Amendment of the law

Economic predictions are notoriously unreliable, but few of us at the time of last year's Budget would have imagined that we would be where we are now, with a major share of our banking industry in public ownership and the world in the throes of recession. The economic crisis began in the financial sector, and I would imagine that most people would agree that we would be suffering a far worse situation had the Government not stepped in to rescue the banks. The scale of the measures taken to save the banks and get them lending again is enormous but, had there not been Government action on this scale, we would have faced the real prospect of a collapse of our banks. Allowing our banking system to collapse following the bankruptcy of Lehman Brothers in the US would have been catastrophic for the entire country. It is important to remind people that these measures were not taken for the sake of the banks but for the sake of everybody in the UK. Had the banks been allowed to fail, the entire economy would have suffered from the impact. The financial sector is of vast importance to the broader economy, and the current economic problems have shown the degree of interaction between the two. The ill-health of the financial sector caused an acute reluctance on the part of the banks to lend to each other, and to people and businesses. This credit crunch soon put the so-called "real" economy into difficulties, leading to an increasing number of individuals and businesses whose finances look precarious. In addition, lenders stop providing credit to people who they perceive as at risk of being about to go bust. As well as preventing the collapse of the banks, the measures taken by the Government have been designed to get the financial institutions lending again. There is real hardship—and fear of hardship—as the recession takes its course. My constituents are particularly exposed, owing to the high proportion of jobs in Edinburgh that are in the financial sector. Edinburgh is Europe's fourth largest finance centre. In 2007, 32 per cent. of employees in our city worked in the job category of finance, IT and other business activities, compared with 22 per cent. in Britain as a whole. That is quite a big difference. A recent study commissioned by Scottish Enterprise projected that the Scottish banking and insurance industry could lose up to 8 per cent. of its work force—that is 24,000 jobs—over the next two years. Unemployment in Edinburgh has indeed jumped: the number of people claiming jobseeker's allowance leapt by 59 per cent. in the year from February 2008, and the number of unfilled jobcentre vacancies more than halved. There are now nearly six jobseeker's allowance claimants for every jobcentre vacancy, up from just under two last February. While there are signs that the worsening of the economic situation may be slowing down, the economic downturn is far from over and unemployment in particular, as a lagging indicator, is likely to increase for months to come. We must make a massive effort to identify the lessons to be learned from this crisis, and all involved should accept their share of the responsibility. It is undeniable that events abroad played a major role in igniting the global and domestic recession. In his report published last month, Adair Turner, the chairman of the Financial Services Authority, identified the US housing market as the source of the origins of the crash. However, it is also clear that all was not as it should have been here in the UK. Practices of the banking and finance industries have been roundly condemned and the Government have moved to identify the weaknesses that must be addressed. In addition to the Turner review, David Walker will report later in the year on the banks' corporate governance, and the Chancellor said today that the Treasury will bring forward its own proposals for reform in due course. The culture of excessive borrowing has also been criticised. We still have huge levels of personal indebtedness. Total net outstanding lending to individuals is just under £1.5 trillion. Consumer spending that was funded by borrowing on the basis of inflated property prices drove our economy to an unsatisfactory extent. In time, as more information becomes available, it will be possible to determine the extent to which the Government and their agencies could have better mitigated the impact of the crisis, especially in the regulation and oversight of the banks. It is clear that we must help the UK's productive economy—sectors such as manufacturing, food and agriculture, which require support. I would like to take this opportunity to raise again—I have done so in the past two Budget debates—the question of our international trade in goods and services. In the past decade our balance of payments has deteriorated substantially. At current prices, the deficit stood at £7 billion in 1998. That rose to £25 billion in 2003, and the figure stood at £44 billion last year. Of course, the global economic crisis will have an impact on the trade balance. In fact, last year, the balance improved slightly on the previous year. Economic difficulties at home may dampen demand for imports, while the effect on exports of the global slump in demand may be softened to some extent by the recent devaluation of sterling. However, the long-term trend has been one of continued and substantial deterioration, and I encourage my right hon. Friend the Chancellor to address the importance of the trade balance to our economy. It is understandable that there has been focus in this debate, particularly on the part of the Opposition, on the scale of the borrowing that the Government are having to undertake to fund their programmes, but it is inevitable that Government debt will rise if the Government take action, through tax cuts and increasing public spending, to stimulate our economic activity. The Government were right to take action in recent months to increase demand in our economies. The Chancellor has announced a range of positive measures today that we should all be able to support. These are difficult times. The Government are on the right lines in investing at this time. We need to stay the course and continue to have the courage to invest in our economy.