Economy: Credit Easing Policy

Lord Barnett Excerpts

Thursday 26th April 2012 Lords Chamber

Asked by

[Lord Barnett]

To ask Her Majesty’s Government what evidence they have that the Chancellor of the Exchequer’s credit easing policy is increasing business investment.

[The Commercial Secretary to the Treasury (Lord Sassoon)]

My Lords, the national loan guarantee scheme was launched on 20 March to provide cheaper loans for smaller businesses. Businesses have now started to benefit from these loans. Also, under the £1.2 billion business finance partnership, the Government intend shortly to invest up to £700 million with some or all of the seven shortlisted fund managers. Although it is too early to draw conclusions on any impact, credit easing is expected to have a positive effect on the economy.

[Lord Barnett]

Bearing in mind that the Answer that the noble Lord has just given me is not quite relevant to the Question on the Order Paper, surely the Answer should have been that the Office for Budget Responsibility—which meets regularly with the Chancellor and the Treasury—said in March, at the time of the Budget, that there would be a 6.9 per cent fall in business investment. Why did he not want to tell us that? At the same time the OBR told us that there would be growth this year. As the Minister knows, in the first quarter we have had negative growth of 0.2 per cent. In those circumstances, do he and the Chancellor believe that without QE we would have had even worse negative growth? Is that the Government’s position? What do they plan to do? Are they planning to increase QE, or are they taking note of the Treasury Select Committee’s recent report which pointed out the serious effect it was having on retired people who are taking out annuities and getting very low interest rates?

[Lord Sassoon]

My Lords, I fear that I will not be able to do justice to all the six questions that I thought I detected, but let me try to deal with one or two. First, we should distinguish between credit easing, which is the policy announced by the Chancellor and made manifest in the national loan guarantee scheme, and quantitative easing, which is the responsibility of the Bank of England. As to quantitative easing, if the noble Lord, Lord Barnett, had asked me I would have answered that the Bank of England’s own assessment is that under quantitative easing the economy has benefited by between 1.5 to 2 per cent. One can therefore draw inferences from that for what a more limited scheme targeted at small businesses will achieve.

As to the question of the levels of investment in the economy, that is set out in the latest report from the Office for Budget Responsibility. It is therefore its independent figures, not mine, which point out that the fall-off in levels of business investment and the expected sharp recovery very much follow the pattern seen in the recession of the early 1990s. It is territory that we have been in before and the Government believe that we should respond in the ways that we have. As to the evidence that the national loan guarantee scheme is gaining traction, Barclays has already issued a £1.5 billion bond backed by the scheme, and Lloyds has issued $1.4 billion since the scheme started on 20 March. So it is indeed, unlike some of the schemes introduced by the previous Government, up and running and having an effect.