My Lords, it is always absolutely fascinating to hear the views of the noble Lord the Secretary of State. Indeed, one has only to open any Sunday paper to see that he is now the most powerful Cabinet Minister outside the Prime Minister. If he describes the Prime Minister as Moses, perhaps he is John the Baptist. From looking at the number of noble Lords who put their names down to speak in this debate, it is clear that many people wish to share in the stardust that he sprinkles among us.
As the old Chinese cliché would say—and I am sure the noble Lord would accept it—we live in interesting times. The great imponderable question is whether we are facing a short, sharp recession in which after a while the normal rules of fiscal correction will apply, or a deep depression involving serious deflation in which the normal rulebook must be torn up and new remedies tried. It is not entirely clear to me which of those two views the Government take. There certainly seems to be some divergence on that issue between monetary and fiscal policy. Clearly, the action of the Bank of England to lower interest rates to their lowest since 1951 indicates that the Bank takes the view that the depression risk is now much more serious than the inflation risks that it was concerned about previously. In rescuing the banking system, that view seemed to be shared by Her Majesty's Government, with their unparalleled taking of shareholder positions in certain banks and control of others.
This afternoon, the Minister seemed to indicate that he takes the view that we have a danger of deep depression and deep deflation, rather than a simple short and sharp recession. However, in the Pre-Budget Report, the Government seem to take rather the opposite view. If we are heading for a deep depression, do we seriously think that a 2.5 per cent cut in VAT will be the remedy that will cure the problem, particularly in the context of high-street retailers offering 20, 30 or 40 per cent discounting, as we saw on our television screens in Oxford Street on Saturday? Are we seriously suggesting that a 2.5 per cent VAT cut will make the slightest difference to the problem, if the problem is the one that the Minister fears it is?
My party gave general support to the support that the Government implemented for the banking system over the past few months. We were the first party to call for significant cuts in interest rates, which have now been more or less achieved, but we have parted company from the Government on the Pre-Budget Report. We believe that significant income tax for what the Government always like to call "hard-working families" would be more likely to increase consumer spending in the short term.
I take issue with one of the Minister's remarks. In this House, we do not have the Government and the Opposition, but the Government and two opposition parties, the Conservatives and the Liberal Democrats—and that does not include the opposition of many who sit behind him.
The Conservatives have said very little about what they would do to help business. They refuse to acknowledge the need for a fiscal stimulus. I listened very carefully to the noble Baroness, Lady Noakes. They are muddled over monetary policy and have rehashed old tax policies—giving tax breaks to employers to take on the long-term unemployed—that will not stimulate demand and will not work in the current economic climate. Dr Vince Cable said in another place that he was surprised at the Conservative Party, because he does not remember Winston Churchill saying, "We are not sure if we are going to fight on the beaches, because we are worried that the gilt market will complain about the cost of munitions".
Listening to the Conservatives today, I say that they are in danger of making the error that was made in the United States in 1932 to 1940. This Conservative Party would not have supported Roosevelt's New Deal in 1932, which, between 1932 and 1936, was primarily responsible for pulling the United States out of the deep depression that had ravaged the country. It would also have made the same mistake as Roosevelt did in 1937, when, faced with his own deficit worries, he sharply reduced government spending and raised taxes. The result was a serious recession in the US economy that only the Second World War solved.
If we are to avoid a depression, there is common ground between all of us that the banks must resume their lending, both to large firms and SMEs. I was interested in the remarks of the Minister about the research done by the banks, because there is a clear mismatch between what some of us hear on the ground about the experience of businesses and individuals with loans and overdrafts, and the statistics given at the top level by banks to the Government. I will read with interest the survey referred to by the Minister on exactly what is happening on the ground.
Looking at the banking sector, it seems that all the remarkable skills of the Minister will be required if he is to pull together three conflicting objectives of the banks. First, the banks and the Government wish to ensure that the taxpayer receives a proper return and profit from investing in the banks. Some of the preference dividend coupons being suggested could be very significant in protecting taxpayers' money and giving a return.
Secondly, the banks and the Government wish to improve the capital ratios of the banks. When tackled on "Any Questions" two or three weeks ago, Angela Knight, who now speaks for the banks, said that the money put in by the Government was not available to increase lending because it was being put in to improve the capital ratios of the banks.
Thirdly, we have the desire of the banks, the Government and the FSA to improve liquidity to prevent future runs on the banks. Many noble Lords will have seen the FSA consultation document. If the proposals are implemented, they will require banks, by next October, to hold a significantly greater proportion of their assets in a liquid or relatively liquid form. If taxpayers need to make a profit and get their money back, if the banks have to improve their capital ratios, and if the banks are required by the FSA to improve their liquidity, how on earth can they also maintain their lending? Two plus two will not equal four in that instance.
I know that the Minister is not responding to this—it will be the noble Lord, Lord Myners—but does he, in that context, believe that the Bank of England and the Government should start following the suggestion of the Federal Reserve that more unorthodox methods from the armoury of monetary policy are needed? By that I mean further large-scale direct lending to banks, the buying up of credit products, and other forms of the so-called quantitative easing that arguably pulled Japan out of its recession of the 1990s. I would welcome a response on that from the Minister winding up the debate when he does so.
Apart from giving an interesting tour of the Government's view this afternoon, the noble Lord, Lord Mandelson, also gave the Hugo Young lecture at Chatham House last week, which was quite widely trailed in the press. He gave an effective tour d'horizon of the issues facing the Government and the UK economy. As he touched on this afternoon, and as I am sure we are all interested to know, he has recognised that the crisis is not just affecting the banks. A significant crisis is now spreading down into British industry. We on these Benches welcome the Minister's statement that he does not believe that the Government should go back to the bad old days of 20 years ago in these circumstances, propping up failing companies with taxpayers' money. He has articulately set out the framework that the Government should follow in supporting British industry where it needs it.
I have two or three questions on the structure through which the Government will provide assistance to businesses and companies. First, are the Government satisfied that the regional development agency structure is working as it ought, if that is the structure through which a lot of government money will be injected into business? Globally, the UK has many organisations that promote their particular brand of business and international trade—the UKTI, RDAs, chambers of commerce, English Partnerships, individual cities, the IOD, the CBI and trade associations. All have different stories and interests and, more importantly, seem to lack a common theme. I submit that RDAs are classic government quangos, duplicating councils, industry groups and the UKTI's efforts across vast regions of the UK. I would welcome the Government's comments on that.
Secondly, I welcome the Minister's comments on help for SMEs. My party campaigned for an improvement to the small firms loan guarantee scheme which, for those of us who have experienced it, until this banking crisis seemed to produce significant bureaucratic delays among the banks in enabling individual SMEs to obtain the help that they needed. The jury is undoubtedly out as to the effectiveness of the Minister's proposals to which he has referred today.
Thirdly, noble Lords would expect me, from these Benches, to touch upon the point of the noble Baroness, Lady Noakes, which was also the last Question before this debate: where do we stand on the euro? We can have a lot of political sport about this, but the Tories have of course always taken the view that we should not go into the euro because of a one-size-fits-all monetary policy. At the moment, however, we also have a one-size-fits-all monetary crisis. The real question for the Government is not whether it would have been better had we joined the euro one, two, three or five years ago—because we did not and therefore it is a futile question—but whether they feel that we are closer than we were a year ago to adopting the UK's policy with regard to going into it, as articulated by the noble Lord, Lord Myners. Do the Government have any timetable in mind with regard to seriously considering that question?
We have already seen the impact on this House and, indeed, on the Government, of the actions of the Secretary of State. We have also seen the impact of the actions of the noble Lord, Lord Myners, with whom I first worked in another context more than 20 years ago. I dare to express two wishes before sitting down. First, is there not an argument for having Dr Cable as Chancellor of the Exchequer? Secondly, in looking forward to hearing the remarks of the noble Lord, Lord Bilimoria, who will follow me, can we have a pint of Cobra beer when he finishes?