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The Economy

I listened with interest to what Opposition Members said about how removing the regulatory role from the Bank of England has led to the present difficulties, but the same situation exists in the US, Japan and across Europe. Yes, there have been serious failures of regulation, and I accept that the FSA and other regulators got into a tick-box culture that meant that they were not looking at the big picture. The classic case that should have sounded the warnings was Northern Rock. That involved another tick-box culture where everything, according to the regulator, was in order, yet its business model was totally dependent on the wholesale credit market. As soon as that dried up, Northern Rock’s business plan collapsed, after which the bank went belly up and had to be rescued. The problem was that the regulators were not looking at the other banks either. The revelations about HBOS, for example, clearly show that it was getting into virtually the same position as Northern Rock. In addition, we now know that RBS was massively leveraged and that the takeover by ABN Amro was a disaster that created real instability in that institution. Yet because the FSA was merely ticking boxes and not looking at the bigger picture, it missed the real problems that the banks were heading for. I want to say something briefly about the role that the banks are playing on what might be called the front line, where small businesses are having real problems accessing some of the loans schemes. The Treasury Committee took evidence in Leeds, in a session that highlighted that particular difficulty. We were told that a very successful company in Humberside needed an extension of its overdraft, but that its bank was being extremely difficult and unco-operative. It turned out that the local regional manager of the bank involved was the fifth to hold the post in the past two years. He did not know really anything about the region or its particular companies, and I believe that the banks’ loss of direct contact with businesses, and of the knowledge and understanding of what they do, is causing real problems. I urge the Government to get to grips with the banks. They must do so at the macro-level—the aim is to get the money out as quickly as possible—but they must also look at how the banks are operating at the micro-level, because that is where many of the problems lie. I should like to mention an issue in which I am particularly interested, although since the collapse of Lehman Brothers and the real onset of the global recession, it has gone out of the headlines. It is the huge commodity spike that took place in late 2007, which peaked when the oil price reached nearly $150 a barrel in July 2008. My concern is that when we come out of the recession, there will be another commodity bubble, which will prevent or delay recovery. The Government, through the G20, should look for a way to ensure that commodity markets are far better regulated. Finally, the G20 is a real opportunity for us to ensure that there is quality regulation throughout the world; to be seen to be acting together to address the problems, particularly in the developed world; and to look at how we can co-ordinate fiscal stimulus. At the end of the day, manufacturers here and in, say, Germany are dependent on both countries’ economies to create demand for products, whether those products—cars or whatever—be German or British. Co-ordination is a key to that. I am sure that the Government will do what they can to ensure that the G20 is a success, both on the regulatory front and when it comes to addressing the overall problem in the economies of the world.