My Lords, I welcome this debate and hope that following the Minister's opening speech with its long catalogue of information on how wonderful the Government have been, all of which has been in the public domain for some time, in her closing speech the noble Baroness, Lady Vadera, will be able to indicate the current thinking of the Government in this serious situation and give us and a worried country some crumbs of comfort. I worry about the current economic situation and how it will impact on the future performance of the economy, not least on our competitive position in the global market but, most of all, I am concerned about the huge uncertainty, grave concerns and serious feeling of insecurity among the population of this country as a whole.
The headlines in the press and the pundits on the air—I cannot comment on TV, but I am sure the broadcasts there are no less scary than the others—are having a dreadful effect on those who were once famously described by a Cabinet Minister in a new Labour Government as "the ordinary people". We need a rational analysis described in understandable terms. We want honesty from the Minister and an indication of the Government's future policy. We are too frequently fed a diet that reiterates the measures already announced. Openness and honesty are necessary to calm the country as a whole, families that are so worried about their housing situation, employees worried about their jobs and small businesses, which employ some 13 million. People are being badly wounded by the behaviour of the banks and by the effects of the policies so succinctly stated by the noble Lord, Lord Bilimoria.
Most of us agree that the first few years of this Government were successful. The economic and spending policies of our Government were followed. The independence of the Bank of England, despite initial worries expressed by this side of the House, was a very good policy. However, despite many objections by the MPC committee of this House, voiced strongly by the noble Lords, Lord Peston and Lord Barnett, and by the rest of our committee, in committee and on the Floor of this House, the Government stuck single-mindedly to their determination to have just one objective for the MPC: namely, keeping inflation below 2.5 per cent.
Of course, we all have PhDs in hindsight, but that determination not to listen was one fact that, long term, has had a very deleterious impact on our economy. Another fact, again debated in the MPC committee so ably chaired by the noble Lord, Lord Peston, was the determination of the head of the newly set-up FSA to combine the roles of chairman and chief executive. That flew in the face of all the tenets of corporate governance that had recently been accepted by business but ignored by government. That is no longer the case, but starting off such an important regulatory organisation with defiance in the face of rules imposed on others must have had an effect on the whole organisation. It almost certainly felt that it was bomb-proof.
There has also been the lacklustre performance of the FSA, notably over Northern Rock, which has already been mentioned several times, but also in attention to issues that seem of a second order compared with the mess that the regulatory authorities have got us into now. I wonder how many of your Lordships have had the most irritating demands from the FSA requiring passports, utility bills and so on when making small investments. Surely close attention to the activities of banks and hedge funds would have been much more appropriate.
There is another fact. After a few good years, complacency and arrogance have taken over and now hubris has been followed by nemesis. The eye was definitely taken off the ball. Above all, the idea of saving did not feature, despite the constant reference to prudence. Many people were fooled into believing that, in having a huge mortgage, they were in fact saving. Memories are very short. The negative equity situation of relatively recent past years was never discussed. After all, we would no longer have boom and bust.
On several occasions, I have spoken of my anxiety concerning the erosion of the savings ratio, most recently in a debate led by the most reverend Primate the Archbishop of Canterbury on
We are where we are, but what is likely to happen in future? Last week, I received a pre-publication document written by my close friend Howard Flight, the former MP. It will be published tomorrow, but I have his permission to quote from it. It states:
"The UK outlook is for vicious house price deflation; a severe recession, a falling stock market and a large sterling devaluation".
He further draws attention to the fact that it was,
"extraordinary that government, regulators and bankers did not recognise the impending crisis".
I say amen to that. Reading his document, I am convinced that the three major priorities must be, first, to restore liquidity to the inter-bank market; secondly, to sustain the capital base of the banking system; and, thirdly, to stop banks being obliged to reduce their lending.
Does the noble Baroness recognise that the measures taken by the Government in the bail-out exercise are more draconian in how they treat preference shares than the Dutch Government's action to assist ING? Preference shares in the UK case have a charge of 12 per cent; in the case of IMG, it is 8.5 per cent. Why is that?
Secondly, is the noble Baroness prepared to attempt to address the major concerns of pensioners, who think, with reason, that their pensions will be badly affected by the current situation, on top of the heinous crime of the then Chancellor in looting the pension funds in 1997—amounting now, as my noble friend Lord Blyth said, to a total damage to the pensions of this country of £200 billion?
We must give a clear steer to the world that we are determined to ride this one out, to protect our citizens from the worst effects of utter dereliction of moral duty by the financial sector and the regulators. Perhaps the Government should also remember that not all the best brains work for new Labour, and that now is the time to get on with listening to wise people, repairing the damage and putting in place firm, transparent and fair policies for the economy.