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Prepared: 17:44 on 15 October 2008
2.29 pm
Mr. Charles Walker (Broxbourne) (Con): Thank you, Madam Deputy Speaker, for calling me to speak in this supplementary estimate debate. I had a good crack at this subject in yesterday afternoon’s debate on the Banking Bill, so I shall keep my remarks short and concise, which I am sure will come as a great relief to you.
Mr. Graham Stuart (Beverley and Holderness) (Con): And as a surprise. [Laughter.]
Mr. Walker: That is very rude of my hon. Friend.
The first principle is that the Government have absolutely no money whatever. All money that the Government spend ultimately belongs to the taxpayer; after all, money is raised from the taxpayer. Today, we are looking at a further £42 billion being placed on the public sector borrowing requirement. In recent days, we have moved effortlessly from tens of billions of pounds to trillions, so £42 billion may not sound like a lot of money any more. It sounded like a lot of money three months ago, but now we are in the world of trillions of pounds. It is, however, a huge sum of money, and eventually—sooner or later—it will have to be paid back by the taxpayer.
The sum is, of course, not just the £42 billion of today; a huge amount of borrowing is currently going on outside this £42 billion. Indeed, it is highly likely that by the end of this financial year the Government will have borrowed more than £100 billion, and next year that figure may be exceeded by many tens of billions of pounds. That could mean that next year one in every five pounds spent by Government is borrowed. Clearly, that is not a sustainable position in the long term, and even in the short term it will put our public finances under huge stress for many years to come.
I have had the benefit of the good times. I am 41; I have prospered, my house prices have gone up and my assets have risen in value—admittedly, they have come down a bit in the past few months, but I will have to live with that. However, what worries me most is that this debt we are signing off today—and I am sure we will be called back on numerous occasions over the next few months to sign off even more debt—will be paid back by my children, and there is every possibility that it will be paid back by my grandchildren. Therefore, we are saddling future generations with a huge burden at a time when they themselves will probably have to start paying for things such as their own university education, long-term care and certain drugs not provided by the NHS. Let us be in no doubt, therefore, that what we are doing today will have long-term ramifications for many years and decades to come.
I want briefly to focus on the preferential shares the Government have taken in banks. The Government are charging a hefty return of 12 per cent. interest per year. We could say, “Isn’t that brilliant? The banks are getting it taken to them. They are going to get screwed down. They will have to come up with that 12 per cent. My word, they deserve it.” However, we all know that, ultimately, it is the customers of these banks who will pay the 12 per cent. People on very limited earnings will face increased bank charges, and will get letters that are even more threatening when they go into an unauthorised overdraft, and will receive phone calls saying, “Your mortgage is about to change rate, and, by the way, you were on 5.5 per cent., but you are now going to 8 per cent.” Good, profitable businesses will get phone calls saying, “By the way, we are doubling”—or even trebling—“your interest rate.” These measures will hurt immensely. All these routes lead back to the poor bloody infantry—the taxpayer. There is no free ride here; the taxpayer is funding this.
As I mentioned yesterday, my main concern is that over the next year or two taxes on the very poorest will have to increase to fund this. Our tax burden will go up across the piece, but those in the worst position to pay the increase will carry an unfair burden. There are many people who earn at or just above the minimum wage, and who do not have bank accounts, savings or mortgages. It is true that we are safeguarding the savings of those lucky enough to have them and the situation of those with mortgages, but there will be a huge transfer of wealth, in the form of taxes, from people who have none of those things. They, too, will be caught up in this terrible web of debt and payment, and that is a great shame.
Mr. Stuart: Will my hon. Friend comment on the fact that it is the very people he is talking about—those who have not enjoyed the fruits of the Brown boom—who will pay the price? How much greater might their taxes be in future, while those of great wealth have been most protected?
Mr. Walker: My hon. Friend makes a very good point. People on every income scale will pay more tax, but those at the very bottom are least capable of doing so. They are already living week by week, and sometimes day by day, waiting for the next pay cheque. This will be a huge burden on them, and it is a burden that all parties in this House have a duty to ease sooner rather than later.
The taxpayer will be paying more income tax, but there is also a great danger, owing to the fact that the Icelandic banks went bust, that the taxpayer will also pay more council tax. We really must wonder what the rating agencies were doing to earn their money. In Hertfordshire, £28 million of taxpayers’ money has potentially been lost as a result of the failings of the Icelandic banks, and I know that Hertfordshire took advice from rating agencies and that the agencies said, “Well, we did downgrade the Icelandic banks,” but they downgraded them from AAA ratings to AA ratings. As local authorities seek to rebuild their reserves, that will, of course, result in either work not being done in the affected counties or the tax base of council tax payers having to rise in the short to medium term. This is another way in which taxpayers will be forced to pay for regulatory failings and the failings of this Government.
Members should not be in any doubt as we sign off this £42.2 billion that a huge amount of pain is in store over the next few years for a fair number of people. I wish that was not going to be the case, but it is. Good businesses will go to the wall; families will lose their homes; men and women are going to lose their jobs. There will be a huge, and somewhat unnecessary, amount of pain.
It is hugely refreshing that we are having this debate about the Government’s record and the failings of the regulatory system and the rating agencies, because that is the very essence of democracy. I was amazed that a number of colleagues and commentators in the newspapers sneered at what went on in the House of Representatives a few weeks ago, because that was the essence of democracy, too—the Executive were being held to account. At a time when Members of Parliament are held in such low esteem, we must not let these opportunities to hold the Executive to account pass. I am therefore disappointed that so few colleagues are present to take advantage of this opportunity—and I was also disappointed that so few were present to take advantage of the opportunity afforded by yesterday’s debate on the Banking Bill.
We have heard a lot of talk about consensus politics, but I do not like consensus politics because we live in a multi-party democracy. If we want consensus politics, we should go and live in China. What we want is constructive politics, which centres on robust debate and forensic examination of what is before the House. I therefore ask for less consensus politics and more robust and constructive politics because, after all, that is why we are sent here by our constituents. We must rise to the challenge at this important moment in our history.
2.39 pm
Mr. David Heath (Somerton and Frome) (LD): It is a pleasure to follow the typically thoughtful contribution of the hon. Member for Chichester (Mr. Tyrie) and that of the hon. Member for Broxbourne (Mr. Walker). I challenge the latter on only one point. He says it is inevitable that those on the lowest incomes will suffer most from future taxes, but that is a political and fiscal decision for us in this House to take. It is my firm belief that those who can least afford it should not bear the weight of the measures that we are putting in place; it should be borne by those who have the finances to pay their fair share towards the running of this country.
Mr. Walker rose—
Mr. Heath: I give way, but I do not want to get sidetracked into a separate debate.
Mr. Walker: I am grateful. I hope that the hon. Gentleman accepts that I said it was incumbent on all of us in this place to ensure that that happened.
Mr. Heath: Of course I accept that. How to structure taxes to ensure that we protect those who can least afford the stresses of the current situation will be a very important debate for us to have in the near future.
Mr. Graham Stuart: Will the hon. Gentleman give way?
Mr. Heath: I give way, but as I said, I do not want to be diverted from my principal reason for speaking.
Mr. Stuart: I am extremely grateful. My hon. Friend the Member for Broxbourne (Mr. Walker) was absolutely right to say that the burden will fall on those with the lowest incomes. It is difficult to structure our fiscal policy so as to protect them, because at the moment 40 per cent. of the largest single tax take, income tax, is paid by 5 per cent. of the people. In a globalised world in which the super-rich can easily leave the country, it will be those at the bottom of our society who are left to pick up the tab. That is why it is so important that Governments do not repeat the gross errors made by this one, which have helped to put us in the position we are in.
Mr. Heath: The hon. Gentleman tempts me into a debate that is for another day, but I hope I have made my views clear.
I welcome the comments of the hon. Member for Wellingborough (Mr. Bone). I do not agree with everything he said, and he would not expect me to, but his most important point was that this is the first opportunity that Back Benchers such as myself have had to say anything about the biggest international and national crisis that the House has had to cope with for many a long year, and that a debate such as this is an inadequate vehicle for that purpose.
I would go further: I have said more than once how badly the House deals with matters of supply, which some would say is our prime purpose. It is why we are sent to this House, yet we are unable properly to scrutinise Government expenditure. I suppose that we do a reasonable job of scrutinising the raising of revenue, but expenditure is largely a matter of the House rubber-stamping estimates during wholly inadequately estimates day debates. If the House is serious about holding the Government to account for the vast amount of taxpayers’ money that they spend, it needs to consider major reform of that procedure.
As the hon. Member for Broxbourne said, it is extraordinary that so few right hon. and hon. Members have felt it appropriate to come to debate the spending of £42 billion. They will come and debate other things, but £42 billion? “Oh, well, that’s nothing important, is it? That’s not why we’re sent to Parliament. We’ve got far more important things to do.” Well, I disagree; I think it is exactly why we are here.
Various hon. Members have mentioned the difference between how we debate these matters and the American system. There is much to criticise about American governmental and administrative structures, but it is entirely misplaced to argue, as some have, that it was wrong for the House of Representatives to debate at length and in detail the package that was put to it a week or two ago. Whether or not we agree with the views expressed, it gave those representatives the opportunity to express the views of their constituents, which are easy to forget in the desire to establish consensus. That is not an unreasonable or incorrect impulse, but there seems to be a desire to demonstrate how clever we all are about matters economic and financial. I am certainly not clever about them. My hon. Friend the Member for Twickenham (Dr. Cable) is, which is why I trust implicitly the views he has expressed in recent weeks. I claim no expertise, but I do claim a right to speak up for my constituents and discuss the concerns that they have expressed to me. I shall therefore talk about those concerns.
I am not against the step that we have reluctantly taken to recapitalise the banks through the mechanism that has been set up. It raises enormous questions, of course, and at one stage I was worried that there would be an almost free injection of cash into the banking sector. I could not have countenanced that without at least some return for the taxpayer. I am satisfied that that is at least partly covered in the Government’s proposals, but the people in our communities who examine what the House and the Government are doing have real concerns that have perhaps not yet been satisfactorily met.
Our constituents have suspended disbelief at the moment. They accept that there is an enormous crisis. It was often referred to last week as “staring into the abyss”, but a more apt metaphor would be the mediaeval maps of the world on which there would be a vague bit around the edge, where would be written “Here be dragons”. Nobody knew quite what would happen if they sailed off the known world into the areas where the dragons were assumed to lie in wait. We do not even know the nature of the dragons, but it was an extremely scary place to be.
I hope that what has happened in the past week or so, in this country and internationally, will have allayed some fears and staved off some of the dangers, but there is still genuine concern. I think that people are beginning to realise just how important the whole process has become to their real lives and the real economy. The interconnection was not immediately apparent. People in Somerset do not lie awake worrying about merchant bankers. If the merchant banking system were to crash suddenly, it would not cause many tears among my constituents until they realised the consequences for real jobs and businesses and real people’s private finances.
I received a tragic letter from a constituent about events a long way away, in the United States. Sometimes we wonder whether we worry unduly about events in the economy and politics of the US, but the letter was from a 94-year-old lady in a nursing home, all of whose savings had been invested without her positive agreement—it was done by one of those advisers who manage such things—in Lehman Brothers. When she wrote to me, she had no idea whether she had anything at all left to ensure that she would be looked after in her old age. That shows the real interconnection between events that may seem distant but actually have direct consequences in our communities.
The big question that my constituents and, I am sure, those of other hon. Members are asking is where the conditionality is. They say, “We are putting into play vast amounts of our money, so what do we get out of it, other than stability?” Stability is a perfectly good end in itself, but what else do they get? One issue that has been raised with me many times is the culpability of those who took risks and played fast and loose, and whether there will be a degree of retribution. Will those people get their come-uppance?
It is unfortunate to use another north American example, but when the chief executive officer of Lehman Brothers was before a congressional committee, he was taxed on why he was walking away from the crash with—what was it?—$500 million. People do not understand why somebody who appears to have been criminally irresponsible with their money gets to keep $500 million. That sticks in the craw of many people in this country; they do not like the idea of a one-way bet. They do not like the idea that someone can win only if they have the money to pay the entrance fee to these casinos that we call the City, because if they find themselves losing, somebody else pays the bill. The view that this is a one-way bet whereby people can only win and cannot lose offends not only the Chapel sensitivities of people in Somerset but ordinary British people, and we must be careful not to create that impression.
People are worried about the vulnerability of the money that is being invested by the Government. They want to know that it is not simply being poured down the drain and that there will be a return on the investment. I look at what is proposed, but I am not sufficiently expert to be convinced that there is a lock on those investments that will ensure a return for the taxpayer—I hope that there is. Most people have to accept at face value the assurances that they are given, but, not too far away, there will be a reckoning when we will see whether there is such a return.
People want to see equity between different interests and between different sectors, because it cannot be right that the Government are interested, for strategic reasons, in propping up only one industry and will allow others to fall. That takes us into tremendous conundrums of national policy: are we then to intervene in every failing company in every failing sector, or are some sectors considered more equal than others? I do not know the answer to that, but I know that the question will be asked. There have been recent company failures in my constituency. Usually the companies involved are not household names. They are not big companies that attract the headlines, but for the people who find themselves redundant as a result of such failures, it is every bit as important as the collapse of some big name in the City.
That brings me to my next concern. Unemployment is rising, and we have explored that over the past couple of days. I remember when I was first elected, the town of Frome, which I have represented for nearly 25 years in one capacity or another, had a 17 per cent. unemployment rate—it was crippling. The town was in deep and long-term recession. Over recent years, the town has been blessed with almost zero unemployment—almost full employment. It has been very good for the town. There have been hiccups along the way: companies such as Cuprinol and Coloroll, the carpet company, both of which people will have heard of, lost their way, but we recovered from that because the underlying local economy has been strong. Now, unemployment is creeping up again. Although the increase is not huge in empirical terms, in proportional terms we are talking about quite a high percentage. What worries people in rural areas—areas off the main communications system—is how we win those jobs back in a competitive environment if there is a national recession.
I am not satisfied that we have right even the basics for dealing with failing companies. Only this Saturday, a gentleman who had just been made unemployed—along with a number of his colleagues—came to my constituency surgery. He had not been paid his last month’s wages, but the company was carrying on trading. It was doing so despite failing to pay these employees for their last month—they were owed that money. That is not a unique experience, but it is wrong; it is robbery and theft from the people who can least afford it, and I object to it.
We talk a lot about the need to refloat the business economy, particularly small and medium-sized businesses, which are so dependent on bank loans in order to maintain their business. I have yet to see clearly that the steps that have been taken have had the desired effect, although I have faith that they will do so. A big risk is involved over the next few months. I supported the Bank rate reduction, and my hon. Friend the Member for Twickenham had called for it, although he would perhaps have preferred a slightly more aggressive reduction. However, if it is not even passed on to those who have loans with a bank in Government ownership, why should we trust that other banks will pass it on? What mechanism is in place to ensure that banks make business loans both available and affordable, rather than merely to exhort them to do so?
Housing and household repossessions also need to be addressed. The biggest growth industry in Somerset is in the courts dealing with repossession orders: there are not enough people to hear the repossession cases in order to clear the backlog, and the position is worrying. I have been warning for many years about the situation in my constituency, which has one of the country’s highest ratios between average house price and average earnings. The fact that people are paying such large multiples of their average wage to keep a roof over their head is unsustainable—indeed, many people cannot have a roof over their head, at least not in the village or small town in which they were brought up.
Foreclosures are now occurring, and it is not clear to me that what the Government are proposing and what we are being asked to support will reduce them. Measures could be taken to do so: we could offer to take equity in houses in order to keep people in possession of their own homes. There are ways that the banks, building societies and others could make a real difference, but it is not clear that such measures are included in the proposals before us.
Mention has been made of local government and the difficult position that so many councils face in respect of their investments in Iceland. I looked at the list of such councils, and I could see no discernible political difference between the councils that had invested in Icelandic banks and those that had not done so. Many of the local authorities involved are considered to be the most astute in the country at financial management, so something has gone wrong with the advice they were given. I find it difficult to blame councillors of any political persuasion on this matter, unless I have evidence that they acted rashly. I suspect that most councillors will have had no part in the decision-making process. When I led a council, we were given regular reports on the investments of our pension fund, but they were in generic terms; such reports dealt with the sectors rather than the day-to-day management of investments. I would be worried if elected members had direct control of the route by which investments were made. Although I do not attach blame directly to councillors—or even to councils, provided that they were shown to have taken proper precautions—we must do something to get the assets back.
It is very important to get those assets back, despite the fact that, compared with the turnover of the councils, the investments are relatively small. The figures sound huge when they are quoted down the pub, but they are only a small part of the annual spend of large county authorities. However, the sums are significant and need to be returned. The Government and the Local Government Association—and anybody else who can help—need to be fully engaged in ensuring the return of those assets, because if they are not returned, the money cannot be used for investment in the local community, be that in the direct provision of services or in long-term capital investment and so on. Thus, the return of those assets is an imperative.
Mr. Graham Stuart: Does the hon. Gentleman agree that the Financial Secretary owes the House an explanation of the guidance given to local authorities so that the House and the British people can better understand how local authorities, police authorities and others invested so much public money in Icelandic banks?
Mr. Heath: That is right. We need to look at the work of the rating agencies as a whole, because if the advice that they were giving was so inadequate they are not carrying out their primary function. We should be aware of that and should perhaps take with a pinch of salt any advice that they proffer in the future.
Mr. Bone: I am listening with great interest to the hon. Gentleman’s very powerful speech. I did not touch on this issue in my speech, but does he think that the out-of-turn supplementary estimate should have a provision equivalent to the amount of money that local government has lost to Iceland, in case it is necessary to resort to that? As he said, it is not the fault of individual councils that such things have happened—it is just pot luck.
Mr. Heath: It is difficult to answer that, because I want to see that money returned from where it is sitting. I do not want to pre-empt the argument and, to an extent, if we made provision for that money as a bad debt we would be pre-empting the position. I urge the Government and everybody else involved to show the utmost vigour in ensuring that those assets are returned because they are of such value to local communities.
I want to conclude, but let me deal with two more areas of concern. One has been mentioned several times, but I shall repeat it. I fully expected in the recess that the first thing we would come back to would be a statement about how the Government would respond to the ombudsman’s report on Equitable Life. In fact, I said in writing to my constituents that although we did not receive such a statement before the recess, we would of course hear one in October and that the Government would tell us how they would respond and that they would make appropriate recompense to those people who were so badly let down by the regulatory authorities. We still need that statement. We need it even more urgently because, quite rightly, people will ask how such measures can be taken for some people while in the case of the people affected by Equitable Life, who have a clear independent arbiter’s review that shows they have been let down by the regulatory authorities, the matter is apparently not even to be mentioned, let alone dealt with. That is a matter of urgency.
The other statement I fully expected to hear this week was an explanation of the details of the insulation grants announced by the Prime Minister over the recess. It might be said that that issue is very far removed from the supplementary estimate, but it is not. The single biggest financial problem faced by many of my constituents is how to heat their homes over the winter. Telling my constituents that they can have grants for cavity wall insulation, when most people have houses with solid walls because it is a country area and the houses are built of rubble stone, is not an adequate response to the huge increase in heating costs. That increase in costs is a particular problem with heating oil, which is another difficulty in rural areas that perhaps does not apply in some suburban and urban areas. Those old-age pensioners who will see the value of their investments, if they have them, reduced and are on a fixed income will find it very difficult to get through the winter.
When this is all over—when the war is over—big questions need to be asked about the regulatory process. I agree that we do not want heavy-handed regulation, but we want regulation that works and that is effective. It is clear that we have not had that. We want to see financial products that are properly transparent. I cannot begin to understand the intricacies of some of the financial products that have been marketed over recent years. We seem to be piling one bet on another on another until we reach the point where we cannot possibly have any trail of understanding that allows people to know what exactly they are investing in. People take a pride in the complications that they have introduced into financial products. It is all very clever, and I am sure it looks good when calculating the bonuses in the short-term financial environment, but it is not good business. It is not sound business, but that is what banks ought to be engaged in.
I agree absolutely with the point made by the hon. Member for Chichester about the role of boards of directors and how they should be strengthened. We all know that some people have 25, 26 or 27 directorships, but they are not doing justice to their fiduciary role as directors. They cannot be. One cannot devote that many hours in each day to the proper care and governance of companies. We need a much clearer idea of the role of directors, and in particular the role of non-executive directors in asking the difficult questions.
Finally, I do not think that the point about the complete failure of audit has been made sufficiently. It is incredible that we have auditing systems across the country that are so incompetent in advising shareholders, potential investors and anybody else on the strengths or otherwise of a company’s position, including the position of the banks. My suspicion is that that has something to do with the conglomeration into the big three—or big four, or however many there are—large auditing firms, which seem to be unhealthily close to the companies that they audit. What I want to emerge from the situation is a hard look at the process of audit and at the strength of the auditing system. Perhaps rather than Chinese walls, there could be some real separation between auditors and the companies that they audit so that candid advice is available about the strength of a company’s balance sheet and its position. Banks, building societies and financial institutions are meant to be the bedrock of our economy, and we are having this debate today and proposing to spend £42 billion because we cannot live without sound financial institutions. We have allowed them to rot from inside, and that is not good for the British economy.