I am pleased to participate in this debate and to follow David Maclean. He is widely respected on both sides of the House and held in great affection by many. He mentioned the Budget provision for homes for heroes, and I hope it will be one point of agreement between us that we should rejoice that the figure is not the £30 million that he suggested but £50 million.
What if today's financial crisis were something more fundamental than merely a serious and deep recession? What if
In today's Budget debate it is more important than ever to understand the context of the financial crisis that we face. Today we must look beyond the local dispute between those who say that we must cut public expenditure as a way of managing the recession and those who believe that the public expect the Government to provide greater support in times of distress. This suddenly fashionable interest in macro-prudential regulation and imposing counter-cyclical reserve and capital requirements throughout the economic cycle has been beset by disagreements about who should determine where we are in the cycle and who should determine the level of reserves. The real question is not who, but how. We need to focus on the most appropriate way of modelling market transactions and their velocity to indicate what part of the cycle we are in. That is much more important than the party political spats that we have seen about whether the Bank of England or the FSA should be the implementing body.
If we can generate such models, they will provide the regulatory prudential controls for the economy if two double tensions are resolved. The first is the conflicting messages that have been sent to the banks. On the one hand they are told to stimulate the economy and increase lending. On the other, they are told to reduce their liabilities, increase their reserves and minimise risk. I am no apologist for the banking industry, but it is unfair to demand that they do both at the same time.
It is understandable that the Government should tackle social and financial exclusion. We sometimes forget that the expansion of credit that is now so universally derided enabled 1 million people to avoid financial exclusion by acquiring property through mortgages. That credit expansion was to achieve clear social policy goals. In and of itself, it was good and laudable, but it came at the price of financial instability through under-capitalisation and inadequate reserves. That institutional tension was compounded by the fact that householders then sucked equity out of their properties for personal consumption. They also spent a larger share of their disposable income.
Now that household net worth has dropped so dramatically, what used to be the engines of demand-led growth are now too feeble to lift the economy off the ground. The management consultancy firm McKinsey has calculated that, for each 5 per cent. fall in the debt-to-income ratio, the US economy experiences $500 billion less available consumption going into the market. Britain is no different.
The second tension—between growth and sustainable development—is more fundamental. Those who accept the growth model of the economy believe that there are no limits to growth and positively welcome the fact that the global population is projected to rise between now and 2050 from 6.7 billion to approximately 10 billion. They believe that that 50 per cent. increase in the number of global consumers will be able to fuel the demand-led growth that will lead us to recovery. However, even as we see consumption rise and living standards around the globe rise with it, we are forced to acknowledge that the world is already consuming each year the resources that it takes the planet one year and four months to replace.
If we are able to see that the economy has experienced a credit bubble of consumer-led growth, surely we can see just as clearly that we are experiencing an ecological credit bubble that is potentially far more dangerous. We cannot afford a fiscal stimulus to be simply a way to get back to the status quo ante. Recovery must be a stimulus to transformation—a new model of sustainable development, and not just a way to regain the old growth path.
Borrowing at a personal level imposes an obligation to pay one's creditor in future. Borrowing at a national level imposes that obligation on a population and its children. If we need a fiscal stimulus to keep people in jobs and to stimulate the market now, we should, in justice, be using the money to invest in making tomorrow's world better and more sustainable for those future generations. That means new jobs in biotech, digital communications and, above all, in green technology and renewable and low-carbon energy.
Climate change is certainly the most complex question of justice that the world has ever faced. It is about justice across the generations and not just geographical boundaries, and about the equitable distribution of natural resources and not just money. That is why the term "capital" needs to be redefined: we must move away from an exclusive focus on financial capital to include natural capital.
The services that ecosystems provide are largely unvalued. They are treated as externalities by our economic model. The flood protection provided by forests is an externality, and the value of the pollination services provided by insects has not even been calculated. The world is prepared to spend millions of dollars on providing naval escorts and increased insurance for cargo vessels off the horn of Africa, but nothing is done to resolve the ecosystem collapse brought about by desertification that spawned the social and economic chaos that gave rise to the pirates in the first place. That is economic madness.
In an economic crisis, it is possible to provide a fiscal stimulus, but nature does not provide bail-outs. Nature no longer has an infinite capacity to absorb waste, and Governments around the world need to engage in a new paradigm, where natural capital is valued and budgeted for. The valuation of ecosystem services such as watershed protection, climate regulation, and soil stabilisation may seem recherché ideas, but I remind the House that 20 years ago, when officials at the World Bank first proposed that there might be a value attached to carbon, and even that carbon markets might be developed, Treasuries around the world dismissed the idea as peripheral and not worth pursuing.
I am delighted that alongside this Budget there is a document that forms a separate carbon budget, "Building a low-carbon economy: implementing the Climate Change Act 2008". The Chancellor highlighted that. I welcome the commitment to cutting our CO2 emissions by 34 per cent. against 1990 levels by 2020, and 80 per cent. by 2050, but I am concerned that the overall investment in green growth is not substantial enough to meet even those laudable objectives. Over the next few days, I will carefully examine the figures that he sketched out. We will not be able to get the level of investment right unless we put in place a new system for the evaluation of natural capital, ecosystem services and biodiversity.
As the country begins to emerge from the current crisis, we need to reverse the patterns of internal macro-economic policy as a means of correcting external imbalances. That means moving from consumption-led growth and fiscal deficit to investment-led growth, fiscal balance and higher saving. Key to that transformation is the proper identification of subsidies that still provide perverse incentives to consumption of carbon-intensive products that degrade our environment unsustainably. The key consequence on which the Budget will and should be judged is not how quickly we see the green shoots of recovery, but how deep and how wide it spreads the green roots of sustainability.