My Lords, I feel rather disturbed by the fact that people say to me from time to time that, as a former Chancellor of the Exchequer, I must have the answers to all these difficult questions. It is particularly disturbing when I am in the company of two of my successors, both young striplings for whom the memories are still quite recent. It is worth reminding your Lordships that I was first exposed to these problems 35 years ago when I was a junior member of the Heath Cabinet as Minister for Consumer Affairs. Every two or three weeks I would answer a Private Notice Question about one or other secondary bank that had gone down the week before in what I call the Keyser Ullman era. It is now 25 years since my last Budget and since I last presided over the IMF Interim Committee.
However, much about today's crisis is unlike what we faced then. One big difference is that, in those years, inflation was one of the most overwhelming and dominant issues we had to face. I was criticised widely for a Budget of rash extravagance in taxation increases which enabled me to reduce the borrowing rate from 14 to 12 per cent, but the late Edmund Dell subsequently said in a book that I was not tough enough because within three months, a week or two before the Tory party conference, interest rates had to go back up again to 16 per cent. But all that is in the past. In today's circumstances, I endorse what has been said by a number of noble Lords in respect of the case for reducing interest rates as one of the components that is essential to the future. We cannot neglect inflation—one has to have it always in mind—but it is the first big difference.
The second big difference is the way in which tales like Keyser Ullman seem like chickenfeed alongside the widespread collapse of confidence in banks and financial institutions generally, an issue on which many noble Lords have already spoken. That is something in which the two Anglo-Saxon major economies have led the way, if that is not too kind a way of putting it. Other noble Lords have explained the reasons for the extent to which sophisticated derivatives have been used for purposes that managers hardly understood and, above all, there has been inadequate oversight of the banking industry and associated institutions, certainly in this country.
This is astonishing in retrospect because we had a pattern for oversight of the banks in the old days which appeared to work. There was an osmotic contact between the Bank of England and the financial industries generally. I found that when the Board of Trade—the Department of Trade and Industry—was unable to tell me anything about the banks that were closing down, although it was not long before that they had been given a Section 123 certificate of their legitimacy, the Bank of England always knew enough about it to get it right or nearly right.
What has happened since then in various stages is that, first, there was the establishment by my noble friend Lord Lawson of the Board of Banking Supervision, and then its disappearance. Alongside that, there was the abolition of 10 separate institutions for the oversight of the financial industries and their merger into one body, the FSA; and the disappearance of the Building Societies Commission, a body with which the industry was familiar and whose oversight was constant by people who knew what they were talking about. This was exemplified and described in an article written by Ian Hay Davison in the Spectator on
The other feature has been the way in which, as many have already pointed out— notwithstanding the bold proclamations of the Prime Minister, as he now is, in respect of prudence and so on—prudence disappeared from the agenda of this Government five or six years ago; Budgets have been in deficit since then. Likewise, the 40 per cent ceiling on the scale of borrowing is being swept aside as we speak, and there is great reason to be fearful if that continues as it now is. In respect of that, I align myself with what others have said: we have to install a sensible and effective mechanism for the oversight of folly and worse than folly in an industry as important as the banks.
We have to maintain the discipline necessary in respect of public spending. Figures produced by the Institute of Fiscal Studies, quoted by my noble friend Lord Ryder of Wensum in the debate in this House on
That is why one can have so little confidence in the record and likely performance of this Government. It is not a bad thing that they have at least begun to recognise the need for some effective action, but do not let us believe that we will be anywhere near out of the woods for many months to come.