Part of the debate – in the House of Lords at 8:09 pm on 3rd November 2008.

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Photo of Lord Sheldon Lord Sheldon Labour 8:09 pm, 3rd November 2008

My Lords, in examining the economic situation, the share price volatility has been commented upon as being staggering. We have seen prices substantially increasing one day and then falling sharply the next. These daily changes have continued in a way that we have never seen. As well as those fluctuations, oil prices rose to nearly $150, and then fell to $60. We are seeing a world financial decline that is partly a consequence of this very long-term expansion of the economy which prompted the enormous increase in house prices. They rose spectacularly and played a part in the first global crisis that we have seen.

The planet is integrating economically in a number of ways, in particular through the production of goods for export and the limitation of imports. These factors and the demand for oil all affect a large proportion of the world's economy. In regard to the price of oil, Gordon Brown told business leaders in Edinburgh last week that it was a tragedy that the world is a prey to one volatile commodity that can disrupt businesses and people's lives through a trebling of prices over a very short time. What is needed is a more stable energy price, not a volatile one. Petrol prices should be coming down much more than they are at present. In connection with the up and down oil price, the Prime Minister's four-day visit to Gulf states is a measure of its importance. The Prime Minister, referring to the oil producers, said that their interest is in a stable energy price, not in the massive volatility we have seen where oil prices have shot up and then come down again. What is required is for the economies in different countries to move closer together. China and the oil states are more and more dependent on the world economy, as are, indeed, all the major countries. There is to be a most important international meeting on 15 November, when this new world economic change will be debated. Some co-ordination is to be hoped for. It will be difficult, but if it succeeds there will be a most valuable consequence. So far the oil situation has indeed led to global financial turmoil. Interest rates are still high. They are reducing, but not by as much or as soon as is needed.

My noble friend Lord Barnett pointed out that the increased borrowing must lead to quick spending, but it is uncertain whether we are going to get that speedy spending. The Government's spending normally takes a long time to come into effect. If it takes that long, we shall not see the sort of consequences that have been envisaged. What we are seeing, of course, is that further Bank of England decisions to cut interest rates must have consequences even though the further cuts may not guarantee cheaper mortgages, as was pointed out in Saturday's Financial Times money section.

A major change is that government borrowing is inevitable. The Conservative shadow Chancellor, George Osborne, has said that a spending splurge is a mistake. He has said that we cannot spend our way out of a recession. Borrowing to stave off recession leads to economic ruin. In commenting on this, the Liberal Democrat MP Vince Cable rightly said that Osborne had shown poor judgment, which is a view that I also hold.

In a most important statement, the Prime Minister has said that oil-rich Gulf states must play their part in stabilising world oil prices. The fact is that if oil prices rise and fall at the rate and frequency with which they have been changing over the past year, the use of oil will not be anywhere near as steady as the producers must wish. The oil producers are not likely to advance their position by limiting themselves to general agreements on each country's output of oil. There is a need for producers to have a closer dialogue with national consumers. There is a real need for a wider international understanding of the world's requirements and the producers' output.

The major problem we have now is the financial squeeze. Turnover is down. Companies are not so profitable. Bankers are uncertain of their clients. They are not lending as the economy requires. We have to press for the price of oil to continue to decline and for interest rates to be substantially lower. These are not necessarily the solutions to our problems but they are an essential part of the tasks confronting us.