Budget Resolutions and Economic Situation

Part of Amendment of the Law – in the House of Commons at 6:31 pm on 18th March 2008.

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Photo of Frank Dobson Frank Dobson Labour, Holborn and St Pancras 6:31 pm, 18th March 2008

I can safely say that I have considerable sympathy for the points that Mr. Leigh made about the need for the House to reassert control over the raising and spending of tax. However, his was a somewhat unique contribution from the Conservative Benches. To listen to the criticisms that have been made of the Budget one would not realise that under this Government, with the stability that they have managed to achieve, we are close to almost any definition of full employment, and that we have the highest levels of employment ever, the highest ever living standards and record numbers of pensioners and children raised out of poverty, partly through the national minimum wage, which both opposition parties opposed, and tax credits.

I am always a bit reluctant to accept homilies from those on the Tory Benches about putting money by for a rainy day. After all, the previous Tory Government took in £70 billion in capital takings from privatisation over 18 years, treating that money as revenue, which would be regarded as dodgy by even the slackest accountants in the private sector.

I was struck by some of the earlier references to wealth creation. The definition of "wealth creators" that a lot of people use is a little narrow. A report was published yesterday outlining the cost to business in this country of sickness, which was estimated at about £100 billion a year. The people who reduce that level of sickness contribute hugely to wealth creation. Were those in the national health service not doing their job, a lot of the wealth being created could not be created.

Let me give just one example. Sir Harold Ridley, who died just after the millennium, having received what might be described as a belated knighthood in the millennium honours list, invented the artificial lens that has made cataract operations possible. I do not think that anybody in the City of London has ever made as big a contribution to wealth creation in this country as Sir Harold Ridley did.

My right hon. Friend the Secretary of State is responsible for regulatory reform, which I want to address. When people talk about regulatory reform, they normally want to reduce regulation, but I believe that we need massive regulatory reform of the banking system, which includes introducing tougher and more effective regulation, both nationally and internationally. The Government are trying to hang on to the stability that has made the improvements over the past decade possible, but that is being severely undermined by the current earthquake in international banking.

It is no good the Tories trying to blame the Government for the current earthquake in international banking. The international banking crisis has been created almost entirely—certainly 99 per cent.—by the people who operate the international banking system. The trouble with the bankers, and their useless auditors and even more useless risk assessors, is that the mess that they have created will affect everybody. In all probability it will affect people's mortgages, and it may affect their pensions, savings and jobs. I know that Conservative Members smile whenever I attack the banking industry, but I believe that most people in this country are disgusted by what has happened. All the achievements of the stability that the Government seek are at risk because of the banking crisis—a crisis brought on by the practice of the banks.

It was not long ago that bankers had an image of being a rather careful lot of people. They were careful with their own money and with our money—"prudent" or "conservative" were not the words for it. however, that has not been the case in recent times. A substantial number of people now involved in international banking have behaved more like a collection of wide boys, trying to con the others, who were idiots, but they have not been playing with their own money; they have been playing with other people's money and jobs. Those bankers have not been wealth creators; they have been wealth manipulators. As they were not risking their own money, their main objective was to maximise their bonuses and then leg it as quickly as possible, with little regard for anyone else.

That does not apply to everybody in international banking or everybody in the City. However, virtually all of them have become dedicated followers of fashion. They say, "Well, we've heard that A, B and C are on to a good thing, so we can't possibly not get on to that good thing ourselves." That is how so much of the British banking system joined the United States in being exposed to the famous sub-prime mortgage market, although the situation is not so bad here. It is usually said that the amount of money made available for mortgages in this country has increased to meet the increased cost of houses. However, I believe that the process has generally been the reverse—that prices have risen to meet the amount of money that the financial system has been willing to lend.

Again, it was not so long ago that building societies would lend people only 2.7 to three times their annual salaries. Lo and behold, most house prices were set at around 2.7 to three times people's annual salaries. However, then the fashionable lot took over in the financial services industries and offered people mortgages that were four, five and, extraordinarily, even six times their annual salary, with no deposit—and, knowingly, mortgages that were higher than the value of the property to be purchased. What has been the result? Prices have risen in line with the availability of the mortgages.