Economy

Part of the debate – in the House of Lords at 5:38 pm on 3rd November 2008.

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Photo of Lord Forsyth of Drumlean Lord Forsyth of Drumlean Conservative 5:38 pm, 3rd November 2008

My Lords, I do not need an inquiry into the conduct of Mr Peston, but I should like an inquiry into the conduct of those people who gave him and others information that was market sensitive. Because it was leaked into the public domain, it did enormous damage to the savings and investments of people in this country.

I find it absolutely extraordinary that the Prime Minister can call from the Dispatch Box for an inquiry into my right honourable friend visiting a boat on his holiday, but he does not see any need to have an inquiry into the leaks that we have seen not just with respect to the bail-out but also in respect of the Bradford & Bingley and Northern Rock. The run on Northern Rock was started because the BBC told us that Northern Rock was in discussions with the Bank of England about getting financial support. The Government are not only incompetent but incontinent.

Secondly, on dividend policy, it seems to me that one of the things that we should be doing is encouraging people to save. We have already heard that the savings ratio has fallen close to zero. What message are we sending to those people who have done the right thing and who bought shares in the banks, believing that they were regulated and that they were safe and that the banks were a source of income because of their dividend policy, when the Government come along and use that taxpayers' money to bail out the banks and insist that the banks pay no dividends for five years? The Minister is shaking his head. That is what the Government said in the beginning, and then they changed their mind. Then they said, "Perhaps after one year there might be a change". Now, they are saying, "Actually, if you pay back the preference shares you will be allowed to pay dividends".

The effect of that is to make those shares less attractive to investors and less attractive to those savers. That will mean that the taxpayers will end up with a bigger slice of Lloyds TSB and a bigger slice of Royal Bank of Scotland. What is going on here? I understand why the Government might not want taxpayers' money to be put into the banks and then paid out as dividends but, as the Minister will no doubt confirm in her reply, the FSA already has the power to stop the banks paying dividends if it is not prudent to do so. So why the spiteful requirement in respect of dividend policy, which damages the interests of savers in this country and makes it less likely that the banks will have a larger share of ownership from the private sector as opposed to the state?

The third issue that I shall pick up on—political interference—has been mentioned by my noble friends Lady Shephard and Lord Lamont and the noble Lord, Lord Powell. We have already seen it. What assurances are we going to have? Can we have an assurance that the members of the boards of the banks where the state has taken a substantial shareholding will be appointed by the banks and not by Ministers? We do not want to see any more Labour donors appearing on the boards of those banks. We want the people on the boards of those banks to be appointed by the banks, subject to approval by the Government.

Equally, we are getting mixed messages. We have heard from the Liberal Benches how the Government ought to use their position to do this or do that. If the Government are going to interfere in the banks, it will make them less competitive. I have a question about the FSA and capital requirements. Why was Lloyds TSB asked to have a capital requirement, as were the other banks, which was set by the FSA and which was different from that for Northern Rock or for the Bradford & Bingley? How can our banks be competitive if they have a core tier 1 capital requirement that is higher than those of their international competitors? On the subject of the preference shares, why are our banks being charged 12 per cent on the preference shares, whereas France and Holland are being charged 8 per cent and 8.5 per cent respectively? Does that not make it harder for them to compete? Does that not make it harder for them to provide the money that we have been hearing that small businesses and mortgage-holders want?

On spend, spend, spend, I say to the Government that it is obvious that tax revenues are going to fall off a cliff. We now need growth in revenues. How can we get that? What is the biggest source of possible income for the Government? It is PAYE. We need to stimulate the private sector. We need to encourage the private sector and give it some support. That means not going ahead with the increase in corporation tax on small businesses, to which the noble Lord, Lord Bilimoria, referred. The Government need to cut their own spending and cut their own cloth in the same way as every family and business in the country is doing.

My right honourable friend the shadow Chancellor has talked about sharing the proceeds of growth. Now there is no growth. There is only negative growth. So why are the Government not taking their share of pain and giving some of the money back that they have taken from people in the good times, to cut taxes, to encourage growth, to encourage free enterprise and to reverse the terrible damage that has been done by the Government through their policy of spending more than they had in tax revenues and borrowing the rest?