My Lords, I accept that the present economic situation has been affected by global economic factors, but it must be stressed that it has been greatly aggravated by the Labour Government's complacency in constructing an economic boom on a mountain of debts. The Labour Government abandoned the principle of prudence and they have failed to follow a monetary policy to deal with demands. I declare that I am chairman of an insurance brokering and financial services organisation and have always believed in building sound reserves and controlling the company's expenses.
The Government's borrowing probably now exceeds £60 billion and it may reach £110 billion by 2011. In addition, it must be pointed out that the economic crisis will result in a reduction in tax revenues and there will be a need to spend more on benefits. The country has borrowed heavily and the population has a serious debt problem, and this problem is likely to continue for some years. It may be difficult for the Bank of England to cut interest rates as fast as is necessary.
I remind your Lordships' House that, in 1997, Mr Gordon Brown stated that,
"we have learned from past mistakes ... you cannot spend your way out of recession".
What is the Prime Minister doing now? He is reneging on that statement. Higher borrowing will result in higher taxes and we need, therefore, to follow a monetary policy and keep control on public finance and borrowings. The Government's approach to fiscal management has not earned them much credit. Their failure to control public and private spending over the past decade has created a debt level that is irresponsible and unsustainable. The value of the pound has plummeted, and we are entering a boom-and-bust scenario. The Government failed to make hay when the sun was shining.
In my business, I have dealt with mortgages and have practical knowledge of the subject. One reason for the problems was because building societies converted into banks, threw away the principles of mutuality and ignored the practice of prudence. I lay the blame at the financial institutions which have been irresponsible in their lending practices. The FSA and the Bank of England should have exercised better control and supervision of these institutions. The supervisory regime needs to be strengthened and be much more thorough.
Small businesses account for 99 per cent of the firms in our economy, and contribute 59.2 per cent of private sector employment and 51.5 per cent of private sector turnover. I am a great supporter of small businesses and, therefore, welcome the proposal that an incoming Conservative Government would cut the rate of tax for small businesses and, furthermore, set up a procurement budget for small businesses. Our approach does not stop there, as my party has announced deferment of VAT bills for small and medium-size enterprises, initially for six months, and the cutting of national insurance contributions for smaller businesses. My party proposes to apply a freeze on council taxes. It is also important that we revitalise the regions, and building high-speed rail links between various parts of the country will help us to achieve this.
I am great believer in following a monetary policy with fiscal responsibility, and it is important that we consider putting that into practice to enable us adequately to deal with the financial crisis. We need also to consider the relative weakness of our economy and how best we can prepare to ensure that we are better able to minimise the pain caused by future downturns. It must be appreciated that we do not fully possess the necessary skills. It is important that we build those skills by better education and suitable training, and back these with resources and investment.
For too long, our wealth has depended upon property and financial services. We need to develop a range of measures to create a more balanced and resilient economy. It is fundamental that we increase our economic base and expand more science and high-tech services. We have an opportunity to become world leaders in the development of green technologies and innovation. We need more engineers and high-level manufacturers. That must be a key priority. We are not encouraging enough people in high-level engineering, in which we have led the world. I was brought up in a colony and everything important was marked, "Made in England". I am pleased that there is a resurgence of our motorcycle industry and that the Norton name has come back.
The strength of the financial services sector as a key player in the United Kingdom economy has been a good thing. My own business is financial services, but we need to ask ourselves whether we could have done more to ensure that the manufacturing sectors could have been more competitive; but let us look to the future and establish and build on what has been lacking in the past.
Finally, we have to confront the need to change our broken economy, but the present Government have shown that they lack the credentials to make the necessary changes. I say that with a deep sense of regret. We need to make changes swiftly but, given that the Prime Minister and the Chancellor of the Exchequer are caught in a collective denial, it is unlikely that they will be able to identify what needs to be done, let alone make the judgments necessary to repair the damage.