The Economy

Part of Council Tax Rebate – in the House of Commons at 4:59 pm on 31st March 2009.

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Photo of Vincent Cable Vincent Cable Shadow Chancellor of the Exchequer, Liberal Democrat Spokesperson (Treasury) 4:59 pm, 31st March 2009

If non-socialists want reassurance, they should probably consider some of the models from when that has been tried before. The obvious one is Scandinavia, where the banks were nationalised and re-launched as private banks a decade later. That made money. I talked yesterday night to the ambassador of Israel. I did not realise this, but the Israelis had an enormous banking crisis 25 years ago, nationalised all their banks, cleaned them out and sold them on at a big profit to their taxpayers. Their banks have had absolutely no trouble in this recession because they were cleaned out and prevented, among other things, from engaging in securitisation. There is a model that is not a socialist model but shows a practical, common-sense way of dealing with the problem.

I was talking about the asset protection scheme and it is probably worth quoting one of the more distinguished members of the Monetary Policy Committee, who was one of the first to serve on it—Willem Buiter. His comments, I think, have been valued throughout this crisis. He notes:

"Like its American and Dutch counterparts, this toxic asset insurance scheme is without redeeming social value: it is inefficient, unfair and expensive".

One positive bit of news about the asset protection scheme in the past week, however, is that it looks as though our second biggest bank, Barclays, will not use it. That is very good news. Barclays was probably scared off by the bad publicity surrounding the potential exposure of its tax activities, and the British taxpayer has therefore been spared a great deal of grief. That remains to be seen.

I want one issue clarified when the Minister sums up. Where do we stand on taxation and the asset protection scheme? It is very clear from the original terms issued by the Treasury that any company that wanted to avail itself of the scheme, whether it is nationalised or non-nationalised—this provision is in section 5 of the Treasury paper on the scheme—has to disclose any information available to it or any opinions given to it on tax matters. Within the last week, the Treasury has appeared to dissociate itself from that and has said that tax matters are entirely separate. When I asked the Chancellor of the Exchequer about that during Treasury questions last Thursday, he confirmed that from the Treasury's point of view, tax is a separate issue. Is it, or is it not? It seems to me, from the point of view of the taxpayers' interests, that we cannot possibly use taxpayers' money to underwrite banks that do not pay their British taxes but try to avoid them. There is massive ambiguity on that from the Government and I hope that they will clear it up.

Let me make one final point about the asset protection scheme. It is very clear that all the leading Treasury officials and several of the leading Ministers involved in the scheme are preoccupied, night and day, with trying to make the scheme operate. As a result, they are not focusing on potentially much more important issues. Why, for example, have the Government not yet focused on the problem of how to convert debt into equity? If many companies are over-leveraged and need to acquire fresh equity, which many of them do, the Government can use that process through their control of the banks. The banks have no interest in doing that, obviously, so the Government will have to require them to do it or to set up a scheme to do it. There is no evidence that that fundamental problem is even being faced.

We also know from the evidence given to us by many of the businesses that have talked to us that there is a major crisis in trade credit insurance. The system has completely broken down, which is one reason why supply chains are collapsing. I understand that in France that problem was fixed last December. It could be dealt with in the UK through the activities of the Export Credits Guarantee Department, but again it would appear that nothing is happening and that nothing is being done. The Government are clearly distracted from these important and pressing issues.

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