Pre-Budget Report

My Lords, we have an exceptional economic situation, but, however serious it is, the media are seeking to make it worse—of that there is little doubt. You would believe from listening to and reading the media that it was the end of the world. However, as Kenneth Clarke said, it is not a financial calamity that we face but a serious situation. I never thought that I would quote from the Evening Standard, but Anthony Hilton said last week: "““When one hedge fund manager … tells you ‘the country is bankrupt’ and another, the American Jim Rogers, says Britain is finished, you can be sure of one thing—they probably both have a massive short position in sterling and will profit mightily if they can engineer its fall””." When I spoke at Question Time in the House the other day, my noble friend Lord Myners spoke of the benefits of stopping the ban on shorting. I asked him to list the benefits of shorting. He overlooked the request—I know that he is very busy—but will he come back to it and tell us the benefits of shorting? I have not been able to see many. The Opposition have the right, and indeed the duty, to criticise the Government, and I do not blame them for that. However, often they appear to be attacking not just the Government but the country, which we all want to succeed. Today, the noble Baroness, Lady Noakes, suggested no serious alternative solution to what the Government are proposing. Her only proposal seemed to be to cut public expenditure—now, in the middle of a recession. That makes no sense at all. Public expenditure may eventually have to be cut—I spent five years doing it, much to my regret at the time. However, doing it in the middle of a recession is not a solution; it would make the matter much worse, as the noble Lord, Lord Newby, was right to say. I turn briefly to the Pre-Budget Report, because that is what we are debating. It had to make forecasts, because the Treasury is obliged to do so. However, it is basically guessing, as everybody else is guessing, what is going to happen in the next year or so. As the noble Lord, Lord Newby, pointed out, the Chancellor said that towards the end of the year, there will be an end to the recession and a slight beginning of the upturn. I have always said that I hope that the Chancellor and the Pre-Budget Report will turn out to be correct, but I have my doubts still. The central question today is what we do about the serious economic crisis. A fiscal stimulus is right, although, like the noble Lord, Lord Newby, I would not have chosen the VAT cut. However, I understand why it was chosen—it could be done quickly, by regulation, and, in terms of whether it is successful, it can be easily reversed, as was intended. Whether I agree with the family benefit figure of £200, I am not sure, but at least the money is going into the economy as a stimulus, and this cannot be reversed. However, it seems to me that a great part of the stimulus must be capital investment on a major scale. The central problem remains the banks. Eventually there will have to be stronger regulation; that will have to happen; but for now we need a proper functioning of the banks, which is what the Government seek to achieve by stabilising the banking system. So far, they do not seem to be having too great an effect. The Government are right to seek to put large sums of money into the banks. My noble friend did not refer to one major area to which the Governor of the Bank of England referred recently, when he said that very substantial sums would be put into the banks by way of buying bonds. I shall quote what he is supposed to have said, which was reported in the Financial Times. He said: "““The Bank of England will start to buy corporate bonds in large quantities””." I declare an interest, as I have a few—good quality ones, I hasten to add. Another report said that there would be £50 billion of such bonds to increase liquidity. I am delighted to see, and would like to see, increased liquidity in the banks, but I should be glad if my noble friend would tell us whether this is true. Does he agree with the Governor of the Bank of England, or was he talking off the top of his head about something that he would like to do at some time or other? How would he do it? Is he talking about buying new or existing bonds? What exactly did he have in mind? He also talked about ““unconventional unconventional measures””. Maybe the Financial Times got it wrong, as the media can occasionally, but that is apparently what he said. The real problem we face is how much it is all going to cost. My noble friend gave us some figures for borrowing for this year and next year and they were very large. I fear that it could be even larger, but I do not fear it as much as doing nothing to stimulate the banking system and the economy. If it has to be slightly higher and takes slightly longer to repay and to get the borrowing down again, we could live with that better than we could with not doing anything, resulting in an even longer and deeper recession. I support the Government on that. It would be a disaster if we did nothing and an even greater disaster if we did not spend this money. We are asked what the true cost would be—what the banks would cost us. We do not know; nobody can answer the question, because nobody knows what the banks’ balance sheets are like or should be like. I read in the Financial Times, which is one of my favourite newspapers, as noble Lords will realise, that the auditors are very worried about the certificates that they have to give. I am not surprised; they should be worried, because in the past they have given clear certificates and the following day the banks have written off billions. The Financial Times tells us again: "““The City regulator is holding talks with top auditors to try to ensure banks are not destabilised by accountants making a qualified judgment on annual accounts””." It is perfectly true that any qualification of an audit certificate on any company would virtually ensure its bankruptcy. What has been the result of those talks? It is not clear to me what auditors can say. The only way in which they can solve this terrible difficulty for the banks and for auditors is fully to state the extent of the toxic assets, whether they have been written off or not and to what extent they have been written off. If we do not know that, we will never know the true cost of what we have to put into the banks and the extent of their deficits. I hope that that can be done, but again I have my doubts. The other main question is: who will manage the banks if we are left with a majority in a lot of them or full nationalisation? My noble friend is quoted—rightly in my view—as saying that he would prefer that the banks were not nationalised. I am not sure that Ministers and civil servants are the best kind of people to run the banking system. However, from what we have seen of those who have been running our banks does not inspire much confidence. In my noble friend’s article in the Financial Times last week, he said that we need an effective commercial banking sector. That would be better than nationalisation. I agree with him, but the central word is ““effective””. If it is not effective, inevitably there will have to be nationalisation, whether we like it or not. One can hardly be confident that the people running the banks will be effective commercially in running them. I would like to think that the new people will be. Perhaps it would be better if my noble friend Lord Myners retired and went to run a bank. He may prefer it: I see him smiling and I believe that he should do so. It is essential that the media and the Official Opposition stop talking the country down—they can talk the Government down if they must. But it is essential that the Government get the money quickly into the banks, that the banks lend it quickly to each other and to the country and that we have a fiscal stimulus that really works, even if it costs a bit more. If we do that, we can prove all the Jeremiahs wrong.