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The deficit will have to be tackled, but perhaps more importantly it has to be seen to be tackled. We must satisfy the markets and, more importantly, the people that the deficit is in hand, regardless of our political
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affiliations. I should like to offer the following notes-some may say, crumbs-of comfort from the Governor of the Bank of England, who, at the Treasury Committee's hearing on the February inflation report, said:

That comment is very important, particularly in the face of the deficit hawks who want to cut now and cut severely.

We must tread the path of the next few years carefully. The public sector will have to step back and allow the private sector to play a leading role in growing our economy, but we must ensure that the timing is right and we do not crowd out private sector growth with too much debt-fuelled public sector spending. [Hon. Members: "Hear, hear."] But, the dangers are equally treacherous on the other side. If the private sector is so sickly, as it is at the moment-whether owing to a lack of confidence or credit, or because it cannot grow as fast as needed-we risk losing more people to unemployment. So I welcome the Government's commitment to support people and businesses during these difficult economic times.

There is some evidence to show that the Government's action on the economy is working-the number of companies being wound up falls far short of the numbers seen under the previous Tory Government in 1992. To withdraw that support too soon, in the name of balancing the books, would be nothing less than economic suicide. Thousands of people's livelihoods depend on that support remaining in place until the economic recovery is secure. If we were to withdraw it, the fiscal position might deteriorate, not improve, because we would have to deal with the costs of mass unemployment and mass business insolvencies. They would not just represent short-term costs on the public purse, but would create lasting, long-term problems. Mass unemployment turns into worklessness, as we saw in the 1980s, and unnecessary business insolvencies lead to permanent losses in the skills and productivity of the UK's work force.

The Treasury Committee was especially concerned about young people in the current economic climate. We noted:

I welcome the measures on youth unemployment, because I speak not only as a parliamentarian, but as a former school teacher: one who taught in the '70s and '80s; and one who met his former pupils 10 years later, married or with partners with children, and asked them whether they had a job. They told me no. The impact on many young people, and at an early age, is terminal, and that is why we have to support them through that time of hardship.

Let us not forget that 600,000 young people leave full-time education each year, and it is vital that they have education, training or employment opportunities.
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Labour market economists, supporting what I said earlier, say that a person who suffers six months' unemployment aged 18 can feel the effects for decades. Even when they reach 50, they might still earn less than they would have had they not been unemployed. So, without the Government's targeted support for young people, we could go back to the 1980s and see a new generation of worklessness in the UK. All of us must strive to ensure that that does not happen.

Chris Huhne (Eastleigh) (LD): I entirely agree with the importance of ensuring that we do not throw a whole generation on the scrap heap, but, given that the right hon. Gentleman just said that six months is a long period to allow people to go without work and without developing the habits of work, does he agree that it would be better to adopt the proposal of a three-month period before the guarantee came into effect?

John McFall: That is an idealistic position. I do not know enough about the statistics in terms of three months or six months, and some young people get lost in the statistics. The important thing is that we help people after six months, but if it were felt that there was a detrimental effect after three months, and if it were possible to implement the proposal, I would quite happily support the hon. Gentleman's suggestion.

I mentioned public anger, but I shall refer to that later, because I mentioned also financial inclusion, and I certainly welcome the Government's policy on basic bank accounts. As the Chancellor and others know, the Treasury Committee from the previous Parliament forged the policy to ensure that we have a 10-year plan for financial inclusion. We pushed very hard for the Government to act on the problem, and all of us must realise that banking is not a luxury, but vital for our society and our economy.

There was a social contract between the banks and the public: as long as the banks were able to provide basic, essential functions to the public, particularly saving and lending, bankers' bonuses and excesses were tolerated. But no more. With the onset of the financial crisis, the banks stopped being able to carry out those functions, people no longer felt that their money was safe and the banks stopped lending to businesses and households. That social contract has broken down, and we must bear that in mind for future policies.

Considerable public anger is now directed at the banks, and that is understandable given the economic difficulty that many families face. However, given the importance of financial services to the economy, we will not have a secure economic recovery until the financial sector is also on the road to recovery. So it is important that we address the issue of concern and public anger, and restore confidence in the financial sector.

I mentioned financial inclusion. The Government's proposals on basic bank accounts is very welcome, and work is being done already by the Financial Services Authority and the Treasury in respect of data for banks on where people open accounts and where lending is made to businesses and individuals. However, all of us have seen, in our own areas, the proliferation of cheque cash shops, payday companies and doorstep lending in places with little or no banking provision. We need
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clarity about to whom the banks are lending and not lending. For example, there is a lack of access to cash machines in ethnically diverse areas-a fact that has more potency than a diversity indicator itself. Underneath the figures lies an explanation for why we lack sufficient provision of those basic bank accounts, and we need to go further to ensure that we get that information across.

Even today, 1.75 million people do not have a bank account.

Sir Robert Smith (West Aberdeenshire and Kincardine) (LD): I would like to take this opportunity to thank the right hon. Gentleman for his service to the House as Chairman of the Treasury Committee. However, will he expand on the role that the post office network can play-there is a meeting about this later-in opening up the banking system to many people who are currently un-banked? That trusted brand could work in the basic banking sector, meeting the needs in local communities that have no outlets of any other financial institution. Perhaps more should be done to drive forward the concept of the post bank.

John McFall: I agree with the hon. Gentleman. As he knows, our Committee and others did some work on the Post Office card account and the struggle to retain it. That is important, but we have to take it a step further. A Post Office card account itself is insufficient, because it provides limited services. The ambition for the Post Office, over the next eight or 10 years, is to be a financial services provider, so that there is solidity in Post Office services. That is quite an ambition, but it is very important, given that the Post Office is a trusted brand, as he said, and given that 95 per cent. of the population live within a mile or so of a post office. We need to encourage the Post Office to get that facility going. I am a little discouraged by the fact that Alan Cook, who used to run National Savings and Investments, and then joined the Post Office and drove this agenda, is now leaving. However, we need some added urgency, and I look forward to further Government measures on it.

It is not enough for people to have basic bank accounts, because figures show that 60 per cent. of those with such an account make full withdrawals every month. In other words, they do not use the direct deposits of the bank system, and they do not use their bank accounts to pay their utilities bill, which would make them cheaper. At the moment, basic bank accounts for such people are meaningless, so we need to do more work-simply having a basic account is not the answer.

The money guidance service set up by the FSA has a crucial role to play in the financial inclusion agenda. For example, arising from discussions with those involved, I have been told that the majority of people over 60 do not claim pension credit, and that lots of people in social housing do not have basic bank accounts. I would like to think that a number of organisations, not least the money guidance service, could be tools of financial inclusion. That agenda has to be pushed and promoted even more.

On Monday, the Treasury Committee unanimously agreed three reports, and in the next week or two, we will be putting them out. A feature of our Committee has been that we have considered the evidence and agreed our reports on the basis of unanimity. The
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report that I consider the most important relates to the issue of banks being too big to fail and too important to ignore. Let us remind ourselves that the crisis has cost 25 per cent. of global gross domestic product, and that the reason for the crisis was that financial institutions took part in risky activities that were both mispriced and misallocated. The bail-outs, necessary though they were, have not ended the mispricing.

The bail-outs have shown that there is an implicit subsidy to banks and financial institutions, which is unfair when considered in relation to other businesses. Banking reform is essential, therefore, to ensure a more stable and less volatile system. That is essential in the United Kingdom, where the banking sector is worth 500 per cent. of our GDP. The fact is that we have big banks and limited choice, and as a result we have insufficient lending to non-financial institutions, as anyone who speaks to the CBI, small businesses or the manufacturing industry will hear. Banking reform in the UK is essential.

I urge the Government to ensure that banking reform takes place, irrespective of what is happening elsewhere. The visits undertaken by the Treasury Committee in the past six months to a year, whether to the United States or Europe, have impressed upon me that countries' electorates will not tolerate a second bank bail-out. I suggest to the Government that the test of reform will come when the risk is transferred from the Government to the banking sector, and a large financial institution is allowed to fail smoothly. As others have said, banking is currently in a position where it privatises its profits and socialises its losses. We have to eliminate that practice.

We have to have engagement with the public. At the moment, that engagement is insufficient. In October 2007, the Treasury Committee visited Japan, and I spoke to policymakers at its central bank. They said that we should take back the message that two things are essential: first, that we have to recapitalise our banks-and recapitalise them early-which the Government have done. Secondly, we need a strategy to deal with the public anger, concern and resentment. I have taken that message forward and helped to establish the Future of Banking Commission, which the right hon. Member for Haltemprice and Howden (David Davis) has agreed to chair, and which the hon. Member for Twickenham (Dr. Cable) has agreed to sit on. We also have the eminent economist, Roger Bootle, and others on the commission.

We have established the commission to look to the future and ask basic questions about what the banking system is for and how it can best serve the interests of customers and regional economies. Those are basic issues, and we would like to present our report to the next Government in June. We want to take forward the message that financial architecture change is essential. However, that will not take place in the next two years-it will take quite a long time. I say that because Basel II took 15 years. So we are in this for the longer term, and it is important that politicians and policymakers stand side by side in ensuring that we get a better, more stable and reformed banking system as a result.

As kindly mentioned by the hon. Member for West Aberdeenshire and Kincardine (Sir Robert Smith), this will probably be my last speech in the House. I well remember reading the late John Biffen's autobiography. He had a flat on the south side of the river, and he came
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across Waterloo bridge everyday. He said that, during his long time here, when he spied the House of Commons every morning, and entered it, he got a bit of a thrill. I share that sentiment. It has been a privilege for me to represent my area in this Parliament, and I am grateful to lots of people, including not only my office staff, but the staff of the House. The House is a very fraternal institution. It might not look like it from the outside, but people are always ready to help others. The attendants, police, and the staff in the Tea Rooms, are always very welcoming and warm. I will miss that.

I will also miss the Treasury Committee staff. When I give speeches in the City and elsewhere, it is clear that people think that the Committee is a Department serviced by an awful lot of people. In fact, there are only six people involved, together with three economists. We seem to have done a bit of a David and Goliath exercise, and kidded people that we are the equivalent of a Department of State. The effort that the staff have made over the nine years that I have been on the Committee has been enormous.

I also want to pay tribute to all my Committee colleagues, particularly the hon. Member for Sevenoaks (Mr. Fallon), who has been the Chairman of the Sub-Committee. I see other Members here who have also been part of the Committee. We have always made it our business to take the evidence and to produce unanimous reports. The unanimity of those reports has given out a profound message and helped to inform the debate here. I hope that it has also helped to build a bridge to the public, to help us to ensure that public engagement is restored. The past nine years have been the most fruitful years in my parliamentary career.

Lastly, I would like to thank my family and my constituents, who have supported me consistently for 23 years. Some people have asked me why I am giving up now. I remember that when Terry Wogan left Radio 2, he said, "I'm giving up now because we're still in love and the music is still playing." Well, the music is still playing for me. I wish everyone who is going to be part of the next Parliament every success in rebuilding trust and confidence in this institution, which is the bulwark of our democracy.

2.21 pm

Mr. Peter Lilley (Hitchin and Harpenden) (Con): It is a great privilege to follow the right hon. Member for West Dunbartonshire (John McFall), who has played a distinguished role in our economic debates over the years. I wish him well in his retirement. His contributions will be long remembered here.

The Prime Minister-both as Prime Minister and as Chancellor of the Exchequer-has always believed that words were a substitute for reality. He believed that simply by repeating his commitment to prudence, he could distract people's attention from his practice of imprudence, which involved building up the largest unsustainable growth in expenditure that this country has experienced in many a long year. He believed that by repeating his assertion that he had abolished boom and bust, he could make us think that he had done so, until the reality exposed him and burst his credibility.

Now, the Prime Minister asserts that the problems are all global, and tries to convince us that he had no part in the problems and could have done nothing to mitigate or avoid them. However, two Anglo-Saxon
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economies similar to our own-Canada and Australia-were prudent and did not go in for excessive boom. As a result, they avoided the rigours of the bust when the problems hit countries such as Canada's near neighbour. So, more could have been done in this country to mitigate and prevent the problems from which we are suffering, of which this Budget is a symptom. We could have avoided the present levels of non-employment, for example. The Government claim that the unemployment figures are encouraging, but they do not tell us how many people have withdrawn from the labour market because they are discouraged, and because there are no jobs available.

Ultimately, however, the problems that we face can be summed up by the size of the deficit that we face. The Chancellor has tried to convince us that because the forecast of £178 billion has come down to the current estimate of £167 billion, that would somehow make a significant difference to the scale of our concerns. But £167 billion is unprecedented. It cannot for an instant be tolerated, excused or minimised. There are only three ways to reduce the deficit. The first, and worst, is to raise taxes. The second, better, way is to cut spending. The best way is to encourage growth. Raising taxes might be unavoidable, but if we are elected to government, we will do all we can to avoid raising taxes.

By contrast, raising taxes is the first choice of the present Government. They have already put up taxes today, stealthily and with little mention, by an extra £19 billion, as my right hon. Friend the Leader of the Opposition pointed out. That is a burden that we have already had to pay. When the Prime Minister was asked what action he had taken to reduce the deficit, the three measures that he mentioned were all tax increases. That is this Government's instinct and their practice, and if they are returned to office we must fear that such measures will form the bulk of what they introduce. It is inevitable that they would be forced to introduce measures to reduce the deficit more quickly than they are now proposing, in rather unspecified ways.

Better than raising taxes is cutting expenditure. Indeed, even the Labour Chancellor recognises that large reductions in spending are required, even with the higher taxes that they are proposing and those that they have already introduced. The Institute for Fiscal Studies has pointed out that, on the Government's own projections, they are set to undo almost all the increases in expenditure that they introduced over the first 10 to 12 years of the Labour Government. The Prime Minister is a "Duke of York" leader, who marches his party, and the country, up to the top of the hill with massive and unsustainable increases in spending, then marches us down again, while undoing them. It is small wonder that he has not spelled out in detail any proposals in a spending review. That has been postponed until beyond the election, because it would be the ultimate confession of failure if he were to spell out in detail what he needs to do.

Anne Main (St. Albans) (Con): Does my right hon. Friend agree with the businesses of St. Albans that as the Prime Minister was not a very good Chancellor in the good times, they have much more to fear in the bad times? He was very business-unfriendly in the good times, and they are fearful for their businesses now that there may be bad times ahead.

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Mr. Lilley: My hon. Friend is absolutely right. Many of the businesses in her constituency employ people who live in my constituency, and they share the view that she has just expressed.

If we are to cut spending, we must try to do so without cutting services. That goes without saying. There is huge scope for doing that. If the public sector had matched the productivity increases of the private sector, rather than undergoing a productivity decline, much of what is required to get the deficit down would simply not be necessary. In short, the failure to achieve efficiency in the public sector is the cause of the problem, and the reason why there is now scope for making savings without making cuts in services. The Labour Government are prepared to tolerate waste and inefficiency, and they place no requirement on the public sector to match or emulate the constant improvements in productivity that are required in the private sector. That provides the problem, as well as the scope for reducing it.

We want to get on with the job. We do not want the savage cuts that the leader of the Liberal Democrats was calling for-although he seems to have resiled from that position recently. We want to get on with the job, because the sooner we tackle the problem, the less painful it will be. It is just like tackling an illness: the sooner we start to treat it with antibiotics, the less likely we are to have to resort to surgery. The sooner we start to cut the deficit, the less painful it will be. Departments would be able to rely on freezing recruitment, rather than introducing redundancies. If redundancies were necessary, they could be voluntary rather than compulsory. Starting the process now would be less painful than having it forced upon us after the election, without preparation. Another Labour Government would be forced to start that process, were they returned to office.

We do not believe that starting to take these measures would destroy the recovery. Nor, of course, did the Government, as the Institute of Directors has pointed out. A Treasury document from back in 2003 said that there could be such as thing as an "expansionary fiscal contraction"-reducing the deficit with expansionary effect. It said that such a contraction

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