My Lords, it gives me great pleasure to open this debate on business and the economy. I confess to feeling somewhat in awe of the wealth of expertise and experience that surrounds me in this House today. It is enough to make me feel again like a tender PPE student facing my first economics tutorial.
There are unprecedented economic challenges now facing us in Britain and throughout the global economy. As I suspect many will observe today, this is not some ordinary recession. It is the hard-to-resolve crisis in our banking system that transforms what our business sector is experiencing. The unprecedented economic turbulence is testing Governments around the world. I do not say this to dodge responsibility or play down the scale of the domestic challenge but, for those of us brought up on the adage that when the US economy sneezes the rest of the world catches a cold, last week's news that US unemployment has risen by more than half a million in a single month is another challenging statistic.
US economic output is falling. The eurozone economy has officially entered into recession. Growth in China and India has slowed sharply. The IMF forecasts that in the advanced economies, including the UK, output will contract in every quarter of 2009. To observe that this is a combination of events not seen since the Second World War is not a shocking revelation; it is the simple truth. The global financial system has been severely damaged, and we cannot yet be certain whether enough has been done to get it working again as it should and as we need it to do.
In these circumstances, people rightly look to the Government to act. To have a Government whose only response is "Let's do nothing" would be alarming and unsustainable. Of course the actions have to be carefully weighed and difficult judgment calls are involved, but inaction must also be weighed, particularly given the effect that doing nothing will have on the confidence of consumers and other actors in our economy.
The Government have had another simple fact in mind. The further our economy falls and the further we go into this downturn, the higher will be the costs of climbing out again and the greater the long-term damage to our economy and to our society. Therefore, the Government have to do everything that they can to ensure that this recession is as short-lived and as painless as possible. I say this because my mind goes back to the recession of the early 1980s. I recognise that, in all sincerity at the time, many distinguished Members of this House—former Chancellors of great calibre such as the noble and learned Lord, Lord Howe of Aberavon, and the noble Lord, Lord Lawson of Blaby—felt that there was no alternative to the policies that they then pursued. Although I agree with them that the loss of jobs in the old heavy industries was inevitable over time, economic conditions became so severe that many businesses that might otherwise have survived and prospered went to the wall. We are therefore right to do what we can to avoid this happening again on such a scale.
When I was first elected to the other place in 1992 for my constituency of Hartlepool, I saw at first hand the social scars that the huge unrestrained rise in unemployment had left behind as businesses failed, skills were put on to the scrapheap and talents were wasted. Those scars have still not fully healed despite all the efforts made since, including the first efforts at economic regeneration to which the noble Lord, Lord Heseltine, gave a lead.
Some people talk today of broken Britain. I do not believe that in any general sense Britain is a broken society, but the damage done by the recession of the early 1980s to social inclusion in our society has been lasting, and we are right to say "Never again" and to do what we can to stop history repeating itself. This is not a choice but a responsibility. The Government have already taken decisive action, and we stand ready to take more as this period of great uncertainty unfolds. The economic and business measures set out in the Queen's Speech reaffirm our determination to support and protect businesses and families as best we can through this crisis and to prepare our economy for the global challenges that we will face as we emerge from the downturn.
This is a global crisis that demands a global response. This Government have led calls for co-ordinated international action to get the world's financial system working again and to introduce much needed supervision in the regulation of the banks. It should go without saying that global institutions assuming fresh responsibilities need to reflect the new realities, and indeed the new balance of power, of economic globalisation. Last month in Washington, G20 leaders agreed to fundamental reforms in line with the principles that Britain has for some years been promoting—largely, it has to be said, in the person of the Prime Minister, who has applied both intellect and force of personality to these questions. We need transparency, integrity and accountability in the rules each of us operate in our banking systems so that similar mistakes—those that have been made in the recent past—are not made again.
When the UK takes over the presidency of the G20 at the beginning of next year, we will lead on action to implement this reform agenda. The core, immediate challenge faced, not just in the UK but around the world, is to get liquidity back into our banking system and the global economy. We have taken comprehensive steps—including the special liquidity scheme delivered through the Bank of England, our recapitalisation programme and the credit guarantee scheme—to strengthen UK banks, improve liquidity and return confidence to the interbank lending market.
These measures are making a difference and the Government will, of course, consider with the banks what additional refinement of them may be desirable. The sterling LIBOR rate has fallen in recent weeks and we are now monitoring bank lending patterns with the Bank of England, the FSA and other regulators. This morning I chaired the second meeting of the Small Business Finance Forum that I convened the other month. I am pleased to say we reached agreement today with the banks and SME representatives on a revised statement of principles which will govern SME bank lending in future. The Prime Minister has stated that the current Banking Code will also be put on a statutory footing. The statement of principles that we agreed today will be folded and incorporated into that Banking Code. The FSA is already consulting on new rules applying to retail banking services, in place of self-regulation, to be enforced by next year.
This and other provisions in the Banking Bill will provide the UK authorities with tools to address difficulties in the banking sector and protect depositors and the wider economy. Shortly, the Chancellor and I will meet in the high-level lending panel to review more detailed data being collected and analysed by the Bank of England. Initial evidence from the big five UK banks shows that total outstanding lending to SMEs remains relatively stable compared to a year ago. There is evidence of reduced demand for finance. That is inevitable, but we are also beginning to see some evidence of overdrafts being withdrawn and overdraft limits being reduced. However, these moves are affecting only a small proportion of SMEs, as was confirmed by a survey of 5,000 SMEs undertaken by the Federation of Small Businesses and reported to my meeting this morning.
We expect banks to play their part in ensuring that viable businesses do not fail for lack of credit. I welcome the recent initiatives from RBS, Lloyds TSB, HBOS and HSBC on SME lending, particularly RBS's commitment not to change overdraft pricing arrangements for small businesses for 12 months from the date they are agreed, the commitment of Lloyds TSB not to change the price or availability during the period of a customer's agreement, and HSBC's announcement yesterday of a new £1 billion working capital fund for SMEs. This shows the productive nature of the Government's close working and dialogue with the banks, and I urge others to follow suit. The Government are also taking action to help people who suffer a significant and temporary loss of income, as a result of the economic downturn, to stay in their homes by enabling them to defer a proportion of the interest payments on their mortgage for up to two years.
In these extraordinary circumstances, there is wide international agreement on the urgent need to maintain demand in our economies. The Bank of England has already implemented a co-ordinated interest rate cut with six major central banks and, last Thursday, it cut rates to 2 per cent, which is the lowest since 1951. However, it is very clear that monetary policy will not on its own provide the necessary stimulus. Commentators from the IMF, the OECD and, nearer home, the Institute for Fiscal Studies—as well as the former Chancellor, Kenneth Clarke, before his Front Bench moved rather sharply to silence him—have rightly observed that in these exceptional circumstances an additional fiscal stimulus is needed. Yesterday, President-elect Obama added his weighty voice to this conclusion.
At the Washington summit, G20 leaders agreed the need for co-ordinated fiscal action to boost economic demand, with the US, the European Union, China, Japan and other countries all now bringing forward their own measures. They will not be identical, or implemented at the same time, but all will take the same sort of initiative and will go in the same direction.
In the UK, the Chancellor's Pre-Budget Report brought forward £3 billion in government investments in Britain's vital motorways, social housing, schools, hospitals and energy efficiency. It provided £1 billion of targeted tax cuts for SMEs and a temporary reduction in VAT—also specifically urged by Kenneth Clarke before the intervention—which is the equivalent, all told, of the Government giving back £12.5 billion to consumers and businesses. The Pre-Budget Report will also provide direct assistance to our vital small business sector, with, among other things, £2 billion of loan guarantees.
Crucially, there will be new latitude from Her Majesty's Revenue and Customs—latitude and HMRC not being two things that often go together—that means small businesses facing temporary financial difficulty will be able to spread payment of their tax bills over a timetable that they can afford. I welcome that move by HMRC. There will also be a raised threshold for business rates on empty properties, which will exempt an estimated 70 per cent of them. The Government have also guaranteed prompt payment of their own bills—within 10 days—to businesses. Regional development agencies are creating new transitional loan funds for the companies which are hardest hit in their localities. I do not guarantee that every needy business can be helped in one or more of the ways that I have listed. But I hope that, while the Opposition will not join the consensus in favour of action for the reasons that they will no doubt try to explain, the rest of us can agree that extensive action is better than no action at all.
Essential to our continued competitiveness will be, first, ensuring a regulatory framework that supports and does not stifle the conditions for business success—in these difficult times, it is more important than ever that we only ask businesses to adapt to new regulations where the case is compelling—and, secondly, ensuring the maintenance of a highly skilled, highly productive workforce prepared for the future.
The Government have relaxed the funding rules for Train to Gain to give SMEs the training they need. We are also bringing forward measures to help business develop the potential of their employees. The children, skills and learning Bill will establish a new skills funding agency to ensure a simpler, more business-focused training and skills system. To help boost our skills base and business competitiveness, the Bill will give all employees in Great Britain the legal right to request time to train, providing around 25 million people with the chance to work with their employer on their development needs, with the requirement that their training helps to improve business performance and productivity.
In addition, the Bill will give all suitably qualified young people the legal right to an apprenticeship from 2013. We are establishing the national apprenticeship service, the first ever such service dedicated to apprenticeships. We have expanded the apprenticeship programme threefold over the past 10 years and we are determined that it should continue to grow
Unlike in previous recessions, the Government have acted to protect and advance essential investment in the public sector, but as we recover from the recession we will give top priority to rebalancing the public finances. The overwhelming means of achieving this will be through tighter public spending restraint, not tax increases, though at a time of acute economic difficulty the broadest backs will bear the bigger burden, as I am sure noble Lords will agree is right and fair. But the restoration of sound finance will require the Government to redouble their efforts to ensure belt-tightening and value for money across the board. The Government expect to be able to set against borrowing more than £30 billion in greater efficiencies in the next spending round. Discipline on public spending growth will keep it to little more than 1 per cent. This will be tough, but is in contrast to the Opposition's declared intention not just to limit growth but to cut into the core of public spending and our nation's investment programmes. I am sure noble Lords will look forward to hearing from the opposition Front Bench the costed detail and impact of the cuts they have in mind.
We are bringing forward measures that will not only help businesses and families, but also enable us to rebalance our public finances in the medium term. I am determined that the Government will continue to work with British businesses to ensure that they have all possible help in weathering the downturn and emerging ready to face a new generation of challenges. For example, to support those working in the construction sector, we are helping apprentices facing redundancy find other employers to help finish their training. Through the energy efficiency employment initiative, we will match those workers who lose their jobs in housebuilding with employment opportunities such as insulating homes and businesses, and improving energy efficiency across the country. The Government are open to further ideas to provide much needed alternatives to unemployment.
For UK car manufacturers, we are lobbying for €8 billion of European funding for investment in automotive energy efficiency projects. For this industry and dozens of others, including those associated with nuclear power and other renewables, there are huge opportunities in the global shift to a low-carbon economy. Next year we will set out a low-carbon industrial strategy to help UK industries develop low-carbon operations and succeed in these lucrative new markets as they emerge.
I realise that the Opposition will need to make out that Britain is unprepared for this economic turn of events—and, of course, will blame it all on the Government—but the foundations that we and business have built in Britain over the past decade will serve us well in moving from this downturn to recovery and beyond. We have built an enterprise culture in this country that rivals any in Europe and is ready to take on any in the world. The challenges we face are both immediate and more long term: resolving the banking crisis and putting our financial sector on a sound footing once again as we unravel the complex credit derivatives, credit default swaps and other obscure financial products that have contributed to the banks' problems; ensuring that the Government help people and businesses through the downturn as best we can; investing in vital infrastructure, vital research and development and new technologies and skills so that Britain is ready to meet the upturn with confidence and competitive strength; acting to ensure that the European Union's competition and state aid laws remain intact under the inevitable pressure they will come under; and ensuring that the EU's doughty trade commissioner sets her face against any attempts to roll back Europe's stand against protectionism while bringing the WTO's Doha round to a successful conclusion.
The Government have a clear sense of the scale of these tasks and a commitment to meeting them head on. I hope the Opposition will feel able to wish us well for the country's sake rather than wish failure upon us for their own sake. We will now hear from the Opposition, but I commend these measures to your Lordships and to the House.