The Economy

The right hon. Gentleman puts it extremely eloquently. He demonstrates why he should have been Chancellor during the past few years instead of the person who has occupied that place on the Front Bench—a point on which I am sure that we are similarly agreed. The monetary authorities allowed lending and borrowing to outstrip personal incomes. They ignored bubbles in dotcoms and house prices, and promised to limit the downside risk by what became known as the "Greenspan put"—the promise to cut interest rates and pump in money if ever the economy faltered. However, it was not just down to Alan Greenspan in America—the monetary authorities on both sides of the Atlantic pursued almost identical policies. Indeed, it is a bit rich for our Prime Minister to blame the United States and, by implication, Alan Greenspan, when he slavishly copied Greenspan's policies, appointed him as his adviser and awarded him a knighthood for, let it not be forgotten, services to financial stability. Of course, he went on to give knighthoods to most of the bankers he is now vilifying—for services to banking. Underlying that "easy money" policy was the willingness of half the world to run savings and balance of payments surpluses, tempting the other half—the Anglo-Saxon and "Club Med" countries—to run deficits fuelled by borrowing. It was lovely while it lasted, but it could not go on for ever. Our banks had to find people to lend their surplus savings to, and as they ran out of rich people with good collateral and low risk of default, they started lending increasingly to poor people with inadequate and inflated collateral and a high risk of default. The ultimate cause of our problems, which we must recognise if we are to come up with the correct solution, is that we took advantage of the cheap savings from the surplus countries until we were so over-borrowed and inflated that the system was ripe for collapse. We now face a huge dilemma. The cure for too much borrowing cannot be yet more borrowing—least of all for the UK, which as well as having incurred excessive private debts is running an unprecedented public sector deficit and, unlike the US, does not enjoy what General de Gaulle called the "exorbitant privilege" of having the world's reserve currency. The deficit in this country is expected to exceed the entire defence budget, the entire children, schools and families budget, the yield from doubling corporation tax and the yield that would come from increasing VAT to 25 per cent. If we are contemplating any further discretionary borrowing on top of that, we must be mad, and we would destroy confidence in the markets.