Queen’s Speech

Baroness Kingsmill Excerpts

Wednesday 16th May 2012 Lords Chamber

[Lord Razzall]

The noble Lord, Lord King, does not want me to go too far so I will rein that back. As noble Lords will be aware, we have not necessarily been uncritical of a number of government policies and plans. However, on these Benches we stand four-square behind the coalition on the necessity of bringing the deficit down. Now is not the time to spook financial markets. We have to look only at what is happening in the eurozone, particularly Greece, Spain and Portugal, to realise the incalculable cost to our economy if we were to lose market confidence. Look at our current borrowing rates. I think we are now selling our gilt-edged securities at a lower level than we have in modern economic history. That is a huge benefit to our public expenditure and we need to retain the confidence of the markets.

Taking the noble Baroness’s point about there being nothing in the gracious Speech about growth—

[Baroness Kingsmill]

I wonder whether the noble Lord thinks that the confidence of the markets is rather more important than the confidence of the electorate. It seems to me that throughout Europe the confidence of the electorate is being severely tested by the politics of austerity.

[Lord Razzall]

One of the advantages of the Fixed-term Parliaments Act is that it will take three years to discover the answer to the noble Baroness’s question. As regards the provisions about growth—it is a common criticism of the gracious Speech—I say to the noble Baroness, Lady Royall, that you do not legislate for growth; you create an economic climate in which growth can occur.

I have every confidence that the coalition Government’s policy is rather like the swan: above the water it is serenely swimming forward to reassure markets, while under the water it is paddling like mad in an effort to promote growth and hoping that the markets do not notice. There are a number of growth initiatives of which I know that my party is proud; for example, the creation of the green investment bank, the regional growth fund and the pension infrastructure platform to invest in UK infrastructure. Of course, there are more subtle ways in which the Secretary of State for BIS has been trying to encourage growth. It is significant that today, for the first time since 1976, we can announce a trade surplus in the sale of motor vehicles. As a betting person—who is usually successful—I suspect that we will have some good news on Ellesmere Port. All sorts of initiatives are happening.

If we are to go for growth, the role of the banks is critical. The immediate problem, which is a statement of the obvious, is that the banking system is being required to do three things simultaneously. The banks are being asked to maintain and increase lending to the SME sector. At the same time, over the next two or three years, they will have to provide billions of pounds to refinance the borrowing of major companies that fall. They are also being asked to increase their capital base to meet the regulatory requirements. Even Solomon would struggle to meet those simultaneous requirements, which is one of the reasons why we have the problems that we do.

Everyone says that there is not enough lending to the SME sector, which is undoubtedly correct. The noble Lord, Lord Sugar, came to your Lordships’ House and told us that any SME company which wanted a loan could always get one, and if it could not its financial plan was wrong. What world does he live in? The jury is clearly out on Project Merlin. The FSB says that a significant percentage of loans requested by the SME sector are not being granted. If we take the anecdotal evidence of the way in which some banks are behaving, we should look at what Barclays and NatWest did to Clinton Cards. They sold a £35 million loan book to American Greetings, which was the major supplier to Clintons. Immediately, American Greetings foreclosed on the loan and at least 8,500 employees are in danger of losing their jobs. Is that the way in which responsible banking should operate?

As regulation of banking returns to the Bank of England, the Bank must emphasise that effective regulation is crucial. First, the current system makes it difficult for new entrants either to compete with major retail banks or to introduce innovative new models, such as community banking on the American model. I suspect that my noble friend Lady Kramer will refer to that. Secondly, we need to think seriously about how the economy can rebalance as growth returns, away from financial services. The Vickers report looked at how we regulate banking in the context of risk to the taxpayer but the next task for future regulators is how to ensure that, as the economy recovers, the financial sector does not retain its bias in the British economy.