With permission, Mr. Speaker, I should like to make a statement about the European Council held in Brussels, which I attended with my right hon. Friends the Chancellor and the Foreign Secretary on 15 and
At the heart of our considerations was our shared understanding that the massive reduction in global financial activity and the fracturing of the global financial system has been the result of irresponsible and often undisclosed lending that started in American sub-prime markets. And while national action is necessary, the root problem can be dealt with only by changes in our financial systems, to recapitalise banks and to reform supervision around the principle of rewarding hard work, enterprise and responsible risk taking, but not irresponsibility and excess.
Market estimates suggest that in recent years some $2 trillion of US-originated loans, many of them toxic, were bought by European Union banks, so to strengthen our banks the Council welcomed the comprehensive action on liquidity, capital and funding guarantees of our Government here in the United Kingdom and of the eurozone countries under the leadership of President Sarkozy, President Barroso and the president of the European Central Bank, Jean-Claude Trichet. The Council also welcomed the joint commitment from the leaders of the G8 countries to hold a leaders meeting, and agreed the principles and priority areas for global action.
Stage one to recovery has been to stabilise financial markets, thereby securing a resumption of lending. In Britain almost £50 billion has been injected as capital into our banks. The Government alone have taken shares worth £37 billion in two of our largest banks. Across the world, more than £300 billion has now been approved from public funds to recapitalise the banking system.
At the heart of the British decision was that medium-term funding was conditional on bank recapitalisation, so we also welcome the agreement of the European Council that countries within the EU will provide medium-term state guarantees for new interbank loans. I particularly welcome the decision of the European Investment Bank, following proposals that we made at the G4 summit in Paris earlier this month, to mobilise and frontload €30 billion to support new lending to Europe's, and then Britain's, small businesses.
However, confidence today depends upon there being confidence about the future, so we agreed on the need to achieve a reform of the global financial system based upon five key principles—transparency, integrity, responsibility, sound banking practice and international governance, with co-ordination across borders. We will submit a detailed set of proposals to the international leaders meeting. I will be putting these proposals to all countries, including emerging market countries. I have already put them to President Bush and will put them to both presidential candidates in the United States of America.
I can tell the House today that these proposals include insisting on openness and disclosure, with off-balance sheet vehicles brought back on to balance sheets, greater transparency around the use of credit derivatives, and a rapid adoption of internationally agreed accounting standards so that value-impaired assets can no longer be hidden; and then removing once and for all the conflicts of interest that have distorted behaviour and undermined trust, so that credit rating agencies no longer act as advisers to the companies they rate, and executive remuneration rewards not excessive or irresponsible risk taking, but hard work, enterprise, effort and responsible risk taking.
We must also ensure that board members have the competence and expertise to manage the risks for which they are ultimately responsible, and cannot walk away from their obligations. We will look at regulation that examines both solvency and liquidity and which ensures that the financial system supports wider economic stability. There will be a new international architecture for the global financial sector for the years ahead.
We want to move to early decisions with our international partners about the reform of the International Monetary Fund and Financial Stability Forum, including the creation of an early warning system for the global economy; about globally accepted standards of supervision applied equally and consistently in all countries; about effective cross-border supervision of global firms, starting with establishing 30 international colleges of supervisors by the end of this year; and about cross-border co-operation and concerted action in a crisis. We also want to see greater global macro-economic co-ordination, and to prevent the return of protectionism we want to see the reopening of the world trade talks. I welcome the proposals that have come from the Australian Prime Minister Kevin Rudd.
The events of the last few days have demonstrated that we need urgently to deploy in eastern Europe and emerging markets the IMF's facilities and resources to the fullest extent, and also the resources of the multilateral development banks. We need urgently to prevent capital flight, engage in and support counter-cyclical policies and finance domestic growth where exports have declined and capital has flown outwards. We also need urgently to consider creating a new IMF facility for emerging economies in the current crisis. Rescuing eastern European countries is particularly urgent and I have asked the European Bank for Reconstruction and Development, the European Investment Bank and the World Bank, as well as the IMF, to consider what they can do immediately.
The Council also discussed in detail how each of our economies was being affected by the global downturn that started in America. Had we not acted to stabilise the banking system, the effect on households and business would have been even more severe. However, notwithstanding the action that has been taken, the world is facing a severe global economic downturn, with negative growth already seen in France, Germany and Italy this year, and in the United States last year.
The United Kingdom cannot insulate itself from this global downturn, but with interest rates low and falling and inflation expected to come down over the next year, these underlying economic indicators, particularly interest rates, make us stronger than at any other previous downturn. Debt has been considerably lower than a decade ago, and lower than that of all G7 countries except Canada, enabling the Government to increase borrowing at the right time to support the economy. The Government will do whatever it takes for mortgage holders, for small firms and for employees, to help families and businesses through what will undoubtedly be a difficult period ahead.
Like all Governments across the world, we are considering how fiscal policy can support the economy at this time: carefully targeted, rigorously worked through investments that help people fairly through the downturn and lay the foundations for stronger growth in the future. In Britain's case, we can start from a position of low public debt. We will bring the same focus and determination to the task of safeguarding jobs, homes and small businesses as we have done to avert the threatened meltdown of financial systems. That will be the central mission of this Government over the coming weeks and months. I welcome the support in the national interest of all prepared to give that support. Let us be clear: it is also action that we take globally to get to the root of the problem in global banking that will make the biggest difference.
The Council also reached important conclusions on energy and climate change, on Russia and Georgia and on the European pact on immigration and asylum. Next year in Copenhagen, the world has an historic opportunity to secure prosperity for generations ahead with international action on climate change. While there are those who will seek to use current global financial problems as an excuse to pull back from change—to pull up the drawbridge and renege on commitments—in fact it is now more essential than ever to push forward with an ambitious agenda on energy security and climate change.
As the Stern report showed, weak or delayed action will cost us more in the years to come, both financially and economically. The Council reaffirmed its commitment to reach agreement by December on its energy and climate change measures for 2020. We made clear the importance in doing so of achieving a fair balance, with all member states accepting new commitments. We made it clear that there must be flexibility for member states to meet targets in the most cost-effective way, and that Europe's package must send the strongest possible signal to encourage the rest of the world to aim high at the Copenhagen summit next year.
As last week's statement from the Secretary of State for Energy and Climate Change made clear, the Government are committed to the most ambitious of targets—cutting greenhouse gas emissions by 80 per cent. by the middle of this century, not just for the future of our environment but as a crucial part of our strategy for energy security. But we cannot fulfil our aspirations for climate change without nuclear power or without European and international co-operation. That is why we will fully engage with the European Union on the environment and will not pursue a policy based on unilateralism and detachment.
Faced with historically high and volatile oil prices, it is more essential than ever before that we act to end our dependency on oil. The European Council supported greater diversification of energy sources, the completion of fully functioning EU energy markets, and improved critical energy infrastructure—for example, in the southern corridor. Our London energy meeting in December will seek to drive forward progress in the critical dialogue between oil producing and oil consuming nations. Today I would urge the Organisation of Petroleum Exporting Countries, at its meeting on Friday, to work through dialogue with consumer countries to stabilise the energy market as a whole.
The Council has expressed its grave concern over Russia's actions in Georgia and called on all sides to implement in full the six-point plan agreed with European leaders. The Council therefore welcomed the withdrawal of Russian troops as an essential additional step in the implementation of the agreements of
Finally, the Council considered the European pact on immigration and asylum, underlining the importance of ensuring coherence between Union policies, including free movement. Britain and Europe benefit economically from free movement, but free movement cannot be an unfettered right. It must bring with it clear responsibilities, with failure to meet them carrying clear consequences including, where appropriate, the loss of that right entirely. I discussed this point in further detail with a number of European leaders at the Council, building considerable support among member states and agreement to look further at the responsibilities associated with free movement where crimes are committed by EU residents in the EU but outside their country of origin, and we agreed to return to this issue at our December meeting.
This summit showed that in facing global challenges, whether the credit crunch, climate change or energy security, we succeed best not in isolation but in co-operation, not with unilateralism and separation from our European neighbours but in active partnership with them. That is why our policy will rightly remain one of being fully engaged at the centre of Europe. I commend this statement to the House.
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I thank the Prime Minister for his statement. Rightly, the financial crisis was the most important issue at the summit, but before asking about that let me raise some other matters.
First, on climate change, does the Prime Minister agree that while the restating of the EU goals on climate change was welcome, disagreement over the action plan was disappointing? Will he confirm that there are no new powers in the Lisbon treaty to help on the environment? Indeed, there are just six words. Does that not illustrate that what is needed in Europe is not new institutions or treaties but just some political will?
Secondly, on trade, the last thing we need in a downturn is protectionism, as has happened so often in the past. Does the Prime Minister therefore share my dismay that the communiqué does not mention the Doha trade round at all?
Thirdly, on Georgia, given the Russian invasion, the breach of international law and the ethnic cleansing in Abkhazia and South Ossetia, for Europe it must surely not be a case of straight back to business as usual. Can the Prime Minister confirm that the criteria for resuming talks on the partnership agreement between Russia and the EU will include not only the implementation by Russia of the six points of the ceasefire plan but the return of Georgian refugees to their homes?
Next, there is immigration and asylum. The Council agreed a new EU pact—the Prime Minister did not really mention this—including joint border guards, sharing asylum seekers and a single asylum procedure. Can he assure the House that as those proposals are not consistent with running our own immigration and asylum policy the Government will not adopt any of them? While on the subject of immigration, can the Prime Minister tell us what his policy now is? We have long supported an annual limit on non-EU economic migration—do the Government now agree?
On the Lisbon treaty—which, by the way, did not get a single mention in the statement—I have a very straightforward question for the Prime Minister. I am not in favour of forcing the Irish people to have a second referendum—is he? Would the British people not think it completely indefensible to force the Irish people to vote twice when we have not been allowed to vote once?
On the financial crisis, may I welcome the specific mention in the communiqué of examining mark-to-market accounting rules? Does the Prime Minister now support suspending those rules? He mentioned the European Investment Bank and its funds. Will he confirm that, to date, only three British banks have access to that money and that they do not include the Royal Bank of Scotland, Lloyds or HBOS, all of which the Government have a major stake in? Can he tell us about plans to change that?
On international co-operation on financial regulation, are there not three keys to getting it right? First, with major financial markets in Hong Kong, Shanghai, Sao Paolo, Dubai and Mumbai, co-operation needs to be genuinely worldwide, so can the Prime Minister confirm that the forthcoming international summit will include not only EU and G8 countries, but China, India, Brazil, Mexico, South Africa and middle eastern economies?
The second key is that international co-operation is not about the minute detail of regulation, but about setting frameworks and issuing early warnings. On the frameworks, does the Prime Minister agree that currently, capital adequacy rules—setting how much capital a bank must hold—can actually make things worse? They allow too much credit during a boom and can be very restrictive in a recession, so does he intend to reform the Basel II accords, in order to make them less pro-cyclical and to rein in any return to an asset price boom in future?
On the early warnings, which the Prime Minister is fond of mentioning, he knows the International Monetary Fund has a key role, but is not the real question what Governments do in response to those warnings? Let me take a case in point, while he shakes his head—he might remember this one. A year and a half ago, the IMF warned the UK about rapidly increasing household debt, vulnerable financial institutions and the growth of potentially risky and illiquid instruments. What steps does he think are necessary to ensure that Governments and regulators respond to those warnings?
The third key is that international co-ordination on financial regulation is necessary but not sufficient to ensure a stable financial system. Did the European Council discuss the need for effective domestic action? The Government keep saying—the Prime Minister I think said this at least three times in his statement—that this is a crisis from America, as if no one in Britain had any responsibility for anything that went wrong. Will he confirm that Britain is entering the downturn with the highest Government deficit in the industrialised world? That was not down to America; it was down to this Government, here in Britain.
Can the Prime Minister confirm that British household debt, which is the largest that any major economy has ever seen, is not something that we imported from America, but was down to bank lending and regulatory failure here at home? On specific institutions, will he confirm that the international measures discussed at the EU Council would not have stopped, for instance, the Bradford & Bingley lending more than 80 per cent. of mortgages as risky or buy-to-let mortgages? That was a UK bank, regulated by UK regulators, for which the UK Government are ultimately responsible.
So in the light of the need for both national and international action, could the Prime Minister begin his response by commenting on the figures published today for Britain's budget deficit? Is it not the case that Britain is heading for a record budget deficit, contrary to what he said, put by some independent forecasters as high as £64 billion? Will he confirm that that has happened after 14 years of economic growth and when half the OECD countries are entering the downturn with a budget surplus? Is not the £64 billion question this: why, when business and families need more help, has he left the cupboard so bare?
Let me deal first with the issues that the right hon. Gentleman raised at the beginning. Of course the environment is a priority of the European Union, and anything that suggests that that is not the case is wrong. The environmental discussions formed a large part of what we did in Brussels on Wednesday and Thursday. I put the point to him again: if he wants environmental co-operation across Europe, he needs to be at the centre of the European Union, not threatening to renegotiate the treaty.
As for the trade round, the right hon. Gentleman will probably have seen the statement from the G8, which includes France, Germany and Italy, supporting a resumption of world trade talks. I believe that at the international leaders summit we will see the reopening of those trade talks.
As far as Russia is concerned, the right hon. Gentleman knows, as I have told him, that the Council was right to agree that this was not the right time to resume talks on new partnership agreements with Russia. How we make the decision on that resumption will be based on a number of criteria, including some of the ones that he mentioned.
As for immigration and asylum, we make the decisions on that policy. We have introduced a points system, which means that people from outside the European Union without skills to offer to the country are not invited into the country. I believe that the points system—and the obligations that people have to accept as part of their citizenship—is a far fairer way of going about the issue than the policies of the Conservative party. As for the Irish Republic, it is a matter for them what they do. The right hon. Gentleman will remember that, on a previous occasion, the Irish Republic decided to have a second referendum. It is therefore a matter for them.
As far as the right hon. Gentleman's comments on the economy are concerned, let me just say that the reason we can borrow at this time is that our levels of national debt are low. That is the right policy. I noticed that, on the radio this morning, he could not make up his mind from one minute to the next whether it was the right policy to borrow for this. It is because we have cut the levels of national— [ Interruption . ] Let me just read the IMF's figures to the House so that there is absolutely no doubt about this. These are the recently published net debt comparisons for 2008. The figure for the United Kingdom is 37.6 per cent.; for France, 55.5 per cent.; for Germany, 56.1 per cent.; for Italy, 101.3 per cent.; for the USA, 46.3 per cent.; and for Japan, 94.3 per cent. It is because we cut the national debt over the last few years that we are able to do the right thing. Even if the right hon. Gentleman cannot make his mind up about it today or tomorrow, it is the right thing to do to deal with this problem.
I would have thought that, after weeks of discussing these issues, the right hon. Gentleman would understand that we cannot solve this problem unless we get to the root cause—[Hon. Members: "It's you!"] This is an Opposition who will not face up to their responsibilities. The problem cannot be solved unless we get to its root cause. We can do a great deal with initiatives to help small businesses, to help mortgage holders and to help people in jobs, and we will do that—as we have done with small businesses—by drawing on the European funds, by cutting the time by which payment has to be made by Government Departments, by increasing the funds available to the small business loans guarantee scheme and by more measures that we can take. We can take action that will help home owners, as we have done over repossessions, and that will help jobs, as we will do with an extension of the new deal, but the problem can be solved only by getting to the root cause.
The root cause of the problem—which did start in the United States of America, despite the right hon. Gentleman's wish to avoid that question—was the irresponsible and undisclosed lending that took place in the private sector. The solution to that is not the one or two initiatives that the Opposition want to take; it is to recapitalise our banks, to ensure that lending can start again, and to ensure that there is confidence in the banking system. It is to adopt the very reforms that I have mentioned today. People must have confidence when they go to their bank that their savings are safe and secure, and that is why it is necessary not simply to recapitalise the banks but to take action to ensure that there is reform of the system as a whole.
The all-party support that we had for our measures lasted for a few days. The Opposition could rise to the challenge of giving bipartisan support for only a few days, but I have to tell them that everybody's judgment is being tested here. I have to remind them that, when we took the decision on Northern Rock, they opposed it. When we took the decision on Bradford & Bingley, they opposed it. When we intervened to deal with speculation in the shares market, they opposed it—[Hon. Members: "Rubbish!"] The night before— [ Interruption. ]
The night before we took that decision, the shadow Chancellor was on "Newsnight" saying that it would be the wrong course of action. I see that Opposition Members are silent now. When we intervened to improve regulation, the Conservative party's policy think-tank decided that it would be better to reduce the regulation of mortgages and pensions. And that is where we are. So when we look at the issues ahead, let us look at the judgments being made. I say to the House that this cannot be sorted out without global action as well as national action. I hope that the Opposition understand that that is what is necessary for the future.
I am grateful to the Prime Minister for his statement. The summit was indeed a breakthrough. It was the first time I can remember in 10 years that the Prime Minister seemed to enjoy the company of other EU leaders— [Interruption.] Well, he cancelled his appearance at Prime Minister's questions to get there early. As a lifelong pro-European, I have been waiting to hear the Prime Minister recognise and celebrate the fact that no Government of this country of whatever party can deliver what the British people want without our playing a positive, engaged and central role within the EU. I regret that it took economic disaster to make the Prime Minister appreciate that fact, but I none the less acknowledge that he did so.
In the past, I have been dismayed by the way the Prime Minister has copied the wrong ideas and ignored the right ideas. He copied the wrong idea from the Conservatives to give inheritance tax cuts to the very wealthy and he ignored advice from us, stretching back years, but coming particularly from my hon. Friend Dr. Cable, about the unsustainable nature of the credit and housing boom, when this lot—the official Opposition—sat on their hands and said nothing. So I am glad that the Prime Minister has got a lot better at copying: he was right to copy the Swedish model of bailing out the banks, as they did in the 1990s, and I am glad that he persuaded other European leaders to copy his copy.
It was significant that President Sarkozy invited the Prime Minister to the eurozone meeting. The eurozone group will obviously be the forum at which many discussions about the future regulation of our financial services sector will take place. What arrangements has the right hon. Gentleman made with the Government of Sweden—and the Czech Republic, which will hold the EU presidency next year—to have further access to the eurozone group so that he can participate in those discussions next year, too?
As important as EU action is, it is action to help ordinary families in this country now that must be taken. Will the Prime Minister—I have pressed him on this before—cut taxes for people on low and middle incomes to get money into the pockets of people who need it by closing the loopholes that benefit only the very richest in this land. Does he also agree that British families struggling to heat their homes this winter will be angry that the so-called single market in Europe still leaves us with the fastest rising prices in Europe. When will he deliver the fairer truly competitive energy market we all need?
This summit was originally initiated to tackle energy and climate change, but that was sidelined, understandably, to focus on the economy. There are now rumours that the EU will ask developing countries to shoulder a big chunk of the burden of our commitment to cut carbon emissions. Will the Prime Minister confirm that he will not be party to any buck-passing of Europe's environmental obligations on to developing countries?
Finally, although I welcome, of course, the commitment made at the summit to diversify our energy supply, will the Prime Minister accept that committing billions of pounds of British taxpayers' and other EU taxpayers' money to underwrite the nuclear industry will simply mean that there is not enough money to roll out the green renewable energy sources we so desperately need?
I would take the right hon. Gentleman's party more seriously if the major item at his party conference had not been to cut public spending by £20 billion—with all the damage that would do to the ordinary families he claims to represent.
As far as specific issues about the eurozone are concerned, of course we will work with other countries, where it is appropriate to do so, and in the spirit of European co-operation to solve our problems, but the right hon. Gentleman has not fully understood that this is a global problem that needs global action as well as European action. That is why it is important to have an international leaders meeting and why it is important to agree on the reforms that are necessary. People will have confidence in the international financial system only if we root out the problems that made this become a crisis in the first place.
The right hon. Gentleman mentioned Britain's inflation rate. The problem we have faced over the last year is a problem that all countries have faced—rising oil prices as well as rising food prices. The fact that the price of oil is now coming down means that petrol sold at the pumps is coming down in price. I would like it to come down faster, as would other Labour Members. At the meeting on Friday, we will be pressing OPEC not to cut production, but to enter into a dialogue with the consumer countries.
As to the other issues that the right hon. Gentleman raised—tax cuts for ordinary families, for example—he will know that 22 million families are receiving £120 in tax cuts during the course of the next few months. He will also know that the quickest way of getting money to the poorest families in this country has been through the tax credit system, which has given money to 6 million families and taken large numbers of people out of poverty. I hope that the right hon. Gentleman will give more support to the tax credit system in future.
The right hon. Gentleman says that climate change was not given the attention that it deserves at the European Council, but it was. There were long discussions on Wednesday night and Thursday morning about how we can meet our climate change obligation. We stand firm behind our objectives, and we will ensure that the future mechanisms will encourage—and force, if necessary —other European countries to meet their obligations.
We cannot meet our climate change objectives and achieve energy security and affordability in prices without the use of nuclear power, and the sooner that both Opposition parties realise that, the better for our country.
I warmly welcome the action that my right hon. Friend has taken to stabilise the banking system. Can he tell the House what he will do to ensure that cuts in headline interest rates are translated into effective cuts in the interest rates charged to home owners and businesses, in order to avoid what happened during the last Conservative recession, when a large number of solvent but illiquid businesses went bankrupt?
I am grateful to my right hon. Friend, who served with great distinction in the Treasury, as well as at the Department of Trade and Industry and the Department of Health. She is absolutely right: the aim of the recapitalisation of the banks, and the other action that we are taking, is to ensure the flow of money to small businesses and families in our economy. It is to deal with the problem that she raises of affordable money, the source of which is banks that have in so many cases stopped lending for the time being.
We are trying to restructure the banks by recapitalising them and by signing an agreement with them that they will ensure that they resume lending to small businesses. That is central to what we are doing, and I am grateful that the rest of the European Union has taken such action as well. It has happened in other countries, too. South Korea, Australia and New Zealand have adopted the policy, as well as America. The key is getting the resumption of lending to take place at affordable prices, and my right hon. Friend is right to say that small businesses cannot afford the penal interest rates that we saw at the beginning of the 1990s.
Does the Prime Minister acknowledge that this is the first global financial crisis in over 100 years that cannot be resolved by the United States and the western European powers alone, but must include China? As China is not a member of the G8, and is unlikely to be one soon, does he accept that it is not simply a question of inviting it to the international leaders group? As thought is given to a whole new international financial structure, China must be as involved as western Europe and the United States in the discussions that take place.
As the right hon. and learned Gentleman knows, the G20, which was set up after the Asian crisis, includes China in its membership, and rightly so. The Financial Services Forum includes Hong Kong as one of its members because it is one of the financial centres of the world. If there is to be an international leaders meeting, I am convinced that it would be incomplete without the presence of some of the new major economies that are making their mark in the world. The lesson of recent financial events is that global action is necessary to deal with a global problem, which means that, at a macro-economic level as well as in the reform of the international financial system, we need the support of the Asian countries. I am grateful that he agrees with me about that.
Yes, why not?
Wisely, the package that rescued the bankers had a price, which was help to householders, those with mortgages and small businesses. Last week, the Select Committee on Treasury met representatives of the building societies and, sadly, they seemed to be very complacent about the trauma caused by repossessions and the growing number of them. They seemed to be unaware of the need to revisit their lending policy, or lack of one. Will the Prime Minister assure us that they will be tied to the agreement that they have made?
I am grateful to my hon. Friend for the leadership role that he plays on the Treasury Committee, and for his knowledge of these matters. He is absolutely right: in these difficult times, when interest rates are relatively low in comparison with rates during previous downturns, it is right to ask the building societies and banks to take a careful look at their policy on repossessions. It is right to consider—as does the communiqué signed by the Council of Mortgage Lenders and others—that repossessions are the last resort, not the first resort. We will ensure with the measures that we have taken, such as reducing the number of weeks for which people must be unemployed to receive help with their mortgages, that we do all that we can to help home owners in this country.
Following the point raised by my right hon. Friend Mr. Cameron, can the Prime Minister explain the mechanism of distribution by the European Investment Bank to small businesses, many of which are in crisis? Why have only three British banks been licensed to deal with the process so far?
That is exactly what we are dealing with now. I have been involved in the process for some weeks, first because I wanted the EIB to agree to frontload the money that is available over the next four years—which has been agreed—secondly, because I wanted the EIB to take a greater share of the risks than it does at present, and thirdly because we wanted an increase in the number of intermediaries in Britain that can access the EIB money and then pass it on to small businesses. In other words, we wanted, and are trying, to devise a package that will lead to the involvement of other intermediaries—that is, other banks in Britain.
Can the Prime Minister confirm that the motto of the European Union is "unity in diversity"? In the initial part of this world financial crisis, did we not see disunity in adversity? Building on the question from my hon. Friend Mr. Mudie, may I suggest that we should congratulate not only the Prime Minister but President Nicolas Sarkozy on the leadership that they have given in this matter? As for the Prime Minister's role, not only has he given leadership here for the British banking system, but he has given partnership for Europe and also for the United States. Is it not now appropriate to move to the third stage of world regulation of the banking sector, for which he has been asking for the past 10 years?
Because the Conservatives have the wrong analysis of the problem with which we are dealing, they cannot understand the importance of the global action that we are now contemplating and wanting other countries to follow. I hope that they will reconsider their position on these issues, because without a restoration of confidence in the banking system, which includes the restructuring, but also the reform measures about which we are talking, it will be more difficult for every continent in the world to escape from this global downturn. I therefore hope that all parties can agree—as I thought they had agreed a few days ago—that the international financial system is in need of the reforms that we are suggesting.
I praise President Sarkozy of France for his leadership in calling the meetings. He met President Bush in America on Saturday. We are working very closely together, as are those in the other European countries, including Chancellor Merkel and Mr. Berlusconi from Italy, in trying to agree a set of European reform measures that we can put to the rest of the world. I think that, in this particular set of circumstances, all countries now recognise the importance of change—a change that, if I may say so, we have proposed for nine years, since the Asian crisis.
The Prime Minister referred to lengthy discussions on climate change. Is he going to use some of his new-found super-powers to persuade all 26 neighbours to adopt the climate change targets that his Government, whose initiative I welcomed, adopted on Thursday? Is he proceeding along those lines, or is he perhaps going to be more Flash Harry than Flash Gordon?
I said to the European Council when we discussed the issue that there would be a new American President in January, and both candidates want to see major change in the position on climate change at the Copenhagen summit. Europe must have a common position that we can put to the European summit then. I believe that countries are aware of their responsibilities. Obviously there will have to be some flexibility in how people meet their targets, but I think that people are now seized of the need for a European position to be established well in advance of Copenhagen.
Can my right hon. Friend confirm that the Council took note of a report from the presidency on the oil price and its volatility, and requested the Commission to promote transparency of commercial oil stocks? Does that refer to stocks within all the member states of the European Union, will there be an attempt to estimate stocks outside the EU, and does my right hon. Friend believe that the EU can make a contribution to help us to achieve our objective of security of supply in energy and to meet our climate change commitments?
I am grateful to my right hon. Friend for his question. He has always taken a great interest in energy matters, and was an Energy Minister himself. He is absolutely right to concentrate on the problem that has arisen from both the price volatility and high price of oil. Even though the price has decreased substantially in the past few days, the problem arises from there having been more demand than supply and people's perception that in future years there may be more demand than supply, particularly because of the globalisation of our economy and the rise of China and other Asian countries, which are consuming more oil.
Therefore, we need an energy strategy that deals with the price volatility and high price of oil. That means that we need to diversify out of oil and not be wholly dependent on it. That means, for those people who will not face up to this, that they must confront the issue of nuclear power—16 European Union countries have done that—and the issue of how we can get affordable renewables. We must also look at how the car is powered, so that we can have savings in the oil that is used by cars as well. We will need to have an arrangement between consumers and producers so that we can deal with the continuing volatility of the oil price, and I would have thought that this is now the time for all-party agreement on that as well.
This country has had 10 years of economic growth under a Labour Government. I cannot recall that being achieved by the Conservatives.
Is my right hon. Friend aware that in 1945 the then Labour Government had to take some measures? They did not have two ha'pennies to rub together, and they had to borrow money in order to create full employment and the national health service, and in order to take utilities into public ownership. We are already doing some of those things, and my right hon. Friend has already passed the examination paper that has been placed before him. He has convinced right-wing Governments, such as those in France and Germany, and Bush across in America, to carry out the solutions that he has introduced. It is now high time that we put public ownership of the utilities back on the agenda, so that we have a sweeping victory at the next election and then carry that out.
And council housing, my hon. Friend says. I had not anticipated last year that we would be part-owners of two of the biggest banks in the country and that we would now be the shirt sponsor of Newcastle United football team, just as the American Government are the shirt sponsor of Manchester United now as a result of having taken over AIG. However, I must say that our determination to buy these shares is a result of the difficulties we face, and I am sorry to have to tell my hon. Friend Mr. Skinner that it will be temporary.
The recent high prices and volatility in the price of oil is symptomatic of geological constraints on supply—also known as peak oil and gas. Do the Government have a view as to when peak production will occur globally, and does the Prime Minister believe that it is worth doing that research?
The hon. Gentleman is right to raise the question of supplies of oil for the future. That is concerning all countries. Not only do we need stability of supply, but, even as we move into nuclear and renewables, we will need a constantly rising supply of oil. That means that we must ensure that the demand for oil is met by supply, otherwise the price will go up again. We are, therefore, looking at what supply of oil there is, and we are trying in the North sea to increase the production that is available from some of the smaller marginal fields as well as from some of the fields that have previously been explored and developed but not exhausted.
On the financial and banking items, did the Council consider the future of the EU's capital requirements directive? As my right hon. Friend knows, that is largely based on the Basel II agreement, and yet that allows banks to choose their own forms of regulation, and, in fact, downgraded the risk in mortgage lending. He has long campaigned for reform in that area. Does he agree that anything in Europe based solely on Basel II could prove inadequate to the task?
First, we need international standards, not just European standards, for the future. There is a huge debate about how we can get to that, and progress has been made. Secondly, one part of our proposals that we have circulated around other countries—I will make sure that a copy is placed in the Library—is the reform of Basel II.
Will the Prime Minister, in referring to the statement, also refer to the presidency conclusions? Can he explain to the House how in those conclusions, which I have in front of me, the European Union is able to lecture the House, himself and the United Kingdom, when Lisbon has engendered failure on enterprise, when the stability and growth pact has failed, when unemployment levels have been going inexorably up and when there is massive over-regulation? In the real world, does he not believe that this undemocratic, unaccountable system must be reformed and renegotiated?
In a period of economic difficulty, is it not better that people come together rather than split apart? Is it not better to use the fact that we work well with our neighbours in Europe to develop common policies to deal with this financial crisis? I know where the hon. Gentleman is coming from: we should accompany our policies, he says, with the real threat of withdrawal.
May I, too, welcome the reaffirmation of the climate change 2020 targets at the European Council last week? They come despite the growing tensions between the richer, older members of the EU and the more recent, poorer members, particularly those such as Poland, which is 95 per cent. dependent on coal. What discussions are taking place to help countries such as Poland and the other eastern European states to meet their 2020 targets?
I am grateful to my hon. Friend, because I know of his expertise in these matters and the work that he has done to further the cause of environmental improvement. He is absolutely right that some countries, particularly those that have a great deal of coal, want to know how they can meet those targets and want a degree of flexibility. That will be the basis of the discussion over the next two months before the summit in December. I am confident that even though there are difficulties, people want to see a resolution of the problem.
Is the Prime Minister aware that at a time of grave economic crisis, the House can rarely have heard a statement of such worrying complacency about the public finances? In particular, he apparently believes that as long as the ratio of debt accumulated to GDP is low, it does not matter how high the current deficit is. That is the exact opposite of the experience of most countries. He should recall the mistake made by the previous Labour Government, who thought that they could enter a recession with a high level of deficit and spend their way out of the recession. They found that they had to call in the IMF in the biggest rescue of a developed nation that there has ever been.
I recall that the right hon. Gentleman was a Minister in the Conservative Government when borrowing was 8 per cent. to 9 per cent. of GDP, so before he gives lectures to us, he should examine what happened in the early 1990s.
On Russia, I welcome the Prime Minister's firm stand. Russia must not be rewarded, or allowed to continue business as normal, after dismembering a sovereign republic state of the United Nations. The last time that that happened was when the Reichstag voted to incorporate the Sudetenland into the Third Reich. Does he share my dismay that when the issue was fought out at the Council of Europe the other week, the Russians' closest collaborators and fellow travellers in the debate were UK delegates from the Conservative party?
The Council was right to say that this is not the time for a decision to be made about resuming talks on a new partnership agreement with Russia, but we have always wanted our relationships with Russia to be good, not bad. That depends on decisions that Russia itself will take, and we look forward to a resumption of the partnership agreement talks being possible.
Our figures are based on international accounting standards and on the independent Office for National Statistics. We follow the practices adopted by previous Governments. I remind the hon. Gentleman that debt was at 44 per cent. in 1997—far higher than in the past 10 years.
I welcome my right hon. Friend's comments on climate change. If we are to succeed in producing the clean energy that we need for the future and in supporting industry, we need to ensure that we maintain our investment in science. Will he ensure that the Government avoid the temptation to reduce investment in science at this time, when it is so vitally needed?
My hon. Friend will know, because his region is one of the beneficiaries of scientific investment in our country—some path-breaking work is being done in the north-west—that we are doubling the science budget, and it is vital to our future. I hear what he says: it is important to maintain levels of science investment for the future.
May I remind the Prime Minister that on
I have great respect for the hon. Gentleman's recollection of history, but I should tell him that AIG is an insurance company—it is not registered as a bank in the same way—and that in the old days it would have been regulated as an insurance company, not as a bank. I should also tell him that he opposed, or his party opposed, the independence of the Bank of England, which I believe his party came to regret after a few years. The Bank of England has always had responsibility —[Interruption.] It is very interesting that Conservative Members try to change the subject whenever I mention the independence of the Bank of England. It has always been the case that the Bank of England has had responsibilities for financial stability.
First, may I say how much I agree with the comments made by my hon. Friend and comrade Mr. Skinner?
A decade ago, my right hon. Friend the Prime Minister wisely kept Britain out of the eurozone. It contains countries that are very different in their economic strengths—some are more able to cope with the financial crisis than others—and that is causing tensions in the eurozone. If I were the Italian Finance Minister, I would like to devalue the lira and reduce interest rates. I would not be able to take such an approach, because the lira does not exist any more. Will my right hon. Friend tell us whether there have been any discussions, private or otherwise, about the tensions in the eurozone and where they might lead?
Just to reassure my hon. Friend, may I say that we have no proposals to join the euro? We also have no proposals to renegotiate our membership of the European Union.
Given that the Prime Minister has called for greater transparency, with off-balance-sheet financing being brought on balance sheet by the private sector, will he be bringing such discipline to the public sector accounts, which currently show more than £1 trillion off balance sheet, or is this another case of, "Do as I say, not do as I do"?
Whatever the debate, the hon. Gentleman always asks me the same question about off-balance-sheet activity. The answer is that we follow the international standards and the Office for National Statistics on that, and, in fact, we follow the practice of the Government whom he supported.
I have lost count of the number of times that the Prime Minister has announced the relaunch of the world trade talks. What is different this time? Having discussions at summit meetings and making grand declarations will not make anything happen. Who has decided to do what, where, how, with whom and on what timetable, given the expiry of the fast track in the American Congress and the near death of the present American President?
I thank the right hon. Gentleman for raising that question. The trade talks fell down on a very narrow point about a protection mechanism that would be put in place if imports to certain countries rose very fast. That argument prevented the reaching of agreement in the summer, despite all the attempts that we and other countries made. Given that the differences between countries are narrow, and not of fundamental principle, my hope has always been that we can, with good will, resume the trade talks. It is more important to do that now, and other countries recognise that. Protectionism is the danger that we face, and countries that were not prepared to sign the agreement in the summer will be encouraged by worries about future events—and what might happen if protectionism increased—to come back to the table to discuss a solution. I cannot say that the process has been easy, because these talks have gone on for years, but there is enough common ground for us to start again to see if we can reach agreement.
We have published guidelines with the Council of Mortgage Lenders so that repossession is a last resort. We have also published legislation that will mean that people need to be unemployed for only 13 weeks before they can draw on support to pay their mortgage. We will not pursue the policies pursued by the last Conservative Government, who let far too many people fall into negative equity.
The preference share subscription agreements and the ordinary share offering agreements for the £37 billion investment in the banks were helpfully placed in the Library by the Chancellor. Can the Prime Minister confirm that those terms and conditions have not changed?
We are in discussions with the banks all the time about how we can implement the agreements that we have made. The right thing to do is to continue the discussions with the banks. We must not get into the situation in which we are not discussing things with banks in which we are major shareholders, so we will continue to discuss such issues over the next few days.
May I remind the Prime Minister that the IMF was warning about rising debt levels in the UK as long ago as 2003? Will he now return to the reasonable point made by my right hon. Friend the Leader of the Opposition? What is the point of calling for an early-warning system in the international markets if the Prime Minister, as Chancellor, has a track record of ignoring those very warnings?
I remind the hon. Gentleman that our debt levels, as published by the IMF, are 37 point— [ Interruption. ] Our debt levels are 37.6 per cent., but France's are 55.5 per cent., Germany's 56.1 per cent., Italy's 101.3 per cent., Japan's 94.3 per cent. and the USA's 46.3 per cent. He can see that from being the third worst in the G7 in 1997, when we inherited power, we are now the second best. If a country has a low level of debt to national income, it is in a position to borrow during a difficult time. The Conservatives want to say that it is impossible to borrow because debt levels are too high. They are wrong: debt levels are not too high. Ideologically, they think that they can argue from the position of the debt levels, but they are entirely wrong.
On Monday, a senior official from the Department for Communities and Local Government told the Select Committee that the Prime Minister had been involved with a difficult decision to remove £600 million from the East of England Development Agency grants for small businesses. Is that the best way to protect small businesses—keeping the quango, but removing the funding?
The hon. Lady is referring to the development agencies as a whole and what we did to help housing. That is what we announced in September.
What are the Government doing to protect the interests of the many British people who hold deposits in Icelandic banks through branches in British dependent territories such as Guernsey and the Isle of Man?
Discussions on those matters are continuing with the Icelandic authorities, as the Chancellor said. We believe that they have a responsibility in this matter, and we will continue to pursue that with them.
On nuclear power, is the Prime Minister convinced that the City will be willing to meet the costs of the contingent liabilities of decommissioning nuclear power stations in due course, or will the state have to act as guarantor for those decommissioning costs?
This is part of the decisions that we made on nuclear energy. I think that the hon. Gentleman can see from announcements that have been made by one large company in the past few weeks that companies are prepared to invest in nuclear power in this country. That will continue in future years. Opposition Members have to face up to the fact that if we are to meet our climate change obligations, if we are to have the energy security we want and if we are to have long-term affordability of energy that is not dependent on a volatile and high-priced commodity—oil—we will have to diversify our investments. That includes investment in clean coal and in renewables, but I have to say that it includes nuclear, too. I thought that the Conservative party would wake up to that fact and would have woken up to it long before now.
In the presidency conclusions, the European Council emphasises that
"the real performance of company executives should be reflected in their remuneration, including their severance pay...which should be in line with their actual contribution to the success of the company."
As finance director and chief executive of the United Kingdom over the past 11 years, the Prime Minister's promises to abolish boom and bust have ended in the biggest bust in British economic history. Do those strictures apply to him, and, if not, what will he do with his severance pay when he finally finds the courage to meet the judgment of the British people?
I hope that, on reflection, the hon. Gentleman, who is usually a moderate man, will realise the exaggerations that he has made. We have had the longest period of economic growth as a single Government, we have created 3 million jobs over the past 10 years and the reason we can face a world downturn with confidence that we can come through it, is that we have low debt and low interest rates, companies' funds outside the financial sector are strong and we are making the right long-term decisions for the future of this country. The decisions that we are making include decisions on transport and infrastructure, nuclear energy and planning. The unfortunate thing is that in all those major long-term decisions we have not had the support of the Conservative party.
The Prime Minister particularly spoke about insisting on openness and disclosure. He wants off-balance-sheet vehicles brought on to balance sheets. Will he therefore tell the House—he knows the answer—how much, to the nearest billion or so, we as a country and the Government owe in off-balance-sheet debt?
If the hon. Gentleman is referring to private finance partnerships, those figures are published regularly by the Treasury and he has access to them. We comply with international standards, and the Conservatives will not get very far with that argument because they followed the exact same practice when they were in government.