Economy, Pensions and Welfare

Part of Debate on the Address – in the House of Commons at 7:27 pm on 15th December 2008.

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Photo of Stewart Hosie Stewart Hosie Shadow Chief Whip (Commons), Shadow Spokesperson (Treasury) 7:27 pm, 15th December 2008

It is a pleasure to follow Mr. Field, and I am glad that he mentioned the pound. In the past few debates on the Budget and the pre-Budget report, I have commented on the balance of trade deficit. Last year we had an £87 billion deficit in goods and a total deficit of £70 billion in goods and services. Even with the collapse in the value of the pound sterling, the deficit is forecast to approach £50 billion every year over the next three years. That puts us in a serious position, and probably speaks volumes about the decimation of our productive capacity, and the loss of the 1 million manufacturing jobs that we have seen since Labour came to power.

I want briefly to take the House back to the late summer, when the banking crisis came to the fore in the public eye. Politicians from all parties suspended their usual criticisms of the Government to build a consensus on the stability package that was designed to bring confidence back to the banking sector. I found it incredibly disappointing that within days, the Government began to use the crisis for narrow political advantage. As the crisis in banking became a crisis in the real economy, I was doubly disappointed that they were using that, too, as a partisan lever.

The Government did that at the same time that they were saying that the global crisis—or the downturn, as it was described in the Queen's Speech—had nothing to do with them. Well, the crisis did not come from nowhere; it did not grow on a tree in the Amazon. Some of it was down to the lack of confidence and the risk associated with the American sub-prime mortgage sector, but it was also down to a combination of bad policy, poor regulation, a failure to act decisively and weak leadership on the part of leaders around the world, including our Prime Minister in the 10 years when he was Chancellor.

The crisis was also down to a failure to learn lessons, and there were many lessons to learn, not least in the 2000 edition of the Bank of England's "Financial Stability Review", which gave a good assessment of the then recent banking crisis in south-east Asia. It showed, in both the macro and the micro measurements of how to forecast a banking crisis, any number of metrics, including significant property-related lending, the degree of reliance on inter-bank lending, and domestic credit growth. I know that the Bank collates this information and that it is reported, but I make a plea to the Government and to the Treasury Select Committee to look not at how the information is collected and collated but at how it is analysed, so that we no longer find ourselves in a position—as we did with the 2007 report—in which many of the risks are documented but then glossed over, in line with the Government's assertion that everything is fine and that they have done everything correctly.

On the issue of burgeoning credit, among the many flaws that hon. Members have identified is the fact that too much credit was allowed into the system in the early part of the economic cycle, and there was too much public debt at the end of it. This has resulted in our having to borrow £300 billion more over the next three years and to triple the debt two years after that. The Government were effectively saying that there was nothing in the tank to stimulate the economy when the cycle ended—as it was always going to, because boom and bust never ended.

I would also add the criticism that this Government changed the system of banking regulation to allow banks to overexpose themselves to weak business models. This is not a critique that says that we need either a heavy-handed regulatory framework or a soft touch. However, we needed a regulatory framework—we still need one now—that identifies and manages the risks properly. I shall come back to that in a moment.

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