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The Economy

That is a relevant point. As the hon. Member for Twickenham (Dr. Cable) said, what is desperately needed is a clear statement of governance if the banks are to resolve those issues. In my view, if the banks are to have the state behind them, restoring lending to the wider economy should take absolute priority. That is the overwhelming requirement, and that is the central point that I wanted to make. The policy has been eye-wateringly costly, yet it has not even achieved that one main objective. It is bitterly ironic that a different strategy not only could have achieved that main objective in full—it could still do so now—but could have done so at a fraction of the cost, and I want to show how. Why was that different strategy not followed? This is probably where I part company with the right hon. Member for Wokingham. There was just one thing blocking the use of that strategy, but that one thing is, I suspect for both Front-Bench teams, the biggest inhibitor in the entire neo-liberal lexicon: the horror of the public sector. The amount of money that has been spent on avoiding it is truly prodigious. Some £26 billion was spent initially on Northern Rock—a sum slightly larger than one third of the entire nation’s education budget—but the Government were still forced to acquiesce, reluctantly, in nationalisation. A year later, in September 2008, the Government spent £42 billion bailing out Bradford & Bingley. A week later, they made £300 billion available for a credit guarantee scheme, plus £200 billion for a special liquidity scheme and £37 billion for a bank recapitalisation plan. The banks, of course, were delighted; they took it all with relish. They used it to consolidate their balance sheets, but they increased their lending very little, if at all, so the Government went further. In January this year, they offered another £55 billion to protect the banks in respect of corporate debt. Last month, they made available a further £500 billion for an asset protection scheme to cover bank losses. Altogether—this figure has already come out in the debate—the Government have offered some £1.15 trillion to the banks, a sum equivalent to 78 per cent. of the UK’s entire GDP, yet still bank lending to business and to household customers is stuck at a level that is causing business bankruptcies and joblessness to rise. The obvious question is whether there is or was an alternative. I believe there clearly is. That is best illustrated by the RBS saga. After the catastrophic takeover of ABN Amro, RBS, as we all know, chalked up in 2008 the biggest corporate loss in British history—£28 billion. So the Government stepped in with a £20 billion recapitalisation for the stricken bank. Even that did not staunch a massive further slide in the RBS share price, and by 20 January this year RBS stock, which was worth £78 billion in 2007, had had its value reduced in the marketplace to less than £4 billion, a staggering loss of 95 per cent. The Government then provided yet another £25 billion recapitalisation. What all that means is that instead of trying to bribe RBS and, of course, other banks, although RBS is the classic example, with colossal subsidies to increase their lending into the wider economy—an objective that we all want to see, although there has been extraordinarily little success in respect of the sums concerned—the Government could have taken over the bank at a tenth of the cost and thereby, with proper governance, secured the full increase in lending that was desperately needed. The key point, and the overriding argument that needs to made time and again, is that if the banks had the state behind them—this is in answer to the second intervention—they would no longer need to bolster their balance sheets at the expense of the rest of the economy. That is a prize worth having in the current meltdown. The same benefits of a takeover, as opposed to near-bankrupting the country by shoring up failures, would apply in the case of other banks. I shall give another example. With its very high level of toxic assets threatening now to bring down the whole new Lloyds banking group, HBOS, which was valued at £35 billion a year ago, could instead have been bought in the stock market for £6 billion last October. Instead of £11.5 billion of taxpayers’ money being pumped in to assist the merger with Lloyds TSB, it could have been purchased at half the price and—this is quite important—the merger that is dragging down Lloyds need not have taken place. The cost via the public ownership route of returning to full-scale lending for the economy would therefore have been hugely less than under current policy, and also than under the Opposition’s national loan guarantee scheme, which I do not think would have achieved the same objective. Admittedly, and here again I slightly differ from what the right hon. Member for Wokingham said, £1 trillion or more of public funding is currently at risk to assist the banks, but I assume that only a portion of it will be used, although we have been told that RBS wants to shift £325 billion of toxic assets into the asset protection scheme; and Lloyds is now thinking of transferring £250 billion, while Barclays is waiting on the edge. As long as it does not get into public control, it wants to put all its toxic assets, running to a few hundred billion pounds, into that scheme. Even if one leaves that aside—I do not think that we can quite leave it aside, it has been estimated—[Interruption.] I take that point entirely; it is a high risk policy.