Mugabe discovered that printing money is no way simply to meet ones obligations and Government debts, or to sustain the economy. That is the first reality.

What is keeping us going at the moment is a set of emergency measures, largely taken by the monetary authority. This is not a debate about the banks, and they are no longer looking as though they are on the point of total collapse, but we are not out of the woods yet. The banking and financial system is not back to normality. There are many issues that we must address before we can get back to feeling confident in and secure about British or any other international banking.

The main effect, in the short term, is that lending to companies is extremely weak. Credit remains a vital problem for many businesses, especially small and medium businesses on which the majority of employment depends. We are just reaching the stage at which larger companies are able to start going to the bond markets for some of their capital because of the abnormally low level of interest rates, but that route is not open to any of the small and medium businesses that employ the majority of our constituents. We all could compare the experience that we have in our constituencies- and, if we make visits, outside-of encounters with people who have viable businesses. Some of them need support to get through what they can reasonably argue is a temporary dip in demand for their goods and services, and others need ordinary credit for working capital. The atmosphere is not as bad as it was, but many perfectly good companies still cannot obtain credit or can do so only at rates that are vastly higher than those that would be regarded as normal.

Banks are weak-not surprisingly-and they have put up their margins in every branch of their business. Most of the banks are in such trouble that they prefer borrowers who are as secure as the Bank of England and who will pay miles above the rate that the bank has to pay to obtain money itself, to try to restore profitability and their balance sheets. The reality for the supply chain of many of our great industries and for all our small and medium enterprises is very bad indeed.

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Mr. Angus MacNeil (Na h-Eileanan an Iar) (SNP): Does the right hon. and learned Gentleman agree that in such a climate it would be very wrong of banks that have some state ownership to pay any sort of bonuses?

Mr. Clarke: Yes, I think I would. The publicly owned banks have to have regard to the understandable sensitivities of public opinion about bonuses. The important thing about bonuses is to make them long term and genuinely based on out-of-the-ordinary performance. They should be fully realised only when long-term improvements have been delivered and should be capable of being clawed back if those improvements turn off. That is the nearest we are to international agreement. No Government can control the level of bank bonuses, but any sensible bank should realise that a high level of bonuses will cause outrage to a wounded and fearful public and be almost impossible to justify. If huge amounts of taxpayers' money have had to be spent to rescue a bank, public sensitivity will be very strong. I do not personally believe that Governments, even acting collectively, can have a pay policy on payment for senior bankers, but shareholders and common sense should dictate that any bonuses are performance-related, reversible and based on long-term performance. I hope that regulators everywhere will ensure that.

Mr. Brian Binley (Northampton, South) (Con) rose-

Tony Baldry (Banbury) (Con) rose-

Mr. Clarke: I give way to my hon. Friend the Member for Banbury (Tony Baldry).

Tony Baldry: Does my right hon. and learned Friend agree that one of the many frustrations for small and medium businesses is that they hear Ministers announcing new funds for investment, but when they try to access those funds, they discover that that is not possible? For example, the strategic investment fund is not a fund that businesses can access, but a fund for other funds, such as the launch investment for aerospace, grants for business investment or the UK innovation investment fund. The Secretary of State just reels off press releases about funds, none of which are accessible by our constituents, but which give the impression that he is doing something. All he is doing is creating new names for funds that businesses cannot access.

Mr. Clarke: There will be a wave of pleasure when I say that my hon. Friend has just given about the next 10 minutes of my speech, if I go at my ordinary pace. Having talked about the problems of accessing credit, I was going to make exactly that point and say what we would have done differently, and would still do, to make things more useful. However, I will first give way to my hon. Friend the Member for Northampton, South (Mr. Binley), and then I will warm to the point.

Mr. Binley: I am listening to my right hon. and learned Friend's speech with great interest. I am sure he would have recognised the CBI's second quarter report, which stated that the improvement in credit is largely driven by


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and the CBI expects

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