Amendment of the Law

Debate between Hugh Bayley and Lord Tyrie

Wednesday 21st March 2012 Commons Chamber

[Mr Andrew Tyrie (Chichester) (Con)]

I am also available for injury time, if anybody wants to chip in. After the generals, it always falls to me to be the first of the foot soldiers.

The first point that I want to make is about the overall Budget judgment. The issue that overshadows all the others to which the Chancellor referred is that Britain is living beyond its means. We are borrowing £1 for every £4 we spend. That is why the last Chancellor of the Exchequer was right, in his final Budget two years ago, to set out a tough deficit reduction plan, even if his neighbour argued about it all the way. It is also why the current Chancellor was absolutely right today to stick to a clear plan for deficit reduction. Although it is not popular with most Members to say this, I also deeply respect the Liberals for helping to make that plan a cornerstone of coalition policy, despite all the flak they take.

Some have argued that the economy needs a further fiscal boost on top of the deficit that we are already running. It is worth bearing it in mind that the last Chancellor injected a £20 billion boost in 2009, but that sum pales into insignificance compared with the £100 billion of quantitative easing over the past 12 months or the £300 billion of quantitative easing since the crisis began. Even though quantitative easing and fiscal policy are not directly comparable, it is clear that monetary policy has played a huge role in managing the recession.

The biggest influence on overall macro-economic policy at the moment, therefore, is probably the Bank of England. It is becoming more powerful than ever before, which is why the Treasury Committee will look closely at how much of the latest round of quantitative easing is finding its way into final demand. It is also why strong accountability of the Bank to Parliament is essential. The Treasury Committee is united in the view that the proposals currently in the Financial Services Bill are simply not enough, and we will press on behalf of Parliament for significant improvements on Report.

[Hugh Bayley (York Central) (Lab)]

At the time of the last general election, the national debt stood at £760 billion. It has now risen to more than £1 trillion for the first time in history and is on track to rise to about £1.5 trillion. What does the Chairman of the Treasury Committee think the impact on interest rates will be by the end of this Parliament?

[Mr Tyrie]

I think I will ask the Bank of England that question when it comes to see the Committee, but I agree that the issue needs to be taken into consideration.

One measure that was announced yesterday, about which I might just have time to say a few words now that I have some injury time, was credit easing. Yesterday’s announcement on the loan guarantee scheme responded to many constituents’ complaints that they simply cannot get the money they need to run or start up small businesses. We all have constituents in that position, and the scheme will offer some welcome relief. How much relief? I think it will offer only a little, and there is a risk of the banks pocketing most of the money. The Treasury Committee, the Public Accounts Committee— I do not know whether its Chair is in her place—and the National Audit Office all need to play a role in ensuring that the banks do not run off with the money, and that value for money is secured.

None the less, I still think the scheme may turn out to be valuable, for several reasons. First, by announcing it the Chancellor has raised the salience of an important issue and put pressure on the banks not to dismiss requests for loans without examining them properly. Furthermore, it seems to me that the Treasury’s own pessimistic briefing yesterday that the money will go only to existing borrowers is almost certainly mistaken. There is very likely to be some more lending, because banks will benefit from the stronger financial position of firms to which they have lent. Those loans, in turn, will be less risky for the banks, so they should have some more headroom for new lending without altering their risk profile.