George Osborne asks for coherent view from Government on length of recession

The Commons also hosted Treasury questions yesterday.

Shadow Chancellor George Osborne scented blood:

"Are we really expected to believe that when the Prime Minister appointed Sir James Crosby to the board of the Financial Services Authority, and when the current Chancellor promoted him to the job of deputy chairman in 2007, neither of them had any idea that they were appointing someone whose business model at HBOS was being investigated by the regulator whose board they were appointing him to?

Mr. Darling: As the Prime Minister has just told the Liaison Committee, Sir James’s appointment in 2003 was made on the recommendation of a selection panel that followed an open competition, and that panel, which was chaired by the senior official then responsible for banking regulation, Sir James Sassoon, recommended the appointment of James Crosby. At that time, there was no reason to question that appointment. With the benefit of hindsight, many people now make claims about what they say they knew at that time, but the then Chancellor followed the proper procedures and followed the advice, and he had no reason not to make the appointment.

The FSA has said that in 2002, and subsequently, it drew attention to a number of concerns, as it did with several other organisations. In terms of the law, the way in which the FSA supervises any bank, let alone this one, is a matter for it. Neither the subsequent investigation into the allegations made against James Crosby, nor the concerns that it had, were reported to the Treasury. I would not expect them to have been, given the information that I have from the chief executive of the FSA at the moment.

Mr. Osborne: Either the Chancellor knew what was going on and did nothing, or he was entirely ignorant, and neither is much of a defence. Is not the net closing in on the Prime Minister and the Chancellor? Their accomplices are resigning, their alibi that no one knew what was going on has been blown apart, and their fingerprints are all over the mistakes that were made during the age of irresponsibility.

Is there a coherent view in the Cabinet about how long this recession will last? We know what the Treasury’s forecasts are, and we know what the Chancellor says about the economy recovering halfway through this year, but today the Health Secretary has said that we need to be ready for two years of recession. Is the Health Secretary expressing the collective view of the Government on this issue?

Mr. Darling: In relation to the FSA, the hon. Gentleman’s claims are frankly ridiculous. Appointments were made in the normal way, which is a great deal more open than for some of the appointments that were made in the past. At the time, there was no reason not to accept the recommendations in relation to Sir James Crosby.

On the broader economic picture, as I have said to the House on a number of occasions, there has been an extremely sharp downturn not just in this country but in countries right across the world, and we can see the effects of that. I am clear, though, that if we had followed the hon. Gentleman’s advice and done absolutely nothing to prevent the full effects of the recession from being felt, the impact and the long-term damage to this country would have been substantial. I believe that the action that we have taken is not only justified but will ensure that this recession will be shorter and less painful than would otherwise be the case. I am sorry that the Conservative party continues to take the view that there is absolutely nothing that they are prepared to do to help people and businesses in this country."

Sir Nicholas Winterton called for a ban on short selling:

"I agree entirely with the hon. Member for Chorley (Mr. Hoyle). Is not short selling an immoral and corrupt practice that makes no positive contribution to the creation of wealth? There should be a permanent ban on it.

Ian Pearson: Perhaps we should demystify short selling a little. I do not know whether the hon. Gentleman buys goods over the internet, but if one buys books, hi-fi equipment and televisions, they are often bought from a supplier who does not have the goods, but makes a commitment to get them from a purchaser. That is short-selling activity. We believe—and the markets understand—that short selling can help facilitate price discovery, which is important for valuing companies fairly, price efficiency and liquidity in the market. However, we need to ensure great transparency about the matter. We do not want to go back to the days of George Soros, speculation, and major runs on companies and countries. That is why the disclosure regime is important."

Shadow Chief Secretary to the Treasury Philip Hammond asked about the bank bail-out:

"A moment ago the Chancellor told my right hon. Friend the Member for Haltemprice and Howden (David Davis) that the primary purpose of the bank bail-out was to prop up the banks, but that is not how he described it when he made the announcement last October. He defined the criterion by which the effectiveness of that intervention was to be measured in these words:

“The purpose of these proposals is to get lending started again and to get the economy moving forward.”—[ Official Report, 8 October 2008; Vol. 480, c. 280.]

Since then, survey after survey has shown that lending has dried up, and the published data show that the economy is shrinking. In the Chancellor’s own definition, has the bail-out not been a failure?

Mr. Darling: No, and the hon. Gentleman well knows that what he is saying is absolute nonsense. The primary purpose of our intervention last October was to stop the banking system collapsing. Indeed, that is why he and his hon. Friends on the Front Bench supported us, so it is no good their now saying that they were not in favour of it and would have done something different. Of course, if there are no banks in the first place, there will be no lending, so propping them up was a precondition of getting lending going again. That is no more than a statement of the obvious.

Since that time, there has been a substantial downturn of economies, not just here but in every country in the world. We can see that in all the forecasts and in all the figures that we know about at the present time. That is all the more reason for us to ensure that we get lending going again and help to fill the gap that has been left by foreign banks withdrawing from lending, not only in this country but in other parts of the world. It is also all the more reason for the Government to step in to help to support businesses and families.

That approach is supported right across the world, and the Conservatives are virtually isolated as far as that is concerned. It has been backed by the independent Institute for Fiscal Studies—which is often favourably cited by the Conservatives when it suits them—and, even yesterday, the Bank of England’s inflation report made the case that if Government support comes through, it will make a substantial difference to the position than would otherwise be the case. We are clear that supporting the banks and supporting our economy are absolutely essential, and I am sorry that the Conservative party cannot bring itself to give that support, because it is pretty essential for the future of our country."

David Gauke, another member of the Shadow Treasury team, managed to draw a minister into suggesting that the recession might not last too long:

"The Government tell us that their growth forecasts are dependent on international co-operation with China and elsewhere. They also claim that other countries are following the United Kingdom’s lead in economic policy. If that is the case, presumably the Minister will stand by the pre-Budget report’s forecasts on growth—or does he agree with most commentators, including the Governor of the Bank of England, the Secretary of State for Health and the Secretary of State for Children, Schools and Families, that the recession will be much deeper?

Mr. Timms: As the hon. Gentleman knows, we will publish updated forecasts at the time of the Budget, as normal. They will include a full assessment of developments and prospects for the United Kingdom and the global economy.

Just a couple of weeks ago, the Institute for Fiscal Studies said that

“our central forecast is that the UK will avoid deep and prolonged recession thanks to the enormous monetary and substantial fiscal stimuli already announced.”

We are taking the action that is needed domestically, which contrasts with the do nothing policies of the hon. Gentleman’s party."

Ludlow Philip Dunne had his question dodged by the Chancellor:

"Has the Chancellor exhausted his fiscal stimulus? If not, what is the limit of the stimulus that he intends to impose?

Mr. Darling: I thought that my right hon. Friend the Financial Secretary had just indicated one of the benefits that the fiscal stimulus has been giving to businesses in this country—£1 billion of help has been given to businesses. That is one example of the difference between a Labour Government who are giving that help and a Conservative party that is absolutely opposed to it."

So there we have it (again) - the Government won't say how much taxpayers' money it is willing to spend.