Capital Gains Tax (Rates)
Steve Baker Excerpts(14 years, 4 months ago)
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Huw Irranca-Davies
I will make a little progress first, and then give way.
The question that we should be asking is: how does this country get itself out of the recession more quickly and in better shape, rebuilding manufacturing and the private sector, with minimum damage to society—to front-line services and vulnerable people and communities —and also while minimising job losses, because we have been there before? I have not always been an MP. I used to work in the private sector, and I went into lecturing. When I was a lecturer, three types of essay were put in front of me. There were the poor ones, and I would offer constructive advice and say, “You need to do this to get better.” There were the essays that were done very well, and even then I said, “You need to tweak and adjust and do better.” There were also the ones that had misunderstood the question. I noticed in the Budget statement yesterday that the headline issue was dealing with the sovereign debt crisis. That was repeated by the hon. Member for Bournemouth East today when he said that the priority is to ensure our financial status to ensure our credit status. Those things are vital, but surely it is at least equally important to avoid the situations that we had in the 80s and at other times. Measures such as the current proposals lead unnecessarily —this is a judgment issue—to greater unemployment than that mentioned in the Red Book. Such levels of unemployment would lead to greater damage to individuals and communities. I really hope that the Chancellor is correct in his approach and that the Liberal Democrats are supporting the right way forward, but I worry that we have seen this all before.
Let us look at some of the detail. The Government are going to adopt the consumer price index for the uprating of benefits and tax credits from April 2011. The effect will be that benefits and tax credits will diminish and wither year after year. On disability living allowance, the Government will introduce the use of objective medical assessments for all DLA claimants from 2013-14. I am waiting to see the detail on that, because extensive work had already been done by the previous Government on welfare reform, medical assessments and the test. The lack of detail is what worries me. Is this approach about using the stick or the carrot? If it is entirely about using the stick, I guarantee that we will be punishing people who are very vulnerable and who do not have a voice to object. If it is about using the carrot as well—our Government were focused on that and I think that the Secretary of State for Work and Pensions, who was looking into social mobility for the Government, suggested that measures should be more about using the carrot—where are those resources to come from? The worrying thing about this Budget is that we have no detail, and I should like to see that detail as rapidly as possible.
On tax credits, from April 2011, the second income threshold for the family element of child tax credit will reduce from £50,000 to £40,000, and from April 2012, the family element of child tax credit will be withdrawn immediately after the child element. Therefore, it is not just higher-rate taxpayers who will be hit by the measures; working couples could also be hit. The combined salaries of two people on low to middle incomes will take them out of that.
Let me touch on one other aspect of detail—the cost of housing benefit. Yesterday, the Chancellor used one example to illustrate how the system is broken. Various pieces of research could have shown another 100 examples similar to the Chancellor’s, but they would be examples of the extremes. Let me put a concern to the House. What will happen if the policy makes families homeless? What will happen when children are dislocated from their schools or their friends, or when vulnerable families are removed from social care packages and support as they flee to cheaper rent areas? Has any thought whatever been given to the effect of the policy on ghettoisation? Was there any discussion in the run-up to the Budget with organisations that represent the homeless, vulnerable families or children in poverty? I would really like to know that.
Steve Baker (Wycombe) (Con)
I happen to have worked personally with the Centre for Social Justice in the past couple of years, and I know that colleagues there have put enormous effort into all the areas that the hon. Gentleman has just listed. Of course the CSJ is independent, but the Secretary of State for Work and Pensions is now in the Cabinet. The hon. Gentleman should rest assured that the Conservative party has put enormous effort into all those things.
Huw Irranca-Davies
I thank the hon. Gentleman for his reassurance, but I will be reassured when I see the detail. I will be reassured when I see that this policy will not have the impacts that I have just laid out. We are privileged to be here and to be able to speak up for people. Let us speak up, as I am sure he would want to do, for those who could be disadvantaged by the unforeseen consequences of this response to Daily Mail headlines.
“Ending payments like the health and pregnancy grant and slashing child tax credits at a £40,000 joint income threshold is going to put pressure on families already struggling.”
Those are not my words, but those of Bob Reitemeier, the chief executive of the Children’s Society. He added:
“We are also concerned about the amount to be clawed back from the welfare bill over the next five years as the chancellor aims to find savings of £40 billion.”
Gingerbread, the charity for single parents, has said that families having a second child could be worse off by up to £1,200 a year. Chief executive Fiona Weir said:
“Having a baby puts the family finances under pressure. These cuts will really hit families with young children hard.”
The concerns are not mine alone, therefore, and I am genuinely not indulging in party politics. I will say well done to the Government if their proposals are right and they work, but my real fear is that they are acting prematurely and going in too hard, when there are alternatives that are not being considered and which I shall turn to now.
The Chancellor and the Business Secretary regularly cite the examples of Canada and Sweden when it comes to cutting deficits. However, I shall repeat until I am blue in the face that both countries acted against a backdrop of strong economic growth in their export markets. Unless I have missed something, that is not available to countries in Europe, or the eurozone.
Other positive elements in the case of Canada and Sweden were currency devaluation and the active use of monetary policy. However, in the first case we have been there and done that already with sterling and, in the second, hon. Members will know that our base rate is already low.
Without those three little helpers—those three legs of the stool—we do not get the economic support or growth that, under the plans being put forward by the coalition Government, are essential if we are to mitigate the worst excesses of the proposed cuts, beyond the Red Book. What we do get is all the pain of savage cuts, and absolutely none of the gain. That will go on for years.
In fact—I hate to say this, but I am not alone in doing so—we could well go backwards. If, in a year, we are slipping backwards or limping along like some invalid at the bottom of an economic cycle, it will not be because people such as me failed to stand up and make the opposing case. It is important that someone does that, alongside the economists outside the House.
Budget Resolutions and Economic Situation
Steve Baker Excerpts(14 years, 4 months ago)
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Chris Leslie
No, we have to be mature and grown-up about these issues. It is important to recognise that the best way to address our deficit is to have a pro-growth strategy, because it will be through growth that we generate receipts, so that we can make improvements. If we have to restrain public expenditure, doing so in such a short space of time, with such severity, is an exceptionally risky strategy. In Sweden, and even in Canada—countries the Conservatives keep citing—such changes were made over 10 or 15 years. Yes, they rebalanced and consolidated, but for the Government to do so with such fervour betrays what is really going on in the Conservative party. Ideologically, the Conservatives secretly enjoy the cutting back of public expenditure. They hate state expenditure—they absolutely loathe it. They take a certain kind of masochistic relish in scaling back public expenditure.
Steve Baker (Wycombe) (Con)
Does the hon. Gentleman recognise that there is not just one school of economic thinking but at least three? Keynesianism, monetarism and the Austrian school have very different ideas about the rate at which we should cut and about how the economy would recover. Will he at least recognise that in academia there are real differences in economic thinking?
Chris Leslie
I could not agree more. That level of maturity is refreshing, but the Chancellor of the Exchequer saying that there was consensus that the measures had to be taken in a particular way shows how the hon. Gentleman departs from his Front-Bench colleagues. I hope he will have the foresight to listen to the differences of opinion and recognise the possibility that austere and harsh public expenditure reductions, as well as some of the tax increases, could have a harmful effect on the economy. We do not know about the individual measures, but we have already heard from my right hon. and learned Friend the Leader of the Opposition about the effect on unemployment, as shown in the forecasts from the so-called Office for Budget Responsibility, appointed while the Conservatives were in opposition.
Austin Mitchell
We are doing something to resolve it, and that is to get growth. The only way to bring down borrowing and get the economy moving so that it can bear a heavier burden of debt repayment is through economic growth—all the rest is simple piggy-banking and economic ignorance. If I am going to have to face a chorus of that kind of piggy-banking attitude for the rest of my speech, it will be very unfunny, and I had intended it be as humorous as I could make it.
We have to accept that borrowing is important, and that borrowing by a Government is not the same as borrowing by a household. That is because Government borrowing stimulates the economy, growth and jobs. Borrowing in a recession is a virtue. Indeed, it is absolutely essential, because if the private sector is contracting and credit is tight, and if people are not spending, borrowing is the only way that purchasing power can be kept up, so that the economy can be stimulated. It is simple Keynesianism, and I am surprised that the Tory party seems to have forgotten Keynes.
Steve Baker
The hon. Gentleman has said the word himself, so I will make the same point that I made to the hon. Member for Nottingham East (Chris Leslie) earlier. The hon. Gentleman is just rehearsing Keynesian arguments that died in the 1970s. Even the Labour party in the ’70s understood that, to the extent that Keynesianism worked at all, it only succeeded in stimulating inflation. Would he please consider the inflationary effects of the policies that he is recommending?
Austin Mitchell
Well, where are they? The Government claim that we have been borrowing at too high a level, yet in 2008 the Conservatives were keen to accept—as an electoral manoeuvre—our spending targets, saying that they would adopt the same targets themselves. Did they mean that we should not have borrowed to save the banks? Should we have let the banks go under, with the cataclysmic consequence of credit contracting in our society? Much of that borrowing went into saving the banks. Should we not have done that?
Stewart Hosie (Dundee East) (SNP)
I congratulate the hon. Member for South Northamptonshire (Andrea Leadsom) on her maiden speech. She brings great experience to bear, and her description of accountability versus the tripartite, in the differences between Barings and Northern Rock, was instructive. Many of us remember that there were so many cracks between the three pillars of the tripartite they were unable even to agree a weekend takeover of Northern Rock, which led to a five-month hiatus before the action to nationalise was finally taken. I agree entirely with the hon. Lady, who said enough today to show the whole House that she will be a huge asset to her constituents and her party.
Before I comment on the Budget proper, I have a question for Members on the Treasury Bench about the bank levy. The Chancellor said it would apply to the balance sheets of banks and building societies, and to the UK operations of banks from abroad. He sensibly said that there would be deductions for tier 1 capital and insured retail deposits, and a lower rate for longer maturity funding. However, we already have the financial services compensation scheme and some banks are also paying considerable amounts towards insurance premiums for the asset protection scheme for non-performing distressed assets.
Furthermore, the European Banking Authority proposed both a European deposit guarantee fund and a European bank stability fund. Will the levy be discounted, or deductions made, on the basis that funds are going to those schemes too? I make the point not because I do not want the banks to take their full share, but because for every £1 billion in bank levy, there is £20 billion less to lend in the real economy. A little understanding of the relationship between the bank levy and other draws on banks’ cash would be helpful.
The Chancellor clearly confirmed the position of the economy. There is a deficit of £149 billion—10.1% of gross domestic product—and national debt is still about £1 trillion. Using the treaty calculation, we know that it is due to hit £1.3 trillion by 2015-16, which is still about 80% of GDP. In the real economy, our balance of trade position last year was £32 billion in the red and there was a catastrophic £82 billion deficit for trade in goods, which was no doubt a consequence of Labour’s managing to lose a million manufacturing jobs between 1997 and the start of the recession. Notwithstanding what was in the Budget statement, I found it heartening that in so many maiden speeches, particularly during the debates on the Gracious Speech, Members spoke about rebalancing the economy and supporting manufacturing in their constituencies. We certainly need to do that.
The economic backdrop to the Budget—the mess left by Labour—is clear, and demonstrates many of the irresponsible decisions taken by the Labour Government. However, I shall concentrate on the implications for Scotland and the UK economy of the solutions proposed by the Chancellor. To summarise, he said there would be an additional £32 billion reduction in spending by 2014-15, as part of an additional £40 billion in so-called fiscal tightening by the same year. That is an extraordinary additional amount to take from the economy.
It is worth repeating how much the UK economy has been supported over recent years by Government spending. At the time of last year’s Budget, Government consumption was up 2% on the year, which helped keep the economy afloat when household consumption was down 1.9%, business investment was down 24% and gross fixed capital formation was down 14%. That was investment in productive assets for the future.
Household consumption is now 0.5% lower than last year, while business investment is still down 11% and gross fixed capital is down 5.7%. Government consumption was up 3% on the year, to support the gap and keep the economy going. I hope the Government are right about their plans, but I have a serious question about the Office for Budget Responsibility forecast that from 2011 onwards business investment would rise at rates between 8% and 11%. I very much hope that the OBR is right, but they seem to be heroic growth figures. I hope that we are not in the same position with the new Government’s business investment figures as we were with the old Government’s raw, vulgar growth figures—overstated—and I hope that the OBR is correct. We are certainly not out of the woods yet economically.
Although Labour cut the Scottish budget and the UK budget in real terms in this financial year and Labour ensured that the UK was one of only two countries in the G20 without a fiscal stimulus package this year, the new coalition Government appear to be ignoring much of the evidence that only Government consumption shored up and supported the economy when private spending and investment had fallen through the floor. I hope that the Government are not blind to the fact that such support is still necessary.
Given that the Chancellor’s comments today on accelerating the attack on the structural deficit confirm the presumption that most of the savings will come from cuts, he runs the very real risk of pulling the rug from under what remains fragile growth and risks undermining economic recovery. Given that the ratio of cuts to tax increases has gone from 2:1 to 4:1, his comments certainly confirm that we are pointing in the direction of a 25% reduction in unprotected departmental spending—an extraordinary reduction in many Departments’ budgets.
The OBR has downgraded growth forecasts—this was published today—from the 3.2% growth figure published by the previous Government for four of the next five years and the 2.1% to 2.35% average trend growth figures that it published on 14 June to 2.3% for 2011 and 2.7% to 2.9% thereafter. The implications are massive real-terms cuts affecting both Scotland and the rest of the UK. Although a £400 million real-terms cut to Scotland this year was announced in Labour’s last Budget, this Budget will deliver further billions of pounds in real-terms cuts on top of the £330 million in cuts that come from the £6 billion cuts announced earlier this year but deferred until next year by the Scottish Parliament.
The problem is that we were all critics of the last Government for not holding a comprehensive spending review, but, of course, the departmental expenditure limits in the Red Book today give no clarity, as they do not go past 2010-11. Although the Chancellor offered a deal of information, those figures were not—unless I have missed them completely—in the Red Book today.
Steve Baker
This emergency Budget is much needed, and I hope that we can forgive my right hon. Friend the Chancellor if it is missing some of the detail that the hon. Gentleman wants.
Stewart Hosie
I appreciate that this is an emergency Budget. The emergency has been going on for some years. It was foretold by this Government, who said in opposition that they would introduce this Budget. They have had plenty of time to prepare, and they have done so as well as they possibly could. My criticism is that, if the Labour party did not have a comprehensive spending review with the pre-Budget report last autumn and if it did not have one with the Fiscal Responsibility Act 2010, in which it set out £57 billion of cuts in a single year, and if it did not have a CSR with the March Budget, which imposed real-terms cuts on the UK and Scotland this year—that criticism was made by the Tories in opposition, as well as by the Scottish National party, having heard the Chief Secretary’s announcement of £6 billion in early cuts a month ago—perhaps we could have had one with this Budget, but I take the hon. Gentleman’s point that the Government have been in power for only a few weeks.
Given the cuts that we have seen and the growth forecasts that have been laid out by the OBR, my assessment is that they can only add to the cumulative £25 billion shortfall in available public expenditure in Scotland over the next 13 years that is a consequence of the previous Government’s plans. With an accelerated attack on the structural deficit, I fear that that cumulative figure may become worse.
The Chartered Institute of Personnel and Development has warned of overall UK unemployment pushing past 3 million. I genuinely hope that the OBR is right and that unemployment will peak this year at 8.1%. Time will tell, but I suspect that the cuts that we are likely to see will mean that that figure is optimistic. Of course, we hope that those who are in jobs will stay in jobs and that unemployment will not push beyond the forecast peak of 8.1%, because if it does, there will be a reduced tax yield, higher benefit costs and less spending in local economies. In short, today’s plans, like Labour’s at the previous Budget, might make the task of tackling the deficit and debt more difficult.
I suppose that my criticism of this Government is similar to that of the previous Government. We needed a credible deficit consolidation plan that took account of all economic circumstances, rather than a high-risk assault on public sector spending. Given that market confidence is based on the credibility of the deficit consolidation plan, rather than simply the speed of the cuts, I do not understand why the Government chose to use the Canadian model of perhaps 20% reductions over three years, rather than the New Zealand model over the medium term. The New Zealand model was equally successful, and such an approach would have allowed the UK Government to choose to take advantage of £50 billion of medium-term savings by cancelling Trident and its replacement.
The hon. Member for Great Grimsby (Austin Mitchell) made the point that sustained, above-trend growth in the economy is the real solution to the deficit and the debt. Given the tough situation that we are in, we need a proper, serious and sensible discussion about actions that have been taken, and indeed those that have not. Although I recognise that the Budget includes cuts in business tax and I welcome the move to reduce corporation tax, the decrease in capital allowances and the annual investment allowance will take £7 billion from business over the next four years. I wonder whether that approach will have a disproportionate impact on growing businesses that use the investment allowances, while benefiting firms that get on with their business and enjoy the corporation tax benefits but do not necessarily invest and recruit more people.
When the Government took the appalling decision to scrap video games tax relief, why did they not take their own advice, which was published only this month in the spending review framework, to
“Protect, as far as possible, the spending that generates high economic returns”?
One would have thought that we should be protecting and growing investment in that field, because it is exactly the kind of area that could generate the high economic returns demanded in the framework. When the money from the fossil fuel levy is sitting in an Ofgem account, why did the Government not decide to free it up for investment in Scotland’s green future, instead of simply reviewing the position? Why, given that it was Conservative party policy, did the Government not move to introduce quickly a fuel duty regulator that would deliver fairness to business and stability to allow them to plan transport and haulage costs, instead of punting the proposal into the long grass?
It is clear that ordinary people will pay the price for the recession, as we see from today’s announcements on VAT and benefits. The jobs and necessary spending power of ordinary people in the public sector will be lost. Many in the private sector might come under huge pressure when the public sector contracts awarded to the private sector dry up or end.
Much of the Budget might represent short-term thinking. The Public and Commercial Services Union estimates that there is some £123 billion in uncollected tax, yet this Government’s plans, like those of Labour before them, could well lead to a reduction in the head count at Her Majesty’s Revenue and Customs just when such people are needed most to maximise the revenue yield. Although I hope that I am wrong, there is a clear risk that the plan set out in the Budget will lead to a stagnation of growth. Perhaps Lord Mandelson’s threat of 10 years of austerity under Labour will come true, albeit with different parties at the helm.
Whoever is in charge, it is obvious that Scotland can no longer afford to be tied to an economic policy set out in successive UK Budgets that could undermine public services when we need them most, lead to the loss of spending power as public sector employees lose their jobs, and result in public sector contracts in the private sector drying up, and still also be tied to a fiscal regime that, at least under this Budget, fails to deliver the agenda for long-term growth that Scotland and the Scottish economy desperately need.
It is time to take full fiscal responsibility for reshaping and growing the Scottish economy, with the transfer of fiscal powers and responsibility from Westminster to Holyrood; to give the games industry a chance to grow and prosper; to use the fossil fuel levy to invest in our green future; to ensure both that the deficit is tackled properly over the medium term and that we do not take risks with a short-term consolidation. My great fear about the Budget, as was the case with Labour’s plans, is that while recovery is fragile, to suck out consumption, clearly in excess of 3%, 4% or, indeed, 5% of GDP in single years, almost certainly runs the serious risk of tipping the economy back into recession and, as I have said, of making tackling the deficit and the debt, which is important, more difficult rather than more straightforward.
Steve Baker (Wycombe) (Con)
When I came to the House today, I expected to hear a great deal of Keynesian argument and I have not been disappointed. I am sorry that the hon. Member for Great Grimsby (Austin Mitchell) is no longer in the Chamber, as I wanted to congratulate him on his comprehensive grasp of Keynesian arguments. Unfortunately, it was also excruciating.
I am told that Keynes thought that the safe upper limit for the size of the state was 25% of national income. He might have halved the size of Government, so we can applaud the Budget as extremely moderate and thoughtful.
I have to tell those who propose deficit spending that it is inherently unsustainable. When Governments spend with a deficit they are bound to inject funds in a particular location in the economy and that is bound to create a pattern of economic activity that can be sustained only with deficit spending. We all accept that deficit spending cannot go on for ever. As one of my hon. Friends explained earlier this week, last year we were able to borrow only because we created a hole in the market for bonds using quantitative easing. That is so dangerous. In the past the world has seen the effects of printing money to pay off Government deficits, and I would dread to think that this country should live through such a circumstance.
I am reminded of some words published in 1945:
“I see now more clearly than ever before that even our greatest troubles spring from something that is as admirable and sound as it is dangerous—from our impatience to better the lot of our fellows.”
That is a quotation from Karl Popper, who is an interesting philosopher because, like his contemporary, Friedrich Hayek, he was a socialist until he understood where that philosophy went.
I am interested in the general well-being, particularly as Wycombe has not only great wealth but significant poverty and income levels everywhere in between. We must take seriously the realities that we face. I am glad that the Budget has included an announcement that there will be a review of pensions, and I should like to speak on that. I am grateful to my hon. Friend the Member for Stourbridge (Margot James) for having brought up the subject.
The Institute of Economic Affairs published a paper called, “A Bankruptcy Foretold”, in which it explains that the Government use cash-basis accounting, whereas any commercial firm would use an accrual basis. Our accrued pension liabilities are therefore not on the Government’s balance sheet. If they were, at April 2010, the true public liability would be £4,771 billion. The Office for National Statistics has suggested that the banks’ full liabilities should be included in the public liability. That would make it £6.3 trillion. Those numbers are preposterous.
I should like to break down the last number, because it is so preposterous: first, the official debt, £772 billion; the cost of financial interventions, £73 billion; the current accrued public sector pension liabilities, £1,179 billion; liabilities to current pensioners, £1,120 billion; and the liabilities for future basic state pensions, £1,211—I am nearly there—and future additional pensions, £467 billion. Somewhat laughably, we can deduct from that catalogue of disastrous numbers the national insurance fund balance of a staggering £51 billion.
Those numbers have a profound implication, not for this year or the Parliament, but for the next 10 to 20 years. If we are serious about the general well-being, public sector pensions, the state pension and those vulnerable people who will rely on all those things—I include members of the armed forces currently serving us—we will need to think today about how we will fund those pension liabilities. I am glad that there will be a review of this subject and that one of the right hon. Members who sits on the Opposition Benches will head that review.
I should like to turn to our economic future in the international context. The Bank for International Settlements published a paper—working paper 300, which I recommend to hon. Members—that considers the future of public debts, the prospects and implications. In my hand, I have a set of graphs that show the public debt for western European nations, plus Japan and the United States, disappearing exponentially. Hundreds of per cent. of GDP are owed by the nations of the western world, including Europe and Japan. The situation is dire. By 2040, our largely age-related debt is projected to be five times GDP. By 2040, our interest payments would be more than a quarter of GDP. I do not know about the rest of the House, but I do not believe that we will ever get there. Long before interest payments reach 25% of GDP, we will have a social catastrophe. We cannot allow that to happen.
Perhaps bond investors with short time horizons of days and weeks will continue to put their faith in the nation’s ability to repay, and perhaps they will not demand higher interest rates. Perhaps, as some people suggest, debt can be inflated away, but let us not forget that we are talking about index-linked debts; we are talking about pension obligations.
The Bank for International Settlements set out a different view. It pointed out that the path of growth pre-crisis was insufficient to pay those liabilities, but that now our prospects are worse. It pointed out that financial restraint historically has only stabilised the debt, without substantially reducing it. It also pointed out that swings from deficits to surpluses have been historically accompanied by falling interest rates and rising growth. I think that we can rule out the former, and at the moment it seems that our growth prospects are modest.
The Bank for International Settlements explains that it is ultimately not possible to roll over ever higher Government debts and that sooner or later debts are monetised, leading to inflation. It explains that that inflation may or may not be controllable. Perhaps there will be future political pressure to inflate away the debt but, of course, expectations of inflation automatically increase interest rates. In any event, inflation is a poison that hits pensioners, savers, and those on low and fixed incomes hardest. As I said, my concern is the general well-being.
We cannot afford further to distort the structure of our economy with inflation, so what is to be done? It seems that we are at the limits of taxation. We cannot borrow our way out of the problem and nor can we inflate our way out of it. We might well be impatient to better the lot of our fellows, but past impatience to better their lot has created huge liabilities that future taxpayers will have difficulty paying. If Members on both sides of the House are serious about building a better society, we have no choice but to reform radically the size, scope and role of the state. We must urgently see to it that our pension liabilities are funded and that public sector pensions are reformed. I congratulate the Chancellor on an emergency Budget that makes a strong, moderate and reasonable start at dealing with the serious problems that face us not just today, but in the decades ahead.
Economic Affairs and Work and Pensions
Steve Baker Excerpts(14 years, 5 months ago)
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Steve Baker (Wycombe) (Con)
Thank you, Mr Deputy Speaker, for the opportunity to give my maiden speech. Some Members may know that I am a skydiver. I am happy to tell the House that this is far more terrifying than two miles of air and a hardstop.
I congratulate those hon. Members who have spoken before me. I was particularly encouraged by the words of the hon. Member for Belfast East (Naomi Long). When I served in the Royal Air Force, Belfast was a name perhaps to strike terror into our hearts, but I am very encouraged that today, with the Alliance party, the hon. Lady is healing divisions and has a positive story to tell.
I also congratulate my hon. Friend the Member for Grantham and Stamford (Nick Boles) on a very charming speech, and I am sure that he suits his constituency very well. Having lived there for a number of years, I know that it is a charming place and I congratulate him on his win.
It is a great honour to enter this House and I am grateful to the people of the historic constituency of Wycombe for sending me here. I very much look forward to serving them. Throughout my campaign, I was strictly forbidden to quote Disraeli, as he fought the constituency at least three times I think, and lost. Today, as we are in coalition, it is my great pleasure to use this perhaps well known quote from a campaign speech in High Wycombe:
“I am a Conservative to preserve all that is good in our constitution, a Radical to remove all that is bad. I seek to preserve property and to respect order, and I equally decry the appeal to the passions of the many or the prejudices of the few.”
In representing Wycombe, I well understand Disraeli's sentiments and his reasons for writing “Sybil or The Two Nations”.
Wycombe is a constituency of astonishing diversity and contrast and yet unity in adversity. From the wealth and beauty of the Hambleden valley, through the tougher areas of the town—some Conservative Members do represent constituencies with pockets of severe deprivation—to the affluence of Tylers Green and Hazlemere, from the stoic Buckinghamshire traditionalists of old Wycombe to our large ethnic communities, Wycombe is a microcosm of contemporary Britain. I am proud to represent an area that defies expectations and encapsulates contemporary Britain.
The most consistent theme of my candidacy was, above all, the tribute to my predecessor, and I feel I can scarcely do him justice. Paul Goodman enjoyed the respect and admiration of all sections of the community, his parliamentary colleagues on both sides of the House and his party. He set out aspiring to Sir Ray Whitney's qualities of shrewdness, courtesy, unselfishness and kindness. I know that Paul surpassed his own aims and that this House will miss him. Paul’s top priority was Wycombe hospital, and I have to say for the benefit of the Bucks Free Press that it will be my top campaigning priority. I mean that sincerely; no other issue compares to it, in terms of its ability to create anxiety and concern.
As a trustee of a charity for economic education, I would like to give what is perhaps an alternative perspective on the cause of the banking crisis; I hope that Members will indulge me. I should like to put to them a proposition that is uncontroversial: around the world, the system of money is a product of the state. Our monetary system is characterised by private banking, with a fractional reserve controlled by a central bank, which determines monetary policy and has a monopoly on the issue of legal tender. A Monetary Policy Committee sets interest rates.
The banks have the legal privilege of treating depositors’ money as their own. In the words of Irving Fisher,
“our national circulating medium is now at the mercy of loan transactions of banks”.
In the other place, in the Banking Bill debate of 5 February 2009, the Earl of Caithness explained eloquently the base of 19th-century judicial decisions—and yes, our system of money has evolved since then—that enabled that situation to take place. He called it
“the fault which has led to every major banking and currency crisis during the past 200 years, including this one.”—[Official Report, House of Lords, 5 February 2009; Vol. 707, c. 774.]
The Bank Charter Act 1844 ended the practice of banks over-issuing notes, but it left them virtually unmolested in their ability to issue deposit currency to be drawn by cheque. That loophole haunts us today. Unlike the situation in respect of any other commodity, in the case of money, price controls do not drive the product off the market. Artificially lowered interest rates increase the demand for credit, and decrease the supply of savings, but the legal privilege granted to banks means that they can meet demand by extending credit that is unbacked by real savings. There is a good argument to say that that causes the boom-and-bust cycle, the misdirection of resources in the capital structure of production, and over-consumption by consumers. That is the biggest problem that we face today.
We could talk about the moral hazard of having a state-backed lender of last resort and state deposit guarantees, and of the socialisation of the cost of failure; I only wish that I had time to touch on the accounting rules on derivatives. Perhaps that is for another day. My political hero, Richard Cobden, spoke on the subject. He held
“all idea of regulating the currency to be an absurdity”,
but I see that time is short; I shall have to save the rest of the quote for another day.
Today, money is a product of the state. The Bank of England controls the price, quantity and quality of money. Perhaps if we were talking about any other commodity, there would be far less confusion over and questioning of the cause of the crisis. If money is a product of the state, we should ask ourselves, “Is this a good idea?”
In the coalition, we have a Government ideally suited to be conservative to preserve what is good, but radical to change all that is bad. If we are to have a once-in-a-generation, fundamental review of the role of government, let us also examine government’s role in the system of money and bank credit.