Financial Crisis

Part of the debate – in the House of Commons at 4:38 pm on 20 January 2009.

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Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury) 4:38, 20 January 2009

There are occasions, albeit less frequent than in the past, when the Chamber feels like the centre of the political world. Today may not be one of those occasions, but we are holding an important debate, and I regret that more time has not been allocated for our discussions.

Following the comments of Michael Connarty, I emphasise that the Liberal Democrats believe that the European Union has a role in addressing the financial crisis. The contamination of the banking sector and the deficits faced by Governments in advanced economies are international phenomena, and the Government are right to work in the G20 with the Administration that will take over 21 minutes from now in the United States.

Of course, four of the seven members of the G7 are EU member states. Therefore, we have within the parameters of the European Union clear scope to try to work to our mutual benefit by addressing some of these common problems. The EU is, of course, also our biggest trading partner, and the United Kingdom is part of the single market and is, therefore, to an extent influenced by decisions taken within the overall European Union that impact on businesses and individuals in this country. The EU also has a greater critical mass than the UK. That is a particularly pertinent issue with regard to the banking sector.

The Conservative spokesman and others have raised the primacy of London within Europe in banking and the financial sector, and I greatly welcome that, but London is now such an international centre, and the scale of the investment—and, in many cases, the debt—held by institutions based in the UK, and often in London, is so vast, that in some cases it threatens to dwarf the ability of the UK Government to deal with, and, if need be, save such institutions. RBS, for example, is now 70 per cent. owned by the UK Government, and if what we read is true, its liabilities are about double the size of the total British economy. If we took on its liabilities and they were put on the overall public balance sheet, we would instantly go from being a country with growing levels of public debt—but levels nevertheless comparable to those of many other leading economies—to a country with much higher levels of public debt. The accountancy might not be done in that way, but the scale of such financial institutions in comparison with the scale of the British state and economy has changed markedly in the last decade, and that has a bearing on how governmental institutions have to regard the current situation. The scale is now completely different from Northern Rock and Bradford & Bingley; now, a few months on, the discussions we were having on them in this Chamber seem quite innocent. When we discuss RBS and Barclays, we are talking about big international institutions.

What conclusions can we draw from reading the documents put before us and from the debate we are having here in the UK? The first is that the bankers themselves have behaved without honour or shame, and many people would like to see greater contrition from them. Secondly, the UK banking sector, and the regulation of it, has been a failure, and the UK Government need to learn the lessons of that failure of regulation. However, we also need to look at the scope for wider European union and for global regulation. There is a balance to be struck, of course, but when institutions operate around the world and do not recognise national borders, there needs to be some regulatory recognition of that reality.

The Government need to know the liabilities that we—the taxpayers—are covering. I echo the sentiments that have been expressed, in this debate and elsewhere, that this is a difficult moment for our Prime Minister. We have got used to his lecturing other EU member states on how he brought an end to boom and bust and how they should follow our example in the UK, but we now find ourselves in a rather more humble position, because although the EU may not be driving growth on a global scale, it is certainly not looking sickly in comparison with the UK.

The EU's framework for action deals with the real economy, and that is the correct focus. There is a need for a fiscal stimulus across the EU to encourage consumer demand, and I do not share the Conservative party view that we should be seeking to choke back consumer demand at this point. Nor do I share—this follows on from the observations made by the previous speaker—the Conservative party's paranoia with regard to the European Union. The shadow Cabinet is split on the Lisbon treaty, on membership of the euro and even on whether the British Government should be temporarily cutting the rate of VAT.

The Conservatives have not given us a clear answer. They may not like the Government's policy on interest rates, but what do they think interest rates ought to be? The Conservative party is keen on telling savers that interest rates have been cut too low, but I understand that, having rescinded its initial stance of not having any views on interest rates, it now completely supports interest rates of 1.5 per cent.—a tenth of what they were under the previous Conservative Government. What does the Conservative party wish the deficit to be? It says that the deficit is far too high, but the party could give us a percentage indication. The previous Conservative Government ran a public annual deficit of 8 per cent. in the early 1990s. Is that roughly what the Conservative party has in mind at the moment, or is that figure too high or too low?

I can understand why Mr. Clarke has been brought back to mentor the Conservative shadow Chancellor. All I can say is that if the right hon. and learned Gentleman is offering a similar service to the Liberal Democrat shadow Chancellor, the answer will be, "Thanks, but no thanks," because he does not need his hand holding in the same way. Does Mr. Hammond wish to intervene?