Economy, Pensions and Welfare

Part of Debate on the Address – in the House of Commons at 8:17 pm on 15th December 2008.

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Photo of Harry Cohen Harry Cohen Labour, Leyton and Wanstead 8:17 pm, 15th December 2008

First, let me say a word about Afghanistan, because it feeds into this debate. It looks like we are going to commit more troops, and I say do not do it. Since the invasion of Iraq there has been a catalogue of failure, and we cannot really carry on as though the missed opportunity has not been missed, because it has. We are losing the hearts and minds of a growing number of the population, mainly because of the random bombing of civilians by our US allies. There has also been a chronic failure in terms of development, because infant mortality has risen—War Child's October report talked of a quarter of children dying before their fifth birthday, and that is the third highest level in the world—and the UN development ranking gives only three countries a lower ranking. We cannot afford an unproductive war such as this. Joseph Stiglitz's book called it "The Three Trillion Dollar War". That figure is likely to increase if we go down this path. Given the figures that the Select Committee on Defence has produced, and the cost trends and the extra troops, it is likely to be £5 billion a year, and we cannot afford that.

This situation is compared with the 1920s and 1930s, and it is said that the war got the world out of the slump. That is a misreading, because at the end there was greater debt, massive asset destruction and countries were devastated. That took a long time to pay off, and there was a continuation of rationing. What is relevant is that the 1929 great crash also came from unbridled, uncontrolled capitalism. It led to a depression, massive unemployment, misery and hardship for millions, and from there, social upheaval and fascism. Fascism promoted rearmament, which put people back to work, but for conflict.

Elsewhere, the lesson came from Keynes and Roosevelt that government can maintain employment by public works and the welfare state, but admittedly at a cost of increased borrowing and debt. However, it is not unreasonable to do that. In fact, it is essential. Local authorities built swimming pools, parks and halls, all paid for over 60 years, and it is okay that those benefiting from them years into the future pay towards them. So, it is not a case of putting future generations into hock.

I am not opposed to a fiscal stimulus, and I think that the VAT cut was a clear signal to encourage trading. It is certainly more appropriate in this context than what the Tories propose—a council tax cut, which is irrelevant in this context. There needs to be more money for those on low incomes and on pensions, but the emphasis should be on capital programmes such as transport infrastructure, new schools, the NHS and new homes. The role of local authorities should be boosted, particularly in building new homes—the point has been made about council houses.

It was right to take a stake in the banks, particularly the commercial banks, to provide stability and to implement our essential socio-economic agenda of getting funds to small businesses and home owners, but regulation needs to be substantially improved. There is no clearer example of that than today's story of Madoff, with his $33 billion fraud. The City of London is grossly inadequate in these terms. I wrote to the City at the time of the events involving Conrad Black and said, "You wouldn't have got a prosecution in this country, the way you are operating." Amazingly, the US is better than the City of London at getting prosecutions. I have not had a reply from the City.

The Tories are still against regulation; their party wants the light touch, or no regulation, that brought us into this mess in the first place. The Tories use the level of debt and borrowing as a political argument to do nothing—laissez-faire economics—but it also goes further: it is the basis of a political position that says for the well-off, "Our share of the cake, whatever it is, is more important than maintaining or having a larger cake overall." That is an argument for inequality and it writes off a large chunk of the population as victims of unemployment or other aspects of the recession. The Tories leave them abandoned.

There has been overdependence on financial services in the UK, but that has been made worse by the profiteers and speculators thinking of themselves as the lords of the universe who should not be subject to regulation because they are the wealth producers. That is combined with the Chicago school Friedmanites, who are determined, as an ideological doctrine, to eliminate and privatise the state. Naomi Klein has described that very well in her book, "The Shock Doctrine". The Tories have been the cheerleaders for both those schools of thought, and they have not changed.

For the future, we need more emphasis on productive industry and less on financial services. The emphasis should be rebalanced that way. The bankers have been saved, but Woolworths staff have not. That is unfair. We must have an industrial strategy that protects productive jobs. We need control over who makes credit and in what way. The Government cannot abrogate that matter and give it to the private sector in an uncontrolled way. There needs to be tight control of fancy financial vehicles such as derivatives, which end up worthless. There needs to be accountability and transparency, including of offshore transactions. The state has to be the basis of stability and the guardian of the public interest. That cannot be left to the private market and its free-for-all, fraud and failure. Taxpayers must get their money back whenever the banks renew profitability. There must be no swift return to the privatisation of all profits. I say this: taxpayers are more likely to get their money back with Labour than with the Tories.

The Bank of England recently estimated global bank losses at £2.8 trillion. The banks clearly need time for write-offs and state investment is buying that time. In the process, savings and shareholdings are saved from being at zero value, or worthless. It is appropriate for that to apply to the commercial banks—alongside, I might add, tighter regulation, an end to the bonus culture, requirements for them to do their job properly and a shift-out of the top level failures—but I am not convinced that it is so appropriate for the investment banks and hedge funds. By the way, Roosevelt did not want anything to do with them and would not make them legal.

A principal factor about which I am concerned is the pension funds that those investment banks and hedge funds hold. They have been rendered worthless, but those institutions also have them at the end of the queue for payment. The state could take them over at what they are worth now, and then enhance them. Savings could be protected by the scheme that is in place already. However, we could let the rest of the banks—those investment banks and hedge funds—go down. It could be cheaper and fairer in the long term and it would remove that worthless, stultifying debt from the system, thereby allowing the chance for new capital to emerge. Those banks should look to their previous managers and owners in the courts to recoup their losses.

Those are my feelings on the way forward.

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