I congratulate the hon. Members for North Ayrshire and Arran (Ms Clark) and for Dundee, East (Stewart Hosie) on breaking the ice on the consensus in the debate on this cold winter evening. It is important to talk about the economic implications of the Bill.
In reality, what we have seen over the last 18 months or so has been a socialisation of the bad debts that were created on the banking books as a result of huge leverage and excess capacity within the debt markets, making it inevitable that the Government would transfer those debts into the public sector. It would have been completely irresponsible for any Government not to have acted in that way. In respect of the current Bill, however, running down that socialisation of bad debt in a compulsory fashion could lead to very significant economic damage for our country.
The dangers of having a double-dip recession are real. My own professional experience involved spending a great deal of time working for Japanese financial companies, but the last thing I would like to see is our country suffering the 20 years of economic turpitude that that country has faced. If we take away the ability to use proper fiscal stimulation, there may well be real problems.
There are many clouds over the economy. VAT is going to increase, for example, and internationally, US housing is still in great difficulties. Only last week, the US Government found it necessary to give another bail-out to GMAC. There are weaknesses in other economies. French consumer confidence was unexpectedly down today, while there are tremendous weaknesses among our European partners, particularly in Ireland and Spain. We must also remember that for our own economy, manufacturing production is down almost 11 per cent.-10.8 per cent.-over last year and the service economy has contracted by 4 per cent.
In considering the Bill, we should bear in mind the tremendous fragility in our economy. Many pressures-well-meaning pressures-were exerted for banks to be required to put a significant amount of extra capital on to their books, but in the coming years that would inevitably result in continuing severe restrictions on the ability of private sector banks to give stimulative support to our economy, and in such circumstances it is important to maintain full fiscal discretion.
There are real questions to be asked about whether quantitative easing is an appropriate tool, but there is no doubt that if we withdrew it, the need for fiscal stimulation would become ever more important. We must bear in mind just how significant the removal of credit from the economy has been as a result of the financial crisis. A substantial amount of that credit came from financial organisations that were not banks. There was a heavy reliance on short-term borrowing from the financial markets-perhaps, in the UK economy, the equivalent of £240 billion of credit stimulation. The £200 billion of heavy gilt issuance represents only one part of meeting the amount of credit creation that has been withdrawn from our economy, and a severe reduction in fiscal stimulation could lead to significant troubles for it.
Much reference has been made to history in today's debate. Members have mentioned, for instance, the crisis that followed the post-war period. It should be remembered that the success of the recovery in Europe was the result of a considerable fiscal stimulus on the part of our United States partners in terms of the recapitalisation of Europe. Members were making false assumptions when they cited that period to justify significant reductions in fiscal spending now.
I think that the danger of a crisis in the bond markets has been greatly exaggerated, in terms of their ability to absorb significant issuance of United Kingdom Government debt. Mr. Field recalled that in the 1980s the Swedish Finance Minister greatly resented having to come to speak to young people in the City, and to justify why people should buy Swedish debt. I was one of those young people in the 1980s, although I am less young now.
There is no doubt that the power of the bond markets is very important. I remember a senior financial official in the Reagan Administration saying that if he were to be reincarnated he would want to be reincarnated as the bond markets, such was their influence and strength at the time. I believe that, particularly if there is a significant reduction in Government spending, banks will be keen to buy issuance from Government-they are being pushed in that direction by regulatory change-but if we move too quickly to remove fiscal stimulation, the only productive area in which banks will invest will be gilts, because the return from them will be significantly higher than that provided by other potential investments or lending in the United Kingdom economy.
If I wanted to be particularly controversial, I would say that the UK Government's triple A rating does not really exist any longer within the capital markets, as the credit level is treated as being below that. There is a danger in us, as politicians, regarding that as absolutely totemic. This is obviously a matter of great historical departure-other than, potentially, on some war bonds, our country has never defaulted-but being rated double A-plus would not be such a severe challenge. Many other G7 countries have gone through such change.
Mr. Tyrie made the most pertinent point when he said that the debate is also about our credibility as politicians. Legislating to deliver a promise weakens the position of politicians because it implies, or even states, that any other promise that politicians give which is not backed by legislation is inevitably of a lower calibre. This highlights the way in which politics has become so debased that legislation comes to the House purely on the merits or demerits of making a particular point with the media.
Unfortunately, as the hon. Member for North Ayrshire and Arran has pointed out, the type of restriction involved could be very severe in terms of public services dislocation and the lack of discretion that politicians would have in future. I cannot see the sense in both of the main political parties, which have for so long emphasised that they like the flexibility that this country enjoys because it is not part of the euro, wanting to move on and suggest that our country can do well and prosper if our politicians are straitjacketed by a restriction on their future discretion to make judgments about appropriate economic policy. In reality, if we needed, through economic policy, to have a higher rate of fiscal stimulus than that required by the tapered approach to reduction in the annual public deficit, we would probably-as has happened in the past to meet the European 3 per cent. of gross domestic product borrowing requirements-have a system of obfuscation and using different means of private finance initiative to hide real Government borrowing. As a result, we would end up further undermining our credibility as politicians. We should have the confidence to be straightforward with the electorate about the requirements of Government and about our finances.
I agree strongly with the comments that my hon. Friend Bob Spink made in an intervention on the Chancellor. It seems reasonable that the approach to politicians' pay should be the same as that in the private sector. If the Government are determined to put the Bill through Parliament, and if they think it is important, perhaps there should be performance-related payments for the Chancellor if he hits targets. Let the Bill have real bite if they think it is important. There is no point in passing legislation with no sanction or incentive of any kind for the Chancellor regarding the proposals.
Let me address the Opposition's amendment. Initially, I decided not to support it because I think it is important that politicians should feel that they can deliver results by their actions rather than through legislation or the setting up of alternative quangos. However, I think that the amendment is written in such a way that there is sufficient flexibility to allow those of us who are not members of the Conservative parliamentary party to support it. In particular, this House would be strengthened if the opportunity were taken to set up an independent Budget office, similar to the one in Congress, to look at how the Government are performing their fiscal and debt management.
Such a body would revitalise this place's ability to hold the Government to account about their finances. This House's inability to do that on taxation issues has been a long and unfortunate tradition in this House, although the Public Accounts Committee has done extremely well in its endeavours to look at whether Government money is well spent.
In conclusion, this Bill will place our country and politicians in such a fiscal straitjacket that our very prosperity will be put at risk, and it is being done on a mere whim. The Government are playing to the media, and trying to create false division lines between the two main parties represented in this Chamber.
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