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The Economy

I was referring to a boom that led to a most serious bust between 1990 and 1992. That bust was the result of the boom being allowed to get out of control, so I do not think that all the lessons are on one side. As I say, history points to a rather different story. The debate hinges on the fact that the Government have always rightly insisted—I do not think that anyone really disagrees with this—that they had to save the financial system from total collapse in order to preserve the real economy from deep recession by restoring lending to business, preferably at pre-crunch 2007 levels. What has actually happened—here I agree with what the right hon. Member for Wokingham said—is that unimaginably stupendous sums of taxpayers’ money have been spent on recapitalising the banks and insuring them against their ill-acquired mountains of toxic assets. However, lending to businesses and home owners has hardly increased at all, although such an increase was the whole aim of the exercise. Indeed, the banks actually decreased lending in the last quarter of 2008, and they announced not long ago that they are reducing it further in the first quarter of 2009. That in turn has forced the Government to try to substitute for the banks turning off the taps by increasing their lending to some stricken parts of industry. A notable example is the car industry, but the Government have also increased lending to some other industries. That substitution cannot possibly be more than extremely limited, because the deficit in the public accounts is already enormous, and it can certainly never begin to measure up to the scale of normal bank lending to the economy, which usually runs at something like £500 billion a year. The fate of the whole economy continues to depend on the banks.