The Economy

Part of Council Tax Rebate – in the House of Commons at 7:35 pm on 31st March 2009.

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Photo of Sally Keeble Sally Keeble Labour, Northampton North 7:35 pm, 31st March 2009

I listened with great interest to Stewart Hosie, who made several important points about the need to deal with banking regulation. We in the Treasury Committee have been examining key points relating to regulation.

I find it surprising that all the Opposition parties are so opposed to the Government's active intervention to tackle the present crisis. I understand the Conservatives taking that position, because they believe in a small state and, unlike Labour Members, they do not take the view that, in a recession, the state should actively intervene, but I am surprised by all the Opposition parties taking that view. I am especially surprised by the attitude consistently taken by Dr. Cable. I believe that the interventionist approach taken by the Government, risky though it is, is the right and the only way to tackle the crisis and kick-start the economy out of recession.

I shall look first at the monetary side. The asset purchase facility is the right policy; the one thing I would question is whether the release of the funds has not been a bit cautious. The scheme has now moved beyond gilts and on to commercial paper and some of the riskier products, but still only half of the facility has been used. I was interested to hear—I cannot remember which Front Bencher said this—about the 0.5 per cent. fall in long-term interest rates, which is perhaps the first sign that quantitative easing has been working. That is precisely what is supposed to happen and what will hopefully start to get the money flowing through the system, making it work again.

The Government were also right to introduce the asset protection scheme. It is right to insure and not to nationalise, because the functions of banking are essentially market functions and belong in the private sector. We should not nationalise them. The valuation of the assets subject to the asset protection scheme is not yet known, nor is it clear when the losses, if any, will crystallise. We have to hope that the losses are limited and that, in fact, the taxpayer does not have to pay out the full value of the assets.

People have spoken as though the Government have done all that without asking for anything back, but that is not true. Agreements have been made with banks that have accessed the recapitalisation funding and the asset protection scheme that they will lend at 2007 levels. The Government have been clear about that. In the original statement to the House, my right hon. Friend the Financial Secretary said that he would report back after a year. At that time, several of us pressed him to report back month by month. I hope that he will accede to those representations and report back monthly on the lending position of the banks. To encourage that, I have tabled questions and will continue to do so, so that we get information on bank lending levels.

Public patience with the policies, good though they are, will run very thin indeed if the banks continue to fail to honour their side of the bargain. We have all heard stories about that in our constituencies; I have in mine. I have heard of cases in which banks have not only not been lending, but have trawled through the facilities that they have provided and have called them in. In my area, in spectacular fashion, HBOS called in a £2 million loan on a property that is part-way built, and which, I am assured, has tenants signed up for when it is completed. We need to be absolutely clear that in return for the taxpayer providing the insurance for the toxic assets—getting them off the banks' balance sheets, so that the banks can start to lend again—the banks will keep their side of the deal and lend at 2007 levels.

The other side of the equation is fiscal policy. There has been much discussion about a second fiscal stimulus. It is really important that the Government do not pull up the drawbridge on public spending just when the recession is starting to hit some of the most vulnerable people. The Governor of the Bank of England's expectation was that as quantitative easing worked, and as money started to flow through the system, the demand side of the economy would pick up. That is very much a trickle-down approach. It assumes that we have time to sit and wait while that happens, but we do not.

In addition to looking at what is happening with the money supply, we have to deal with the social consequences of the recession. It is important that the Government use the fiscal measures at their disposal, as they are not in charge of the quantitative easing or the short-term interest rates. They should use fiscal policies—the tools that are at their disposal—to increase demand, and to protect some of the most vulnerable members of the public from the consequences of the recession. I shall identify two particular ways in which they should do so. The first relates to a point that David Blanchflower, a member of the Monetary Policy Committee who is about to retire, made in a powerful presentation in Portcullis House recently. He said that of the 600,000 young people leaving school this summer, an estimated 300,000 will be unemployed. We cannot tolerate the idea of 300,000 young people—plus some university leavers, no doubt—finding themselves unemployed. His report also pointed out the long-term consequences for young people of a period of unemployment early in their lives.

I now come to the second respect in which we cannot just wait for the trickle-down effect, and hope that it will happen. We must protect people who risk losing their homes. We have all seen the figures on mortgage arrears and repossessions. I join in the criticism that I am sure that other people make about the mortgage rescue scheme not yet being online. I am extremely concerned about the fact that the mortgage interest support is linked to income-based jobseeker's allowance, and not contribution-based jobseeker's allowance. I am also concerned about the fact that it runs only for two years. That will create real pressure for a good number of families.

If I have a particular ask for my right hon. Friend the Financial Secretary, it is that in the coming Budget there should be measures to tackle unemployment among young people; perhaps that could be done through a reduction in national insurance and tax contributions for employers who employ the under-24s. That would help both businesses and young people. My right hon. Friend should also link the mortgage interest support to tax credits. That would give us a more flexible instrument with which to support families who risk losing their homes. I strongly support the measures that the Government are taking, but I hope that they will put in place small, targeted fiscal stimuli, even if they think that one big one is out of order, to protect some of the most vulnerable people from the impact of the recession.

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