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The Economy

I declare my interest as stated in the Register of Members’ Interests. The debate has been interesting. I was at school in the early 1970s, when there had been a liberalisation of credit and a property boom. In 1973, 1974 and 1975, we had a bust. The difference was that the Bank of England created a lifeboat so that Slater Walker was wound down, along with several other banks and institutions. I think we had a problem with Burmah Oil, which ran out of cash and lost its shares in British Petroleum to the Government, who bailed it out. The crisis was similar, but the difference was that the Bank of England knew what was going on, got money together and sorted out the banking system in a few years. The changes that the Prime Minister made when he was Chancellor to the independence of the Bank of England have made a difference to our regulatory regime. Had the Bank of England retained its former role, I cannot conceive of being where we are today. Having said that, the City is a vast institution and we have some sophisticated banks. Our country rather depended on our property values and there were imbalances in the world economy, in which many countries generated too much in savings but Britain did not save enough. Savings flowed into our British economy and our banking system used them to sustain a property boom. Inevitably, the bust followed. To be fair, no one could foresee that the billions of pounds in the wholesale money markets would disappear as quickly as they did. If one is honest, one must recognise that that has probably caused an unprecedented problem. However, it has always been clear that that sort of money is hot money and that, in the long term, the most sustainable form of investment in the economy is savings and people putting money in banks in an old-fashioned way. There is now a massive hole in the British economy, which must somehow be plugged. It means a major adjustment to housing prices—the sooner that occurs, the better, so that the market can start to function normally again. Sterling has been devalued, and although I have mixed feelings about it, we can say, "Thank God we’re not in the euro," because it means that the British Government can use economic and monetary policy by reducing interest rates and, to some extent, letting the currency take the strain. We also have the automatic stabilisers and the modest economic stimulus that the Government introduced, although I am not sure that the latter will make much difference. Three things have caused a major problem. First, as the crisis has unfolded, the Government have been behind the curve because they have come back with progressively bigger bail-outs and further help for the financial system. That has knocked confidence because people do not know where it will end and there have been a few surprises. My right hon. Friend the Member for Haltemprice and Howden (David Davis) set out what happened in Sweden, where everybody had to come clean to ascertain the damage at the beginning of a crisis. That would have been a far better way of dealing with the damage to our financial system. Secondly, although many of the Government’s announcements have been broadly welcomed, it is a fair criticism that the detail was not worked out before the announcements were made. There has been a tendency to try to get headlines in the newspapers. Even when the schemes have been worked out, many people in the banking system and various other parts of the economy are not always aware of the detail. Many bemused businesses and constituents who have read about schemes in the newspapers have approached me to ask, "What’s going on? Can we get it?" There is genuine confusion. Not only do more details need to be worked out, but there has to be more collaboration with the financial system and a system for disseminating information. In times gone past, benefits have been advertised in order to increase take-up among people. The Government ought to consider advertising as a means of getting across the message about where people can access schemes. The Minister has talked about a website; perhaps advertising the website would be a way of getting that message across. When people are in need and they think that some help is out there but cannot find out where it is, that tends to cause confusion and make them feel rather dispirited. Thirdly, the Government have to give a clear lead about where we are going. It does not help that at each stage of the economic crisis the Government have tended to go for a rosy scenario. The last full Budget was a "hope for the best" Budget. The growth figures in the pre-Budget report looked unrealistic even then, and they will need to be revised. The economic situation is deteriorating, but that was always likely to be the case. We will have a new Budget in April which will contain even more red ink detailing the Government deficit and Government debt, and the predictions of growth will probably be downgraded again. That knocks confidence. My hon. Friend the Member for Tatton (Mr. Osborne), who made the first speech that we heard this afternoon, put his finger on the main problem, which is the fact that the banks have had a bail-out but have been given mixed messages about what to do. We all have evidence that ordinary banking involving making loans to companies—many of them viable and profitable companies—is not occurring. There is a credit crunch in the British economy that is having an effect on businesses that are long-term and viable, but which face real problems in the short term. The Government have to iron out their version of the relevant scheme to try to get money moving in the economy. I have been in business for most of my life—I have a background in construction and property—and I have never known a situation like this. It is dire out there. Many people are hanging on by their fingernails. We need clear leadership from the Government about where they are going and clear information about the schemes that they are promoting, because we are going through a very difficult time indeed. We have had the financial shock and now we have the shock of the recession, with many people losing their jobs. However, levels of personal debt are substantially higher today than they were in the early ’90s. That means that if people’s incomes are diminished, it does not take very long for them to get into serious financial problems, even with the help that is available through the various schemes. That will eventually create a problem for the banking system, too. We are in for tough times. I agree with my hon. Friend the Member for Tatton that our economy might be configured very differently at the end of this recession and that we may look at things differently. We have to use our good offices to resist protectionism, which is a cul-de-sac, but we also have to get our banking system working properly, otherwise the long-term consequences and the damage to the social and economic fabric of our nation will be dire.