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HM Treasury

I apologise for not being here at the beginning of the debate. I share colleagues' disappointment about the number of Members who are present for such an important debate. We have been lucky in the quality of the speeches we have heard—that has certainly been the case since I entered the Chamber. The hon. Member for Somerton and Frome (Mr. Heath) and my hon. Friends the Members for Wellingborough (Mr. Bone), for Chichester (Mr. Tyrie), and for Broxbourne (Mr. Walker) made thoughtful speeches, and all raised many questions. We look to the Financial Secretary, who is an experienced Minister and has served on the Treasury Bench before, for more answers than we received at Prime Minister's questions earlier today—I thought that the failure to answer some of the key points that were put was worrying. There are many questions to which we need answers this afternoon. One key question being asked is about the pledge to return to the lending levels of 2007 for the banks in which the Government take stakes. Perhaps that was just an off-the-cuff remark that was meant to reassure people that when the banks were taken over the Government would ensure that money flowed. Members have asked that question already, but we have had no answer from Ministers. We can all accept that there has been a deep crisis and that Ministers have struggled, at times, to control their panic and that of the markets. However, given the importance of the messages going out to markets, we deserve an explanation from the Financial Secretary of what the promise of the return to 2007 lending levels means. Perhaps it would be more sensible if the Financial Secretary were to alter that promise this afternoon and give us a clearer steer on the issue. There are also questions about the time scale of the vast public investment going into ensuring our banks' liquidity. We all recognise that it is difficult for the Minister to give any tight promises today, but I hope that he will give my constituents some reassurance. They have seen inordinately large sums go into the City of London, and they need some idea of when the money will be returned to them. Many hon. Members have remarked on the fact that it will be those in our society with least who will find themselves paying for the expense incurred for so many years to come. You, Mr. Deputy Speaker, will be aware that this country only in the past few years finally paid off its debts to the US incurred under the lend-lease arrangements following the second world war. My constituents want to hear from the Minister about the extent and time scale of the moneys committed by the Government in the past fortnight. Are their children going to be paying additional taxes to pay for the bail-out, or their children's children? We need reassurance from the Minister about that. I spent Saturday morning and afternoon knocking on doors in Thorngumbald in my constituency. It is a village on the A1033 east of Hull, and people there are a bit like the residents in the constituency of the hon. Member for Somerton and Frome. They feel very distant from the world of merchant banks, Lehman Brothers, Barclays, wealth and the rest of it, but they are aware that a dark cloud is coming towards them. They pay their taxes on time and always try to meet their obligations. They have been brought up not to borrow money that they are not confident they can repay, and they want to know what penalty they will pay because those in pursuit of vast wealth have gambled and lost. I hope that the Minister will address all the people, wherever they are in the country, who are sitting and worrying this afternoon. On Saturday, the people in Thorngumbald repeatedly told me that this country has not been put in a strong position to weather the economic storm. They are starting to pick up on the fact that, although the problem is global, not every country has been affected the same. In some countries, the banks have been regulated more tightly. Regulators in those countries and, effectively, the head of finance—or in our case the Chancellor—have ensured a more prudential basis for lending by the financial institutions than there has been in this country. My constituents are aware that this country has been spending money based on a false boom and that the coming bust will cost them dear, and probably in their public services. In particular, my constituents want Ministers to put up their hands and accept some responsibility. So far, that has not happened. When the Prime Minister has spoken about the crisis, he has sounded as though it had been visited on us from out of space, and as though he was not one of the world's leading financial secretaries, influencing colleagues around the world and working with them nearly every week on the problem of regulation in the financial markets. He has been in that position, and my constituents want to hear the Government accept some responsibility for the weaknesses in our system, whose results we are now seeing. Colleagues have mentioned the fact that the Government promised an end to boom and bust, and that there would be stability for ever more. They note that the Prime Minister, who used to be the Chancellor, began to believe that he had some unique financial Midas touch that had been denied to all those who had ever served in that post. As so often happens, that hubris has been shown up as a hollow failure. The Minister would go a long way to reassuring people that they will be able to trust the Government more in future if, on behalf of the Government, he sounded a note of humility or apology this afternoon. Other hon. Members have touched on the subject of accounting standards. In the EU, the European Commission is rapidly working up some proposals for changing accounting standards to tackle some of the systemic weaknesses in our system. May I suggest to the Minister that he work with colleagues to ensure that we do not look for any quick-fix solutions? We do not need the equivalent of Sarbanes-Oxley legislation to be visited on the City of London by a remote, unelected European Commission, when the British people are given no opportunity to vote out those who would be responsible for it. I ask the Minister to have caution in that regard. There has been a great debate about whether the current crisis is a body blow to capitalism and free markets. It has been suggested that the global Thatcherite revolution that brought the end of socialism has hit the buffers, with people realising that, after the nationalisation of the banks and so on, we need greater state control. However, I do not believe that. We have had a failure of regulation—a subject to which I hope the Minister will return—but we have also had a form of depersonalised capitalism. The people in the City responsible for pension funds and the directors of our largest companies tend to work with, spend and risk other people's money rather than their own. It is the lack of personal accountability and ownership of assets at the very heart of the capitalist system that has contributed to the irresponsible behaviour of the past few years. That has been fuelled, as I have said already, by the former Chancellor's hubris. My hon. Friend the Member for Chichester and the hon. Member for Somerton and Frome commented on the need to strengthen boards. Every time a problem threatens British business, Members of Parliament rightly want the boards of our companies to be strengthened. They believe that imprudence would somehow end if only we had more independent non-executive directors. I have some sympathy with that view, but the real problem is that there is a herd instinct in our depersonalised capitalist system. It means that people do not keep their jobs, get appointed to other boards or remain as investment analysts if they go against the herd. As a result, they all move together: they use other people's money, without being cognisant of the risks. Useful though independent non-executive directors can be, that herd instinct places massive pressure and responsibility on the regulator. Only the regulator has the overall framework responsibility for ensuring that our financial system, and the entire economy on which it relies, is soundly maintained. I have a number of questions for the Minister, but in particular I should like to know whether he agrees with my hon. Friend the Member for Chichester that the Chancellor of the Exchequer is ultimately responsible for the regulation of the UK economy and the risks that are taken. Nothing has shown so clearly as the events of the past few weeks how failures in that systemic risk management affect everyone in the country. It is essential that that responsibility is held, and is seen to be held, by an elected politician, in the form of the Chancellor of the Exchequer. I hope that the Minister will make a comment on that. However, the problems that we have seen are not all due to greedy bankers or failed regulators. They are also down to a failure of personal responsibility—and many of us will have been guilty of this at times—with people borrowing money that they could not pay back. There has rightly been criticism of banks that have given 125 per cent. mortgages, but for every one of those there has to be someone who signs the form and pledges that the money will be paid back. It is important that we send out the message that all of us, not just those who lend the money but those who borrow it irresponsibly, accept some responsibility for what has happened. One of the key principles behind creating a sounder system for the future will be that there must be greater transparency. We are all aware that the complex financial derivatives that have been created are often not understood by the directors of the banks trading in them. Most famously, of course, Barings crashed because of that. The principle of transparency needs to be maintained across the system. So far, no Minister has explained why the Government, acting on behalf of taxpayers, are taking on those enormous liabilities but not making them part of the national debt. I hope that the Minister will explain that to the House this afternoon, so that we can understand it. Off-balance-sheet borrowing guaranteed by the taxpayer—Enron economics—leads, in the private sector, to prison sentences. In this country, now in the 12th year of a Labour Government, private finance initiative projects have gone ahead specifically because they are designed to keep borrowing off the Government balance sheets, even though the Government are ultimately responsible for that finance.