My Lords, the noble Lord, Lord Rooker, and I entered the House of Commons on exactly the same day and I have heard him speak on many subjects over many years. I have never yet heard him make a boring speech, and that one certainly was not either.
It is very nearly 50 years since I started my own business. Looking back to my experiences in those early years, I can see that some of the problems that I had then are being repeated now. When I started 50 years ago, I did not go around telling everyone that I was a small business. In fact, I did everything that I could to disguise the fact and to try to build the business up so that I did not have to call it small. However, back then we did not have a Government who wanted, as the noble Lord said, to put up corporation tax for small businesses to a level above what they would have paid if they had already been successful.
The rate of interest that I paid was extremely important—and the lower the better—but it was not nearly as important as the ability to get finance. When I ran a business, the question of whether I invested in a project did not depend on 1 or 2 per cent of interest on the margins, because it was not possible to judge matters that closely. If things were that close, I was certainly wise not to get into a project, and I did not. The important thing was getting finance to establish my business. That was far more important to me than the rate of interest, although of course I should have liked it to be as low as possible. I had other costs that were infinitely more important than the interest that I paid to the banks. For example, wages featured as a much higher figure in my accounts than the amount of interest that I paid, and those wages depended substantially on the rate of inflation in this country.
Only two months ago, we were worried about the serious impact of inflation and now we are talking about deflation. With all the things that are going on, we could easily, and quickly, go back to having problems with inflation. The Government need to be very careful that that does not suddenly happen, as it would be disastrous. As a matter of fact, for small businesses deflation is just as serious a problem as inflation because of the way that it slows down demand. Both inflation and deflation are dangerous for small businesses, and we need a Government who can maintain an acceptable level.
As I said, the availability of bank finance was then and is now very important. The banks have now invested in a whole range of assets which have been disastrous to say the least. It should be said clearly that no one instructed them to invest in those assets. They invested in them because they thought they wanted to, and they have a very big measure of responsibility for that. So, too, does the regulatory system. It is a government responsibility and they have a measure of responsibility for the difficulty of the banks to find the finance they need.
The problems are large and the Secretary of State touched on some of them. The auditors have difficulty in valuing some of the assets as the conventions that are now used, such as mark to market, mark to model and all sorts of other things, are complicated. Most of the non-executive directors of the banks would find it very difficult to understand exactly what was going on. I am not saying that these methods are intrinsically wrong but they are so complicated and sophisticated that it is hard to see how they could be the right way forward. If the directors and those who control the institutions cannot fully understand them, the regulators have a responsibility to try to discourage this sort of investment.
I do not think that that necessarily requires a great deal more regulation, but it requires much more supervision and understanding by the regulators of exactly what has been going on to make sure that we avoid it in the future. The Government would be wise to look again at the tripartite system of control of the banks as I am not satisfied that that is the best system to deliver what it should. I would prefer it to be under the Bank of England but I recognise that the noble Lord, Lord Turner, who was a member of the Economic Affairs Select Committee, which I had the honour to chair for a number of years, is an outstanding man. I would not want to say anything that indicated that I did not have a great deal of confidence in his ability.
Some of the Government's measures have been helpful but some less so. We have to get the banking system working again. The present situation is not helped by press briefings blaming the banks for all the difficulties. They have their share of responsibilities but so do others. I hope that the private meetings that the Minister is having with the banks are on a more mature level than some of the comments I have seen in the papers.
The banks' cost of capital is miles higher than the bank rate. They have to repair their balance sheets by paying the Government—or the taxpayer—12 per cent on the £37 billion of our money that has been put in. Rightly they should, but the idea that the bank rate reductions can be immediately passed on does not seem realistic. The FSA wants them to hold more government bonds to put themselves on a more secure footing. That cannot be a disappointment to the Government because they will have the dickens of a lot of bonds to sell in the next few years. They are required to run sensible businesses in a commercially difficult time. I want a return to confidence because that is the only way forward, but it would be foolish to think that that can happen as quickly as some would like.