Queen's Speech — Debate (3rd Day)

Part of the debate – in the House of Lords at 6:36 pm on 8th December 2008.

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Photo of Lord Marlesford Lord Marlesford Conservative 6:36 pm, 8th December 2008

My Lords, I was delighted when the Minister made a most important announcement in his speech. I shall quote his words with precision, because they are so important. He referred to,

"nuclear power and other renewables".

The last time a Minister admitted that nuclear power is a renewable was when the noble Lord, Lord Sainsbury, said it, but he was made to renege. However, the noble Lord, Lord Mandelson, is much too powerful a figure to be made to slide away like that.

I suppose that my problem is that I spend so long observing politics that I do not really do party politics, which has always enabled me to be rather a fan of the noble Lord, Lord Mandelson. He strengthens and enlivens any Cabinet that he joins, however briefly. I salute him for being the main architect of new Labour. Years ago someone asked me, "What is this new Labour thingy?". I said: "It is very simple. It is a Labour Government with a Conservative Prime Minister". Unfortunately, things may have changed since then.

How the mighty have fallen. There can be few whose reputation has fallen quite as far and as fast as that of Alan Greenspan, chairman of the Fed for 19 years, to 2006. When I read his autobiography, The Age of Turbulence, published three months before the sub-prime bubble burst, I noted that he said:

"I was aware that the loosening of mortgage credit terms for subprime borrowers increased financial risk ... But I believed then, as now, that the benefits of broadened home ownership are worth the risk".

What a misjudgment.

At any rate, Mr Greenspan had the grace to apologise. On 23 October, in congressional testimony, he said:

"I found a flaw in the model that I perceived is the critical functioning structure that defines how the world works".

The chairman, Henry Waxman, said:

"In other words, you found that your view of the world, your ideology, was not right, it was not working".

Mr Greenspan replied:

"Precisely ... that's precisely the reason I was shocked, because I have been going for 40 years or more with very considerable evidence that it was working exceptionally well".

The then Chancellor of the Exchequer, Mr Gordon Brown, recommended that Mr Greenspan should receive an honorary KBE for his contribution to world economic stability—and he got it.

As the realities of politics and economics crowd in, few of them lift the spirits. Overall, there is a deeply disturbing glimmer of recognition that for many the prosperity of the last decade is being revealed as a debt incurred for perhaps the next decade. The real problem is a widespread reluctance to face the realities which stem from the credit crunch.

First, it is still not clear for many companies, including some which are widely regarded as soundly managed, what liabilities they face, whether as a result of toxic assets, underwriting commitments, hedging positions or cash flow problems, especially those companies—in the American auto industry, for example—which now find that demand for their products has evaporated. People are asking: how much more is to emerge? Secondly, consumers have about-turned, and as unemployment rises they will march ever faster in the new direction. Thirdly, businesses will not invest, even if they can raise the funds to do so, unless they can see a profitable result from their investment—a point made earlier by the noble Lord, Lord Skidelsky. It is, as my noble friend Lord Wakeham said, only in marginal cases that interest rates are really a relevant consideration. Fourthly, the housing market will not recover until house prices have fallen to a level at which buying a house makes sense. House values are already well below the prices of the few houses that are still being sold. Fifthly, stock markets will not recover until there is a prospect of profit growth. Sixthly, and finally, exchange rates will continue to trend towards relative purchasing power, although sovereign solvency could become an overriding factor. I was interested that reference was made to the solvency of Ireland and Iceland, which I am afraid could be at risk.

The distinction between a recession and a depression is not precise. It is a matter of degree and how long it lasts. We now know that, in the US, the recession started in December 2007, only four months after the sub-prime bubble burst. What is clear is that the psychology of the consumer has a lot to do with it. Consumers do not understand economics, and they do not trust politicians to know the truth, let alone to tell it. They do listen to what they hear and they do observe what they see, and although they may react to everything to a small degree—special offers in shops may induce them to purchase, while rising electricity prices may encourage them to switch off the lights—it takes a long time and a lot of bad or good news to make them change direction. That lag is always underestimated by Governments, economic pundits and central bankers.

I want to refer particularly to one other area of risk: credit card risk. It has already been referred to by the noble Lord, Lord Broers, who made the most interesting references to some aspects of electronic supervision. We need a completely new approach to the regulation of credit cards, and we need in particular to establish a national database of credit card holders. Far too many people are given credit cards that for their own good they should not have. But credit card debt is also, of course, a wonderful way of enabling the banks to charge very high rates of interest. The APR is always quoted, but most people do not have the slightest idea what that acronym means. It should be a requirement that the actual percentage of interest is made clear. Customers should be told, "This is the rate of interest that you will pay". I have with me an invitation to take up a loan which arrived just two days ago from an outfit called Provident Personal Credit. At the bottom it states: "Typical APR 189.2%". That is not going to encourage anyone who understands what it means.

I want to make an optimistic point. The biggest plus in the world economy at the moment is the fall in oil prices. It is the equivalent of a big tax cut. How long it will go on for, I do not know. The Saudis would like to see the price go back to $75 a barrel, but the drop has been a huge benefit and we have to hope that market competition means that the reduction is passed on to consumers as rapidly as possible. It is far greater than a lot of what the Chancellor has done.

I am afraid that I would diagnose Mr Darling as suffering from lagophthalmia. I do not expect everyone to know what that is. It refers to the vision of the hare which, although an interesting and charming creature, cannot see in front of it. As my noble friend Lord MacGregor pointed out, it is mad to cut VAT by 2.5 per cent—a great cost—when the shops are cutting prices by 10, 15 and 20 per cent. I hope we will recover. I believe that the capitalist system, with its technological vigour, will in due course come to the rescue of the world economy.