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The Economy

I apologise to the hon. Gentleman; I may be particularly inarticulate today. I thought that I made two very simple points. People may or may not agree with the policy, but we believe that there should be a tax cut for those on low incomes that should be fully funded by tax increases elsewhere on those who we believe should pay for it. People may disagree with that policy. They may think that it is impractical and that it has bad incentive effects, but what we are arguing is clear. Let me move away from the economic seminar—we are getting rather bogged down in economics—and on to something a bit cruder and more straightforward, which is the role of the banking system. That is fundamental to the matter. We supported the Government five months ago when they embarked on the capitalisation of the banks. I have to say that we have become progressively disenchanted as it has become clear that the Government have taken on ownership and responsibility for the banks without having a clue as to what they will do with them, and without exercising any effective governance. The banks are still completely unclear as to whether their primary job is to lend more or to accumulate more prudential capital—they are torn between those objectives. The Government are not giving them clear instructions. They do not need to get involved with the administration of banks, where they obviously have no competence, but they should give them a basic sense of strategy. They have still not sorted out the appalling remuneration arrangements, and the Conservative shadow Chancellor was right about that. There does not appear to be any structure for dealing with those arrangements. We have a shocking situation where semi-nationalised, nationalised or guaranteed British banks seem to take it for granted that they have a perfect right to avoid paying UK taxes—there has been no effective attempt to clamp down on that—and five months after the beginning of the capitalisation programme, that is simply not good enough. Another aspect of the banking issue is the future-looking exercise by Turner. I guess that most of us have not had time to read it in full, but we had a brief reprise of it from the Conservative Front Bench. Most of Turner’s points are fairly uncontroversial. Clearly, the wrong model was pursued early on, but speaking as a veteran of the legislation relating to financial services, it is fair to say that there were not too many people on the Conservative Benches at the time who warned about light-touch regulation and its consequences, or about the problems associated with process regulation.