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Mr. Bone: Does the hon. Gentleman think that the Government missed a trick in that when the share subscription agreements were drawn up for £39 billion, they did not put any restriction on the pay of bankers?
John Thurso: I do, and I am even on record as having urged the Government to do that, although it may have been in the Treasury Committee rather than in the Chamber. The Government were, to a degree, taken by surprise, and the resource at the Treasury was not sufficient to undertake a great deal of extra work, so some of those details were missed out.
There is an argument-I will not go into it in detail-for narrow banking. Suffice to say that it is not about a difference between casino banking and utility banking but between the need to have commercial banks on the high street acting with prudence while allowing investment banks the freedom to take appropriate risk. Those two cultures do not sit sensibly in the same organisation, and they both work better if they are apart.
Rob Marris: The hon. Gentleman is echoing a proposition that was often put forward by the hon. Member for Twickenham (Dr. Cable) and I caution him as regards the bifurcation of the banking system. The broad consensus around the world is that, of the banking systems in advanced industrial countries, the one that survived the best and that is the most robust is the system in Canada, where there is no such bifurcation. The major banks there are in rude good health and work on both sides of the street, so to speak.
John Thurso: The hon. Gentleman tempts me into a debate on Glass-Steagall, but I will not go into that given the time available. Canada is an interesting example to study, not least because of the banking problems that it had already suffered and the regulatory changes that it had made. There are as many people in favour of narrow banking as there are those who take the opposite view. It is a valid discussion to have, but this may not be the place for it.
Mr. Redwood: Can the hon. Gentleman then explain why narrow banks-three mortgage banks-got into deep trouble? On the basis of his argument, they should not have got into trouble at all.
John Thurso: Indeed I can, but I will not be drawn into that debate when there is much else to say. I suggest that the right hon. Gentleman take a look at the Treasury Committee's report on the subject, which explains it extremely well; it is to do with the banks' business model and the functioning of the capital markets.
The purpose of financial services is not to spin round in self-interested speculation, but to serve commerce and industry by acting as an efficient channel between those who need investment and those who wish to invest. The argument that the City can simply go back to business as usual does not hold; its fundamental flaw is that the resource of capital has been wasted on speculation and needs to be applied to investment in sustainable growth. If we wish to grow sustainable employment, capital-both equity and debt-is required to be invested in sustainable enterprise.
The Government-no doubt their heart is in the right place-have put forward a positive blizzard of schemes. However, they range from what can only be called rank failures-the automotive assistance scheme is one of
those, and the credit insurance top-up scheme has not done much-to the enterprise finance guarantee scheme, which is muddling along after a shaky start and has failed to reach many of the people that it should have done. No doubt that is because of the inherent Catch-22 that the people who turned businesses down for credit in the first place are the people who get to reassess them for it in the second place. I argued this time last year for an improvement and remodelling of the small firms loan guarantee scheme, which I believe would have been an appropriate response at the time.
Finally, the Government have put forward targeted assistance schemes such as the scrappage scheme, which have been successful. Overall, however, there has been a blizzard of schemes, and the hallmarks of them have been the press release announcing them, the lack of money spent and the failure to reach the businesses that need them. They have been at best sticking plasters, when perhaps stitches were required. I note from talking to the many companies in my part of the world that, interestingly, the single most effective measure has actually been the devaluation of sterling, which has set the economy working faster and better than anything else. Of course, that was unplanned by Government and carries with it distinct long-term risks.
There are other question marks to consider about the speed with which growth will resume. Not the least is quantitative easing and at what point the laxative should be taken away and the Imodium applied. Another question relates to the timing of the reversal of the fiscal stimulus. It is important that the stimulus is not removed until such time as the economy is capable of taking it. A third factor is the 17.6 per cent. cut in capital investment that will take place next year as a result of all the projects that were pulled forward to this year. I ask seriously whether the economy is ready for that.
Mr. McFadden: The hon. Gentleman has just said that he is not in favour of the fiscal stimulus being removed and that he is a bit worried about the trajectory of capital expenditure. Where does that sit with his party leader's support for savage cuts?
John Thurso: My party leader has pointed out, very honestly, that we cannot sustain the level of public expenditure to which this Government are committed over the long term, and that if we are to deal with the structural deficit, we will almost certainly need to cut public expenditure. Furthermore, he and my hon. Friend the Member for Twickenham have set out a range of possibilities as to where those cuts may come. It is wholly appropriate for those of us engaged in politics to say those things honestly to the people out there, rather than try to pretend that there is not a problem that needs to be dealt with over the piece. In my judgment, the electorate are far more intelligent than that and can well understand the problems that we face.
Notwithstanding the question marks that I have mentioned, we are indeed seeing the first glimmers of growth, and we need to make that growth sustainable. I wish to mention in particular the sector of small and medium-sized enterprises, which are the incubators of the future. We are a nation of innovators-we innovate and invent very well, whether in our universities and research laboratories, our workshops or the garden shed. We do innovation very well as a nation, but we do
badly in converting innovation into enterprise. We are not very good at converting ideas into commercial success.
One of the top points, if not the top one, made in every survey of SMEs, at least until the taxation issue came up, was that access to capital was the single biggest barrier that they faced. Some 51 per cent. gave that response in a 2006 survey. Sorting that out tops the list of requirements, because if we can get investment to the businesses that can deliver jobs, that will deliver growth.
I have made a proposal on that matter, which is based on three simple premises. The first is that in most parts of the UK, if not all, there is quite a lot of individual private wealth whose holders would really rather like to invest in enterprise, particularly locally, but lack the mechanism to do so. The second is that investment decisions are best made by investors and those in whom they wish to invest, rather than by Governments or officials. The third is that there is, however, a key role for Government to play in facilitating the creation of the mechanism for that. I have put forward a proposal for a local enterprise fund that would work on exactly those lines.
The second problem cited by SMEs is regulation. Since this Government came to power, the total regulatory burden falling on firms has grown by some £77 billion. It falls most heavily on the SME sector, and proportionately most heavily of all on the micro sector. To respond to the intervention by the hon. Member for Wolverhampton, South-West (Rob Marris) on the right hon. and learned Member for Rushcliffe, I could give three examples of regulations that I would abolish, but they would all be agricultural. I should not be drawn down that route.
John Thurso: Well, I would get rid of the regulations to do with the water directive, because of the impact that they have on whisky in particular; I would get rid of the sheep tagging regulations that are coming down the track and I would improve the system; and I would amend the slaughterhouse regulations to allow more British slaughterhouses to operate. The hon. Gentleman has succeeded in making me rise to my own fly, so I would not make a very good fish.
Actually, the problem is not particular regulations or the number of them; it is the burden that regulations place on a business to undertake administrative functions for the Government. The real burden has come from all the matters that were dealt with by Government 15 or 20 years ago but now require form-filling and all sorts of other things by businesses. The real benefits can come from working out the impact of that burden.
Gordon Banks: There has been a lot of talk this afternoon about the number and value of regulations, but surely the point is that regulation must be measured against risk.
John Thurso:
Absolutely, and one of the most pernicious things in our culture at the moment is the fact that people seem to have failed to understand that risk is made up of two factors. It is the severity of the consequence multiplied by the probability of its occurrence. If that consideration were applied properly, many of the risks that people are asked to mitigate, at great cost, might
well not affect them. I will happily discuss what has happened in my businesses with the hon. Gentleman after the debate.
Lorely Burt (Solihull) (LD): My hon. Friend speaks clearly about the disproportionate burden of regulation on small and medium-sized businesses. Does he agree that we might wish to balance the amount of risk with the size of a business? By definition, a small business will not be able to generate the same sort of volume as a large one.
John Thurso: My hon. Friend is absolutely right. A number of European countries already have that enshrined in their legislation. When I was running a business in Paris 20 years ago, there were clear distinctions between businesses that had fewer than 50 employees and businesses that had more. I would happily see that principle adopted.
My party made three proposals to deal with the problem in a policy paper that was published about a year ago. The first proposal is to strengthen the protocols on regulatory impact assessments to ensure that they are proper and robust, so that we have a real idea what costs are being introduced. Furthermore, to ensure that they are accurate, we should back them up with a post-implementation review to audit them.
The second proposal is to introduce sunset clauses on all regulation, so that as a matter of course regulations come back to Parliament to be debated again. Within that is a proposal for a strict concept of one in, one out, so that the overall burden does not increase.
The third proposal is to ensure, particularly for small businesses, that there is a single point of contact rather than a plethora of different inspectors arriving on different days. The right hon. and learned Member for Rushcliffe mentioned similar ideas. As he has so few researchers, may I suggest that, rather than reinventing the wheel, he just copies the ideas off our website?
Gordon Banks: I am not against the hon. Gentleman's suggestion-there is a real need for small businesses in particular sectors to know directly what affects them-but does he agree that it means that there would have to be sector points of contact as opposed to individual business points of contact?
John Thurso: That is a possibility, but it really depends on where we are to put the point of contact. I cannot believe that it is beyond the wit of man-I know of examples of this happening in other countries-to have, at local government level, somebody who is the basic point of contact. With the vast bulk of regulation, it is not terribly difficult to assess whether someone is generally compliant. If someone had a serious problem, they could be referred to specialist help, but the vast bulk of people are compliant. How much easier would it be if they had one person coming to see them to deal with everything, rather than having to disrupt their business on several days.
On taxation, which is a core part of the motion, I regret the increase in corporation tax for small businesses. I do not for one moment think that this is the time for that measure and I concur with the aspiration to lower headline tax while removing some of the ways in which it can be avoided. It is interesting to note that the average tax rate paid by FTSE companies, which can,
after all, afford to pay for a great deal of advice, is some 7 or 8 per cent. below the headline rate. That comes not from capital allowances, but from double dips through Delaware partnerships and strategically placed Jersey companies. The removal of some of those avoidance schemes would allow a lowering of the overall rate and probably, at the same time, an improvement to revenue. That would benefit everybody, particularly companies at the middle level, which cannot afford the same advice as other companies or take the action that they take.
The final part of the motion relates to benefits. I am afraid that I do not have the luxury of leaving it to a colleague to inform the House what the Liberal Democrats think about benefits, and therefore must do it myself. The concepts of an integrated approach to helping people back to work and the use of private sector companies were both put forward by my hon. Friend the Member for Northavon (Steve Webb) in a policy paper published two years ago, which has been put through our conference. Again, I welcome the conversion of the right hon. and learned Member for Rushcliffe to our ideas. However, as so often, the Conservatives grabbed the headline and missed the content. I cannot help but observe that it was the last Tory Administration who, for example, put the majority of those involved on incapacity benefit. The shift back is an interesting full circle to have travelled. I warn him that simply hoiking people off incapacity benefit and sticking them on to jobseeker's allowance is not at all likely to lead to savings in the longer term, and that there are better ways of getting those.
As I said at the outset, dealing with unemployment has two clear parts: ensuring that jobs can be created and that enterprise can flourish, and creating effective pathways for those who are out of work, to give them the best opportunities to return to work. The Liberal Democrats have long recognised both and have made detailed proposals, some of which I have been able to outline this evening. As those proposals coincide with the sentiment of the motion, we will support it.
However, the right hon. and learned Member for Rushcliffe began by calling for truth and honesty. I agree with the importance of those, so I say this to him: I well remember running a business in the last recession, over which his predecessor as Chancellor presided, and I must say that I see little change in the Conservative party today to make me believe that it has either the appetite or the conviction to implement the aspirations in the motion. In my mind, these are technicolour problems that cannot be dealt with by monochrome headlines. Businesses need stability and support, and the Liberal Democrats would certainly give that them that.
Mr. Deputy Speaker (Sir Alan Haselhurst): Order. I must remind the House that Mr. Speaker has placed a 15-minute limit on Back-Bench speeches, which comes into operation now.
6.17 pm
Frank Dobson (Holborn and St. Pancras) (Lab):
It would appear that today's debate has confirmed what was said at the Tory and Lib Dem conferences. The
Tory answer to the black hole that the bankers have blown in the public finances is to cut public investment now and keep on cutting, and the Lib Dems turn out to be not much better-they want to savage public servants' jobs and freeze the pay of those who survive. Both the Government's main opponents are committed to slashing vital public services, which would throw more people on the dole. Those policies are neither sensible nor popular.
The Labour Government are right to spell out the truth of the situation and the principles that they are applying and will continue to apply. The truth is that the public finances are in a particularly bad way because of the money that taxpayers had to fork out to save the banking system, and because the recession caused by those bankers has slashed the amount of tax that is being paid into the Exchequer. For example, each person thrown on the dole costs the taxpayer at least £12,000 in benefits paid out and tax not taken in. Adding to unemployment adds to rather than reduces the debt. That is why it is necessary for the Government to ensure that they do not introduce any measures that cut spending at the moment.
In the end, the only sound, long-term way to deal with the deficit is to maximise the production of goods and services, which we are not doing at the moment. Some reductions in public spending may be necessary, but not until unemployment is falling significantly. However, debt can be reduced by increases in taxation and-dare I say it?-by inflation, which nobody likes to mention but which will be deployed against deficits by every Government in every developed country.
Here in Britain, the Government's response to the credit crunch has been exemplary. They set an example that has been followed by every country in the developed world. As the right hon. and learned Member for Rushcliffe (Mr. Clarke) denounced the Prime Minister, I can outdo him by quoting Paul Krugman, winner of the Nobel prize for economics, who said of the Prime Minister that he had acted with
"stunning speed"
"defined the character of the worldwide rescue effort with other wealthy nations playing catch up".
Mr. Krugman also said that the Prime Minister's
"combination of clarity and decisiveness hasn't been matched by any other Western government".
Mr. Redwood: Will the right hon. Gentleman give way?
Frank Dobson: I will certainly give way so that the House can contrast what the right hon. Gentleman says with the wisdom of Paul Krugman.
Mr. Redwood: I was merely going to ask the right hon. Gentleman which taxes he thinks should be put up to tackle the deficit.
Frank Dobson: I assure the right hon. Gentleman that I will get on to that issue later in my speech.
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