John Thurso

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

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

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

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

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

— from debate entitled “Economic Recovery and Welfare”

The three speeches/headings immediately before

  1. 1 earlier: John Redwood

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

  2. 2 earlier: John Thurso

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

  3. 3 earlier: Rob Marris

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

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