I shall come on to that point in a moment. One of the great mistakes that the US made a decade ago was to break down the Glass-Steagall distinction between investment and depositor banks. We must protect depositors' interests, but the core problem with the nationalisation of our banks is that bondholders' interests are now also preserved—at the expense of taxpayers, both present and future.
My right hon. Friend for Hitchin and Harpenden touched on quantitative easing. I suspect that the current consensus that favours it will find less favour as this year wears on. With little evidence that the velocity of money within the economy is any less sluggish as the real recession takes hold, printing money in vast quantities increasingly seems like a last throw of the governmental dice when relatively little else has succeeded. My right hon. Friend is quite right that inflation is clearly not an imminent problem, but the unprecedented pumping of money into the system is certain to be inflationary as time goes on. History suggests that an unsustainable mini-boom may well be on the cards by the first half of next year, but I fear that stagflation—a toxic mix of inflation, rapidly rising unemployment and low growth or diminished competitiveness—will follow. Indeed, the commodities and futures markets already factor it in when pricing for the early years of the next decade. I suspect that the Government will not have seen the last of their recent problems with trying to sell gilts, either. In the City, there is a lot of evidence that many banks now hold vast sums of cash and are ready to reinvest in the market, courtesy of the Bank of England's policy of promoting liquidity.
I accept that now that we live in a globalised economy, this crisis is certainly different in magnitude from any that we have ever seen. One of the grand old names of British banking, Barings, collapsed owing what seems like a minuscule amount, £780 million, only 14 years ago. Today, the Royal Bank of Scotland survives courtesy only of a £26 billion bail-out. However, we can learn lessons from the past. As I mentioned earlier, we need to restore the distinction between retail and investment banking which, in the US at least, existed for more than six decades until the Clinton Administration repealed the Glass-Steagall Act in 1999. At that juncture, it was regarded as outdated 1930's throwback legislation, but its purpose was to protect the ordinary depositor from high-risk, if innovative, banking practices. That protection now seems mighty apposite.
How then do we deal with the toxic assets that banks still hold and find so difficult to quantify? Curiously enough, the UK has a pretty good template close at hand. The near collapse of Lloyd's of London in the insurance market, which has developed great strength in recent years, was avoided almost two decades ago by the creation of the Government-backed Equitas fund. That experience should be the starting point for the consideration of any further large-scale Government- backed rescue expenditure. In fairness to the Government, they have begun down such a path, but we should be fearful of the likely overall cost to the taxpayer.
The nagging sense of insecurity that the spoils of globalisation are being spread inequitably will continue to grow among the majority of the UK work force, and it has the makings of serious social unrest. I echo the words of my hon. Friend the Member for Macclesfield, because the hollowing-out of large swathes of "traditional" UK industry, particularly manufacturing, as employment has been exported to low-cost China and India, has not been accompanied by higher, middle-class and middle-income professional earnings, at least for those outside the gilded world of financial and associated services.
During the past decade, the mirage of higher living standards was maintained only by the credit-fuelled residential property market. The sharp correction of that market has exposed the reality that, in recent times, international free-trade has done little to enrich, personally, at least, the majority of our fellow countrymen. It is dawning on many middle-income folk that the losers from the free movement of labour and capital are not simply the unskilled who are forced to compete with ever large numbers of immigrant workers; it is increasingly apparent that the generation that is about to join the work force will probably be less well off than their parents, not least because they will have to foot the bill for the economic unravelling that became so apparent last September. That phenomenon is almost unimaginable outside times of war and a shocking indictment for today's generation of politicians.
On the political difficulties ahead, there is little doubt that, whichever political party wins the next election, tough and unpalatable decisions will have to be made on public spending. Even if the Government's own—almost certainly wildly optimistic—figures on public spending come to pass, during 2009 they will raise only £3 for every £4 that they spend.
I agree with my right hon. Friend the Member for Hitchin and Harpenden that we must come to terms in double-quick time with the fact that, arguably, entire areas of central and local government activity should no longer qualify for public funding. The overall state of the public finances suggests the necessity for further scrutiny, even in areas such as education, health and defence, which in more economically clement times my party pledged to ring-fence. The issue of defence, of course, will be discussed in the forthcoming debate. Although there has been a marked improvement in school and hospital infrastructure in the past decade, much of it has been financed, off balance sheet, by the private finance initiative. It will need to be paid for in the years to come.
I appreciate that Ms Keeble, having arrived slightly late, wants to say a few words, so I shall bring my comments to an end. In the past decade or so, we have lived to a large extent in the best of economic times; now, however, we have a big price to pay—and a much tougher era awaits.
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