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The Economy (Supporting Business)

I agreed with my hon. Friend the Member for Macclesfield (Sir Nicholas Winterton) and, indeed, with my hon. Friend the Member for Hammersmith and Fulham (Mr. Hands) on the Front Bench, when they referred to the fantasy figures that undermined much of the recent Budget. The very idea that there might be 3.5 per cent. growth during the year after next provided the Government with a very convenient alibi with which to avoid making some of the tough decisions that they must make on public expenditure. Those decisions have effectively now been delayed until after the next general election. My hon. Friend the Member for Hammersmith and Fulham rightly recalled the emergence of the International Monetary Fund, as, indeed, did my right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley). We went to the IMF some 33 years ago, and the big worry in many people's minds is that we will have to return to it. I suspect that, if we do go down that path, the Government will do all they can to avoid it happening on their watch. As the Member for the City of London, I believe that in the months ahead several pressing issues will emerge in our financial heartlands. As the Minister knows, two of the big four domestic banks are now all but fully nationalised. One of those, Lloyds Banking Group, contains what might euphemistically be called "assets" from HBOS, which engaged in a series of balance-sheet boosting debt-for-equity deals during the boom years in the middle of this decade. As a consequence, Lloyds Banking Group has large holdings in a swathe of leading UK companies. Doubtless, many such household names will require refinancing as the downturn proceeds, and their financial rescue will come from the taxpayers' coffers, for obvious reasons. In short, before long, considerably large parts of mainstream corporate UK could end up being effectively nationalised. We need to use some much smarter intelligence to nip regulatory problems in the bud. An enhanced role for the Bank of England is very much a part of my party's policy, but that development will have to be accompanied by the appointment of some high-calibre, trusted and respected professionals to the Bank's top roles. That in turn should be augmented by the emergence of prosecutors with US-style status to replace what I am afraid is an increasingly discredited Serious Fraud Office. Nothing less will restore the confidence of market professionals and the public at large. I fear that the banking bail-outs will turn out to be an expensive failure. Indeed, that has already been proved to a large extent, and I do not entirely agree with the earlier comments of my right hon. Friend the Member for Hitchin and Harpenden. The lesson that we must learn is that any institution that is deemed too big to be allowed to fail will forever be prey to reckless risk-taking. If banks cannot fail, they cannot effectively be regulated, because regulation requires the eradication, not reward, of recklessness. I appreciate that, in the current economic situation, in relation not so much to banks, but to depositors, it is difficult for us simply to stand aside. However, the operation of capitalism requires corporate failure. It is not "market failure", as it has been articulated by many in the governing circles; it is a sign that capitalism is working properly and efficiently. The message that banks will not be allowed to fail serves only to make their effective regulation all but impossible, because regulation creates tremendous barriers to entry and therefore advantages larger corporations over smaller start-ups. The wisest policy option is to create smaller, more competitive financial institutions, and I fear that nationalisation, of which we may see more, leads us in precisely the wrong policy direction. The best form of regulation must always be open competition, and public ownership is anathema to that policy goal.