Economy

Part of the debate – in the House of Lords at 6:52 pm on 3rd November 2008.

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Photo of Lord Barnett Lord Barnett Labour 6:52 pm, 3rd November 2008

My Lords, I thank the noble Lord, Lord Saatchi, for his reference to what I have said on a number of occasions about those three little words, "subject to that". In return I will support his Bill if it ever has the slightest chance of getting on the statute book.

I broadly support the Government's proposed action. Indeed, I wish to speak briefly on the question of action rather than on the history, short or long, of the past. I believe that the Government are broadly right. What they are doing gives us at least a chance—I put it no higher than that—that the recession that we are about to go into will be shallower and shorter than might otherwise be the case. However, I fear that the alternatives of the Opposition offer nothing at all; they are virtually gloating about the depth of the recession. The noble Baroness, Lady Noakes, ended her speech by telling us that they have a plan, but understandably she did not tell us about that plan.

I turn first to the Government's proposals. While this is not a proposal, the Government have implied that there should be cuts in interest rates. I strongly support that. One reason why I was unhappy about the three little words was that I feared what the Governor of the Bank of England would or would not do. I fear now that the current governor and the MPC may well not cut interest rates as much as they should. If we are in the kind of crisis that we all agree we face, I am not happy to leave it solely to the MPC, and particularly this governor, to decide what interest rates should be. The Bank of England Act allows the Government to overrule the MPC and decide the interest rate. In the current crisis, I would strongly support and commend such action. However, I accept what the noble Lord, Lord Skidelsky, said: cutting the base rate is not necessarily the same as cutting interest rates, especially as they are in the hands of the same banks whose recent behaviour has done so much damage to our economy.

I come to the second of my conditions in supporting the Government. Increased liquidity for the banks was absolutely right, but my worry, as with interest rates, lies in the fact that I cannot trust the bankers to decide how the liquidity should or should not be used. The noble Lord, Lord Bilimoria, and others have spoken about helping small businesses and householders. There are all kinds of ways in which the liquidity that we have provided to the banks can or cannot be used. My right honourable friend the Chancellor has rightly said that he does not propose that he or any other Minister should run the banks.

My worry is focused on the bankers who are running the banks, because they have not shown themselves to be very successful in doing so. The plain fact is that at the moment they are not lending to small businesses. Having greedily used all kinds of methods to increase short-term profitability in order to get high bonuses, they are now not willing to lend to the people to whom they should have been lending in the first place. Small businesses desperately need this finance, but they are not getting it. I worry that this increased liquidity will not result in lending to small and medium-sized businesses that could use the money to the advantage of the economy, bringing it out of the recession more quickly. I am concerned about how the banks will behave.

Many speakers have argued quite rightly for greater supervision by the FSA than we have seen so far. We know about the enormous errors on the part of the FSA under its previous leadership in the case of Northern Rock and I will not repeat what has been said. We now have a new leader for the FSA, but it is still working under the same rules. That is not good enough. We need the authority to be given instructions or a remit that banks must use the money that we the taxpayers have provided to lend to small and medium-sized businesses. That does not rule out decent bankers deciding that some businesses do not deserve any more money and should go bust. Of course that is the case, in the same way as small borrowers in households will have to be allowed to go bust, although early repossessions should be stopped. We must not take work away from those bankers who know best how small businesses are behaving. My worry is that bankers do not always know best because the old bank manager does not exist. I have an account manager, but I can never get hold of her unless I send an e-mail. I cannot reach her with a telephone call. That service does not exist any more.

My last main point relates to increased borrowing. Should the Government be borrowing more? I worry that, if they lend now, action will come only much later. Where there is an easy way of lending to someone who can quickly spend the money to the advantage of the economy, that is all right, but not otherwise.

I have one or two questions for my noble friend who is to wind up the debate. She is not in her place, but I am sure that my noble friend Lord Myners, whom I welcome to his position, will answer. I am worried not about investing in and saving these banks—I agree with that—but about the prices being paid. For example, shares in the Royal Bank of Scotland are to be bought at 65p each. How did the Government work out that value? Was anyone given due diligence on that—not that I would trust anyone to show due diligence on toxic assets? How did they look at those toxic assets? Did they look off balance sheet to know what the value of RBS was? I declare a brief interest in that I bought a few of the rights shares at £2 a share just a few months ago, I am sorry to say, but I do not know whether 65p is the right price now. Perhaps my noble friend will tell us whether proper due diligence was given to that and other banks to find out whether the share was worth even 65p. On that, I leave it to the Government to do all that I have asked them to do. I hope that they will.