My Lords, one can begin only by saying, "Better late than never". It is absurd that, after months of economic crisis, this House only now has the opportunity to debate it. Moreover, I am not at all clear why this is not a two-day debate rather than a one-day debate; some noble Lords have been deterred from taking part when the list is so long. We have had a number of repeated Statements in the House but, as we all know, they are not the same thing as a full debate. The quality of the debate so far makes it clear what the Government have been missing. They are in need of advice of the kind that the expertise and experience of this House can provide.
I congratulate the noble Lord, Lord Myners, on his ennoblement and on taking up his new office. I add a word of appreciation for the noble Lord, Lord Davies of Oldham, who has battled valiantly during recent months when debating these issues in Statements and so on. However, it is quite apparent that he has had remarkably little backup from the Box. In fact, the backing he has had generally from the Treasury is not the appropriate level of briefing that this House is entitled to receive. I regret to say that this looks as though it will continue, and I therefore make that point to the new Minister. For example, in the debates that we had in Committee—which unfortunately I could not take part in because I was at the UN in New York—although the Prime Minister was rushing around the world saying, "New Bretton Woods! New Bretton Woods!", it is clear from the Minister's reply that they have no very clear idea of what that means.
That is also true of the speech that the Minister delivered today. In his intervention during that speech, the noble Lord, Lord Davies, suggested that we were intervening because we had been Members of the House of Commons. That might have been understandable because the Minister in fact made a House of Commons speech; indeed, it may be a speech that they have not made in the Commons. Be that as it may, I intervened because I was shocked by the reply he gave my noble friend. The idea that we should have an investigation by the FSA after Equitable Life and Northern Rock I can describe only as "quaint".
I want to bring to the attention of the House one particular problem which, believe it or not, no one else has referred to this afternoon. It is clear that the Government are vastly increasing debt. I make no immediate complaint about that because they are pursuing a policy of recapitalising the banks. I am very glad that the Prime Minister has suggested taking equity interest in banks rather than simply buying dud bank assets. We are certainly doing it the right way round and I am glad that the Government have taken that decision, which Mr Paulson seemed to be remarkably slow in understanding.
In any event, there is an increase in debt and the crucial question, which no one has even mentioned, is what we are going to do about it. As everyone knows, there are only really three possibilities. You could try to cover it by increased taxation but it is inconceivable, especially ahead of an election, that any Government would increase taxation, at any rate in the foreseeable future, to cover the debts which we are incurring, together with the guarantees. I hope that both of these will now appear on the balance sheet and not be hidden, as they have been on many occasions in the past. The second option is to cut public expenditure. Again, I do not think that that is conceivable on the scale that is necessary. So it all comes down to borrowing. As I was either at the Treasury or chairman of the Treasury Committee throughout the previous financial crises, I am bound to say that how we fund the borrowing is crucial. If it is funded by issuing stock and gilts to the banks, that will probably have the usual well known multiplier effect, perhaps modified a little by the fact that they will recapitalise themselves to some extent as well. None the less, if that is the way the borrowing is funded, there will be an increase, probably a huge one, in that unfashionable concept of the money supply. The money supply is not the same as interest rate policy—there has been confusion during the course of the afternoon between interest rate policy and money supply policy. The effect will be to exert enormous inflationary pressures.
The problem is that if you want to borrow from the public, you can do so only at higher interest rates. At a time when one would like to see lower interest rates, there will be pressure to put them up. That is the crucial point made by the noble Lord, Lord Skidelsky—the bank rate is not the same as interest rates. Throughout today's debate there has been confusion, if I may presume to say so, between the bank rate and interest rates. The pressures which the Government have now created will raise the money supply and inflationary pressures.
As always in economics, timing will be crucial. There is, I think, a very real danger of going from an impending recession to extremely high inflation at a time when the rate of inflation is already way above the Government's target and when those inflationary pressures are being accentuated by the fall in the exchange rate. We could go straight from one situation to another with very little gap in between.
The noble Lord, Lord Peston, rightly drew attention to the short term and the long term. We need to know—and we certainly did not find out today—the Government's policy on dealing with the debt which they are now, quite rightly in my view, incurring. I hope that we shall have better figures and that we can get a reply from the Minister, preferably today, if the Box can scribble away fast enough—I rather doubt whether they have the answer to this one—or perhaps by way of a written reply in the Library or, at any rate, by the time of the Statement to explain the overall situation as the Government see it. The core of the policy is how we fund the debt.