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I sincerely hope that those banks have not been told by the Government that their sole duty is to maximise their profits, and that they have also been given a duty
to help solvent British businesses through the recession. I do not mean by that that they should encourage risky lending, but there are solvent companies with good prospects and good track records that need loans to help them through these difficult times. Banks with a substantial Government shareholding should consider the needs of the entire economy, and not just focus on maximising profits.
I shall give an example from my constituency that involves the Bank of Scotland, which is now part of Lloyds Banking Group and is 43 per cent. owned by the Government. The bank decided recently to withdraw all but one of the business relationship managers from its branches in my constituency, even though local managers living in the remote communities know them in a way that business management teams located in Edinburgh, for example, could never match.
One of the affected branches was on the island of Islay. The decision to remove the business manager there has caused great outrage and concern among the island's business community, which will now be served by a manager in a business team based on the mainland. I am in full agreement with the members of that community that a manager and a team based on the mainland will never understand the special circumstances of Islay's economy as well as a manager who lived there would, and I back their campaign to reinstate the post on the island.
To the bank's credit, it has amended its plans in response to the campaign, and there will now be a dedicated team for business customers in the highlands and islands. That is a welcome step forward and an improvement on the original proposals, but I still think that the mainland-based team will not have the same knowledge of Islay's economy as a manager living there would. That is an example of how banks with the taxpayer as their main shareholder should look to support local communities. I hope that Ministers will take this issue up with the Bank of Scotland and urge it to reinstate the post.
Another way for the Government to help both individuals and small businesses would be to establish a post bank, which would have 10,000 branches throughout the country. I was pleased with the announcement about the post bank that the Prime Minister made at the Labour party conference, but I have been disappointed with the slow progress since then.
Post offices are still closing, and two have shut in my constituency since the end of the planned closure programme. As well as helping individuals and small businesses with their banking, a post bank would also help to rescue the rural post office network. I hope that the Minister summing up the debate will have progress to report on the post bank proposal.
As well as supporting businesses through the recession, the Government should also be looking at investing in the infrastructure that the country needs so badly. Infrastructure investment is needed in school buildings, public transport, broadband provision, the national grid and so on. We need a mechanism for reducing the cost of capital through Government guarantees, while at the same time tapping into private savers' demands for long-term investment. That is why I support a UK national infrastructure bank, and I hope that that it is an idea that the Government will also support.
I was very disappointed by the Supreme Court decision yesterday that the banking practice of imposing unfair overdraft charges on individuals was within the law. I was disappointed that the court sided with the banks in that judgment and I hope that the Government will soon introduce legislation to outlaw those unfair charges.
I endorse what the Chairman of the Business, Innovation and Skills Committee said earlier about the need for a supermarket ombudsman. Such a post is badly needed to help small businesses and consumers, particularly in the dairy industry where there is a huge gap between the farm-gate price for milk and the price the consumer pays at the supermarket. I hope the Government will accept the Competition Commission recommendation and set up the post as soon as possible.
I look forward to the Minister's response. I hope he will tell us what instructions the Government have given the banks in which they have a major shareholding, so that banks can help British businesses through the recession, rather than simply maximising profits.
Mr. Mark Field (Cities of London and Westminster) (Con): One of the most depressing aspects of the Government's record over the past 12 years has been their unwillingness, bordering at times on the foolhardy, to take long-term decisions. One thinks in particular of nuclear energy or our transport infrastructure. The flagrantly tactical rather than strategic nature of the Queen's Speech represents more of the same.
Collectively, the nation was lulled into a false sense of security by the clement economic conditions that prevailed for a decade from the mid-1990s, alongside a delusional feeling that the good times would last for ever. In that sense at least, the Government may have been in tune with public sentiment. There is an almost primeval human urge to avoid confronting the unpalatable in the hope that today's problems will simply fix themselves. "Something will turn up" is the watchword of the cheerily optimistic and the insanely reckless alike.
One of the underlying characteristics of the deep financial and debt crisis in which we find ourselves is that continuing state of denial. Part of it is understandable. Two years of almost constant news headlines have suggested that we are living in a massive financial crisis, yet those headlines have not been matched-except for people who have already lost their jobs-by any sense of financial sacrifice among the public at large. More and more Government money is being pumped into the economy, so the sense of denial continues. Far too few of us in Parliament, across party divides, have woken up to the enormity of the debt crisis that will follow hot on the heels of the economic downturn, yet the seriousness of what will follow cannot long be denied.
For sure, technically the worst of the economic recession may now be behind us, although it would be premature to conclude that a double-dip recession is not on the cards as the effect of the continued fiscal stimulus dies off-probably just after the general election next spring. Despite some of the glib green-shoots commentary, we should understand that the banking crisis represented nothing unusual. Indeed, it signalled the end of another in a long line of boom-and-bust cycles-positively commonplace in the second half of the last century-caused by speculative euphoria and an excess of credit.
It is of course in the Labour Government's narrow interest to present the current downturn as entirely unprecedented, caused by modern financial alchemy gone wrong, failure by regulators or rank unforeseen misfortune. That is not so. It is true that the global nature of the economic crisis has made things far worse, but there are clear lessons we can learn from the past. One of the grand old names of British banking, Barings, collapsed owing £780 million only 14 years ago; today, RBS survives courtesy of a £45.5 billion bail-out. It is only the extent of the economic downturn, not its cause, that is so very different.
The UK economic downturn began when the household debt and housing bubbles burst simultaneously. Our house prices rose 88.5 per cent. in the decade to 2007. Even in the sub-prime enhanced US that index rose by only 64 per cent. Similarly, our average household debt leapt from 105 per cent. in 1997 to 177 per cent. of disposable income a decade later. In both continental Europe and the US, the overall levels and the increases during that period were significantly lower.
For the first decade of this Labour Administration, we seemed to be living in the very best of times. However, in our complacency we planted the seeds of catastrophe. Consumer consumption in the US and Europe was maintained by unsustainable levels of public and private debt. The dotcom revolution of almost a decade ago was hailed as a new paradigm. Almost imperceptibly, the wages of middle income earners stagnated, while consumption in a low-inflation, low-interest-rate economy remained apparently robust.
In truth, as we have seen, the erstwhile Chancellor's new economy was sustained by an old-fashioned private debt bubble. Cheap mortgages remained eminently affordable by virtue of the deflationary effects of China and India's emergence on the global economic scene. Given the colossal sums of taxpayers' money that have been spent globally, and given that immense Government guarantees continue to underpin the financial system, it is remarkable how little agreement there is on what constitutes the point at which the banking industry can be said to be fixed. To that extent, I agree with what the right hon. Member for Oldham, West and Royton (Mr. Meacher) said.
Less still is there any emerging consensus on the ideal future landscape of the financial services world. That is no mere academic issue. The imperative to start repaying all that borrowing at the earliest opportunity cannot be overstated. However, commercial lending is unlikely to return to anything like normal until the second half of 2011, because toxic assets are being removed only gradually from bank balance streets. The credit crunch will be with all small and medium-sized businesses for some time to come. Extending quantitative easing beyond £200 billion would put our medium-term economic prospects at great risk, so when can the Treasury and the Bank of England call time on their short-term fixes? Despite all the euphoria of a narrative suggesting that recovery is perhaps within sight-the FTSE index has been back above 5,300-I fear that we are still a long way from being out of the woods.
I have spoken before in the House about the root causes of the global imbalances brought about by the west's financial calamity. In many ways, those causes are the credit and debt bubble, along with the east's aggressive desire to build market share in global trade.
China's policy of suppressing its currency to soak up the west's debt in the bond markets further helped to keep down interest rates, yet the resultant over-investment, excess capacity and vast structural debt in the west remains in place. I agree that the underlying causes of the crisis have not yet gone away.
The biggest threat in the years ahead is that the indiscriminate pumping of money by the Bank of England into the economy will bring with it an unsustainable combination of inflation, rising unemployment, weak growth and diminished competitiveness. If we are not careful, that toxic mix will bring about stagflation-truly a back-to-the-1970s phenomenon. The very worst case scenario is that a future Government may regard a sustained dose of inflation as the quickest and most politically expedient way of helping to bring down the level of public debt.
In truth, any UK Government who are regarded as popular in 2011 or 2012 will probably not be administering effective economic medicine. To do the right thing on tax and expenditure in the years to come will not be seen as a politically easy option. The billions being borrowed now by the Government to ease the impact of the downturn for today's electors will be repaid by future generations in the form of higher spending, higher inflation and reduced living standards, yet the true cost of all that will not become apparent in the months ahead. The Government are desperately hoping that neither the sands of time, nor the patience and good will of an increasingly alarmed gilt and bonds market, run out before they have to face the voters. That makes talk of economic recovery now very dangerous.
Contrary to the rather fatuous claims by the Prime Minister, there is not a simple, binary choice, in which Tory cuts are set against Labour investment. There is a hard slog ahead for any Administration. The trouble is that much of the debate on banking regulation has focused on how we should have prevented the last crash. That has not been helped by a Government whose recent economic policy pronouncements are governed less by national interest and more by a scorched-earth approach, designed to limit the room for manoeuvre for years to come of any incoming Conservative Administration.
The fact is that the stuffing has been knocked out of this Parliament-and, in truth, all parliamentarians-by the implications of the allowances scandal. Only the catharsis of a general election can end the expenses saga. Nothing would be more catastrophic for trust in our democratic institutions and processes than for that toxic controversy to be prolonged into the next Parliament. As a result of party managers' repeated abject failure to clear up a discredited system, which many of us regarded for some time as illegitimate, the matter came to a head only when the country was in deep recession. That has made the parliamentary obsession with expenses and allowances even less palatable. The public have rightly asked, "If parliamentarians have not the ability to put their own house in order on allowances and expenses, how can they be trusted to regulate and legislate for the rest of the country?"
The political class needs to face some harsh truths. The impact of this economic downturn, to paraphrase Churchillian rhetoric, may not even be at the end of the beginning. We have been living through a phoney war,
and the shock of the economic crash has been only to our senses: we are, as I said, wallowing in a lake of Government-funded cash.
I am not sure that politics in this country has ever before experienced anything quite like the current situation. We have a discredited, exhausted Parliament that shuffles on to its day of destiny with the electorate, and it is very sad that the Queen's Speech reflects that intellectual bankruptcy and physical exhaustion. There is no flair, no vision, no passion, no conviction and no leadership-to the detriment of all whom we seek to represent. The 54th UK Parliament will not be much lamented.
I shall discuss a particular incident that took place in recent weeks in my city, Coventry-namely, the sudden, unexpected closure of the Ericsson research facility with its 700 highly qualified scientists and engineers. I am pleased to see on the Front Bench my right hon. Friend the Minister for Business, Innovation and Skills and my hon. Friend the Economic Secretary to the Treasury, who, like me, has a west midlands seat and has witnessed, over many years, the relentless, remorseless decline in our manufacturing sector. That is a matter for many in the House, not least the right hon. and learned Member for Rushcliffe (Mr. Clarke), who speaks for the Opposition on these matters. When he was Chancellor, he did his best in some ways to protect manufacturing and was always willing to speak up for it.
Nevertheless, the situation has occurred year in, year out, decade in, decade out, and not just over the past 10 years. It is sobering to think that over that period we have lost a further 1 million manufacturing jobs, but this is not a question of 10 years: the situation has been going on for 50 years. Ever since the war or, at any rate, the 1970s, we have seen that remorseless decline.
This is hardly a good thing, but one inescapable consequence of the recession from which we are now perhaps emerging, although we are a long way from returning to the growth rate that we enjoyed, is that people suddenly see how out of balance the economy had become. It looked great that the bonuses in the City could make good so much deficiency and decline elsewhere, but we should all have realised, and perhaps some did, that we were living in a fool's paradise. We now know that, if not all, then a massive chunk of those service industries have disappeared for good, and the huge bonuses that the City brought with it are not going to return. We have to face up over the next period to rebalancing the economy, in which manufacturing will inevitably have to play a major role. It is not going to be easy, however.
From the Front Bench and elsewhere in the House, we all speak airily of how the green economy will bring the jobs of the future, through wind energy and, eventually, solar energy and wave energy, but when I look around and see the UK output and actual and prospective employment from it, I fear that it is yet another growth area on which we will all miss out. However, one area
where we and the Government in particular could give a lead is clean coal technology. There, all the areas at which we, nationally, can excel come together-particularly in making different sectors work together. We have the straightforward engineering skills, and clean coal will be a massive engineering job; we have the science aspects, including chemical process engineering; and, not least, we have the physics aspects that will inevitably be involved. We do not need to pull together a committee that works out of the Department for Energy and Climate Change, even though it would be useful, and it would no doubt give a push here and there to make us go quicker. If we could pull together people in this country-inside and outside government and in institutions-as a combined team of engineers and scientists, and set out to crack the remaining technical difficulties that stand in the way, we could at least get back into one sector.
As things stand, we are certainly not going to get back into telecoms. The work force at Coventry-700 qualified scientists and engineers-represent the very last capability that Ericsson has in telecoms communication, in both systems and optics. No one is going to pretend that telecoms is an old-fashioned technology to which we are sentimentally attached, like motorcycles were at one time, but it is a technology of the current age.
I am not sure whether it should concern us that we have no indigenous presence, let alone a British-owned presence, in that vast and important area, but it worries me that the Government are not sure about that. I do not think they have even thought about it, because we do not have a strategy Department-I do not want to hear about picking winners or anything like that-or a basic capacity to evaluate the relative importance of new, modern technologies, which are vital to the persistence of an industrialised state. I believe telecoms to be one such technology. That we do not have the capacity to ask, "Does it matter at all that Britain is about to lose its last capability in that area?" concerns me.
I put it to my right hon. Friend the Minister for Business, Innovation and Skills that he should quickly convene a group not of the great and the good, but of people who know their business, and he should ask, "Does this really matter?" Those 700 people at Ericsson may get jobs in telecoms in this country in either maintenance or servicing, but not at the sharp end of research and development for the future, particularly in optics, which is the sector that seems to be going ahead very much at the moment, and in systems.
The Government could find a way of saving some of those 700 jobs-it would not be a case of saving the whole 700 and I doubt whether more than 300 or 400 are actually involved in that key area. Let me be perfectly direct with the Minister about this. It has been put to me by people not a million miles away from the Ericsson plant that it is involved in key areas that are at the forefront of everything that the company does. The whole integrated systems work, on which Ericsson depends, in turn depends on those few key areas.
The Minister spoke the other day about all the key funds that we have set up to enable people to move forward, which are excellent. Many of the funds are working very well, and we could use them on contractual arrangements for those key areas. Perhaps the research and development and the intellectual property rights
would, initially and understandably, have to remain with Ericsson, but we should nevertheless retain the key element of that work force.
Instead, we have done what we always do. I make no excuse for that, because like everybody else, I do it. The unions phone up and we say we will have a meeting, at which they say, "Look, you've got to get the Secretary of State." We say, "Yes, we're going to a meeting with the Secretary of State." We then go to the management, who say, "That's great. Let us know how you get on. Are you going to help us?" We have a meeting here, and the Secretary of State, who is active long before we get to him-all deference to him for that-is on the phone twice, laying the law down, saying, "This isn't good enough," and Ericsson management reply, "Too bad."
That is what happened, and it was to a very formidable Minister in another House that I put those suggestions. Only if we can create a sanction of some kind or an incentive that a company cannot resist will anything happen. Something along the lines of my suggestions to the Minister could well amount to such a sanction or incentive.
As the Minister knows, we are due to meet him next week- [ Interruption. ] I apologise if he did not know that. The meeting is tentative until he confirms. I may bring not only the unions, but one or two of the key technologists in the area, if they will come, who know what they could do and how the matter can be taken forward. What we do not want is to roll over once again, without knowing how critical it may be to our economy, and say, "Another 700 jobs gone. Isn't it terrible? That's 1,000,700 this year and in another five years it will be another 500,000." We simply cannot carry on like that, especially now that the recession has bitten so deep. Look at the strength of Germany, France, Italy and Japan, let alone the newly industrialised countries. We have to have a more nationally focused effort, without picking winners, and I think that Ericsson would be a good place to start.
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