Sylvia Heal (Deputy Speaker)

I inform the House that Mr. Speaker has selected the amendment in the name of the Prime Minister.

Kenneth Clarke (Shadow Secretary of State for Business, Business; Rushcliffe, Conservative)

I beg to move,

That this House
recognises the jobs crisis facing thousands of households as unemployment continues to rise with nearly 2,000 people a day losing their job;
regrets the UK's declining competitiveness;
further regrets the Government's failure to roll out effective recession schemes to offer support to the struggling small and medium-sized enterprises sector;
calls on the Government to do more to increase UK competitiveness through cancelling their planned increase in the small companies tax rate, reducing corporation tax, and restarting their stalled plans for better regulation;
further calls on the Government to tackle unemployment and long-term worklessness by replacing the Flexible New Deal, Pathways to Work and the various other New Deal programmes with a new integrated programme to provide personalised long-term support for people out of work, including those on incapacity benefit, and to make better use of private and voluntary sector welfare-to-work providers by paying them by results.

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

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

John Redwood (Wokingham, Conservative)

rose—

Kenneth Clarke (Shadow Secretary of State for Business, Business; Rushcliffe, Conservative)

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

John Redwood (Wokingham, Conservative)

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

Kenneth Clarke (Shadow Secretary of State for Business, Business; Rushcliffe, Conservative)

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

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

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

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

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

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

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

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

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

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

Angus MacNeil (Spokesperson (Transport; Rural Affairs; Scotland Office); Na h-Eileanan an Iar, Scottish National Party)

Does the right hon. and learned Gentleman agree that in such a climate it would be very wrong of banks that have some state ownership to pay any sort of bonuses?

Kenneth Clarke (Shadow Secretary of State for Business, Business; Rushcliffe, Conservative)

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

Brian Binley (Northampton South, Conservative)

rose—

Tony Baldry (Banbury, Conservative)

rose—

Kenneth Clarke (Shadow Secretary of State for Business, Business; Rushcliffe, Conservative)

I give way to my hon. Friend Tony Baldry.

Tony Baldry (Banbury, Conservative)

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

Kenneth Clarke (Shadow Secretary of State for Business, Business; Rushcliffe, Conservative)

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

Brian Binley (Northampton South, Conservative)

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

"the very largest firms with over 5,000 employees".

However,

"small and medium sized enterprises...saw a...decline in...existing credit lines,"

and the CBI expects

"similar tightening over the next three months".

Why does the Secretary of State simply not understand this problem?

Kenneth Clarke (Shadow Secretary of State for Business, Business; Rushcliffe, Conservative)

I cannot answer for the Secretary of State. The problem is real and it is as described by my hon. Friend, but that reality has not been addressed properly, as my hon. Friend the Member for Banbury also said.

We have been quite clear for several months about what we believe should be done. We have proposed that £50 billion should be devoted to a loan guarantee scheme, whereby the Government would guarantee a large part of the risk undertaken by banks when extending credit to their normal customers. The banks would have to make a commercial decision that they were prepared to take some of the risk, albeit a much lower risk than they normally would, thereby making the risk of default used in the risk judgment so much less.

That would apply to businesses of all sizes. It would be a straightforward scheme and could have been put into operation rapidly. Our scheme is also a direct response to the point that the three hon. Members who have just intervened on me have illustrated only too graphically, particularly my hon. Friends the Members for Banbury and for Northampton, South. The problem was a lack of access to any kind of borrowing by businesses of all sizes, particularly small and medium-sized enterprises, and we would have facilitated it.

The Government dismissed that suggestion, for the reasons given by my hon. Friend the Member for Banbury. They preferred to have a system of multiple micro schemes, carefully targeted at different sizes of company and different segments of industry. I am afraid that I share what might otherwise be thought of as my hon. Friend's unworthy cynicism. Why did the Government choose that route? One of its attractions was that they could put the support into so many little packages and so many press releases. They could announce that things were being done instantly, when the officials in the Department were not clear about what was being announced and were not yet ready to start discussions with the banks on what the rules might be in the latest scheme, and there are many of them, some of which my hon. Friend described.

Let me choose as an example the working capital scheme. The scheme is meant to guarantee credit lines to ordinary-risk businesses with a turnover of up to £500 million—very similar to what we propose, but for those businesses with a turnover below a certain level—covering 50 per cent. of the risk on working capital. On 14 January the Government announced that no less than £20 billion was available under the scheme. The scheme was announced on 14 January and was planned to come into effect on 2 March.

The long history would take too long to relate. However, as the first tranche came round the scheme was not ready; indeed, it was delayed for months. As late as 2 March, the Secretary of State for Business, Innovation and Skills still said that

"the scheme will be operational in March as originally announced".

In March, the Leader of the House told the House that

"under the agreement with Lloyds and the Royal Bank of Scotland, £5 billion will now be released to business."—[ Hansard, 25 March 2009; Vol. 490, c. 297.]

None of that happened, and it fell to Ms Winterton, to say:

"We have signed £1 billion of guarantees with RBS and Lloyds for portfolios of £2 billion."—[ Hansard, 20 July 2009; Vol. 496, c. 1102W.]

Eventually, on 16 September—eight months after the scheme was first announced with its £5 billion of guarantees—the Financial Secretary to the Treasury said that

"£2 billion of guarantees have been provided to banks under the Working Capital scheme"—[ Hansard, 16 September 2009; Vol. 496, c. 2289W.]

The rest had apparently been diverted to other policies. In the few weeks that have so far elapsed, hardly any of that £2 billion has been available. There has been press release after press release and fanfare after fanfare. On one occasion, the Prime Minister told some gathering that the money was being distributed under the working capital scheme; it was an illusion, like the illusion that has surrounded so much that he has said.

There will be an overhanging effect on business's ability to access capital and the price it will eventually have to pay in interest rates because of the tremendous threat posed by the level of public debt. Again, this debate is not about economic policy generally—certainly not as far as I am concerned—but the background is that the Government have, in effect, had to privatise a huge amount of private debt that was previously the debt of the banks. That came on top of a huge fiscal deficit, which the Government were already piling up despite the fact that we were in conditions of growth and boom. That gave us the worst debt problem of any developed country in the western world.

A debate is now under way—it is quite crucial to confidence in the British economy and the confidence with which British business will eventually be able to access proper capital—about whether the debt and the deficit need to be tackled now. This is almost a farcical situation. It is by no means a secure situation for the British economy and it is worrying for anyone with the interests of British business and future employment in mind.

We have to record the historic date of 15 September 2009 when the Prime Minister's colleagues finally persuaded him to use the words "spending cuts". I have not observed him repeating those words since, and they have not yet produced a great deal of activity, but at least consciousness dawned for a moment.

Now, however, we are meant to be having a great political debate about whether we start tackling the deficit now or whether we leave it until later and, indeed, about whether it is not somehow essential to the Prime Minister's great plan for the recovery of the world economy that no item of public expenditure is touched until we get beyond a general election. That is a quite foolish debate, not least because the choice will not be in the hands of British Governments much longer if we try to exercise it. It is the markets and the need to sell gilts to finance the debt that will decide this.

The underlying deficit of—people's estimates vary —6, 7 or 8 per cent. of GDP is structural, which means that it would be there in normal circumstances unless we did something about it. That has to be tackled now, and the only reason there is still any confidence in sterling, the British economy and British Government bonds is that the Opposition parties are at least talking about tackling the structural deficit. [ Laughter. ] Oh yes. The Prime Minister's remarks—this is not all about the Secretary of State's remarks—would cause market panic if anybody thought he was still in control of events and certainly if they thought he would be after May.

John Reid (Airdrie & Shotts, Labour)

I do not think there is anyone in the House who does not accept that we have to find a route back to prudence by cutting expenditure and increasing income. However, I hope that the right hon. and learned Gentleman is not dismissing as irrelevant the debate about when we do that cutting and how much we cut. Everyone agrees that trying to make significant cuts in public expenditure before a sustainable recovery is under way is like trying to shove a car into fourth gear at 10 mph, because we will stall and run into a second deep depression. Will the right hon. and learned Gentleman confirm that there is at least a legitimate debate to be had about when significant cuts should proceed?

Kenneth Clarke (Shadow Secretary of State for Business, Business; Rushcliffe, Conservative)

We have to start tackling the deficit as soon as possible; we have no realistic choice about that, and we will pay a great penalty if people begin to believe that we are not going to do that.

The background to the debate is that the Government have proceeded, despite our warnings, on the basis that they are going to carry on increasing public spending by about £30 billion next year. That is Mickey Mouse economics, particularly when it is defended as though any challenge to that figure represents a threat to the financial future of the country. This is left over from careless pre-election commitments to public expenditure, and it should be tackled in order to restore confidence in the British economy and ensure continued confidence in those to whom we are going to have to look to finance our debt. It is important that we make a start on tackling the structural deficit now. It is absurd to say that the Government are somehow free to postpone this for a year or two, and to wait until they judge the time to be right.

Kenneth Clarke (Shadow Secretary of State for Business, Business; Rushcliffe, Conservative)

With anything of that kind, we are going to say, "Where are you finding the money from?" I shall leave it to my right hon. Friend Mrs. May, who is winding up the debate, to describe the package that will be essential to tackle the real needs of the unemployed now and through this recession. We have addressed the question of how we would finance it and what it would cost, although we have the disadvantage of having only half a dozen very bright young people trying to work out the costs and helping us to put the policies together. The thousands of civil servants that the right hon. Lady has at her disposal have not enabled her to come up with quite the right answers on public finances so far.

Kenneth Clarke (Shadow Secretary of State for Business, Business; Rushcliffe, Conservative)

If I heard the right hon. Lady properly, she said that this was going to be financed by "additional borrowing". I must say that nothing causes me deeper dismay than to hear a Treasury Minister get to her feet— [ Interruption. ] She is no longer a Treasury Minister; I am sorry. Nothing causes me deeper dismay than to hear a distinguished former Treasury Minister get to her feet at the Dispatch Box in October 2009 and lightly trot out a policy, believing that she does not have to answer the question of where the money is to come from, but say merely that she will borrow it. This was indeed the policy of her Government two or three years ago, and it has contributed to the total disaster that the country is now suffering.

Michael Meacher (Oldham West & Royton, Labour)

rose—

Kelvin Hopkins (Luton North, Labour)

rose—

Kenneth Clarke (Shadow Secretary of State for Business, Business; Rushcliffe, Conservative)

I have given way, and I will do so again in a bit, but I must make some progress. I am in danger of making one of my longer speeches in a debate in which there is a time limit for everyone else. Let me just get through the things that will be required to restore growth, apart from tackling the credit market problems and the problems of the public debt that loom so heavily over everyone.

When we look at what is needed to restore to this country a climate that is fit for business enterprise to get the country back to work, the first thing that we need to address is the taxation of business. Whenever I go to meetings with small and medium-sized business men, they can normally be relied on to raise the issues of taxation and regulation, so I shall begin by dealing with both those subjects.

The Government have raised corporation tax, and, in particular, they are in the process of raising the rate of the tax on small businesses. It has already gone up from 19 to 21 per cent., and in the Budget it was announced that it would go up to 22 per cent. in 2010. That is complete nonsense. To increase the burden of taxation on business—and on small businesses in particular—at the present time is folly. This was done at the time of the Budget in order to make the books look right and to put the cost on a corporate and collective tax that might not upset too many voters. However, it will upset voters when they see the consequences that the measure will have on small businesses in this country.

We have committed ourselves to bringing down the headline rate to 25 per cent., because we need a competitive rate, and to reducing the small companies corporation tax rate to 20 per cent. We have said how we will finance that—by abolishing the elaborate system of allowances, which has complicated taxation and can be used to finance the reduction in rates. We also strongly object to the other increase in tax on business, which is tax on employment. The Government have already put that into the pipeline and are going to raise national insurance rates. We would hope to be able to avoid that, and we would like to be able to give some relief, particularly to small employers.

Secondly, the Government have talked deregulation ever since they came to office. I actually think that Prime Minister Blair was a genuine enthusiast for deregulation and tried to infuse it into his Government. As all Prime Ministers probably find, and as he certainly did, he never had the time to apply himself to any of the detail, so it never really happened. The result so far of 12 years of stated commitment to deregulation was revealed by the latest PricewaterhouseCoopers global survey of chief executive officers, showing that more CEOs with businesses headquartered in the UK felt that their Government had failed to reduce the regulatory burden than any other country covered by the survey. We are losing competitive advantage.

Only a week or two ago, my hon. Friend John Penrose produced our latest and most detailed policy so far, on which we are still working. It is based, among other things, on regulatory budgeting—that is, before introducing a new regulation, having calculated the burden of compliance with it, another equivalent regulatory burden must be found for repeal. That, for a time, was the Government's policy.

When appointed to my current position, I was mystified to discover that the Secretary of State had stopped work on regulatory budgeting, to which the Government were then committed. No explanation has ever been given for dropping that commitment. The nearest I ever got to an insider piece of gossip about what went wrong was that civil servants in other Departments had constantly objected to it and tried to block it. Well, they would, wouldn't they? That is why we have prepared ourselves for regulatory budgeting, approved a sunset clause for regulatory bodies and supported other measures set out by my hon. Friend. The important thing is that we are preparing to ensure that, unlike the current Government, we will not only speak the language of deregulation, but actually deliver a change of culture in practice. That requires the processes that we are planning to introduce.

Rob Marris (Wolverhampton South West, Labour)

Will the right hon. and learned Gentleman provide us with three examples of regulations that he would abolish if he were in government?

Kenneth Clarke (Shadow Secretary of State for Business, Business; Rushcliffe, Conservative)

That is the question I use when people complain to me about European regulations! What I would repeal is the whole system that requires companies and voluntary bodies to go through a process of vetting the records of more than 5 million citizens if they are likely to meet children in the course of their work or their daily activity. I am thinking of recent examples; otherwise, the hon. Gentleman has defeated me with the same trick question that I sometimes put to others. [Interruption.] If the hon. Gentleman's point is that the process of regulation is not a burden, not a cost and only an illusion, that it is not true that managers are spending hours of their time complying with regulations imposed by different bodies, or that businesses are not subject to inspection by countless different inspectors, some of whom give contradictory advice about how to comply with those things for which they are responsible, I believe that I am nearer to reality than he is. Neither is this a problem only for private business, as the public sector suffers from the same process. Thus, a process of examining the regulatory burden will reveal the answer to his question. We are proposing such a process and we are not going to introduce new regulations until we get rid of the equivalent older ones.

Michael Meacher (Oldham West & Royton, Labour)

rose—

Kenneth Clarke (Shadow Secretary of State for Business, Business; Rushcliffe, Conservative)

I will give way one last time, which might give me more time to think of another regulation for abolition.

Michael Meacher (Oldham West & Royton, Labour)

Let me return the right hon. and learned Gentleman to the most important thing he said—that a future Tory Government would engage in early cuts as soon as possible and that those would be big cuts. Is he aware that the President of the Japanese Government tried exactly that against the background of a precarious recovery at the end of the 1990s, only to precipitate a deeper slump? Is he aware that Roosevelt, having initially launched the new deal, then increased taxes and reduced public expenditure, which took America back into unemployment? Is it not obvious that what is needed is not public expenditure cuts on a large scale, but a massive investment programme in job creation in housing, infrastructure and manufacturing?

Kenneth Clarke (Shadow Secretary of State for Business, Business; Rushcliffe, Conservative)

Few things are certain and obvious in economic policy, and it is certainly necessary to have regard to historic precedent. We may consider Japan in the 1990s, the United Kingdom in 1981 and the experiences of the 1930s, although it is debatable whether what is now called President Roosevelt's Keynesian expenditure was actually the principal cause of recovery. Indeed, I think that that theory is very doubtful, although it is, I know, much loved by people in the labour movement.

What we must look at, however, are the realities of today. No two financial crises are exactly the same, and no two recessions are the same. What we have at the moment is a massive burden of debt, which is a major feature of the current problems and a major challenge to confidence. To pretend that the Japanese experience shows that there is no need to tackle it is to be under an illusion. We have a larger deficit, and we have seen a faster increase in debt in relation to GDP, than any other G7 country. Others can afford fiscal stimulus, but we cannot. It is my judgment that we must start cutting the deficit as rapidly as possible. We cannot simply point to one feature of the Japanese lost decade and say that it proves that Britain in 2009 must avoid taking that step.

Tom Levitt (High Peak, Labour)

Will the right hon. and learned Gentleman give way?

Kenneth Clarke (Shadow Secretary of State for Business, Business; Rushcliffe, Conservative)

I will not give way again straight away, although I may do so later. I will take too long if I keep giving way and dilating on these impossible subjects. Almost every Member in the House is briefer than I am, but the hon. Gentleman is a possible exception, and an exchange between him and me is a risk on which I will not embark at this stage.

The next specific question that we must address is why we lost our advantage in flexible labour markets. That is undoubtedly extremely important to getting employment going again, and we are going to devote some study to it. We believe that the Government have moved far too fast and gone too far in some instances, although they too seem now to be having doubts about the agency workers directive. We believe that it should not be implemented until the last possible date, and certainly should not be implemented on fiercer terms vis-à-vis employment than those adopted by other western European countries complying with it.

We must also consider how we can become better at converting the innovations devised by the best of British science, British engineering and British technology into exploitation by companies that are basing themselves here for the production, sale, employment, and research and development opportunities. This country is very bad at that. We have a history of innovations being made in our universities by our scientists and engineers, reaching a certain stage, and then being moved away to be developed by companies in the United States of America or Germany.

We must look at the whole question of manufacturing in this country. The Government have totally ignored all the warnings that they have ever received about the state of manufacturing. Almost exactly half all manufacturing jobs that existed when new Labour took power have subsequently been lost. Manufacturing still accounts for 13, 14 or 15 per cent. of GDP, depending on the source of one's figures, but that is far too small a part of an economy and needs to be rebalanced. No politician and no business man in the United States, Germany or Japan will accept the argument that a modern economy does not need manufacturing—that an economy can be successful without making anything.

Of course, what an economy makes has got to be different, and it is the high-value and high-tech manufacturing that we should be encouraging. A large part of that depends on skills and training. We would reform the system of training to produce the skilled people of whom the country has always been in short supply. We are particularly committed to the future of apprenticeships.

The main point about apprenticeships, which we are seeking to reform, is that we must be clear about what we mean by "apprenticeship". It has always been very popular for politicians to make speeches about apprenticeship, but what it should mean is training in the workplace—employer-provided training, obviously allowing some absence for necessary further education and training outside at the same time. It should also be of an acceptable level. It is no good re-badging what people are already doing and describing that as training. It is also no good saying an apprenticeship has been successfully completed by someone who has reached the level of national vocational qualification level 2. Real apprenticeship requires the support of employers; it has to be work-based training, and we have produced proposals to give support to that.

Frank Dobson (Holborn & St Pancras, Labour)

rose—

Kenneth Clarke (Shadow Secretary of State for Business, Business; Rushcliffe, Conservative)

So as not to offend Tom Levitt, I shall give way to him first.

Tom Levitt (High Peak, Labour)

I would like to give the right hon. and learned Gentleman the opportunity to talk about creating jobs, as I think that must be an important part of any approach to dealing with the recession. He is a very reasonable man, and I am sure he acknowledges that the future jobs fund is in place to create sustainable, long-term jobs with Government help. I am sure that he will also acknowledge that many Conservative councils around the country have signed up for the future jobs fund and are delivering jobs through that means. Does he not therefore agree that it is a bit rich both that there is no mention of the future jobs fund in a High Peak Conservatives press release talking about how keen they are to help the unemployed, and that Conservative-controlled High Peak borough council is refusing to take part in that fund?

Kenneth Clarke (Shadow Secretary of State for Business, Business; Rushcliffe, Conservative)

Like so many such initiatives, it seems that the future jobs fund is not quite fully up and running yet. It reminds me of the community programme. These matters will be dealt with by my right hon. Friend the Member for Maidenhead, who will be winding up the debate. I hope the hon. Gentleman will be present for her speech. My right hon. Friend and I participated in putting together a whole programme of measures that will seek to find proper jobs for the unemployed with training and help; we announced that at our party conference.

The question enables me to respond to one of the myths that the Labour party so frequently expresses about the 1980s. I was a Minister at that time, and both then and now I have had to listen to repeated Labour speeches summing up that period as days of horror, desolation and the destruction of all that was finest in our British economy and society, whereas I personally regard it as the time when structural reforms were put in place that paved the way for us to be a modern economy. It is not true that we did nothing about the millions of unemployed. I was in the Department of Employment and the Department of Trade and Industry. We had project after project, all of them scorned by the Labour party. The future jobs fund is the community programme redesigned. It is all to be provided by local authorities on a temporary basis. The last time we had that, it rebuilt every village hall in my constituency. We have to move on from that policy, however. I will not discuss at length the youth training scheme—YTS—which Labour Members howl about, saying it did not provide real jobs and that people were not paid the union rate. There was also an enterprise allowance scheme to help the self-employed. We will modernise that, as we will all the schemes, but it worked very successfully. It got 100,000 people into working for themselves, and there are some very highly motivated people who cannot find jobs who could benefit from that.

All these schemes have been moved on, however. Unlike the current Government, who have gone back to the days of Lord Young and myself at the Department of Employment, and who are probably using some of the same officials to redesign all the various make-work schemes locally that we steadily refined when we were in office, we have put in a lot of work and have produced a full package of measures that we think are fit for the 21st century and will help a lot in the current situation.

I shall now take my last intervention, which will come from Frank Dobson.

Frank Dobson (Holborn & St Pancras, Labour)

The right hon. and learned Gentleman is harking back to his halcyon days in the Thatcher Government. I welcome his conversion to the idea of apprenticeships. Will he confirm that he was a member of the Thatcher Government who abolished them?

Kenneth Clarke (Shadow Secretary of State for Business, Business; Rushcliffe, Conservative)

We can both relive our halcyon days if the right hon. Gentleman likes, but I do not remember him having hurled that allegation at me. The first policy attempt to set up modern apprenticeships was undertaken 20 years ago in the late 1980s by the Thatcher Government. In those days, in some circles it was considered that any work that did not involve people getting their hands dirty or belonging to a trade union was not a real job or real training. I suspect that lay at the heart of much of the debate we had then, but I do not think the right hon. Gentleman and I should relive the old days now as there are a lot of very young people who are unemployed—about 1 million of them. They want to hear about real programmes designed for today's economy and my right hon. Friend the Member for Maidenhead will be setting those out later. However, I hope we all agree now that high-value manufacturing is essential to our future.

Those are the kind of proposals we are putting forward. We have made a considerable advance in addressing what would be our overriding problem: not just tackling the public deficit but at the same time creating a climate in which we can get back to growth, which is eventually the best way of solving a deficit problem and the only way in which prosperity and jobs can be provided.

Meanwhile, I study the outline of business policy that comes from my opposite number. On the recent publication "New Industry, New Jobs", I think it will be left to us to create the new industry. I fear that the current Secretary of State, and perhaps even his No. 2, will be looking for the new jobs, and we will hope to assist them as well. The documents are platitudes. Even Lord Mandelson says they are not earth-shattering. He has produced something that I hope T he Sunday Times is wrong in inferring is designed simply to badge speeches, advertisements and publications over the next few months. He seems desperately anxious to prove that he is somehow "interventionist" and activist. If that is meant to be an ideological statement, I at least give him the mitigation of not thinking he is genuinely either—if by that we mean interventionism in the classic, social democrat sense; he obviously has not been that so far.

Unfortunately, what Lord Mandelson is producing is not delivering very much but press releases and it is doing little to improve the business climate. He delivers it through an absolutely enormous number of agencies and quangos, as well as all the initiatives and programmes he produces. Unfortunately, the real business man out there finds when he tries to source or address any of these things that it is all sound and wind, signifying nothing and not available to the business man in the midlands who is stuck for credit and facing difficult times, or even to the entrepreneur with a new type of business that he wants to get under way.

When we come out of the recession, it will not be the same as it was before. Not only will there not be a return to the crazy bubble for which the Government enjoy taking credit, and which I sometimes think they wish we could go back to. Was it not nice then—when house prices, business growth and the share stock market were all soaring, everybody was happy and one could simply benignly brush aside warnings from Jeremiahs in the House of Commons and elsewhere and take credit for it? We are going to have a new type of economy. In Britain, it will have to be rebalanced and not be so dependent on financial services. We are going to have to invest more, export more and manufacture more, and we are certainly going to have to provide a great deal of new employment.

We are working on the task. We are frustrated by a winter of having to watch a Government wondering how they can re-badge themselves one last time to survive after May and perhaps tackle the problems. Twelve years of new Labour have proved very bad for British business. We need a Conservative Government as soon as possible to make Britain open for business again.

Patrick McFadden (Minister of State, Department for Business, Innovation and Skills; Wolverhampton South East, Labour)

I beg to move an amendment, to leave out from "House" to the end of the Question and add:

"welcomes the Government's decision to support families and businesses during the current global downturn;
believes it is vital the Government takes an active role to support recovery and build future economic strength;
notes the authoritative view of business leaders and leading economists against premature withdrawal of the support for the economy;
commends the Government's leadership in co-ordinating the international action, through the G20, to support jobs and growth;
further welcomes the Government's decision to invest an extra £5 billion to help people back into work and provide the Young Person's Guarantee, increased numbers of Jobcentre Plus staff, 150,000 Future Jobs Fund jobs and an offer to all jobseekers at six months;
calls on business and the voluntary sector to support the campaign Backing Young Britain;
further welcomes the introduction of the Employment and Support Allowance, the accompanying Work Capability Assessment, the expansion of Access to Work, and the Flexible New Deal delivering tailored support with providers paid by results;
further believes that it is the right judgement by Government to encourage investment by small and medium-sized enterprises through the Enterprise Finance Guarantee and other support;
further welcomes the successful car scrappage scheme;
further welcomes the help for over 150,000 businesses through giving more time to pay tax bills;
and commends the Government's new industrial activism, which, combined with the real help now being offered, will help secure the country's future prosperity.".

I very much welcome this debate on economic recovery and welfare. Responding to the global recession of the past 18 months or so has tested Governments right around the world. When the world was faced with a collapse in credit, the seizing up of the banking system and a steep decline in trade, Governments had to step to stop a catastrophe for people and economies throughout the world. Of course, it is not just Governments who will be judged by their response to the crisis; it is Opposition parties, too. For in those moments when intervention had to take place—in those times when we sought to stabilise the banking system; to put more money in people's pockets; to launch schemes to support industry, such as the scrappage scheme, which we have just extended; and to stop recession turning into depression—the judgment of all politicians was tested. Time after time, we have found that the judgment of the Conservative party has been called into question. From the Conservatives' opposition in the beginning to the nationalisation of Northern Rock—the shadow Chancellor said that he opposed that "full stop"—to their opposition to the fiscal stimulus, they have proven time and again that they would not have been up to the task of responding to the grave economic situation in which we have found ourselves. That judgment problem continues to haunt them as the issue becomes not response to recession, but how to foster and sustain economic recovery.

Perhaps we should not be surprised about that, because people of my generation, who grew up in the 1980s, know about the Tory response to recession; I have gently to disagree with Mr. Clarke here, because I remember very well the times when communities were torn apart by swathes of job losses, with little or no real assistance in place to help them recover, when there was long-term unemployment and when child poverty doubled. The Leader of the Opposition says that he is angry about poverty. He should be, because his party created enough of it when it was last in power.

David Davies (Monmouth, Conservative)

I am of the same generation as the Minister, and I remember the previous financial shenanigans from the 1970s. Does he have a sense of déjà vu as, once again, the economy collapses at the fag end of a long Labour Government?

Patrick McFadden (Minister of State, Department for Business, Innovation and Skills; Wolverhampton South East, Labour)

I do not have a sense of "déjà vu, once again", as the hon. Gentleman puts it.

I do not wish to dwell on yesterday. It is today and tomorrow that really matter and there, more importantly, the Opposition have got the judgment calls wrong time after time. This Government knew that when faced with the biggest worldwide economic contraction in decades, we needed to act to ease its effects and help the economy get through it. That meant taking action to stabilise the banks to protect people's savings and keep credit moving. As I said, the shadow Chancellor opposed the renationalisation of Northern Rock and proposed amendments to the Banking Bill, the effect of which would have been to make the rescue of Bradford & Bingley impossible too.

Following the action that we took on the banks, we launched a fiscal stimulus, which included bringing forward capital spending, tax cuts to put more money in people's pockets, and support for business. Some of that included the VAT cut, which I believe the right hon. and learned Member for Rushcliffe said was an option that he supported, although it was attacked by many in his party. The Centre for Economics and Business Research said:

"The figures are clear; the VAT cut is working."

The Institute for Fiscal Studies said:

"The temporary cut in the standard VAT rate...is a better stimulus measure than its critics suggest."

More broadly, fiscal stimulus measures were supported around the world, although not by the Conservative leader, who said in April:

"We were against the fiscal stimulus...when it came to"—

the decision

—to oppose the VAT cut and the so-called fiscal stimulus, I didn't consult a focus group or an opinion poll I just knew it was the right thing to do."

John Redwood (Wokingham, Conservative)

Does the Minister not see that the Government are squeezing the life out of the private sector to pre-empt all the money into the public sector? Can he tell us what he thinks the long-term rate of interest will be in this country when they stop printing it?

Patrick McFadden (Minister of State, Department for Business, Innovation and Skills; Wolverhampton South East, Labour)

I am certainly not here to predict the interest rates for the future. We have a system for setting interest rates, which the right hon. Gentleman well knows.

As the Leader of the Opposition said, he opposed the fiscal stimulus, whereas right around the world Governments of left and right were coming to the opposite conclusion. While the Conservatives opposed what we were doing, countries came together at the G20, here in the UK, to agree that co-ordinated action to support our economies was necessary. For example, the managing director of the International Monetary Fund said at the height of the crisis:

"If there has ever been a time in modern economic history when fiscal policy and a fiscal stimulus should be used, it's now".

The contention of the Opposition, apart from saying that they opposed the stimulus, was that Britain "could not afford it." However, the real issue was whether we could afford not to support the economy, given the situation that we faced.

John Reid (Airdrie & Shotts, Labour)

Lest my right hon. Friend feels isolated, may I speak for the generation before his? We went through this, too. We saw unemployment of 25 per cent., and the distinction between the way that the Conservatives addressed the last big economic crisis and what is happening now can be expressed in three words—"judgment", "action" and "balance" between economic, fiscal and financial stimuli and social protection. Those three things—judgment, action and balance—were dramatically missing during the last recession.

Patrick McFadden (Minister of State, Department for Business, Innovation and Skills; Wolverhampton South East, Labour)

My right hon. Friend makes a very good point in a very effective way.

Kenneth Clarke (Shadow Secretary of State for Business, Business; Rushcliffe, Conservative)

While we are having this wander through history, may I move on to the rewriting of history? I opposed the fiscal stimulus of the VAT cut when I was a freelance Back Bencher—before I was on the Front Bench—on the basis that we could not afford it. The British Government have gone in for less fiscal stimulus than almost any other developed country because of the state of our public finances. They have gone for far less than, say, the Germans have gone for, because they cannot afford it. The IMF has said of Britain that it needs to take faster action to tackle its fiscal problems—that was its comment on the Budget this year. The idea that we have been leading the way in fiscal stimulus is a myth—fortunately, because had we tried any real fiscal stimulus in this country, the long-term problems of our deficit and debt would be enormous. We are sustained by low interest rates and quantitative easing, not by any illusory fiscal deficits.

Patrick McFadden (Minister of State, Department for Business, Innovation and Skills; Wolverhampton South East, Labour)

I think that the right hon. and learned Gentleman will find that with both the discretionary measures and the automatic stabilisers, the stimulus adds up to some 4 per cent. of GDP. That is a substantial stimulus. My point is that Governments of left and right from around the world engaged in similar action while his party said that it opposed it. His leader said that he opposed it because that was the "right thing to do". In fact, Nobel prize winner Joseph Stiglitz said:

"You're fortunate that you have had a much more responsible government over the last eight years than we have had in the United States...We look to Britain as an example in times of which the economy was good, you did the right thing, we didn't."

Gordon Banks (Ochil & Perthshire South, Labour)

My right hon. Friend is taking us by the hand and guiding us through the Conservatives' inability to tackle today's economic crisis. Does he get the same uneasy feeling as I do when I read today's motion? We are not talking about history, but about the here and now—it condemns the Government on what they have done for business and employment. I am speaking from a business background, and this Government have done a lot for business and employment, all of it in the face of the Opposition. May I bring to my right hon. Friend's attention the funding for 50 jobs in Clackmannanshire that was delivered last week through the future jobs fund? In the last recession, we did not get jobs in Clackmannanshire, we lost jobs.

Patrick McFadden (Minister of State, Department for Business, Innovation and Skills; Wolverhampton South East, Labour)

I know that my hon. Friend comes from a business background. There has not only been help with the 50 jobs in Clackmannanshire; help has been given on a wider basis. For example, the time to pay initiative that we have extended to business has led to agreements with 150,000 businesses to spread more than £3.7 billion in business taxes to help them during the course of the recession.

Brian Binley (Northampton South, Conservative)

The Minister is always most kind in giving way, and I am always grateful. If the Government have been so generous to the private sector, why has the private sector shed 1 million jobs over the past 15 months while the public sector has increased by 300,000 jobs?

Patrick McFadden (Minister of State, Department for Business, Innovation and Skills; Wolverhampton South East, Labour)

We will talk more about welfare and unemployment in this debate. Of course, unemployment has risen as a result of the global recession. However, my argument is that our response to dealing with that unemployment contrasts with the hon. Gentleman's party's policies in the past and the policies that it espouses today.

Peter Bone (Wellingborough, Conservative)

Will the Minister give way?

Patrick McFadden (Minister of State, Department for Business, Innovation and Skills; Wolverhampton South East, Labour)

I want to make some progress.

After countries came together to support their economies, we had the party conferences. After an unprecedented co-ordinated international action in the face of the gravest economic contraction that we had seen for decades, what was the target of the Leader of the Opposition's speech at his party conference? Was it the irresponsible financial practices that had got us into this situation in the first place? Was it the market failures that had forced Governments around the world to act? No. In 2009, after everything that had happened, his attack was on big government.

After the first great economic crisis of this century, when the actions of Governments were absolutely critical in preventing things from being far worse than they would have been, the right hon. Gentleman's attack was on big government. Let us be clear: we did not intervene in the markets because we wanted to replace them. We intervened, because a market failure of that magnitude meant that Government had to act to ease its effects and to offer help to those who lost their jobs as a result. If the Conservatives made the wrong judgment call on the recession itself, the critical question now is the recovery and what the future holds for the British economy.

Steve Webb (Northavon, Liberal Democrat)

The difference between our position and that of the Conservatives on fiscal stimulus is that we agreed with the Government that it was necessary. The amount of money released by the VAT cut is a substantial sum, but does the Minister accept that a lot of tiny cuts—50p off a phone bill, a small amount off something else—do not stimulate the economy as much as spending the same amount on, for example, an injection of cash into a green recovery programme, which would be labour-intensive and which would help infrastructure in the long term?

Patrick McFadden (Minister of State, Department for Business, Innovation and Skills; Wolverhampton South East, Labour)

We combined a tax cut with capital spending—there is not necessarily a choice between the two—and the overall effect of the VAT cut was to put about £1 billion a month into the economy that would not otherwise be there.

The question is, is recovery in place and how strong will it be? There are some encouraging signs. For example, the CBI's most recent output expectations index for manufacturers shows improvement on its predecessor. The Bank of England's summary of business conditions reports that demand for consumer services has increased. Those signs are welcome, but it would be a rash politician who claimed that recovery was in place, embedded and not under any threat. If there is a recovery at all, it is a fragile one and it is very capable of being set back if we make the wrong judgments and the wrong decisions.

The right hon. and learned Member for Rushcliffe mentioned the importance of regulation. I can tell him that the World Bank's most recent ease of doing business survey raised Britain from its position as the sixth-best place in the world to the fifth-best to do business, so on that international measure we are heading in the right direction. As I said, it would be complacent to assume that the recovery will take hold come what may, or that there is no need for further Government help for the economy, yet that is precisely the advice offered by the Opposition, much of which centres on the discussion of debt. Of course, stimulus has meant a build-up of debt, which must be paid down in future. There is no argument about that, and we have set out a plan to cut the deficit in half over four years. However, when we start paying down debt, what is the time scale and what are our priorities as we do so? On those issues, there is a real difference between the parties. If we withdraw the stimulus too soon, we risk choking off recovery and sending the economy backwards, not only increasing the human pain of the recession but impairing the country's long-term ability to pay down the debt that the Opposition say that they are concerned with in the first place.

Kelvin Hopkins (Luton North, Labour)

I have a sneaking suspicion that what the Opposition are trying to do is frighten the Government into trying to reduce debt now, which would increase unemployment and help them to win the election. I think that my right hon. Friend would do well to ignore them.

Patrick McFadden (Minister of State, Department for Business, Innovation and Skills; Wolverhampton South East, Labour)

As I have said, it is important to have a credible plan to reduce debt, but there are major choices to be made between the parties.

Tom Levitt (High Peak, Labour)

My right hon. Friend will agree that it is absolutely crucial that employment is maintained at as high a level as possible during the recession and that jobs are created. Is he as surprised as I am that Mr. Clarke did not mention in 45 minutes anything to do with job creation? Is that perhaps because, if we read the Conservatives' work programme for tackling Britain's jobs crisis, we can see that it is a pale imitation, and a regurgitation, of what we are already doing to provide jobs?

Patrick McFadden (Minister of State, Department for Business, Innovation and Skills; Wolverhampton South East, Labour)

My right hon. Friend the Secretary of State for Work and Pensions will have more to say later in the debate about our plans to ease unemployment and get people back to work, but my hon. Friend Tom Levitt is right that we must not abandon the unemployed and must do everything we can to support employment in the economy.

I return to the question of the stimulus and when it should be withdrawn. The former member of the Monetary Policy Committee, Professor David Blanchflower, said:

"If spending cuts are made too early and the monetary and fiscal stimuli are withdrawn, unemployment could easily reach 4 million."

Just a few weeks ago the director general of the CBI said:

"The economy is too fragile right now for massive cuts in public spending."

On the question of employment just raised by my hon. Friend, Kevin Green from the Recruitment and Employment Confederation, when asked about the fiscal stimulus last month, said:

"We certainly don't want it to be switched off early. We actually need it to continue."

Yet a premature end to the fiscal stimulus is precisely what the Opposition are advocating. The Leader of the Opposition said in his party conference speech:

"The longer we leave it, the worse it will be for all of us."

But the fact is that in the present economic situation, that is not true. His attack on big government is driving him and his party to an economic stance that endangers the recovery and threatens to choke it off before it has been properly established. That is what happened in Japan in the 1990s, with the result that the downturn there lasted years and impacted even more severely on debt levels. The judgment failures that led the Conservatives to make the wrong judgments during the recession are being repeated, just as we see fragile signs of recovery.

Peter Luff (Mid Worcestershire, Conservative)

rose—

Patrick McFadden (Minister of State, Department for Business, Innovation and Skills; Wolverhampton South East, Labour)

We will not take risks with the recovery. We know how essential it is for the recovery to be supported so that it takes hold properly. We are determined to pay down debt, but we will not withdraw support at the precise moment when the economy needs it.

I give way to the Chair of the Select Committee.

Peter Luff (Mid Worcestershire, Conservative)

I am grateful to the Minister. As Select Committee Chairman, I have no wish to engage in partisan politics with him. Does he agree that it is not just what the Government do, but the way they do it? In that context, why did they choose to end their showcase fiscal stimulus programme, the VAT reduction, during the January sales, immediately after Christmas, causing maximum disruption for the retail sector?

Patrick McFadden (Minister of State, Department for Business, Innovation and Skills; Wolverhampton South East, Labour)

We always said that that tax cut was a temporary one, and we gave notice of that when it was announced, so I do not think there is any surprise about that.

Let me turn to the question of individuals, as well as the economy as a whole. When the economy has contracted as much as we have seen, when trade has fallen around the world, of course people lose their jobs. No Government can say to their people that they can be protected entirely from unemployment, given the economic circumstances that we have been through, but we will not abandon the unemployed. The Government are determined to ensure that unemployed people get the help and assistance that they need to help them find another job, and we are devoting particular effort to ensuring that we do not have a repeat of the 1980s experience, when long-term unemployment left thousands—sometimes tens of thousands—out of touch with the labour market for years, and sometimes for ever.

So we have put in place £5 billion in total to help get people back to work over this year and next year. That involves, for example, an extension of the rapid response service even before redundancies take place; after six months unemployed, help with training; help to people to set up their own business; incentives for employers to hire people; and after 12 months a guarantee of training or employment for young people aged 18 to 24, as well as other measures, such as funding for 20,000 internships, which can be a hugely valuable bridge into work for many people.

That activity stands in stark contrast to the way in which the Conservatives approached the issue when they were in power. And today, while we are putting in £5 billion to help the unemployed, the Conservatives—the right hon. and learned Member for Rushcliffe repeated this during his speech—have called for £5 billion less public spending during the recession. If that is their approach, I have to ask Mrs. May which parts of our help package for the unemployed they would withdraw. What training opportunities, what incentives to employers or other help would they abandon? Finally, for clarity, do the Opposition support the £5 billion package for the unemployed? Unemployment has risen during the recession, but we are determined to give people a second chance and to do everything that we can to stop it becoming permanent for those affected.

Peter Bone (Wellingborough, Conservative)

There is a gulf between what the Minister is saying and what is happening in Wellingborough. Unemployment has doubled in my constituency since the Government came to power, and while I have been in the Chamber today I have received a note about another company going bust. The Minister's measures are just not working.

Patrick McFadden (Minister of State, Department for Business, Innovation and Skills; Wolverhampton South East, Labour)

I must ask the hon. Gentleman to think about his constituents and how much worse unemployment would have been for them if we had not had the fiscal stimulus, the support that I have talked about or the expansion of apprenticeships. The right hon. and learned Member for Rushcliffe talked about apprenticeships, but there are four times as many apprentices now as there were when he was in power. To withdraw help for the unemployed would increase the risk of that situation becoming permanent and simply repeat the experience of people who lived through the recessions of the 1980s and 1990s, and we will not go down that road. This debate is important, because our responses to the recession and its human cost are issues upon which we will be rightly be judged, and judgment is just as important in the recovery as it is at the height of the recession.

On future industrial policy, Britain needs a Government who will support the economy's emergence from recession and help business to seize the opportunities that technological and industrial changes present—whether that is the transition to low carbon, or the advancement of digital technologies and biosciences. We have made it clear that we believe in an active role for government in helping Britain to make the most of those opportunities.

The right hon. and learned Gentleman said that our policy was just words and branding, but that is not the case. In recent months, we have put financial backing into aerospace, wind and wave power, the scrappage scheme extension and a number of other areas. When it comes to industrial policy, however, my criticism of the Opposition is not so much that they attack big government, as that they have nothing to say at all: nothing to say about Britain's industrial future, and nothing to say about the national capabilities that they believe that we should have. The problem for them is not so much big government as no government at all, and that is not good enough. Government may not create the jobs, but it does create the environment for employment and industry to grow. If the concern is debt, the best way to pay it down is through growth, and the best way to obtain growth is to work with industry to take advantage of the opportunities of the future.

As recovery takes hold, it is absolutely critical that we work with industry to ensure that it can take advantage of such opportunities. That is why we have put in place the strategic investment fund and allocated funding to the projects of which I speak—because we want Britain to have a recovery that makes the most of our industrial future. We believe that government has a vital role to play in that.

Rob Marris (Wolverhampton South West, Labour)

Does my right hon. Friend share my surprise that the Opposition's motion refers to "reducing corporation tax" but not to the other half of that policy? Mr. Clarke did refer to it, and the reduction of corporation tax by the Conservatives would be funded by slashing capital allowances by about £3.5 billion a year. That would have a disastrous effect on British industry—particularly on manufacturing, and particularly on manufacturing in the west midlands.

Patrick McFadden (Minister of State, Department for Business, Innovation and Skills; Wolverhampton South East, Labour)

Absolutely. My hon. Friend makes a very good point. The right hon. and learned Gentleman talked about the business man in the midlands, but I recommend that he ask a few west midlands manufacturers what they think of the withdrawal of capital allowances for investment at this point in the economic cycle. That allowance is precisely the help that business needs to make investment decisions so that we can take advantage of the industrial change that I have described.

This debate is valuable and important, because the country faces a real choice about who offers the best path to recovery. Through the choices that the Conservatives have made, they have placed themselves against the co-ordinated action that Governments took and in favour of early withdrawal of support for our economies, and they have been silent on our industrial future. They have failed the test of judgment time after time, and through the stance that they have adopted they have shown that they would fail the test again if they had the chance to put their proposals into practice. For those reasons, I shall ask my colleagues to reject the Opposition motion and to support the Government's amendment, which offers an altogether better route to economic recovery for our country.

John Thurso (Caithness, Sutherland & Easter Ross, Liberal Democrat)

I, too, welcome this debate, as these are extremely important issues. I particularly welcome the opportunity to discuss unemployment, which is the most pernicious effect of recession.

It is right to discuss not only what should be done in a crisis—what emergency measures are required—but what could and should be done to deal with unemployment in the longer term and what can be done in better times to increase employment. There are two different strands to that. The first and most obvious is to assist in the creation of sustainable jobs, which will be done only by businesses. Businesses, not Government, create jobs, and it is up to Government to assist in that process and not to get in the way. It is equally important to help to increase the employability of those who are unemployed and the productivity of the work force. Liberal Democrat Members have long recognised the need to confront unemployment and its social ills, unlike the Conservatives, who for 18 years felt, as Lord Lamont famously put it, that it was a necessary price to pay; I think that his actual words were "a price worth paying". We have a strong commitment to tackling the scourge of unemployment.

Notwithstanding what I regard as something of a Damascene conversion on the part of the Conservatives, I will support the motion and ask my hon. Friends to do likewise, because it is clearly important to support those who are out of work and, in particular, to ensure that enterprise is encouraged. However, I am not at all certain that the policies advanced by Mr. Clarke would deliver on the sentiments expressed in the motion; in fact, during his speech I almost changed my mind, but I will stick with where I started.

The current rise in unemployment is a direct result of the recession, which was caused by the banking crisis. Returning the economy to growth, restoring faith in the banking system and recreating financial stability are essential precursors to improving the economy and employment. It is impossible to have a debate on employment without alluding to the wider economic problems, as the right hon. and learned Gentleman and the Minister did. The first step was clearly to rescue the banking system. The Government made a reasonable job of that and deserve credit. Nevertheless, when the Minister castigated the right hon. and learned Gentleman for not agreeing on the nationalisation of Northern Rock, I could not help but noting that my hon. Friend Dr. Cable said that that was the correct course of action four months before the Government got round to it. I suggest to the Minister that there was recalcitrance on both sides of the House at that stage.

The real test is how the recovery takes shape, particularly in the financial system. To use the metaphor coined by my hon. Friend the Member for Twickenham, the financial system has had a massive heart attack, has been in intensive care and stabilised, and is now in the recovery room, but whether the patient makes it back on to the streets and returns to a full and active life will very much depend on whether we accept that we should go back to the old model—a course of action that I would not hold with—or have a different model. The old model has clearly failed. It failed to act with reasonable prudence, failed to curb the excesses of lending and remuneration, and failed to distinguish between innovation and speculation. That system cannot be allowed to return; business as usual in the City is simply not an option.

Peter Bone (Wellingborough, Conservative)

Does the hon. Gentleman think that the Government missed a trick in that when the share subscription agreements were drawn up for £39 billion, they did not put any restriction on the pay of bankers?

John Thurso (Caithness, Sutherland & Easter Ross, Liberal Democrat)

I do, and I am even on record as having urged the Government to do that, although it may have been in the Treasury Committee rather than in the Chamber. The Government were, to a degree, taken by surprise, and the resource at the Treasury was not sufficient to undertake a great deal of extra work, so some of those details were missed out.

There is an argument—I will not go into it in detail—for narrow banking. Suffice to say that it is not about a difference between casino banking and utility banking but between the need to have commercial banks on the high street acting with prudence while allowing investment banks the freedom to take appropriate risk. Those two cultures do not sit sensibly in the same organisation, and they both work better if they are apart.

Rob Marris (Wolverhampton South West, Labour)

The hon. Gentleman is echoing a proposition that was often put forward by Dr. Cable and I caution him as regards the bifurcation of the banking system. The broad consensus around the world is that, of the banking systems in advanced industrial countries, the one that survived the best and that is the most robust is the system in Canada, where there is no such bifurcation. The major banks there are in rude good health and work on both sides of the street, so to speak.

John Thurso (Caithness, Sutherland & Easter Ross, Liberal Democrat)

The hon. Gentleman tempts me into a debate on Glass-Steagall, but I will not go into that given the time available. Canada is an interesting example to study, not least because of the banking problems that it had already suffered and the regulatory changes that it had made. There are as many people in favour of narrow banking as there are those who take the opposite view. It is a valid discussion to have, but this may not be the place for it.

John Redwood (Wokingham, Conservative)

Can the hon. Gentleman then explain why narrow banks—three mortgage banks—got into deep trouble? On the basis of his argument, they should not have got into trouble at all.

John Thurso (Caithness, Sutherland & Easter Ross, Liberal Democrat)

Indeed I can, but I will not be drawn into that debate when there is much else to say. I suggest that the right hon. Gentleman take a look at the Treasury Committee's report on the subject, which explains it extremely well; it is to do with the banks' business model and the functioning of the capital markets.

The purpose of financial services is not to spin round in self-interested speculation, but to serve commerce and industry by acting as an efficient channel between those who need investment and those who wish to invest. The argument that the City can simply go back to business as usual does not hold; its fundamental flaw is that the resource of capital has been wasted on speculation and needs to be applied to investment in sustainable growth. If we wish to grow sustainable employment, capital—both equity and debt—is required to be invested in sustainable enterprise.

The Government—no doubt their heart is in the right place—have put forward a positive blizzard of schemes. However, they range from what can only be called rank failures—the automotive assistance scheme is one of those, and the credit insurance top-up scheme has not done much—to the enterprise finance guarantee scheme, which is muddling along after a shaky start and has failed to reach many of the people that it should have done. No doubt that is because of the inherent Catch-22 that the people who turned businesses down for credit in the first place are the people who get to reassess them for it in the second place. I argued this time last year for an improvement and remodelling of the small firms loan guarantee scheme, which I believe would have been an appropriate response at the time.

Finally, the Government have put forward targeted assistance schemes such as the scrappage scheme, which have been successful. Overall, however, there has been a blizzard of schemes, and the hallmarks of them have been the press release announcing them, the lack of money spent and the failure to reach the businesses that need them. They have been at best sticking plasters, when perhaps stitches were required. I note from talking to the many companies in my part of the world that, interestingly, the single most effective measure has actually been the devaluation of sterling, which has set the economy working faster and better than anything else. Of course, that was unplanned by Government and carries with it distinct long-term risks.

There are other question marks to consider about the speed with which growth will resume. Not the least is quantitative easing and at what point the laxative should be taken away and the Imodium applied. Another question relates to the timing of the reversal of the fiscal stimulus. It is important that the stimulus is not removed until such time as the economy is capable of taking it. A third factor is the 17.6 per cent. cut in capital investment that will take place next year as a result of all the projects that were pulled forward to this year. I ask seriously whether the economy is ready for that.

Patrick McFadden (Minister of State, Department for Business, Innovation and Skills; Wolverhampton South East, Labour)

The hon. Gentleman has just said that he is not in favour of the fiscal stimulus being removed and that he is a bit worried about the trajectory of capital expenditure. Where does that sit with his party leader's support for savage cuts?

John Thurso (Caithness, Sutherland & Easter Ross, Liberal Democrat)

My party leader has pointed out, very honestly, that we cannot sustain the level of public expenditure to which this Government are committed over the long term, and that if we are to deal with the structural deficit, we will almost certainly need to cut public expenditure. Furthermore, he and my hon. Friend the Member for Twickenham have set out a range of possibilities as to where those cuts may come. It is wholly appropriate for those of us engaged in politics to say those things honestly to the people out there, rather than try to pretend that there is not a problem that needs to be dealt with over the piece. In my judgment, the electorate are far more intelligent than that and can well understand the problems that we face.

Notwithstanding the question marks that I have mentioned, we are indeed seeing the first glimmers of growth, and we need to make that growth sustainable. I wish to mention in particular the sector of small and medium-sized enterprises, which are the incubators of the future. We are a nation of innovators—we innovate and invent very well, whether in our universities and research laboratories, our workshops or the garden shed. We do innovation very well as a nation, but we do badly in converting innovation into enterprise. We are not very good at converting ideas into commercial success.

One of the top points, if not the top one, made in every survey of SMEs, at least until the taxation issue came up, was that access to capital was the single biggest barrier that they faced. Some 51 per cent. gave that response in a 2006 survey. Sorting that out tops the list of requirements, because if we can get investment to the businesses that can deliver jobs, that will deliver growth.

I have made a proposal on that matter, which is based on three simple premises. The first is that in most parts of the UK, if not all, there is quite a lot of individual private wealth whose holders would really rather like to invest in enterprise, particularly locally, but lack the mechanism to do so. The second is that investment decisions are best made by investors and those in whom they wish to invest, rather than by Governments or officials. The third is that there is, however, a key role for Government to play in facilitating the creation of the mechanism for that. I have put forward a proposal for a local enterprise fund that would work on exactly those lines.

The second problem cited by SMEs is regulation. Since this Government came to power, the total regulatory burden falling on firms has grown by some £77 billion. It falls most heavily on the SME sector, and proportionately most heavily of all on the micro sector. To respond to the intervention by Rob Marris on the right hon. and learned Member for Rushcliffe, I could give three examples of regulations that I would abolish, but they would all be agricultural. I should not be drawn down that route.

Rob Marris (Wolverhampton South West, Labour)

Go on!

John Thurso (Caithness, Sutherland & Easter Ross, Liberal Democrat)

Well, I would get rid of the regulations to do with the water directive, because of the impact that they have on whisky in particular; I would get rid of the sheep tagging regulations that are coming down the track and I would improve the system; and I would amend the slaughterhouse regulations to allow more British slaughterhouses to operate. The hon. Gentleman has succeeded in making me rise to my own fly, so I would not make a very good fish.

Actually, the problem is not particular regulations or the number of them; it is the burden that regulations place on a business to undertake administrative functions for the Government. The real burden has come from all the matters that were dealt with by Government 15 or 20 years ago but now require form-filling and all sorts of other things by businesses. The real benefits can come from working out the impact of that burden.

Gordon Banks (Ochil & Perthshire South, Labour)

There has been a lot of talk this afternoon about the number and value of regulations, but surely the point is that regulation must be measured against risk.

John Thurso (Caithness, Sutherland & Easter Ross, Liberal Democrat)

Absolutely, and one of the most pernicious things in our culture at the moment is the fact that people seem to have failed to understand that risk is made up of two factors. It is the severity of the consequence multiplied by the probability of its occurrence. If that consideration were applied properly, many of the risks that people are asked to mitigate, at great cost, might well not affect them. I will happily discuss what has happened in my businesses with the hon. Gentleman after the debate.

Lorely Burt (Solihull, Liberal Democrat)

My hon. Friend speaks clearly about the disproportionate burden of regulation on small and medium-sized businesses. Does he agree that we might wish to balance the amount of risk with the size of a business? By definition, a small business will not be able to generate the same sort of volume as a large one.

John Thurso (Caithness, Sutherland & Easter Ross, Liberal Democrat)

My hon. Friend is absolutely right. A number of European countries already have that enshrined in their legislation. When I was running a business in Paris 20 years ago, there were clear distinctions between businesses that had fewer than 50 employees and businesses that had more. I would happily see that principle adopted.

My party made three proposals to deal with the problem in a policy paper that was published about a year ago. The first proposal is to strengthen the protocols on regulatory impact assessments to ensure that they are proper and robust, so that we have a real idea what costs are being introduced. Furthermore, to ensure that they are accurate, we should back them up with a post-implementation review to audit them.

The second proposal is to introduce sunset clauses on all regulation, so that as a matter of course regulations come back to Parliament to be debated again. Within that is a proposal for a strict concept of one in, one out, so that the overall burden does not increase.

The third proposal is to ensure, particularly for small businesses, that there is a single point of contact rather than a plethora of different inspectors arriving on different days. The right hon. and learned Member for Rushcliffe mentioned similar ideas. As he has so few researchers, may I suggest that, rather than reinventing the wheel, he just copies the ideas off our website?

Gordon Banks (Ochil & Perthshire South, Labour)

I am not against the hon. Gentleman's suggestion—there is a real need for small businesses in particular sectors to know directly what affects them—but does he agree that it means that there would have to be sector points of contact as opposed to individual business points of contact?

John Thurso (Caithness, Sutherland & Easter Ross, Liberal Democrat)

That is a possibility, but it really depends on where we are to put the point of contact. I cannot believe that it is beyond the wit of man—I know of examples of this happening in other countries—to have, at local government level, somebody who is the basic point of contact. With the vast bulk of regulation, it is not terribly difficult to assess whether someone is generally compliant. If someone had a serious problem, they could be referred to specialist help, but the vast bulk of people are compliant. How much easier would it be if they had one person coming to see them to deal with everything, rather than having to disrupt their business on several days.

On taxation, which is a core part of the motion, I regret the increase in corporation tax for small businesses. I do not for one moment think that this is the time for that measure and I concur with the aspiration to lower headline tax while removing some of the ways in which it can be avoided. It is interesting to note that the average tax rate paid by FTSE companies, which can, after all, afford to pay for a great deal of advice, is some 7 or 8 per cent. below the headline rate. That comes not from capital allowances, but from double dips through Delaware partnerships and strategically placed Jersey companies. The removal of some of those avoidance schemes would allow a lowering of the overall rate and probably, at the same time, an improvement to revenue. That would benefit everybody, particularly companies at the middle level, which cannot afford the same advice as other companies or take the action that they take.

The final part of the motion relates to benefits. I am afraid that I do not have the luxury of leaving it to a colleague to inform the House what the Liberal Democrats think about benefits, and therefore must do it myself. The concepts of an integrated approach to helping people back to work and the use of private sector companies were both put forward by my hon. Friend Steve Webb in a policy paper published two years ago, which has been put through our conference. Again, I welcome the conversion of the right hon. and learned Member for Rushcliffe to our ideas. However, as so often, the Conservatives grabbed the headline and missed the content. I cannot help but observe that it was the last Tory Administration who, for example, put the majority of those involved on incapacity benefit. The shift back is an interesting full circle to have travelled. I warn him that simply hoiking people off incapacity benefit and sticking them on to jobseeker's allowance is not at all likely to lead to savings in the longer term, and that there are better ways of getting those.

As I said at the outset, dealing with unemployment has two clear parts: ensuring that jobs can be created and that enterprise can flourish, and creating effective pathways for those who are out of work, to give them the best opportunities to return to work. The Liberal Democrats have long recognised both and have made detailed proposals, some of which I have been able to outline this evening. As those proposals coincide with the sentiment of the motion, we will support it.

However, the right hon. and learned Member for Rushcliffe began by calling for truth and honesty. I agree with the importance of those, so I say this to him: I well remember running a business in the last recession, over which his predecessor as Chancellor presided, and I must say that I see little change in the Conservative party today to make me believe that it has either the appetite or the conviction to implement the aspirations in the motion. In my mind, these are technicolour problems that cannot be dealt with by monochrome headlines. Businesses need stability and support, and the Liberal Democrats would certainly give that them that.

Several hon. Members:

rose —

Alan Haselhurst (Deputy Speaker)

Order. I must remind the House that Mr. Speaker has placed a 15-minute limit on Back-Bench speeches, which comes into operation now.

Frank Dobson (Holborn & St Pancras, Labour)

It would appear that today's debate has confirmed what was said at the Tory and Lib Dem conferences. The Tory answer to the black hole that the bankers have blown in the public finances is to cut public investment now and keep on cutting, and the Lib Dems turn out to be not much better—they want to savage public servants' jobs and freeze the pay of those who survive. Both the Government's main opponents are committed to slashing vital public services, which would throw more people on the dole. Those policies are neither sensible nor popular.

The Labour Government are right to spell out the truth of the situation and the principles that they are applying and will continue to apply. The truth is that the public finances are in a particularly bad way because of the money that taxpayers had to fork out to save the banking system, and because the recession caused by those bankers has slashed the amount of tax that is being paid into the Exchequer. For example, each person thrown on the dole costs the taxpayer at least £12,000 in benefits paid out and tax not taken in. Adding to unemployment adds to rather than reduces the debt. That is why it is necessary for the Government to ensure that they do not introduce any measures that cut spending at the moment.

In the end, the only sound, long-term way to deal with the deficit is to maximise the production of goods and services, which we are not doing at the moment. Some reductions in public spending may be necessary, but not until unemployment is falling significantly. However, debt can be reduced by increases in taxation and—dare I say it?—by inflation, which nobody likes to mention but which will be deployed against deficits by every Government in every developed country.

Here in Britain, the Government's response to the credit crunch has been exemplary. They set an example that has been followed by every country in the developed world. As Mr. Clarke denounced the Prime Minister, I can outdo him by quoting Paul Krugman, winner of the Nobel prize for economics, who said of the Prime Minister that he had acted with

"stunning speed"

and that his actions had

"defined the character of the worldwide rescue effort with other wealthy nations playing catch up".

Mr. Krugman also said that the Prime Minister's

"combination of clarity and decisiveness hasn't been matched by any other Western government".

John Redwood (Wokingham, Conservative)

Will the right hon. Gentleman give way?

Frank Dobson (Holborn & St Pancras, Labour)

I will certainly give way so that the House can contrast what the right hon. Gentleman says with the wisdom of Paul Krugman.

John Redwood (Wokingham, Conservative)

I was merely going to ask the right hon. Gentleman which taxes he thinks should be put up to tackle the deficit.

Frank Dobson (Holborn & St Pancras, Labour)

I assure the right hon. Gentleman that I will get on to that issue later in my speech.

We now need further exemplary steps. For a start, we must get away from this mad idea which dominates the news media, and dominated the Tory party conference, that the primary function of the Government after the forthcoming general election will be to reduce the deficit. Some even seem to believe that the only function of the Government will be to reduce the deficit. The deficit is large and it will need to be reduced. But the function of the Government is to run the country; to provide safety and security for our people at home and abroad; to provide jobs; to encourage investment; to continue improving schools; further to enhance the care and treatment of NHS patients; to promote research and innovation; to develop a sustainable economy that reduces our contribution to global warming; and generally to promote peace abroad and prosperity at home. Against those functions of the Government, the need to reduce the deficit admittedly represents a problem and a constraint, but it is not by any stretch of the imagination the primary objective of the Government. That is why it is necessary to spell out further what would be different under Labour.

The answer must begin from a recognition that despite such Labour efforts as the minimum wage and tax credits—opposed by the Tories and the Liberal Democrats—and other initiatives such as Sure Start and nursery places for all, we still live in a society that is scarred by inequality. As Richard Wilkinson and Kate Pickett have demonstrated in their seminal work "The Spirit Level", inequality is a major cause of practically every ill that afflicts our society. These range from reduced life expectation through ill health, crime, violence, teenage pregnancies and reduced social mobility to general distrust and dissatisfaction, and they harm almost everybody, not just the people at the bottom of the pile.

Labour's public spending and tax policies must be designed to avoid the increase in inequality that would be caused by the Tory and Liberal Democrat policies—

Brian Binley (Northampton South, Conservative)

Will the right hon. Gentleman give way?

Frank Dobson (Holborn & St Pancras, Labour)

No, I want to make progress and other hon. Members wish to speak.

Indeed, we must go further and take this opportunity to try to make our society fairer and more equal. The present situation presents us with a golden opportunity, because the overpaid bankers, currency speculators and tax-haven beneficiaries have never been as unpopular as they are now. Nearly everybody in the country knows that the City slickers have been paying themselves too much and that this should not be allowed to continue. Most believe that we should block the tax loopholes of the rich, and that everyone should pay their fair share. So tackling these inequalities, and the way in which the rich manage to fiddle their way out of paying their fair share of tax, would be swimming with the tide. When the Tory party opposes the necessary changes, as it inevitably would, it would simply confirm what we have always known—that the Tory party is not the party of the poor. It is not even the party of small businesses and real entrepreneurs. In reality, the Tories are, and will remain, the political wing of the finance industries. We should press for a worldwide levy on financial transactions, a Tobin tax, and devise ways to raise—

Brian Binley (Northampton South, Conservative)

Will the right hon. Gentleman give way?

Frank Dobson (Holborn & St Pancras, Labour)

No.

We should devise ways to raise the present negligible taxes paid by hedge funds and private equity outfits. I will give way to any Tory who can tell me the name of any hedge fund that pays tax to the British Exchequer. No one stands up, because there is none— [ Interruption. ] No, if they cannot name a hedge fund that pays tax, they have no right to be here, unless they acknowledge that what I am saying is absolutely right.

In the meantime, a windfall tax on the financial profiteers is the least we must do to satisfy the people of this country— [ Interruption. ] There may be mocking laughter from those on the Tory Benches, but I am willing to go to any of their constituencies and advocate what I have just advocated. It would go down a lot better than any defence they could put forward on behalf of the people whom they really support. But we cannot stop there. We have to pluck up the courage to reject the neo-classical economic mindset of the financial establishment—the people who believed that markets always work, who rejected restraints and regulation and who said bankers could do no wrong. Those are the people who said that the state could do no right—as the Tory leader said in his speech to conference. What did those financial geniuses do when things went wrong? They immediately started sponging off ordinary taxpayers the world over to rescue them from the consequences of their own greed and stupidity. Besides grabbing too much for themselves, the finance bosses diverted, and continue to divert, capital from useful investment in the production of goods and services into speculation in worthless derivatives. They ended up destroying wealth, not creating it. Governments have to start representing the views and interests of the people who earn their living by providing useful goods and services, instead of acting like subsidiaries of the finance industries.

The credit crunch and consequent recession were not caused by the pay of dinner ladies, shop assistants, car workers, nurses, street cleaners or social workers. They were not caused by the pension entitlements of teachers or—dare I mention them?—postal workers. So it simply will not be acceptable to make them, and people like them, pay the price of the recession while those in the finance industries—the ones who did cause the recession—continue to coin it. We will all have to take some of the pain, but that will be tolerable only if the pay of the fat cats in the finance industries is substantially reduced, not just now but permanently. The people who caused the rest of us all this trouble should pay the price—the full price—of their failure. We must step up regulation nationally and internationally to ensure that the bankers, the auditors, the ratings agencies and the regulators never get us into such a mess again.

Peter Luff (Mid Worcestershire, Conservative)

I am now very glad that I came to this debate. Hearing the speech by Frank Dobson has certainly taken me back a few years, that is for sure. How reassuring it was to hear an old voice reasserting itself in the Chamber. I have one simple question to ask him: who has been in power for the past 12 and a half years? Some elements of his analysis were right—for example, the ratings agencies have much to answer for—but who could have put that right over the past 12 and a half years? It was not us on the Opposition Benches; it was him, when he was in the Government, and his colleagues on the Government Benches.

Frank Dobson (Holborn & St Pancras, Labour)

Will the hon. Gentleman give way?

Peter Luff (Mid Worcestershire, Conservative)

With pleasure, but by the way, the reason why I did not intervene when the right hon. Gentleman asked his question about hedge funds was that I cannot name a single hedge fund. It was a pass, not a negative.

Frank Dobson (Holborn & St Pancras, Labour)

Can the hon. Gentleman give a single example of anyone from the Tory Front Bench calling for more regulation of the financial services industry in the past 12 years?

Peter Luff (Mid Worcestershire, Conservative)

I will happily send the right hon. Gentleman some of the excellent speeches by my hon. Friend the shadow Chancellor of the Exchequer, who calls for better and more effective regulation of the banking system all the time. Indeed, to jump ahead in my remarks, it was the incompetent reordering of the financial services system by the right hon. Gentleman's Government that contributed to the mess in the international economy, for which he has dared to have the cheek to criticise us.

John Redwood (Wokingham, Conservative)

My hon. Friend might like to remember that in our economic policy review in 2007, we called for stronger cash and capital regulation of the banks and said that a massive credit excess was very evident.

Peter Luff (Mid Worcestershire, Conservative)

It seems that some of us were more prescient than members of the Government. That report was produced at the request of those on our Front Bench and they paid great attention to it. I am afraid that the right hon. Gentleman is wrong. However, I am glad that he took us back. I do not know how far—probably to the heady days of nationalisation in the post-war period.

Brian Binley (Northampton South, Conservative)

Back to the 1930s.

Peter Luff (Mid Worcestershire, Conservative)

It was to the 1930s, 1940s. I am glad that the right hon. Gentleman took us back, because in his opening remarks the Minister sought to take us back to the 1980s. I am an old man, it seems, in parliamentary terms. I was brought up not in the '80s, but in the 1970s—a book published today by my good friend Lionel Zetter implicitly describes me as a grizzled veteran of the Major years. My formative experience was of the 1970s. I remember why the 1980s were so painful: it was the result of the mess that that lot on the Labour Benches made of the economy in the 1970s.

I remember being at university in Cambridge in the 1970s and being told that there was no future left for this country. There were too few producers and no manufacturing industry—the nation had gone to rack and ruin. It was the Thatcher years, painful as they were and mistakes made as they were, that saved the country. It is about time that the Government stopped criticising those years and instead gave thanks to a Government who saved this country from economic damnation.

I am probably being a little partisan for a Select Committee Chairman, but it is objectively true that, economically speaking, we face two huge crises in our society. First, unemployment is catastrophically high, as it always is towards the end of a Labour Government. Indeed, it has doubled in my constituency in the past year. Unemployment was not something that we had to worry about in Mid-Worcestershire, but now we do, thanks to the Government's incompetent management of our economy in recent years.

Secondly, the scale of the debt burden facing our children is truly horrifying. Indeed, it is a problem that will hang over the House of Commons for years to come. However, it is not down to the reasons that the right hon. Gentleman gave, but down to structural problems—that is, the constant seeking to spend and spend on things that people wanted over many years. That is the underlying problem. What Tony Blair's Government used to call the bills of economic failure—the bills for unemployment, debt interest and so on—will be massively higher in the next Parliament than those that he had the cheek to criticise us for back then. Therefore, I will take no lectures on debt either.

One of the two great deceptions practised by this Government has been to say that this recession has its roots entirely in the United States of America. It is true that the American economy is five times bigger than ours, so any problem on that side of the pond will necessarily have an impact five times bigger on the world economy. However, it is also true that all the mistakes made in the United States of America were made here as well. An excessive reliance on debt, sub-prime lending, poor regulation—all those mistakes were made here as well. This is a recession made in the UK and the USA. I therefore regret very much that the Government still seek to hide behind that pathetic excuse.

What is more, and what is so tragic, is that the Government pretended that they had ended boom and bust. That lured many innocent folk into making decisions about their investments that they would not otherwise have made—bankers tell me this endlessly. If there is one phrase that should act as the sad epitaph of this Government, it is "an end to boom and bust." Those of us who are students of economics know that that is absolutely impossible. That is the nature of the way the world works—it has been for centuries and it always will be. "An end to boom and bust" was an impossible claim, but it lured people into making very bad decisions.

Let me say in brackets that one thing that my right hon. and learned Friend Mr. Clarke said in his opening remarks puzzled me. He said that this was not an economic debate. However, I see it very much as an economic debate. Indeed, it is a great shame that we have so few economic debates in this place. I do not yet know whether the Government have announced a date for the pre-Budget report, which will presumably come after the Queen's Speech. I appreciate that announcing dates in the next Session poses challenges, but I hope that there will be a debate this year on the pre-Budget report, which there has not been for many years. The Government are committed to such debates and it is important that they should be held, because scrutinising the economy is one of the two most important challenges facing our society—the other, in our view, is addressing our broken society. I therefore urge the Government to keep to their previously declared pledge to have debates on the pre-Budget report.

The Government often hide behind headlines, one of which is Britain's relatively high standing in the World Bank's "Ease of business" table. It is true that we have risen a place in 2009-10, from sixth to fifth, which superficially looks like a cause for cheer. However, the detailed breakdown of the figures that underpin that result show that a lot of the things that are done better are things for which the Government can take little short-term responsibility. However, where we have got worse is, for example, on employing workers. We are now the 35th easiest country in the world for employing workers. That is a terrifying statistic. We are slowly but surely crawling down the league tables—on starting a business, for example, we were ninth last year, but now we are 16th. On the measures that are under the Government's control, therefore, we are getting worse in that ranking table.

What is more, we are being caught up by some worrying countries that understand exactly what is necessary to do business effectively. I went to Saudi Arabia with my hon. Friend Mr. Binley earlier this year, where we heard about the phenomenal attempts being made by the Saudis to move up those business tables. We need to watch out, because some unlikely countries are snapping at our heels. In 2004, Saudi Arabia was the 67th easiest country in the world to do business; in 2009, it had become the 15th. Now it is the 13th and it expects to be in the top 10 next year.

The world is changing fast. We have to move fast to adapt to it. Many of the old platitudes offered for years in this Chamber—about the need to deregulate, for example—can no longer be treated as platitudes. They have to be acted on with the utmost urgency.

Having said all that—and perhaps reverting more to the role of a Select Committee Chairman—I am also anxious that we should not talk down the success of what has been achieved. We still have a successful manufacturing sector in the United Kingdom. I would argue that it could have done better under different policies. Indeed, our manufacturing sector would be stronger if the Government had not fallen so in love with the financial services sector, but there we are: we are where we are. However, the manufacturing sector has grown consistently in most years. We produce more as a nation than we have ever produced, notwithstanding the current recession.

As my Committee pointed out in our recent report—a report that attracted no attention at all, because it was entirely constructive and often praised the Government—the UK is

"the world's sixth largest manufacturing nation...the eighth largest exporter of manufactured goods,"

and in 2006,

"25 per cent. of those goods were high-tech".

Indeed, we have the highest proportion of high-tech exports of any of our major competitors. In many ways we are doing extremely well. However, we need to criticise the Government objectively and fairly when we think that their policies fall short.

It is always disappointing when the Government react in a knee-jerk way to a Select Committee report. For example, the Secretary of State for Children, Schools and Families owes us more explanation of his reasons for rejecting the recommendation of the Select Committee on Children, Schools and Families than he gave in answer to today's urgent question.

Stephen Crabb (Whip, Whips; Preseli Pembrokeshire, Conservative)

My hon. Friend makes a powerful point about the need not to talk down the success of British manufacturing and about whether the UK manufacturing base would be doing better under different policy conditions. He will be aware that the manufacturing sector has been haemorrhaging jobs, with almost 2 million lost over the lifetime of this Labour Government.

Peter Luff (Mid Worcestershire, Conservative)

I want to caution my hon. Friend about this jobs argument, which is a double-edged sword. Sometimes those jobs are lost because of improvements in productivity. We are still producing more. That kind of talk risks a self-fulfilling circle of decline, which I am rather nervous about—indeed, that is one of the major themes of our report, which I shall come to in a minute. There are huge and exciting opportunities for young people in manufacturing, if they had them explained to them properly, but if we talk it down too much, our young men and women will not choose careers in those industries. I am therefore nervous about the jobs argument. It is not quite as strong as Opposition politicians have sometimes thought it was, when the main parties were on other sides of the Chamber, or as some think it is now.

On dismissing Select Committee reports, my Select Committee on Business and Enterprise produced quite a constructive a report about the automotive assistance programme. Strangely, that is not part of the Government's amendment, and I will explain why that might be if I have time. However, it was a constructive report, although one has, of necessity, if one is to get coverage these days in our rather simplistic media, to emphasise the negative, and we perhaps did that in our press release. The result was that Lord Mandelson told BBC News 24 on the day of publication:

"I am afraid the Committee don't know what they're talking about...Well, I'm equally astounded these MPs don't have a clearer idea of what's going on on the ground."

I was a little dismayed because I had hoped that he would regard our report as a constructive contribution that suggested ways in which the AAP could be improved.

My judgment was vindicated by the Government's formal response, which was published in September. It stated:

"The Government welcomes the Business and Enterprise Select Committee's report—The Automotive Industry in the UK...This is a valuable contribution to the discussions now taking place about the best way to support this critical part of the UK's manufacturing sector now and in the future...The Government thanks the Committee for their positive comments about this work and the commitment of Ministers".

That shows the danger of knee-jerk reactions, and I hope that the Minister will take back to Lord Mandelson, who I wish could be more accountable to this House, my slight warning that he should read things a little more often before he comments on them.

The Committee likes to give praise where it is due, and we have done that in our report. However, we have one warning, which echoes the words of today's Opposition motion. We say:

"Over the last year, the Government has produced a succession of strategy and policy papers related to innovation and industry. Their proposals cannot be implemented by the Government alone. All those involved now need to ensure that the emphasis is on the actual delivery of policies designed to support innovation, rather than producing further policy documents."

I sometimes feel that the Government think that saying the right words will achieve the right ends, but that is not always the case.

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.

Michael Meacher (Oldham West & Royton, Labour)

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 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.

John Redwood (Wokingham, Conservative)

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?

Michael Meacher (Oldham West & Royton, Labour)

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.

Stewart Jackson (- Shadow Minister, Communities and Local Government; Peterborough, Conservative)

Will the right hon. Gentleman give way?

Michael Meacher (Oldham West & Royton, Labour)

I will; this is the second and last time that I will do so.

Stewart Jackson (- Shadow Minister, Communities and Local Government; Peterborough, Conservative)

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.

Michael Meacher (Oldham West & Royton, Labour)

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.

Brian Binley (Northampton South, Conservative)

Will the right hon. Gentleman give way?

Michael Meacher (Oldham West & Royton, Labour)

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 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 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.

Several hon. Members:

rose —

Alan Haselhurst (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.

John Redwood (Wokingham, Conservative)

I remind the House that I am involved in business in a global manufacturing company and I am an investment manager of a company, but I am not, of course, here to speak for those companies.

Like most Members, including my right hon. and hon. Friends, I come here because I want my country to be prosperous. I come here because I want there to be more jobs, not fewer. I come here because I am appalled by the tragedy of unemployment that we see in our streets in our towns and villages today. I am appalled by the devastating impact that both domestic and global errors of policy have made on our economy and our country.

What I find most difficult to accept is hearing Government Members suggest that Conservative Members are here to argue the case for the banking industry, that we take great delight in having to cut public spending or that our motive is to have more people out of work or to make the poor suffer more. On the contrary, we are here because we want more opportunity and we are here because we want a wealthier and more prosperous people. Our recommendations to the Government come from the heart and from our experience. Surely Government Members can see that it is they who have messed it up: they should be a little more contrite; they should listen more and lecture less; and they should understand that this country needs many changes in order to give more of our people more of a chance.

We have heard a lot from Government Members about Japan, but they have misunderstood the history and the economics. They say that Japan cut spending, which created a 19-year recession, yet Mr. Meacher said that Japan has the biggest accumulated Government deficit and biggest stock of public debt in relation to the size of its economy of any major country he spoke about. Quite right. It does, and the reason it does is that it has had fiscal stimulus after stimulus year after year for 19 years—and they have not worked. Labour Members need to ask why they did not work. They did not work because that country did not mend its banks. If the banking system is not mended, throwing more money into public capital and into public works does not create a prosperous economy with many more people at work; it creates bigger problems.

If Labour Members cared to look at Canada, they would see that the country got into such a public deficit mess some years ago that it had to put through massive cuts on a scale that none of us would like to see. After that was done, however, the economy performed extremely well. The Canadian economy has got through this world crisis so much better than the British economy in part because its public sector is in better shape and making fewer extraordinary demands on its economy. If we look at the Australian economy, there has been no downturn at all. Again, sound public finances are part of the Australian response to the crisis.

Even the United States, which some people very stupidly try to blame for the whole thing—when, as my hon. Friends have said, this is a British problem made in Britain as well—has had a gentler downturn than the UK's over the last year, largely because of the strength and depth of the American economy and the Americans' refusal to go to the extremes of policy response that the British Government have adopted. The American Government did not subsidise and put as much public money at risk in their banks, relative to the size of the economy, as we did.

The problem Britain faces and the reason we are doing so badly relative to many other countries around the world at this time of danger and difficulty is that we have the worst treble crisis of all the major countries. Yes, we have the excess credit from the easy money days, the bad monetary policy days, of 2003 to 2007, when policy mistakes by the Government and the Bank of England allowed and fuelled a mighty boom in private-sector credit. Yes, we also have the worst problem of all major countries with our Government deficit. On top of the over-borrowing in the private sector, we are now heaping unbelievable amounts of extra debt on taxpayers through the public sector. We then have the third deficit—the banking deficit—where, quite wrongly I believe, the Government decided to force the effective nationalisation of two of our largest banks when they could have seen them through at much less cost and risk to the taxpayer.

Again, I deeply resent the way in which, in the past, some Ministers have tried to suggest that I wanted to bring the banks down, as if that would be a good thing to do. Of course no sensible person would have wanted our major banks to go down. What we wanted—what I wanted—was for Ministers to do a better deal and to be ahead of the game. We wanted them to regulate the banks effectively when they could have been pulled back from the brink, rather than taking them over the brink and then lumbering the taxpayer with so much risk and so much extra cost.

We did not need to draw Lloyds into HBOS, but the Government decided to do that. We did not need to allow the mega-mergers that created RBS, but the Government decided to do that, perhaps for Scottish reasons. We did not need to go public with the view that the banks were weaker than they should have been, which was bound to starve them of access to money markets and capital markets—the access that they needed—and then force them on to the taxpayer, who now carries far too big a burden.

In order to create the jobs that I think any sensible Member of Parliament wishes to see, and in order to ensure a recovery in the United Kingdom that is much more vigorous and faster—not as fast as the recovery in China, which has been in progress for many months and is doing extremely well, and probably not even as fast as the recovery in more broken America, but faster than any recovery that we are likely to see at the moment—the first thing that the Government need to do is go back and help to mend the banks. Nothing will work properly in this country until the banks are sorted out.

We have two mighty banks with combined balance sheets of £3 trillion—twice our national income—which are hobbled. They are hobbled by the regulations imposed on them, because, most extraordinarily, the Government and the regulator have decided to tighten the cash and capital rules at the bottom of the cycle, having failed to tighten them when some of us asked them to do so as we approached the top of the cycle. So we have pro-cyclical regulation. We are making the problem worse at the peak by making it too easy, and we are making it worse at the nadir by making it too tough.

In my opinion, the reason for that asymmetric regulation is quite clear. The Government are following an election strategy, not a recovery strategy. The election strategy is about spending as much as possible in every way in the public sector while knowing that that cannot be sustained beyond the election. It is about assuming that a future Government, if there is a change of Government, will obviously have to make cuts because that level of spending is not sustainable. If by some miracle the Government got away with it, they would say "Of course we had to make some adjustments, because the Treasury officials suddenly told us that none of the arithmetic worked."

Far from fuelling a better recovery—far from offering hope to all the people who have lost money and jobs in the private sector—that strategy is doing the opposite. We have a completely lopsided economy. We have a public sector that is still taking none of the hit and none of the pain, and a much bigger private sector that is suffering, anaemic, emaciated and under pressure because the banks cannot lend it the money that it needs, and there is not the necessary demand to create that money through the turnover in the businesses.

David Taylor (North West Leicestershire, Labour)

The right hon. Gentleman says that the public sector is taking none of the hits and none of the pain. Which parts of the public sector does he think should take some of the hits and some of the pain? Could he identify one or two of them?

John Redwood (Wokingham, Conservative)

I should like to see it start from the top. The fat cats in the public sector, the excessive bureaucracy, the regulation that does not work, the unnecessary quangos, the people on the six-figure salaries: that is where we should start to slim down the public sector, because it is an affront to everyone else who sees the very different standards that apply to the private sector and the public sector in this world.

I am not someone who believes that it is a case of "public sector bad, private sector good"—although a fair number of Labour Members seem to believe that it is a case of "public sector good, private sector bad" in every instance. The world is much more complicated than that, and, like many Members, I am proud of many of the great public servants and public services in my constituency and elsewhere in the country. But if the Government still cannot see that the public sector overall is inefficient, bloated and in need of substantial treatment, they really are not fit to govern. Their own Ministry of Defence recently produced a damning report describing how much waste and incompetence there is in defence procurement, and that is the only Department on which they have put any downward pressure over budgets in recent years.

The biggest cuts in public spending that I want to see are cuts in welfare payments because people have gone back to work. We cannot afford the welfare budget at its current level. We need a much more active policy—which I am sure my right hon. and learned Friend Mr. Clarke will recommend—to enable us to spend the money more wisely, so that we can get more people into jobs more quickly and do not have to sustain this massive burden.

Another big cut that I want to see is a cut in interest rates. The interest rate burden is escalating out of control. If we are not careful, the interest programme will not just be bigger than the defence budget, but will be bigger than the budgets of some of the even larger and more important Departments of State that are more valued by members of the Government. We should be very worried about the way in which the interest rate burden could so easily get out of control.

There can be no sustained and sustainable recovery unless we ensure that there is a fairer balance between the public and private sectors. There can be no sustained recovery while people continue to be alarmed by the scale and rate of the increase in the deficit. That has an impact on confidence: it means that people hold back from business investment or spending. They know that there are tax increases around the corner from this Government, because the deficit is so implausible. They know that there will be rises in interest rates, because once the Government stop the quantitative easing—once they stop printing the money that they are now spending in their public sector—interest rates have only one direction in which to go.

People are going to say "We do not think we should lend to the Government at 1 per cent. for a short term, or at 4 per cent. for a very long term." Given the risk posed by the Government—given the enormous scale of the deficit if it is not curbed and controlled—they are going to want a much higher rate of interest. The Government may then reach a point at which their interest rate costs and programme become completely out of control. The rates will rise not only because they are borrowing too much new money, but because each time they re-finance their debt they are re-financing it not at 3 per cent. or 4 per cent. but, perhaps, at 6 per cent. or 7 per cent. The arithmetic then becomes quite shocking and terrible.

So what should the Government do if they really want a recovery? First, they should change the regulation of the banks so that the banks have some scope, given their current capital and cash position, to lend to the private sector. Yes, that will mean laxer regulation for a bit while they get the thing going again, but there will be no problem with that, because the two weakest banks are state-aided and state-supported. People would not lose confidence in them if they took such action, and it is the sensible thing to do now. As my Front-Bench colleagues have pointed out here and at the party conference, allowing the banks to lend a bit more to the private sector means having to start adjusting the deficit in order to create a bit of room and a bit of balance between the public and private sectors in our economy.

How do you mend banks? Well, Mr. Deputy Speaker, as you own two of them—you and all the rest of us, and the Government as our representatives—it is much easier to sort them out. As shareholder, as the dominant influence on that bank, it is the Government, as our representative, who hire and fire the directors and senior executives. It is the Government, as the shareholder representative, who should be monitoring the cash and capital, and ensuring that they are happy with their rather ill-founded investment on behalf of the taxpayers.

What would I do if I were the Government trying to sort out those banks? First, I would go in tomorrow and tell them that there would be no bonuses for senior executives and directors until they became profitable and were returning to the private sector. I would tell them that I did not want to return Royal Bank of Scotland and Lloyds HBOS to the private sector in their current forms. I would tell them that they would be split up, and I would want plans on my desk as soon as possible to create half a dozen banks in the United Kingdom out of the two massive banks that we have. If they did not like it, I could say "In that case, we will negotiate with you the withdrawal of all subsidy and support from the state, because we do not accept this position. We think that there is not enough competition and choice in the banking sector, we think that you cannot run such a big organisation as this, and we think that we need to split it up and make it work rather harder for its living."

There was not enough competition in the banking market before the problems that the authorities helped to create in 2007 and 2008. Now there is even less, because of the actions that they took over Lloyds HBOS, and the actions that they took over the three mortgage banks that they failed to regulate properly and that also got into considerable difficulties. The Government should be alarmed that there is so little competition in the banking market, because without that competition there will be no loans for anyone who wants to run a reasonable risk—there will only be loans for people running practically no risk at all—and there will be no loans at sensible prices for the private sector. I do not know whether Ministers are aware of this, but interest rates and charges have gone through the roof because these banks, knowing that they now have oligopoly in the market, know that they can get away with charging the earth and nobody can stop them. All the time that position remains true there can be no virile, decent, strong recovery in Britain. All the time that remains true, our trend rate of growth will not be the 2.5 per cent. that we always said, or the 2.75 per cent. peak of the market forecast from the Treasury. It will not even be 2 per cent. I hope there is a recovery in the next few months—there may well be as the figures we are comparing with are so bad it would be stunning if there were not—but in no way will we get back to even 2 per cent. growth unless the Government mend the banks and sort out the public sector.

Sally Keeble (Northampton North, Labour)

The title of the debate is "Economic recovery and welfare". So far, there have been a lot of history lessons about the economy but not much attention has been given to the welfare aspect of the debate. That is what I want to talk about, however, because as we come out of this recession it is becoming clear that it has changed social attitudes and the reality of life for lots of families, and I want to look at some of the policies needed to meet the challenges.

Before doing that, however, I wish to address a few other points, in particular some made by Mr. Redwood. He was completely wrong to pit the public against the private sector as there is now a recognition that both sides of our economy and society must prosper for the whole to prosper. The days are gone when people might say, "The public sector must bear the pain like the private sector has done." Most people recognise that in the current difficulties the public sector is providing a welcome cushion for many families. They also accept that there has been substantial investment in the private sector, both through the variety of schemes that have been introduced—and which the right hon. Gentleman criticised—and the intervention in the banks, because that has also been support for the private sector.

The right hon. Gentleman's analysis of the banks is also completely wrong. I do not want to discuss that in detail as the Select Committee has produced a report on it. However, hearing him talk about what he would do in respect of the banks made me think that he should be sitting on the Labour Benches because his recommendations sounded like old-fashioned nationalisation and intervention by big Government, whereas what the current Government have rightly done is set up an arm's length mechanism to run the banks in the private sector. One of the criticisms from the Select Committee is that it has not been arm's length and independent enough. I would like United Kingdom Financial Investments Ltd to be much clearer about its mandate and the way it deals with bonuses, but I think the Government approach to dealing with the banks is right.

John Redwood (Wokingham, Conservative)

How can the hon. Lady justify to her constituents paying multi-million pound bonuses out of loss-making businesses subsidised by the taxpayer?

Sally Keeble (Northampton North, Labour)

I have just said that I would like UKFI to give a much clearer mandate on issues such as bonuses. However, I have defended to my constituents the fact that if the Government had not stepped in to support the banks when they did and the banks had collapsed—some people did say, "Let them go to the wall"—my constituents would now be in a much worse position. I am happy to argue that out, while also, of course, arguing about the need for tighter limits on bonuses and other action in that regard.

The public debate on the current recession has been remarkably different from that on previous ones, such as in terms of the idea of unemployment being unacceptable. John Thurso said he thought this was a conversion on the part of the Conservative party. I think that that conversion was driven by the fact that it saw where public opinion had moved to, and decided it had better move there as well, and quickly. All of us saw in the recessions of both the 1980s and the 1990s people being shipped wholesale out of work and on to the dole and being told that that was a price worth paying, and the only debate was about how much they should receive in social security benefits. The welfare state became a sort of opium of the masses. Rightly, the debate is now about how we stop people becoming unemployed in the first place. I applaud the steps businesses in my constituency have taken to keep people in work, recognising that that is a national priority. Pressure is bound to come on the public sector, and I hope that when that happens public sector organisations and employers will be as creative and inventive in making sure that they keep people in work. They should look at shift patterns and different ways of flexible working to maintain employment in the public sector.

The situation is the same in respect of housing. There are fewer repossessions now than there were in the 1990s recession for the same reason. Mortgage providers have been forbearing in taking action over arrears. The Government have also provided some support, and while there has not been huge take-up of some of their measures, the total effect has been to keep people in their homes, and there has been a recognition that that is where the national interest and priority lies.

The situation is also the same in respect of training and what happens to young people. It is now accepted that we need a high-skill work force and that that involves young people staying on in education. We have the education maintenance allowance to support them in that. That has led to a quantum leap from what previously happened to young people.

I want to talk about the future, and I shall do so by discussing the findings of a report entitled "Northampton families and the recession"—I shall give Mr. Binley a copy if he does not already have one. It picks up on some research that I and others did in my constituency and looks at what has been happening to families and at what kind of welfare state and welfare system we need as we move out of recession. I shall pick up on a few points from that. I also hope that I might have a meeting with Ministers to talk about them.

The first point is that as a result of the recession more women are moving into full-time work while men are moving into part-time work. The women are saying they are the breadwinners, and men are becoming more involved in supporting families and child care. One of the consequences of that is a need for a different approach to flexible working so women can in some instances pursue their full-time careers while men are supported if they are more involved in child care at home. It must also be ensured that women being the breadwinners is a wholly good thing, rather than this really being a consequence of employers laying off expensive men and employing women at a lower rate. We need to understand what is happening and make sure women are getting paid at the right rate.

Another factor the report brought out was that the fear of losing jobs and of unemployment is not the only big problem for families in the recession, but so too is losing working hours—losing shifts and overtime rates. The impact on family incomes is more substantial than the unemployment figures—tragic though they are—would lead us to believe.

Another fact that came out of the report is just how many families are dependent on tax credits. The Conservative party position on this issue is completely wrong. Several hundred families took part in the survey, and 60 per cent. of them were dependent on tax credits. That is an astonishingly high proportion. As we move out of recession, we need to ensure that we have policies that support families in employment—in different patterns of employment—and that we can maintain living standards for families who are facing loss of work hours.

The report also found that people were hugely concerned about what would happen to their pensions. As women move into full-time work and men into part-time work, their pension entitlements cross over, and people understandably therefore become concerned about their future security of income in retirement. I hope the Government might look at some way of allowing people to pool their pension entitlements in the way they can pool their working hours so they get their tax credit entitlements. This is a complex point, but perhaps I could discuss it with Ministers after the debate? It is about couples being able to save for their pensions together just as they might pool family incomes and working hours for tax credit purposes.

Overall, the biggest concern that families had was about their children and specifically youth unemployment. Their worry is that, once the economy picks up, their children will be the last to get back on to the employment ladder. One issue that arose was children's ability to stay on at school, particularly when their parents are hit by unemployment. The education maintenance allowance, important though it is, is based on the parents' income over the last year. If their income has gone down in the last year because they have lost their jobs, such families cannot get EMA just when they most need it, to keep the children on at school. I hope that my hon. Friends on the Front Bench will look at a way of ensuring that EMA can become a real-time benefit based on families' present, rather than past year, incomes, so that we can ensure that people do not feel anxious about whether they can afford to keep their kids on at school and whether they can get the qualifications they need and the jobs they want.

The shape of the global economy and of the banks will of course change. I do not agree that we should break up the banks, but they will undoubtedly change. We also need to realise that as a result of this recession, just as happened with previous ones, the situation for our families will change and they will look for a very different kind of society. It is important that all our policies—not just economic, but welfare and education policies, for example—are changed to support families in what will be a very different society and economic age.

I hope that my hon. Friends on the Front Bench will deal with some of those points and look more closely at some of these suggestions. They came out of the direct experiences of families in my constituency, which were examined over a six-month period so that I could understand this issue and explain exactly what impact the recession has had on them.

Stephen Crabb (Whip, Whips; Preseli Pembrokeshire, Conservative)

I am grateful for the opportunity to speak in the debate. In terms of welfare support—how we protect individuals and families and prevent them from slipping through the net during what I believe will be a long, slow slog back to the robust conditions that can create jobs in the private sector and sustain economic confidence—the recession is going to throw up major challenges for our country.

I do not believe that this Government have much to offer the people who are currently hurting. Do not take my word for it, Mr. Deputy Speaker: I recall the words of the former Labour Minister, Mr. Field, speaking in this House on 17 March during Third Reading of the Welfare Reform Bill. He said that the Bill

"totally ignores the new poor: people who are already registering at jobcentres and who are desperate for work, scrambling for jobs, and willing to downsize in terms of the jobs and the wage packets that they accept because they think that work is so important. What does this Bill offer them? It offers them nothing."—[ Hansard, 17 March 2009; Vol. 489, c. 874.]

This Government have little to offer those newly unemployed and newly hurting in this recession—those who know the value of work and who might never have had reason to go into a jobcentre in their lives before. What, too, about the millions of people living in households where there has been no history of work for perhaps two or three generations, or the people who come back in front of jobcentre staff time and again, caught in the revolving door of moving between work schemes and benefits, and back into temporary work and then to benefits once more?

Even before this recession, the British economy was labouring under a truly massive welfare burden. In the past 10 years, the cost of welfare spending has spiralled upwards by close to £100 billion, with millions of people who could be working and creating wealth not doing so. We are talking about the millions of people often living on housing estates blighted by educational failure, worklessness, dependency on benefits, crime, and antisocial behaviour and substance misuse. In Britain today, more than 2 million children are being brought up in households in which no one works, and many of them when they reach 16 will join Britain's expanding pool of NEETs—those young people not in education, employment or training: the ones who slip through the net and are doing nothing constructive with their lives. This is Labour's lost generation of young people—nearly 1 million of them aged between 16 and 24.

One of the fundamental reasons why I believe this Government have nothing to offer both those groups—the newly unemployed or "executive unemployed", as they were referred to in Work and Pensions questions earlier today, and the millions of people in communities of worklessness and long-term unemployment—is that they are in denial about the scale of the profound and deep-seated problems in our labour market.

Jim Knight (Minister of State (the South West), Regional Affairs; South Dorset, Labour)

We are not in denial about the scale of the problems being faced. The hon. Gentleman is unusual in this House, in that he represents a constituency where unemployment has fallen, where youth unemployment has fallen, where long-term unemployment has fallen, where incapacity benefit claims have fallen, and where last month, the number claiming jobseeker's allowance fell. Does he celebrate all that?

Stephen Crabb (Whip, Whips; Preseli Pembrokeshire, Conservative)

On many occasions in the past four and a half years since being elected, I have stood up in this House and welcomed the fall in unemployment in my constituency. I grew up in it and I remember times of high unemployment. I am not going to decry and object to improvements in the labour market locally, but unemployment in my constituency has increased by more than 100 per cent. in the past 12 months. That is a fact.

We have seen the same pattern in this debate and in Work and Pensions questions: denial on the part of Ministers of the extent of the problems here and now, and a retreat into historical revisionism, going back to statistics from the 1980s to throw up a smokescreen to avoid having to engage with the issues and the difficult challenges that we are discussing.

I want to focus my remarks on my home country of Wales, which faces the double whammy of a delusional Labour Government in both Cardiff and Westminster. In Wales, the pain of the recession is being felt acutely. There was a view popular among some Welsh Labour politicians about a year ago that, because of the relatively high level of public spending in Wales compared with other parts of the UK, it would be in for a soft landing during the recession—that somehow, the relatively large size of the public sector meant that Wales would be insulated during the recession. Professor Niall Ferguson, who owns a home in Wales, expressed that view to a newspaper, and those comments were seized on by Welsh Labour MPs and some sections of the Welsh media. The view was backed up by Ieuan Wyn Jones, Economic Development Minister in the Welsh Assembly, who said:

"Wales will fare relatively better."

Brian Morgan of the enterprise centre at the university of Wales Institute, Cardiff objected to that. He said that Wales would suffer worse than other parts of the UK and that, as one of the poorest parts of the UK, Wales is trying to absorb a recession from a weakened position, and the Government could not borrow indefinitely to prop up the public sector.

It is Professor Morgan who has been proved right. In the past 12 months, unemployment in Wales has soared. It has been increasing at one of the fastest rates anywhere in the UK. In the three months to August 2009, unemployment in Wales hit 130,000—a rise of 24,000. The rate now stands at over 9 per cent., one of the highest of any of the UK regions. Almost 100 people lost their jobs every day in Wales in the past 12 months. One in every three people in Wales on the dole has been claiming it for more than six months, and one in 10 has been doing so for more than a year. Long-term unemployment has not been abolished or solved—certainly not in Wales—as some Ministers have claimed in the past.

We need to get back to focusing on private sector job creation. In the past 10 years there has been a phenomenal increase in public sector jobs. I welcome employment in the public sector—it is great to see people working, whether they are in the public or private sector—but we need to increase the wealth-creating component of the economy and see jobs created in the private sector, not just the public sector. We need to return to focusing on how we create incentives for private sector employers to recruit more workers and to hold on to them during the recession.

It is estimated that since Wales won objective 1 funding from the European Union at the end of the 1990s, its public sector has grown from accounting for about 50 per cent. of its gross domestic product to about 54 per cent. In England, the public sector accounts for about 40 per cent. of GDP. Thus, one can see that the public sector is significantly larger in Wales, relative to the other proportion of the economy. Many of the employers in my constituency talk to me about their frustrations at the barriers that they come up against in trying to recruit new workers, and many of those employers will do anything that they can to avoid taking on more workers unless it becomes absolutely necessary. It is a shame that so many small business men and women regard employing more people as a headache—they should see it as a sign of growth and it should be a wonderful thing for them to be able to recruit more people—because of the regulations attached to hiring workers and the personnel difficulties that many of them face.

Manufacturing has been touched on, and I wish to echo some of the remarks made. We need to speak up for British manufacturing. I represent a rural constituency in west Wales, where manufacturing is a very small sector of the economy, but even down there we have some success stories that we need to celebrate. For the past 10 years, manufacturing trade associations, the CBI and the chambers of commerce have been warning consistently about the erosion of competitiveness of the UK manufacturing sector and about the loss of jobs—almost 2 million have been lost from UK manufacturing in the past 10 years. As the overall employment level was increasing during that period, Ministers did not have to engage fundamentally with the difficult challenge of a loss of private sector manufacturing jobs. That is one reason why I say that Ministers are guilty of being in denial and of being complacent about the loss of jobs in the UK economy.

Finally, on the question of young people, hon. Members and organisations outside the House have been warning about the profound long-term problem of youth unemployment. I have even heard a Minister say that youth unemployment has been abolished under this Government. What an arrogant thing to claim, given that one can go to any town centre up and down this country in the middle of a working day and see young people simply doing nothing constructive with their lives! Youth unemployment has not been abolished; we face deep-seated challenges. Unless there is honesty on the part of all parties in the House and, in particular, the Ministers who are running the show at the moment about engaging with the issue and recognising how deep-seated the problems are, we will not make much progress.

Last week, I went to a reception held on the Terrace that was put on by the Salvation Army Housing Association, where I met some of the young residents of the foyer schemes that it runs. These were young people from Rotherham, in the north of England, and young people from the south of England who were getting supported accommodation provided by the SAHA and training. Those young people had been rough sleepers on the street, and some of the young ladies had been sex workers—I am talking about people with profound problems. It is organisations such as the SAHA, which are at the coal face of working with the hard core of unemployed young people, from whom Ministers need to learn. They should engage with those outside organisations, because they have something special to offer. The young people whom I met downstairs last Wednesday afternoon are a testament to the expertise in these organisations. I am thinking about not only the Salvation Army, but the Prince's Trust, Fairbridge and so on; a range of organisations have been doing such work for a long time. When I talk to my regional Jobcentre Plus and to Ministers, I sometimes think that they should engage more with some of those organisations and learn from their expertise.

Kelvin Hopkins (Luton North, Labour)

It is a great pleasure to speak in this debate. First, I thought that the speeches made by my right hon. Friends the Members for Holborn and St. Pancras (Frank Dobson) and for Oldham, West and Royton (Mr. Meacher) were brilliant—I need not add to anything that they said, because I agreed with every word of it. However, perhaps I might fill in a few gaps and express a few of my own views.

The Conservative motion is pretty feeble. It just contains footling supply-side changes and a coded reference to squeezing benefits, and it proposes a little bit of tax advantage for business. That does not really address the major problems that the economy must face over the coming years. Mr. Clarke again came with the old canard of flexible labour markets and driving down wages, which would just deflate demand even further and would not solve any of the problems.

The motion refers to competitiveness, which is important. I have argued for a long time that the pound was substantially overvalued relative to other currencies, particularly the euro and the dollar. One of the good things that has happened over the past year is the severe depreciation—a serious depreciation—of sterling to a more reasonable level, and we have started to improve our competitiveness on that basis.

Peter Bone (Wellingborough, Conservative)

I agree entirely with the argument that the hon. Gentleman is making, but would it not be better if the Government said from the Dispatch Box tonight that they will drop their policy of joining the euro, so that we can continue to have a currency that devalues.

Kelvin Hopkins (Luton North, Labour)

I did not know that we had a policy of joining the euro, but I think that the most sensible thing that the Prime Minister did in his years as Chancellor was not to join the euro—I applaud him for that. Had we joined it, we would have the same problems as Ireland, which has a massively overvalued currency, so what he did was very sensible.

The other component of competitiveness is, of course, investment. Private companies invest when they can sell things. If demand has been deflated in the economy and they cannot sell anything, they will not invest. Thus, the crucial component, beyond having an approach that ensures an appropriate value for one's currency, is to have a good market: a good level of demand in the domestic economy, as well as the international one.

Brian Binley (Northampton South, Conservative)

I am listening to the hon. Gentleman with great interest. Does he understand that in order to invest, companies, particularly small and medium-sized enterprises, need working capital, and they are being starved of it at the moment?

Kelvin Hopkins (Luton North, Labour)

I thank the hon. Gentleman for his intervention. I would have supported the policy that I fought on in the 1983 general election, which was to nationalise the banks at that time and introduce a thing called the "alternative economic strategy". Had we done that, we would not be in the mess that we are in now but, unfortunately, we followed the apostles of neo-liberalism and the free market, who are so evident on the Conservative Benches—sadly, some in my party also followed that misguided route—and we have arrived at this situation. Those who still speak in favour of globalisation, liberalisation, privatisation, marketisation and deregulation have had their day and it brought us to the edge of a catastrophe.

We must go back to having a more regulated world, where we manage our economies sensibly, we ensure that they work and we guarantee full employment, above all. Between 1945 and 1970—before the post-war world collapsed—we had heavily managed economies and they worked. I can remember that as a young man—Mr. Binley and I may be of similar age, so perhaps he also remembers these times—one could walk alongside a row of factories and see vacancies in every single one. One could almost go into any one of them and be given a job. That is the world that we used to have, and it is the one that I want to have now for all the young people in my constituency in Luton who cannot get a job. A range of jobs, both skilled and semi-skilled, were available, and there were apprenticeships by the thousand. That is the world that we had, but we have thrown it away because we fell for this foolish world of neo-liberalism. I think that we will rebuild back towards that world one day.

Investment comes about through having a good market in which to sell things. The Government amendment, which I strongly support, refers to the "new industrial activism", and I applaud that absolutely. The Minister for Business, Innovation and Skills, who spoke from the Front Bench on behalf of Labour Members at the beginning of the debate, has had a role in helping to save the Vauxhall plant in Luton—I am extremely grateful for that. I thank him for his work there, together with the Secretary of State, who has also visited Luton and done a good job for us. So, the Government are doing something for manufacturing.

As Conservative Members have said, we have fine manufacturing companies in Britain—that applies in my constituency. They have had difficulty in selling because of the overvaluation of our currency, but they represent superb quality manufacturing. The problem is that we do not have enough of it. We have had a massive trade deficit for a decade and more simply because of the overvaluation of sterling. Since the depreciation, over the past year—from the second quarter of last year to the second quarter of this—our trade balance in goods has improved by £1 billion a month. I hope that that continues and that we improve even further. We still have a big deficit, but we are moving in the right direction and there is a real opportunity for manufacturers to take advantage of the new situation.

Lee Scott (Ilford North, Conservative)

Does the hon. Gentleman agree that at the very time that small businesses need investment and need the help of their banks, the banks are not doing what the Government have asked them to, which is to help small businesses out in these troubled times?

Kelvin Hopkins (Luton North, Labour)

I have to say to the hon. Gentleman that I am a traditional socialist and that I would be much more interventionist than even my splendid comrades on the Front Bench. I would order the banks to do that and would have Government representatives at a management level in those banks, too. Indeed, I think that that is where we ought to go. I do not appreciate this arm's length approach; I do not accept it. I would have a much more interventionist approach with the banks and would ensure that the investment funds were forthcoming for companies of all sizes. If this were the situation in Germany or France, they would make sure that those things happened.

Let us consider Germany—it has its problems, like we do, but the Germans have managed to protect, defend and advance the manufacturing sector through a collaborationist approach between unions, management and Government over a prolonged period. They made sure that German manufacturing was strong with a high level of investment. Can anyone imagine Germany allowing BMW to be bought by Rover? No, but we just gave away Rover for a pittance—for £400 million—because British Aerospace wanted a bit of extra cash. That is utterly irresponsible and, I would say, unpatriotic too.

David Drew (Stroud, Labour)

One of the ways that the consensus in Germany, in particular, works is to ensure that people are able to stay in jobs in the downturn. That is very important, because when we get to the upswing, Germany will have people in manufacturing, ready to be employed. Sadly, in this country we will not, which is an argument for wage compensation.

Kelvin Hopkins (Luton North, Labour)

There are so many differences on which I would like to focus, but in the short time available one cannot do that.

The point on which I want to focus is the attempt by the Conservatives to frighten us about the size of our debt. The point has been made very strongly by my right hon. Friend the Member for Oldham, West and Royton: historically and internationally, our gross national debt is not high. It is not a problem, even for those who manage the debt. Mr. Robert Stheeman, the chief executive of the Debt Management Office, was reported in a newspaper only last week as saying that there is

"a 'remarkably strong' appetite for UK Government debt".

There is no problem about borrowing from the money markets—they are keen to lend to the Government, especially as we are going ahead to ensure that the economy recovers and that they will get their money back in due course. There is not a problem there.

Let me move on to some of the reading that I have done. John Kenneth Galbraith wrote a wonderful book called, "The World Economy Since the Wars". In that, he pointed out that the American economy borrowed massively during the second world war but finished up at the end of the war with the strongest economy in the world and full employment, and beat all the competition. The Americans borrowed massively and invested massively during the war and had a strong economy at the end of it. We did the same. Indeed, in a fully employed economy the debt repays itself over time. The key to it all is ensuring that we create and sustain full employment.

I used to be chair of a group called the full employment forum—a party organisation—and as employment rose we wound the group up, because it seemed that we were getting towards full employment. However, I think that we need to revive it. The economic policies that we had—guided to a large extent by John Maynard Keynes between 1945 and 1970—worked. What has happened since has not worked. We have had instability, high unemployment and, overall, a lower growth rate than we had at that time. We have made some terrible mistakes, and we have had a warning with this massive economic collapse. We are now, I think, in a good place to recreate the policies of the past and to avoid the catastrophe that so nearly befell us.

John Mason (Spokesperson (Work and Pensions); Glasgow East, Scottish National Party)

There have been a number of speeches so far and I probably agree with quite a few things that have been said. I would like to come at the subject from a slightly different angle and, not surprisingly, to speak from a Scottish perspective.

First, our economy—either the UK's or Scotland's—should not be where it is. Other countries went into recession better prepared. The country that I want to compare Scotland with is Norway, as they are of a similar size— [ Interruption. ] If somebody wishes to intervene, I am happy to give way. Norway built up an oil fund worth $400 billion or thereabouts and has therefore hit the recession with the savings ready for a rainy day. Its forecast surplus for next year is $84 billion, which compares with the UK deficit of $56 billion. Unemployment in Norway is 3 per cent., whereas in the UK it is somewhere in the region of 7.9 per cent. Seeing that Ireland and Iceland have just been mentioned in the same breath in sedentary comments, it is worth noting the IMF figures for gross domestic product on purchasing power parity for 2009. Of those four countries, Norway is at 52,700, Ireland at 39,300, Iceland at 35,700 and the UK is bottom of the four at 35,200.

Brian Binley (Northampton South, Conservative)

I am slightly concerned about this comparison. Does the hon. Gentleman feel that Scottish citizens would be willing to pay about £6 for every pint that they have? That is the level of taxation that has been necessary to keep Norway going.

John Mason (Spokesperson (Work and Pensions); Glasgow East, Scottish National Party)

I thank the hon. Gentleman for that intervention. He is touching on the completely different issue of a minimum price for alcohol, which is also our party policy. As he probably knows, alcohol is a problem in Scotland. I think it used to be more of a problem in the Nordic countries, but that has been dealt with by controlling supply and minimum pricing—which I assume that he is supporting. However, it has to be said that Norway has been more careful with its oil money and that is the main reason why it is so much better off—it is not to do with alcohol pricing.

I agreed with the emphasis that Mr. Clarke placed on debt right at the beginning of the debate. Despite some of the reassurances that we have had from Government Back Benchers, I think that debt has been a problem in recent years—and not just Government debt, for that matter. Public sector debt, private sector debt and certainly individual debt have been an accepted part of life in this country, and wrongly so. As we go forward, we must have less emphasis on debt and more on savings—not least savings for pensions, which were mentioned earlier by a Government Member. One of the problems at the moment is that the low interest rates, although they are great for borrowers, discourage future savings and penalise those with modest savings. I have constituents who had a small amount of savings, which were really important to top up their modest income, and they have now virtually lost them.

We need a balance between manageable debt that is acceptable and excessive debt, which we have had. Individual mortgages and prudential borrowing for local authorities are worthwhile things. We also need to consider where we are trying to go. Let me quote my right hon. Friend Mr. Salmond, who spoke in Inverness at the weekend. Some hon. Members might not have had the opportunity to hear that speech, so I just thought that I would read it—although I shall not read the whole thing. He said that we need a contract with

"the people in communities across our nation. A contract based on our social democratic values—wealth created and wealth shared"—

if I were going to underline one bit, it would be the words "wealth created and wealth shared". He went on:

"The creation of wealth is important when times are good. It is imperative when times are tough. The sharing of wealth is important when times are good. It is a moral imperative when times are tough."

He went on to talk about

"the economic choices which we as a society must make in tough times"

and

"the political decisions that we as a country must take if we are to protect and defend the fabric of our communities."

He also said that we must

"put the people of this nation first—creating a rich country and rich society."

That is certainly my aim for Scotland. He went on:

"Our objective is a Scotland free to reach its full potential—a Scotland that is more prosperous, fairer, a voice for peace and reconciliation in the world".

I realise that not everyone in the Chamber would accept that. Some people have said that it is the wrong time to talk about the constitution, but I want to argue that it is certainly the right time to do so. The constitution, the economy and welfare cannot be separated. I am fascinated that the title of the debate should be "Economic Recovery and Welfare", yet scarcely one member of the Conservative party has talked to any extent about welfare.

Christopher Fraser (South West Norfolk, Conservative)

We will.

John Mason (Spokesperson (Work and Pensions); Glasgow East, Scottish National Party)

I look forward to that.

Those issues are inextricably linked, and it is because of the constitution that Scotland is where it is. We have suffered unnecessarily because we are part of the UK. The constitution affects the way in which we spend the money that we have, and we have to prioritise. We should judge expenditure by the way in which affects jobs, and whether it is sustainable.

David Taylor (North West Leicestershire, Labour)

The hon. Gentleman has just said that Scotland has suffered unnecessarily because of its association with the UK, and earlier in his speech he acted as John the Baptist for the messiah from Banff and Buchan. However, does he not recognise the effect of the Barnett formula on 5 million people in Scotland and on a similar number of people in the east midlands of England—similar demographically, geographically and in all sorts of ways? Public sector spend in Scotland is 20 per cent. or more greater than that of the east midlands. That should not be allowed to continue, and when the hon. Gentleman gets independence, he will have to cut the supply of southern taxpayers' money.

John Mason (Spokesperson (Work and Pensions); Glasgow East, Scottish National Party)

Our income is so much higher than that of the people of the midlands or any other part of England and we could afford to spend it if we were not spending it on what I am going to refer to next. Does Trident really have to be a priority? Many people—even people who support nuclear weapons—would say that it is not a priority at this time. If we are thinking of how to spend £75 billion, £100 billion or whatever the figure is, we should consider where it would create the most jobs. I suggest that it would not create the most jobs if we spent it on nuclear submarines—we could use the same money for more jobs in roads, housing, schools or similar.

Peter Bone (Wellingborough, Conservative)

Will the hon. Gentleman give way?

John Mason (Spokesperson (Work and Pensions); Glasgow East, Scottish National Party)

It is the probably the last time that I shall do so, as I wish to continue.

Peter Bone (Wellingborough, Conservative)

The hon. Gentleman has been most generous in giving way. David Taylor made a different point, as he was trying to say that it is the imbalance that is wrong. My constituents each have £2,000 less public money spent on them than people in Scotland, yet we pay the same taxes. Is that fair?

John Mason (Spokesperson (Work and Pensions); Glasgow East, Scottish National Party)

The hon. Gentleman reiterates what has been said before, and I reiterate my reply: we consider that we are subsidising the rest of the UK with oil money, which we should be able to use as our own income. It is not that our expenditure needs to be cut—it is more the case that the public sector in the rest of the UK needs to come up to the Scottish level.

Hywel Williams (Spokesperson (Children, Schools and Families; Health; International Development; Work and Pensions); Caernarfon, Plaid Cymru)

Will my hon. Friend give way?

John Mason (Spokesperson (Work and Pensions); Glasgow East, Scottish National Party)

I said that I had given way for the last time, but I will do so again for my hon. Friend.

Hywel Williams (Spokesperson (Children, Schools and Families; Health; International Development; Work and Pensions); Caernarfon, Plaid Cymru)

I hope that my hon. Friend would accept that the gross imbalance in development in England, the huge spending in the south-east, and the deprivation of areas such as the east midlands are not a reason to fail to look at fiscal autonomy for Scotland and a fairer share of the money for Wales.

John Mason (Spokesperson (Work and Pensions); Glasgow East, Scottish National Party)

My hon. Friend makes a good point. We certainly believe—and I think some Government Members do so—that expenditure should follow needs. The other argument, apart from Scotland's income, which is extremely healthy, is that we end up being one of the few countries in the world that discovered oil but became poorer as a result.

In my constituency, which is one of the poorest, and in the neighbouring constituency of Glasgow, North-East, which will soon hold a by-election, people do not understand why they are suffering so much when we apparently have so much wealth. The constitution affects Scotland's ability to borrow. We have talked a great deal about borrowing in this debate, and I have said that I agree with a sensible level of borrowing. The UK Government borrow—whether that is sensible is another question—and local authorities are allowed to borrow. It is absolutely incredible that Scotland—and Wales, I believe—are not allowed to borrow and to get out of the recession in that way. It would boost the Scottish and Welsh economies, and necessarily the UK economy, if we were allowed to borrow wisely and more freely. The Scottish Government are doing very well with the limited powers that they have. Abolishing business rates for small businesses has provided a real boost to that sector.

Finally, moving on to the welfare side of the equation—as I said, I have heard very little about that—I am afraid that I see very little difference between Labour and the Conservatives. Some Labour Back Benchers have spoken well on the issue, but I fear that they are not typical of their party, especially those on the Front Bench. Since coming to the House a little over a year ago, I have seen the introduction of the Welfare Reform Bill, which was supported by both the large parties, but I still consider it a harsh piece of legislation, with lots of sticks but very few carrots.

The Bill contains some interesting words, including "personalised", which also appears in the Conservative motion and was mentioned many times by Government Front Benchers when we discussed the Bill. In practice, however, I see very little evidence of personalisation, as there are too many rigid hurdles that trap ordinary people, preventing them from getting back into work or even from just increasing their income a little. Recently, a constituent came to see me, as he was limited by the £20 earnings rule. If my memory serves me correctly, he worked for Asda, which had a bonus scheme and wanted to give him £21. That caused a huge problem for him, and he had to come along to my constituency surgery for the sake of £1. That kind of rigid response is the exact opposite of personalisation, and I want a lot more reassurance that either major party is thinking seriously about the issue.

We have an extremely rigid system, and I think, to be fair, that that has been recognised. I have been reading the report from the Centre for Social Justice entitled "Dynamic Benefits", which highlights the rigidity and the marginal tax rate that keeps people out of work. Taking into account tax, national insurance, losing council tax and housing benefits, people can sometimes get an extra £1, but lose 90p. There is something very far wrong with that—whether it is 50p or some other limit, we need to address the issue.

Another obvious incentive—it has not been mentioned today, and is not always mentioned when we discuss welfare benefits—is the question of minimum and living wages. If someone or a family cannot live on the minimum wage that is paid, their money is topped up with working tax credit. That is a good thing, and it is better than what we had before, but we must realise what it means: we, the public sector, are subsidising the private sector in many cases to pay wages on which people cannot live. How can that be considered right, and how can it be considered a good use of public money? By raising the minimum wage to something like £7, we would increase the incentives for people to get back to work, and there would be a saving in working tax credit, as well as simplicity in a bureaucratic system.

I have a few final comments on the motion, which mentions the private and voluntary sectors. I am very much a fan of the voluntary sector, but there are certain core functions that the state should carry out. Prisons should be in the public sector, as should health, the police, the mail service and, I suggest, welfare. The motion talks, too, about "effective recession schemes", but I wonder what that means in practice. The Government are planning to cut the Scottish budget by £500 million. [ Interruption. ] I do not know if we have seen a comparative figure from the Conservatives, but I assume that it is similar to the Government's cuts. I see very little difference— [ Interruption. ]

Sylvia Heal (Deputy Speaker)