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Often, by the way, the best schemes cost little or nothing. I am in favour of schemes that support industry, and many guarantee schemes never cost a penny or certainly cost very little. Even the scrappage scheme-it is a very good idea, and I argued for its extension-will
cost the Treasury very little, because of the tax revenues that it generates. The best schemes therefore often do not need to spend large sums, and the debate about fiscal stimulus and supporting industry often echoes old and tired politics.
Sometimes, clever interventions cost very little. One example is the enterprise finance guarantee scheme. It is too limited, and the Conservative party's national loan guarantee scheme would have been a better and more generous option. It would have been easier to administer and would have had very few public expenditure implications, but, to be fair to the Government, their scheme has broadly worked. Expectations were perhaps raised a bit about how it might work in practice, but it has been quite a targeted scheme, as Baroness Vadera explained to the Committee at an interesting evidence session. Broadly, the scheme is delivering the goods after a slow start. That is certainly the conclusion of our report.
The Department for Business, Innovation and Skills has been effective in its dealings with the aerospace sector. The establishment of the Technology Strategy Board is a welcome step forward, as long as the board can remain reasonably focused on its core tasks. On the other schemes, however, the warnings about trade credit insurance have been continuous and vocal. Where are we with it now? The Financial Times has described the take-up as "paltry". On 27 August, it said that just £7 million of cover had been provided to 52 businesses. On 9 September, the answer to a written parliamentary question showed that the Financial Times figures were correct. On 26 July, a survey of 100 members of the Construction Products Association-construction has been one of the hardest-hit sectors in the recession-found that just one had taken advantage of the scheme, which the association's members had found
"very expensive with very limited cover".
That is an example of a well-intentioned scheme that was delayed for far too long and then implemented incompletely and imperfectly.
As for the automotive assistance programme, which does not feature in the Government's amendment, I suspect that the Government are a bit embarrassed about it. It was announced with a great fanfare of trumpets in January as a £2.3 billion scheme. That sounds like quite a lot of money, but under cross-examination from my Committee last week, the Department's permanent secretary admitted that it was actually a £400 million scheme, because that was the amount of the loan guarantee available to support the £2.3 billion of lending that the Government hoped would come forward. What is more, most of that £400 million should never be spent, because it is a guarantee-a liability. The scheme's actual expenditure is nugatory. So far, by the way, only one scheme has been advanced under the automotive assistance programme. It is for a loan-not a loan guarantee-of £10 million. Therefore, a £2.3 billion scheme advanced in January has provided one £10 million loan in the middle of October, which is extraordinary and extremely disappointing.
The Government perhaps did not think about the scheme properly before they introduced it. There was a gap between the AAP's £5 million lower level and the
£1 million upper level of the enterprise finance guarantee scheme. The Government have now closed that gap, acting on a recommendation from my Committee. Their response to the Committee hinted at that new flexibility and things such as lower thresholds. Last week, however, the permanent secretary confirmed to our delight that the gap had been closed and that the AAP applied from £1 million up. The Government should be trumpeting that much more.
Whatever one makes of the merits of using taxpayers' money in effect to subsidise the private sector, and there are arguments about that, the French and German Governments moved much more rapidly to support their automotive sectors than the British Government did. The treatment of Jaguar Land Rover is still a matter of serious concern. The Government hold it up as a triumph that the company has gone back to the private sector for its finance, but the time and effort that it spent negotiating in good faith with the Government suggests that it was driven there by desperation rather than need. However, we are where we are, and I hope that JLR-a very important company-will now survive.
The AAP is an example of a scheme that was, in many respects, well intentioned, over-promised and late in delivery and which did not deliver as it should have done for a crucial sector. Equally, however, there are some good things in it, and I am grateful to the Government for their constructive response to our report, notwithstanding Lord Mandelson's initial reaction.
I still have high hopes for my own small measure for small businesses-the Small Business Rate Relief (Automatic Payment) Bill. I have a meeting with a Minister in the Department for Communities and Local Government on Wednesday, when she will explain the Government's latest thinking. I am still convinced that that is the kind of measure that would help small businesses, for which the odd £500 here and £1,000 there makes a big difference. I can see no overriding reason why the Government should not embrace my Bill. I warn the Government that the Conservative party is explicitly committed to embracing it in government. If the Government want to give the small business sector some good news, they should embrace it.
This is an important debate, and I hope that there will be more such debates. Some of the Government's schemes are very effective, but some are not. It is time for the Government to acknowledge the failings of those schemes and to address them.
6.46 pm
Mr. Michael Meacher (Oldham, West and Royton) (Lab): This must be one of the most remarkable run-ups to an election in recent history. We have the biggest crisis in British politics alongside questions about how to handle a deep and continuing recession, what caused it and how to prevent any recurrence. Yet, most people believe that the policies that are obviously required are still not being pursued or even debated.
As we all know, the country has been held to ransom over the past two years by the City of London-I am glad to see the right hon. Member for Wokingham (Mr. Redwood) nodding at that. The City's members and institutions spent two decades blowing up the most reckless, greedy and self-seeking financial bubble, and when it burst, they demanded a bail-out and guarantees
against the failure of their speculation from the Government and taxpayers. That burst bubble could still cost the country up to 10 per cent. of its GDP.
What is worse, now that the crisis has eliminated a good deal of competition in the banking sector, bankers and the finance sector are rewarding themselves, as we see every day, with bonuses that use Government bail-out funds. The situation is stoked further by the Government's ultra-low interest rates, quantitative easing and the huge market for Government gilts.
In that context, the Conservative party has launched one of the most audacious displays of the game "blame the victim" and is demanding that the poor, the homeless, the unemployed, single parents, public sector workers, the elderly and the ill pay for the disaster through cuts in public spending. However, it should reflect on the fact that the private sector depends heavily on public spending for its own recovery.
That fixation afflicts both parties. Of course, the Tories have made it clear that they will clobber public services and shrink the state, and the financial crisis has given them the perfect excuse for doing what they always intended to do anyway.
Mr. Redwood: Will the right hon. Gentleman explain why the Government gave all that subsidy to the banks and bailed them out when they should have told them to toughen up and sharpen up, acting as lender of last resort only in extremis?
Mr. Meacher: As the right hon. Gentleman knows very well, a crisis of global proportions developed almost overnight as a result of the error that was made in September 2008 with the dismemberment of Lehman Brothers. Credit should be given to the Prime Minister, who came forward with a plan that other world leaders and world economists have agreed was necessary. That is why that happened, and I think that it was right.
I was saying that the Tories want to pursue the policies that we always knew they would pursue. Sadly, the Lib Dems-or, at least, their leader-have called for a policy of savage cuts. Even the Government are now trumpeting the fact that they have a plan to halve the deficit over four years. That appears to mean a cut of up to £80 billion, which is roughly one sixth of total Government expenditure. And the International Monetary Fund, which has always advocated increasing the privatisation of health services in the UK, is now demanding cuts in public health care and public pensions. Not for the first time, we have the extraordinary situation in which all the political parties and international supervisory institutions are, sadly, united in pursuing policies that most people see as wrong and misguided.
Mr. Stewart Jackson (Peterborough) (Con): Will the right hon. Gentleman give way?
Mr. Meacher: I will; this is the second and last time that I will do so.
Mr. Jackson:
Is not there a void at the heart of the right hon. Gentleman's argument? Over the past 12 years, he has consistently voted for increased expenditure on public services, knowing that the compact that the Government had made with the City and banking meant that the tax revenues would continue. He was
happy to vote for an increase in that tax revenue to fund public services, yet he is now criticising the generation of that wealth in the City.
Mr. Meacher: I think that the hon. Gentleman might be overstating the contribution of the City of London; many people do. The value of the capital gains tax and corporation tax revenues from the banks is about £25 billion. That is a lot of money, but, set against total Government revenue, it is relatively small. Furthermore, if the consequences of supporting and underwriting the banks when the bust occurred are what we are now seeing, that will have been an extremely poor investment.
Mr. Binley: Will the right hon. Gentleman give way?
Mr. Meacher: No, I will not, because I would be cutting into my own time. Much as I respect the hon. Gentleman, I prefer, now that I have the floor, to keep it.
There are two ways of tackling the deficit, which is, of course, reducing Government revenues through rising unemployment and increasing Government expenditure through social benefits, including the so-called automatic stabilisers. Those activities are in turn ballooning the budget deficit. We all know that that is the problem. One way of dealing with the deficit is to tackle the supply side of the equation by drastically cutting other Government expenditures across the board. The other way is to tackle the demand side of the equation by initially spending more, not less, in order to put in place massive public investment programmes across the country, to get a large and increasing proportion of the population back into work. That is clearly right.
The first way was the policy that was ruthlessly pursued by the Bank of England under Montagu Norman in the infamous 1930s. The second was the approach adopted by Roosevelt in his 1933 new deal and, increasingly, after the war, by western Governments across the spectrum until it was discarded by the Thatcher-Reagan neo-liberal counter-revolution in the 1980s. That is the capitalist model of market fundamentalism, which is now bust. The second policy is unquestionably right, for several reasons. At the most basic political level, people are asking why the public sector, which contains many of the poorest workers in the country, has to take any hits at all, when the credit crunch crisis was caused exclusively by the bankers and the super-rich. I imagine that even Conservative Members have had that question put to them.
There is another, much more profound, reason on which I prefer to concentrate, however. The real economy-main street, as opposed to Wall street and the animal spirits in the City of London-is still sinking, as revealed by the fact that joblessness, repossessions and bankruptcies are continuing to rise, albeit more slowly. This continues to reduce the overall level of demand throughout the economy, and in these circumstances, further massive cuts in public expenditure will simply turn a bad recession into a deep slump. That is the fundamental point that Labour Members continue to press very hard.
There are two crucial considerations to confirm this view. First, there is ample historical evidence of the consequences of following a budget-cutting policy. As I said in an intervention on the right hon. and learned Member for Rushcliffe (Mr. Clarke)-who gave a long
historical discourse but did not answer my point-the Japanese Government, against the background of a precarious economic recovery at the end of the 1990s, raised their sales tax and made cuts in public expenditure in order to lower their budget deficit. That is exactly the argument that is being made today. That precipitated a second, deeper slump, which is, sadly, still in place in Japan today.
Even more relevant is the example of Roosevelt, who came to office in the US in 1932 and launched the new deal, involving a massive public works programme that initially brought down unemployment quite significantly. People do not often remember, however, that he was instinctively a balanced budget man, and, in 1935, he lowered public expenditure and edged up taxes, with the result that unemployment started to rise again. He was then forced to reverse engines. The only thing that finally brought down unemployment in the United States was war expenditure.
A crucial point that has not yet been mentioned in the debate is that the current ratio of Government debt to gross domestic product in the UK, although high, is still the second lowest-after Canada-in the G7. That indicates that there is certainly no cause for a panicky, counter-productive orgy of cuts. The IMF estimates that, even in 2014, when gross debt might peak-we shall see-the UK debt-to-GDP ratio will be 87 per cent. It estimates that that of France will be 89 per cent., that of Germany will be 91 per cent., that of the US will be 106 per cent., that of Italy will be 129 per cent. and that of Japan will be 234 per cent. I could add that, during the second world war, Britain's debt-to-GDP ratio rose to 250 per cent. I do not think that anyone disagreed with the proposition that that was necessary at the time. By the 1950s, however, it had fallen to below 50 per cent. without any programme of systematic cuts. Indeed, that was achieved by a huge programme of public expenditure expansion to promote employment.
So, what is obviously needed is a huge public investment programme of job creation in housing, which has been terribly neglected, in infrastructure such as rail extension, which I hope we are now getting round to, in manufacturing, in energy conservation, in skills training, in public services, including social care of the elderly-which would certainly offer a lot of employment-and in the greening of industry. That would turn around a budget deficit far faster and more effectively than hugely painful cuts in public services. I am sure that Opposition Members do not believe me, but perhaps they will pay attention to Martin Wolf, the financial guru at the Financial Times, who said recently in the FT that the public debt crisis was a myth. He said that a normal economic recovery would resolve the problem, and that widespread cuts would create a crisis. Amen to that.
So how do we pay for this? That question has already been raised. Now that the City has gone back to business as usual, with its paying of bonuses and its colossal profiteering, a windfall tax could be levied on its ill-gotten gains, as my right hon. Friend the Member for Holborn and St. Pancras (Frank Dobson) has said. I think that the vast majority of people in this country would agree with that.
Also, let us be honest, we will need to cut public expenditure where it is ineffective, wasteful and unnecessary. That is why we should cut the £75 billion Trident
renewal programme, which even the chiefs of staff now admit is irrelevant; the £10 billion-plus-whatever it is-ID cards that are not, according to their originators, "fit for purpose"; and the vast Government IT databases, which are costing tens of billions of pounds and are constantly leaking. We need to add a real crackdown, which the Government are starting to do, on the hyper-rich individuals and mega-corporations that squirrel away a sum that even the Treasury admits is somewhere between £13 billion and £25 billion a year.
At present-I have to say, by contrast-economic policy making has got rather stuck in a groove. Both new Labour and the Tories, for the same ideological reasons, have refused to nationalise the banks, which would have been far cheaper than bailing them out at a potential cost of nearly £1.5 trillion, and would have been a far more effective way of achieving control over the banks and their functions. Both new Labour and the Tories-again, for the same reasons of "hands off the banks"-have opposed forcing them to lend to businesses and home owners, which was of course the ostensible reason for bailing them out in the first place. Both parties refused to impose any significant regulation on the banks-here I very much agree with my right hon. Friend the Member for Holborn and St. Pancras-even though their greed and recklessness has nearly capsized the entire world financial system. Now, to cap it all, it seems to me that both parties are competing in this fixation on public sector cuts-mugging the victim, not the culprit.
What is really needed in order to shorten the recession and prevent unemployment rising even beyond its current 15-year ceiling of £2.5 billion is to require the banks-requiring them is something that we have not done; I simply cannot understand why not-to switch from their current policy of consolidating their balance sheets, which they have already done to a significant degree, to raising their lending substantially to businesses and home owners. It is the lack of credit for businesses, particularly small businesses, that is at the continuing root of rising unemployment.
The Government's own M4 money supply figures, which measure lending, show a catastrophic fall from annual growth of 20 per cent. in early 2007, just before the credit crunch, to nil today-indeed, they are actually negative, which means that the banks are now extracting more from their business clients than they are lending to them. The top management of the part-nationalised RBS and Lloyds groups should, in my view, be instructed to make that change as an immediate priority, with published quarterly reports to demonstrate that the policy is working, particularly in respect of lending to small businesses. That is the one area where I have some sympathy with the terms of the Opposition motion, as we need to do more in that respect. The best way of doing so is the way I am suggesting. I believe that any failure to comply should lead to a change of management. That, plus a huge public investment programme, as I have said, would absorb a very large number of the unemployed.
What is certainly not needed is a fire sale of public sector assets or the shadow Chancellor's pay freeze for 5 million public sector workers, which will again lower aggregate demand and prolong the slump. What really takes the biscuit is the gall of the Leader of the Opposition, who told the Tory party conference that it was "more
government" that has got us into this mess. Well, anyone-surely even a Tory, even him-can see that what got us into this mess was market fundamentalism, the doctrine that the market always knows best. [Interruption.] The Government had a role in preserving the banks and the economy, and it was actually the Government who ensured that global capitalism remained. To dismiss the role of the state, as the Leader of the Opposition did, is an extraordinary perversion of the truth, which will be noticed by many people in the country.
Mr. Deputy Speaker: Order. Having done some simple mathematics in order to be as helpful as possible to hon. Members, I propose that, after the hon. Member I am about to call next, the time limit comes down to 12 minutes.
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