Queen's Speech — Debate (3rd Day)

Part of the debate – in the House of Lords at 4:24 pm on 8th December 2008.

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Photo of Lord Oakeshott of Seagrove Bay Lord Oakeshott of Seagrove Bay Spokesperson in the Lords, Treasury, Spokesperson in the Lords, Work & Pensions 4:24 pm, 8th December 2008

My Lords, I am afraid that I cannot compete with the noble Lord, Lord Wakeham. I started my own business only 23 years ago, but he is absolutely right that for a viable business the availability of finance matters much more than a percentage or two on the price.

Today the laws of the principles of economics are lost in a fog of fear. Unless we can rebuild credit and confidence, economies are almost unmanageable. I shall focus on banks—Irish and Icelandic—and the British Post Office.

However, I start by paying tribute to the noble Lord, Lord Mandelson, for grasping much more quickly than the amateurs in the Treasury how shocking it is that the banks have virtually gone on strike in recent weeks. He has been speaking about small and medium-sized enterprises, as have we, but will he and the Treasury now get to grips with the real dagger pointing at the heart of the British economy, which is the banks' failure to lend to big businesses as well? That is where the greatest risk is. Private equity-backed companies with millions of jobs are in great danger of going down next year, and we need to focus on lending to big business too.

I got really worried about Iceland six months ago when I looked hard at what the markets were telling me. Credit agencies were slow to pick up the problem, but the credit default swap prices were shouting from the rooftops that Icelandic banks were in trouble. They were signalling a 40 per cent chance that they would go bust. I raised my concerns in Parliament in the summer with Questions about the Icelandic compensation scheme and British, not Icelandic, regulation of these banks, which were taking billions of pounds of British money. I am sorry to the see that the noble Lord, Lord Myners, is not in his place, but perhaps his officials will pass this on to him. As we now know, despite the disgracefully evasive and misleading Answers I got from the Treasury on 14 and 15 July, those banks were well past saving. We know that from the leaks that have come out from the Treasury, our financial authorities and the IMF. They already knew that in the spring. However, if the Treasury had given me straight Answers to my Questions, at least savers in Icesave—individuals, charities and public bodies—would have had on the parliamentary record the facts about the risks they were running and the parlous state of the Icelandic scheme, and they might well not have gone on pouring hundreds of millions of pounds more into Icelandic banks right up to the moment in October when they hit the wall.

There are some worrying parallels between Iceland and Ireland. Of course, Ireland is not a financial basket-case like Iceland, but its banks are in dire straits and the fact that on 30 September the Irish Government, like the Government of Greece, felt forced to guarantee all deposits is a sign of weakness, not strength. Ireland is a small country with a very large financial sector. It promotes itself as a low-tax zone off north-west Europe, a kind of Cayman Islands in a cold climate, and aggressively chases footloose financiers and less scrupulous British companies to move to Dublin to dodge tax. British taxpayers suffer twice from that because it also makes it much more difficult for our Revenue and Customs to make British-based multinationals pay their fair share. Dublin does not need to be Liechtenstein on the Liffey. If you set out to attract mobile money from around the world, you run much bigger risks when things go wrong.

British banks have been lending far too much on property. Many of their loans will be underwater already. Noble Lords may have seen the Royal Institution of Chartered Surveyors's wholly realistic forecast that British commercial property prices are likely to fall by a half from their peak to their trough. Any property professional will tell you that while British banks have been foolish, Irish banks have been mad. They have been betting on property here like a party of punters on Gold Cup day at Cheltenham. British taxpayers must not pay or underwrite their bookies' bills. We need every penny to get banks lending again to British businesses and British families.

Let me give the House a couple of recent examples. A surveyor I have done business with for 20 years was last week asked to value a flat development in a northern city. One of the big three Irish banks had lent £16 million against a valuation of £20 million last year. There is no income from the site and no demand for flats. I asked, "What's it worth today? Five million perhaps?". "Three million," said the surveyor. Another trusted contact of mine has just been instructed by a receiver to take on the management of a portfolio of multilet offices all over Britain that was bought by an overseas private investor for £600 million with a £500 million loan from another of the big three Irish banks. The owner has now done a runner, the rents have not been collected for many months and the properties are worth £300 million at best. It is no surprise that the markets are pricing in an 18 per cent chance of the Bank of Ireland defaulting on its obligations over the next five years and a 28 per cent chance for Anglo Irish Bank. Those are not Icelandic levels, but they are still far too high for comfort.

In times of unprecedented economic turbulence, as the noble Lord, Lord Mandelson, so aptly put it, would it not be safest for the British Post Office, whose the main savings account is operated by the Bank of Ireland, instead to team up with the strongest possible partner to protect British savers' money and develop its business? That can mean only National Savings & Investments, the nationalised Bradford & Bingley and Northern Rock, or Britain's big high-street banks and building societies.

I keep my own cash on deposit in sterling in the HSBC and the Bank of Scotland—more than £50,000 in each, actually—and I have not had a moment's worry. To put it at its simplest, the Bank of Scotland is as safe as the Bank of England; the Bank of Ireland is not.