The Economy

Part of Opposition Day — [8th Allotted Day] – in the House of Commons at 6:34 pm on 18 March 2009.

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Photo of Philip Hammond Philip Hammond Shadow Chief Secretary to the Treasury 6:34, 18 March 2009

The hon. Gentleman said that unemployment would rise by another million. We shall all read the record avidly when it is published tomorrow.

Of course, if the Government had not put off the Budget until the end of April, we would have had more bad news. We would have had an updated projection for next year's budget deficit, which—I do not think anyone will bob up to disagree with this—is likely to be nearer £140 billion than the £118 billion that was projected just four months ago.

We have also seen Lord Turner's devastating critique not just of the financial regulatory system that the Prime Minister put in place but of his model of economic growth, based on global imbalances, huge bank leverage, and unsustainable levels of public and private debt. Against that backdrop, we have had to debate the economy in Opposition time—and we are debating it without the Chancellor, who cannot even be bothered to turn up to defend himself and his boss, and his own policies, and respond to the momentous economic news that we have heard today, although he was in the Chamber for Prime Minister's questions not 10 minutes before this debate began—so much for the Prime Minister's commitment to restoring the supremacy of Parliament. People listening to and watching this debate will draw their own conclusions about the Chancellor's motives.

In fact, we have had no debate on the economy in Government time this year. Even when stung into reaction by the announcement a couple of weeks ago of today's debate, the most that the Government have been willing to concede is a general debate on the economy the week after next, on a non-substantive motion.

We called today's debate because people throughout Britain who face redundancy, short-time working, layoffs, pay cuts, business failures, negative equity and repossessions cannot understand why Parliament is not debating the economic crisis all day, every day—never mind why it has not debated it this year. "Real help now" is the slogan, and I have a copy here of the glossy brochure that the Government have produced to promote it. But we have heard from Members this afternoon how hollow that slogan is, and it is clearly not a piece of rhetoric that the Chancellor is prepared to come here to defend. Nevertheless, I have to say—perhaps the Exchequer Secretary will convey this to the Chancellor—that even without him we have had a useful debate. Let me now mention just some of the important issues that have been raised in the course of it.

The shadow Chancellor, my hon. Friend Mr. Osborne, set the tone with a forceful case against the Government, along with a devastating analysis of Labour's failure to prepare the British economy for the problems that we now face and its continued failure to address those problems once they were upon us. Some of my hon. Friends offered specific examples of the failure of the Government's announced programmes to deliver.

Dr. Cable made the important point that there is a distinction to be drawn between the institutional implementation of a programme and that programme's delivery of results at the sharp end. My hon. Friend Sir John Butterfill gave examples of constituents to whom the loan guarantee schemes were simply not available. We heard from my hon. Friend Mr. Vara of the inability of a constituent of his to access an announced career development loan, and, perhaps even more worrying, the unawareness of his local jobcentre staff of that scheme.

My hon. Friend David Tredinnick gave an example of a denial by banks of access to one of the guarantee schemes for a company in his constituency. My hon. Friend Mr. Fallon told us just how patchy knowledge and awareness of those schemes is, not just among jobcentre staff but among businesses. That point has been reinforced by the director general of the CBI.

I think it was my hon. Friend Mr. Timpson—although he is a relatively new Member, he obviously has the knack of seeing right through the issues—who identified the problem, which is the Government's instinct to announce first and work it out later. His point was reinforced by Ms Keeble, who said that when something is announced it must be available. I hope that those on her party's Front Bench will take that message on board. She went on to explain the disappointment, confusion, dismay, anger and frustration caused when schemes that are supposed to be available are simply not there. That confusion, particularly in relation to help in the job and housing markets, adds to the loss of confidence, which, as my hon. Friend Mr. Heald pointed out, is so important at a time like this. My right hon. Friend David Davis reminded the House that Keynes himself came to recognise the critical role of confidence in an economic recovery. The recovery of confidence is, as a number of hon. Members pointed out, a necessary, if not a sufficient, condition for economic recovery and must be a principal focus of the Government's attention.

Several hon. Members focused on the underlying problems in the banking system. My right hon. Friend the Member for Haltemprice and Howden drew attention to the very different models of Japan and Sweden, and the banking crises they had both suffered. He noted that the Government appear to be following the Japanese model of fiscal loosening while failing to get to grips with the problems in the financial system, and to be shying away from the Swedish response, which was ultimately successful. He offered a credible explanation for that choice: the Swedish route, of recognising the problems in the banks up front and taking them explicitly on to the balance sheet and dealing with them, requires some tough decision making, while the Japanese approach pushes the problem down the line to be dealt with and paid for later on. We all know that this Government's inclination is to push problems down the line—certainly beyond May 2010—even if that gives rise to the risk of zombie banks being created, as my right hon. Friend suggested.

My right hon. Friend and a number of other Members referred to the challenge of defining the limits of taxpayer responsibility for banks in future, whether by some Glass-Steagall type approach or by other means. There was general consensus that the taxpayer will not in future be prepared to stand behind the kind of behaviour we have seen in the investment arms of banks. We will have to find a way forward—looking at the Turner report and the recommendations of Sir James Sassoon to the shadow Chancellor—to build a new structure that will protect the taxpayer while allowing a banking system to operate for the benefit of the real economy in this country.

My hon. Friend Mr. Howarth, my right hon. and learned Friend Mr. Howard and my right hon. Friend Mr. Redwood reminded us of the flimsy basis on which the Prime Minister's reputation for financial management was built. His great coup of the Bank of England reform of 1997 is now exposed as having delivered a dysfunctional regulatory system. As my hon. Friend Mr. Newmark said, the problems we are now facing began on the first day of this Labour Government, when the now Prime Minister crossed the threshold of No. 11 Downing street. My right hon. and learned Friend the Member for Folkestone and Hythe reminded us—contrary to what some Labour Members suggested—how he and others were warning in November 1997 that this undermining of the Bank of England would create "a field day" for "spivs and crooks". Again, in 2002, 2003 and 2004, when he categorised the then Chancellor's Budget as a "credit-card Budget", he—and others—were warning of the hollowness of an economic model that built an economy on the sand of excess debt. The truth is that my right hon. and learned Friend and other hon. Friends have consistently warned about the risks the then Chancellor was running with the economy, and they were consistently ignored.

Several Members referred to the confusion in Government policy towards the banks—on the one hand urging greater lending, on the other hand urging them to rebuild their balance sheets. Several Members also gave examples of banks that do not appear to have received the message from head office of the deal that the Chancellor and Prime Minister tell us they have done on extending lending to businesses that need support. This problem urgently needs resolving if the measures that the Government have taken are to deliver a freeing-up of lending at the sharp end.

There were a couple of interesting speeches made by those on the Labour Benches. Mr. Henderson used the D-word about this recession—I am sure that he will get a note about that later from the Whips. He accused the Conservatives of not being prepared to face up to what he called the "new economic situation". I should say to him that it is precisely because we are facing up to the fact that the challenges that the economy faces are on a scale not seen before and that the changes we will see in it require a sea change in our thinking that we have resisted signing up to the easy consensus being offered by Labour Members. We have insisted on taking on the chin the really difficult challenges that have to be dealt with. It is he and his colleagues who are not prepared to face up to the fact that their Government did not prepare the United Kingdom to withstand this downturn—they are the ones who are guilty of gross negligence and dereliction of duty in preparing the UK for the problems it faces today.

Anyone listening to this debate would recognise that there have been massive failures of Government policy, both in the decade to 2007 and in the Government's response to the crisis since. I do not know where the Chief Secretary to the Treasury stands on the issue of apologies, but her boss and her husband have given one, yet the Prime Minister still insists on saying that he has "nothing to apologise for"—that is how the British people will remember him. He will be remembered as the Prime Minister who brought destruction upon the economy, but who says that he has nothing to apologise for—not the failure of his regulatory system, which contributed to the global crisis in the first place; not his failure to manage our public finances, which meant that we went into this recession less well prepared than any other major economy; not his hubristic claim to have abolished boom and bust, which led many people to borrow money they could not afford, a decision that they regret now and will regret for the rest of their lives; not his grandstanding abroad when he should have been fixing the problems at home; and not his endless stream of ineffectual announcements, which are still not delivering today for the businesses and the households of this country.

A Prime Minister who implemented a financial regulation system that has failed so catastrophically, who operated a model of economic growth based on unsustainable public debt, unsustainable global imbalances and unsustainable household debt and who cannot acknowledge those failures, even now, cannot be part of the solution. He is the problem, he is the past, and the sooner we move on to the future, the better for Britain.