Queen's Speech

Baroness Kennedy of Shaws Excerpts

Wednesday 2nd June 2010 Lords Chamber

[Baroness Kennedy of The Shaws]

My Lords, I, too, extend my warmest congratulations to new Ministers and wish them well in their roles.

Like others, I express concern at the policies that the new coalition Government are embracing to deal with the dire economic situation which our country faces. The financial crisis was the work of people in the financial sector who acted in their own self-interest without fear of either legal or economic reprisal. The most dangerous activities could have been stopped: securitisation, sub-prime mortgages, triple B mortgage bonds, collateralised debt obligations and off-balance sheet accounting. Undoubtedly there were people who were blinded by the murky convoluted signs of it and just did not understand what was going on. The regulatory agencies proved toothless, also unable to fathom half of the machinations. People who sat on boards never queried the madness of it, too fearful perhaps about looking foolish but happy to pocket their remuneration. Men were chairing banks who had no experience of banking and thought that running a bank was no different from heading a PR firm—and who boasted, socially, that banking was “such fun”. Then there came the fall.

Some auditors need to account for their shameful failure to do any real accounting. Commercial lawyers also played disgraceful roles, pocketing fees for running their eyes over and signing off nefarious transactions. All these people were uninhibited by any moral scruples. People knew that the market was being rigged but were more interested in making money than in challenging the system. Why do I say with such confidence that they knew? Because one of the givens in life is that we all know that there is a reward-risk ratio, and the higher the rewards, the higher the risks. I recommend to this House a book called The Big Short: Inside the Doomsday Machine, by Michael Lewis, which carries a very good analysis of the cataclysmic period that we have just been through. The people who bore the risks were none of these masters of the universe I have just been speaking of. They were remunerated handsomely and demanded such handsome reward on the excuse of being risk takers. The people who bore the risks were ordinary members of the public, persuaded to take on mortgages far beyond their capacity to repay and now, as taxpayers, having to be responsible for the bailings out. They are the people being charged high interest rates and the people who are now not able to get bank loans to set up the small and medium-sized enterprises that are so loudly extolled.

Those who have suffered are inevitably those in the lower ranks of the banks. The financial sector ran wild under deregulation, bringing a crisis that is leading to remedies now in which the Government are invoking massive cuts which will fall on the shoulders of ordinary people. The call for debt reduction and massive cuts without first rebuilding the banking system carries the risk of taking us back into recession. We should be re-establishing strong growth and high employment. When people are employed, they buy things, and when people are buying things we are feeding our economy. When people become unemployed, they become a debt to the country, because we have to make sure that there are benefits at least to keep them out of some levels of poverty.

It is business as usual for the banking sector. The cuts and paying back of debts will inevitably fall disproportionately on the shoulders of ordinary people—those who work in hospitals, such as porters and nurses, as well as community centre workers, nursery school workers and so on. They are the people who will be confronted with unemployment and they will feel the greatest pain of swingeing cuts and reduction of services. My concern is that the new coalition Government will not be concerned enough about the whole issues of taxes and fairly sharing out responsibility for getting this country back into some sensible situation.

If we have learnt anything it is that capitalism and markets have to be properly regulated if we are to live in a decent, civilised society where the gap between rich and poor is not obscene. Markets are without morality and it is for government to inject the moral component into them. We should look at not just a decent minimum wage but a decent living wage for people. At the other end of the scale, we should be talking about the creation of a high pay commission. There was something wrong when in 1990 a review of salaries found that chief executives in companies were earning 55 times more than the average worker in those same companies. In just 10 years, by the year 2000, CEOs were earning 600 times more than the average workers in their companies. The Spirit Level, a book that has been invoked so often in this House, says that a country where the gap between rich and poor is high is inevitably a less happy place to live in.

What do we do about the banks? The Glass-Steagall Act was introduced in 1933 and was designed to control speculation, preventing commercial banks, which took the deposits of ordinary customers, from embarking on risky trading activities. We, too, should separate out high street retail banking from the risky casino banking activities of the investment banking sector. The large banks should also be broken up into smaller entities, as Nouriel Roubini, the economist, who foretold this crisis, is now recommending.

There are many things that this Government could be doing. The noble Lord, Lord Low, spoke of the way in which, if care is not taken, we are going to drive many more people into poverty and the divisions in our society will become greater. This new Government came into existence speaking of a “broken society”. It was not a view I shared; I happen to believe that Britain is a society rich in social capital. But the divisions will be great if we do not deal with this crisis in a humane way, where the pain is shared by all.