The Economy

There is no doubt that the bad debts have to be separated out, and in some cases it might be sensible to convert them into equity of some kind. At some point in the future, the bad debts can be sold off, but it is not clear to me that they are a priority. The overriding need is to get new lending going, and that is what the banks are not doing. The Government are trying, in a very oblique way, to create confidence in the banking system, when they should be directing the nationalised banks. That is the answer: the hon. Gentleman may not agree with that approach but, if he accepts—as my party does—that there is no alternative to the de facto nationalisation of the banks and the effective direction of their strategy, the asset protection scheme becomes, if not unnecessary, then certainly a lower priority. I turn now to this week's G20 meeting. I agree with the Conservative shadow Chancellor that it was odd for the Chancellor not to address it at all. That was very strange, because the meeting is something that we should very much welcome. People in a negative frame of mind ask why we are having it and say that it is a waste of time and money, but of course it is not. The world economy is in peril, and it is absolutely crucial that there is a collaborative approach to the problems. Some fundamental things can and probably will be done at the G20 meeting—for instance, on getting agreement on the IMF funding that many countries, especially in eastern Europe, need, and on securing a more effective role in decision making for China and the other emerging powers. Most important of all—and again I agree with the Conservative spokesman on this—progress will probably be made towards a meaningful agreement on preventing protectionism, both in traditional trade and more widely. Those are obviously essential tasks, but I am perplexed by the overriding priority that the Government are giving in the short term to issues of international financial regulation. Of course we need such regulation, but many of the things that must be done can be done at a national level. For instance, there is a broad consensus that banks will need to be regulated through their capital on a counter-cyclical basis, but that can be done at a national level. It is already in hand in some countries: Spain has tried to do it, and there is plenty of discretion in that regard in the European rules and the Basel process. There is no reason why countries need an international agreement before they get on and introduce regulation. Another problem involves tax havens, on which the Government are quite rightly focusing. Tax havens are a long-term problem, in part because of money laundering issues but also because of tax policy. However, most of the tax avoidance in the UK takes place under the Government's nose and with the Government's full knowledge. In the case of the banks, it is happening with the active complicity of the British authorities. To say that there needs to be an international agreement to deal with the problem is perverse. That is simply escapism, and an example of our Government failing to face up to their responsibilities. In conclusion, I want to make a final point about financial regulation. We have had Lord Turner's report since we last debated the matter, and it is a very important milestone in how we look at financial regulation and the City. The debate has often been presented as meaning either more or less regulation, but that is not a sensible way of looking at the matter. There was plenty of regulation going on, and an enormous amount of box ticking, but the problem was that there was very poor supervision. Supervision is not regulation—the two are fundamentally different. Custard pies may fly backwards and forwards across the Chamber about whether we need more regulation or less regulation, but that argument comprehensively misses the point. Plenty of institutions in the City do not need heavy regulation; for them, light-touch regulation is perfectly relevant, because they pose no systemic risks. What is absolutely clear, however—this goes back to the Cruickshank report—is that the banks were different: they needed to be supervised much more actively and regulated in a different way from other types of financial institution. That is the conclusion that should have been drawn.