Banking Bill

The hon. Member for Edinburgh, North and Leith (Mark Lazarowicz) makes some interesting points about international institutions. We have the Bank for International Settlements and the IMF. I hope that whatever additional role is needed can be found through them, rather than by inventing new institutions. It is a matter not of institutions but of political will to solve these problems. That is what we have seen in Europe. The political will was not there two weeks ago, but it has been there this week and people have done things. It was not the lack of another ECOFIN or European Central Bank that led to the delay. It is a matter of political will and those institutions should be built on. I have supported the package of recapitalisation and liquidity measures that the Government have taken. Perhaps they could have got away with doing a little less if they had done it a little sooner, but that is easy to say now. They have done the right thing, but I would be grateful if the Minister would comment on one aspect. I raised with the Chancellor yesterday the fact that the Government are saying, on the one hand that, despite their shareholding, they will let the banks be run on an arm's length commercial basis and, on the other, that the banks must immediately restore mortgage and small business lending to 2007 levels. That is contradictory and potentially dangerous. It was the 2007 levels of mortgage and small business lending that got us into this trouble in the first place. That was the peak in broad money supply growth. It was growing at 13 per cent. a year in 2007. Perhaps I am the only monetarist left in this place, although I expect my right hon. Friend the Member for Wokingham (Mr. Redwood) is one, too. There may still be a few of us who think that there is some connection between money supply and inflation, as was shown by the figures in 2007. To go back to that seems dangerous. The housing market will have to adjust to the problem. That may be painful for some people, though it will be a wonderful opportunity for first-time buyers. For every winner, there is a loser, but the idea that, by taking the steps proposed, we can prop up the housing market at no cost in terms of inflation or future problems is a mistake. Between 1997 and 2008 total personal borrowing trebled. It grew at 10 per cent. compound, about the same rate at which the money supply grew—those are very similar measures—and it all wound up in housing values. Housing prices tripled in that period as well. That released money for people to spend improving their standard of living and their consumption, but the Bank of England failed to control that. I shall return to the point, because one of the failures was in the Bank of England during that period. I urge the Government not to insist on returning to 2007 levels of lending in those areas. There may not even be enough borrowers to take up that lending. In an intervention on the hon. Member for Twickenham (Dr. Cable), I made a point about deposit protection. We are in an extraordinary situation in which there is a series of banks—six or seven of them, three of which have big Government shareholdings and the rest of which are too big to fail—in which the Government would have guaranteed the depositors in any circumstances, and another group in which the same level of protection is now afforded, at least up to £50,000. At one level, one could say that there is unfair competition because the group of big banks have a Government guarantee behind them, but I am worried about the moral hazard point. I have been staggered by the number of constituents and friends who had money in Northern Rock or Icesave—banks which I am sure they had never heard of. I had not heard of Icesave until about a year ago. Perhaps that is my ignorance, but I suspect that those friends of mine who had money in Northern Rock had not heard of that 10 years ago. People were prepared to risk their life savings for half a per cent. That was a big mistake on their part. If we protect them from that, we will pay the price of more and more money going into institutions that are taking higher and higher risks. That is how they earn the extra money to pay the extra interest. When these extraordinary times are over, depositors will have to bear part of the risk of their own choices. In the past, they would have got the first £2,000 back and 90 per cent. of the next £33,000. Obviously the £2,000 was to save the administrative hassle of having to knock a couple of hundred pounds or a hundred pounds off what people were paid back. However, at the £50,000 level, there must be some risk, and 10 per cent. seems not unreasonable. People may need to be educated about this. At present they take no risk at all. The risk has been passed on to the rest of us and, essentially, passed on to the taxpayer.