HC Deb 02 November 1998 vol 318 cc559-75 3.31 pm
The Chancellor of the Exchequer (Mr. Gordon Brown)

With permission, I should like to report to the House at the earliest available opportunity the terms of a new agreement reached on Friday by Finance Ministers and central bank governors of the Group of Seven countries to reform and strengthen the international financial system. A full copy of that and a statement by the Heads of Government, setting out the agenda for further action, is available in the Vote Office.

Tomorrow, I shall present to the House the pre-Budget report, with its detail on the domestic economy. However, the financial crisis that swept Asia last year and reverberated around the world has revealed long-standing weaknesses in the international financial system, which G7 Ministers agree must be addressed as a matter of urgency.

Our predecessors had to meet the challenge of ensuring economic stability in an era of national economies. Our generation must meet the challenges of ensuring stability in the era of a global economy, in which each economy can directly affect the prospects of every other. The new way forward is sensible global financial regulation, credible crisis prevention, orderly mechanisms for crisis resolution and a sure foundation in minimum standards and best practices that all countries adopt to participate in the international financial system.

That is directly relevant to the United Kingdom economy. It is everybody's business, not only because we are dependent on trade in goods and services with other countries—the Asian crisis, for example, cut in one single year UK exports to Indonesia, Malaysia, South Korea, Thailand and the Philippines by more than 50 per cent.—but because, in countries such as ours, as we have seen, a weak financial system or inappropriate economic policies in one country put at risk another country's financial system and threaten people's savings or investments, and eventually, their companies or jobs. That is why it is in everyone's interest to support a new mechanism for crisis prevention and resolution, a new transparency in the global financial order and a new process of financial regulation.

The G7 Ministers' statement reaffirms that the balance of risks in the world economy has shifted from concerns about inflation to concerns about growth. In the last month, interest rate policy has been adjusted in Japan, the United States, Canada, the United Kingdom, Spain, Portugal, Ireland, Denmark, Italy and again in the United States. The G7 statement issued on Friday reaffirms our commitment to create or sustain the conditions for strong domestic-demand-led growth and financial stability in each of our economies. The authorities will continue to be vigilant in the light of the shift in the balance of risks on a global basis.

In our statement, each continent has agreed to make a contribution to creating the conditions for stability and growth—Japan with banking reform, Europe with structural reforms to tackle unemployment, and America by promoting growth with low inflation. In the case of Latin America, we welcome the policy commitments that the Brazilian Government have made, and we will work with the international community to support them. All of us must act to avoid a retreat into protectionism.

As well as measures to deal with short-term instabilities, we need action to reform the financial architecture. For 50 years, our policies for regulation, supervision, transparency and stability have been devised and developed for a world of relatively sheltered national economies with limited capital markets. Now that markets transcend national boundaries, we must create for global markets systems for supervision, transparency, regulation and stability that are as sophisticated as the markets with which they have to cope.

G7 Governments have therefore concluded that the international architecture devised in the 1940s for the economies of the 1940s is no longer adequate for the challenges of the 1990s, and that we need new rules for the global financial system. In the statement, each G7 country has now agreed to adopt and apply codes of conduct founded on minimum standards and best practice. These are new disciplines and undertakings that each country is prepared to accept as a condition of its participation in the international system.

In monetary and financial policy, we are agreed on the need for greater openness, and that each country should specify its objectives for monetary policy. We are agreed that each country should identify responsibility for achieving those objectives, and for reporting and explaining monetary and financial policy decisions. We are agreed that these standards should be set down in an internationally agreed code of conduct that all countries are prepared to accept.

We have committed ourselves to complying with the code of conduct of good practice on fiscal transparency that has been drawn up by the International Monetary Fund. Similar standards of transparency are required in the private sector. By spring next year, the Organisation for Economic Co-operation and Development will complete work on a code of principles on sound corporate governance and structure. By early 1999, we will also have in place a plan for internationally agreed accounting standards.

Those codes of conduct in monetary policy, fiscal policy and corporate governance will mean radical changes in the way in which financial markets function. They will help to produce an environment in which financial markets can operate better. They should reduce the risk of future failures and mean that, when failures do occur, the financial system is robust enough to withstand them. By improving public understanding of why and how decisions are made—and by making sure that the right long-term policies are in place—the codes will help to build public understanding and support for the policies that are necessary to deliver economic growth and prosperity.

Proper implementation of the codes of conduct should be a condition of IMF and World bank support. Immediate action to promote transparency in these areas should be key components in any reform programme which the IMF and World bank agree in coming months. The IMF and the World bank must themselves be more open and accountable, with a presumption in favour of releasing information and external audit of their performance.

We have agreed that there should be new undertakings on social policy, too. The G7 statement underlines the importance of policies that protect the most vulnerable—the real victims of financial crises, whose pain is very real indeed. That is why the G7 Governments have agreed that there should be general principles for good practice in social policy. These should serve as a guide to best practice by individual countries, and there must be, as a matter of immediacy, a new World bank emergency facility to provide additional funding on special terms to the most vulnerable groups in society.

On global financial regulation, the G7 Governments have now agreed to support the establishment of a process for strengthened financial sector surveillance, using national and international regulatory and supervisory expertise. That will be used in the IMF's regular surveillance of individual member countries.

We will bring together the key international institutions and those national regulatory authorities that are involved in financial sector stability to co-operate and co-ordinate their activities in the management and development of policies to foster stability and reduce systemic risk. They will be able to exchange information more systematically on risk in the international financial system.

Dr. Tietmeyer, the president of the Bundesbank, has agreed to consult the relevant international bodies on the reforms. I want an international memorandum of understanding to establish a proper division of responsibility between regulators and international authorities.

In the G7 statement, we also commit ourselves to strengthening the regulatory focus on risk management systems and prudential standards in financial sector institutions, and, in particular, to examining the implications of the operations of leveraged international financial organisations, including hedge funds.

A fundamental problem has been a lack of transparency and poor standards of disclosure by some financial market participants. The Basle committee on banking standards will look at that important issue when it considers an international standard of best practice for transparency and disclosure. An agreed international standard of best practice would act as a benchmark both for financial institutions and for their regulators.

The United Kingdom is clear that financial institutions that deal with hedge funds must take into account all proper prudential standards and requirements of disclosure—proper due diligence procedures are essential. We also believe that, as part of the review of capital adequacy rules, the Basle committee needs to examine the appropriate treatment of banks' exposures to hedge funds to ensure proper recognition of the risks.

As Howard Davies, the chairman of the Financial Services Authority, has emphasised, managements of financial institutions have a responsibility to ensure that circumstances never arise in which personal relationships with potential counterparts could get in the way of appropriate due diligence. He said that there must be complete transparency in senior management's personal investments in counterpart firms to avoid any suspicion of conflicts of interest. I fully endorse those remarks.

In their statement, the G7 Heads of Government said that they would examine not only the operation of highly leveraged operations of offshore institutions but how they can encourage offshore centres to comply with internationally agreed standards. That is of particular importance for the United Kingdom, because Long-Term Capital Management was registered in the Cayman Islands.

The Government are committed to improving standards of regulation and regulatory co-operation in our overseas territories and to implementing the European, G7 and other OECD initiatives to tackle unfair tax competition. We will not allow high-risk hedge fund speculation by a few to translate into wider risks for the many, and destabilise the financial system on which we all depend for prosperity.

Through international examination of transparency in hedge funds, proper due diligence procedures, potential conflicts of interest and dissemination of standards to offshore centres, Governments can play their part in minimising the implications of future sudden and systemic disturbances.

G7 Ministers are agreed on the need for a new procedure for crisis prevention and tackling contagion. The central element is an enhanced IMF reserve facility, which would provide a contingent short-term line of credit for countries pursuing strong IMF-approved policies. That facility could be drawn on in times of need, and would entail appropriate interest rates along with shorter maturities. It could be complemented, in individual cases, by bilateral contingent financing, and it would be accompanied by appropriate private sector involvement.

The G7 countries have also agreed on the need for a better long-term mechanism for international authorities to work with the private sector and national authorities in handling debt rescheduling at times of potential crisis. We are asking the private sector to adopt collective action clauses to facilitate more orderly work-out arrangements, and we will consider the use of such clauses in our own sovereign and quasi-sovereign bond issues.

We are asking the World bank, in co-operation with the IMF, to work to put in place effective insolvency and debtor-creditor regimes and, we are asking the IMF to consider lending into arrears, under carefully designed conditions and on a case-by-case basis. We want the private sector to build on its experience with some emerging market countries in developing new, market-based contingent financing mechanisms. We will now support the more active use of loan guarantees to encourage greater private-sector involvement in emerging market financing.

Following the welcome United States Congress decision, we call for the IMF quota increase and the new arrangements to borrow to be implemented as soon as possible. Together, they will provide additional IMF resources of $90 billion to ensure the stability of the international financial system.

Globalisation has happened. We must now make it work in hard times as well as good. As we have shown, we need not new institutions, but new rules and disciplines. I want to thank other G7 Ministers and central bank governors, and Heads of Government who have backed this work all along, for working through this new agreement.

Taken together, the reforms that we have agreed—global financial regulation, new codes of conduct for transparency and mechanisms for crisis prevention and crisis resolution, backed up by the resources that those need—represent the first steps and now set the agenda for what will become the most radical restructuring of the international financial architecture since its creation in the 1940s, making us better equipped to tackle the challenges of the 1990s and the century ahead. I commend this detailed statement to the House.

Mr. Francis Maude (Horsham)

That statement was less about the global financial architecture than about distracting attention from Britain's looming downturn and the Chancellor's four basic blunders, which created it. Not once did he admit that there is a problem, and not once did he admit his responsibility for it. The House will have thought it surprising that, although the Chancellor announced this morning to the Confederation of British Industry a date for proposed British membership of the euro and the establishment of a parliamentary body to prepare for it, he has not found time to announce it to the House.

In view of the concern that the Chancellor expressed in the agreement about the performance of domestic financial regulators, will he give an absolutely clear undertaking that the financial services Bill that would create Britain's financial regulator will be in the Queen's Speech, or confirm that the legislation is in such a mess that he is not in a position to include it?

How does the Chancellor square the greater openness and disclosure about which we have heard much—including the repeated use of the word "transparency", in the belief that constant repetition makes it true—with the impenetrable thicket of changed definitions and fiddled statistics with which he has surrounded our public finances? The central point that the Chancellor failed to address was that the IMF was set up to encourage national Governments to pursue sensible economic policies. His predecessors in the previous Labour Government know that only too well.

Today's economic downturn in different parts of the world is primarily due to different domestic policy blunders in each country. Will the right hon. Gentleman tell the House how British businesses are supposed to cope with £40 billion of extra taxation and regulation? Is he merely going to say that they all have to sharpen up their act, while he lectures the world about their deficiencies?

Gavyn Davies of Goldman Sachs has said: the UK is teetering on the brink of recession". Will the Chancellor tell the House what he is doing to avoid such a recession? Has he not read the surveys that put Britain at the bottom of the European growth league for next year? Is he aware that the poll of forecasts published by The Economist shows British growth of less than 1 per cent. next year, while even Australia, which is heavily dependent on Asia for its trade and prosperity, is set to grow by 2.2 per cent?

When will the Chancellor stop lecturing others, and tell us what he intends to do here in Britain to prevent our sliding into a recession that will have been made in Downing street?

Mr. Brown

I knew that the Conservative party wants to opt out of Europe; it now seems to want to opt out of the whole world. When we have an agreement that has been signed by Governments of right and left throughout the world; when the central banks in America, Europe and Japan recognise the need for action; when growth in world trade is set to fall by two thirds this year, from 11 per cent. last year to the 4 per cent. forecast for this year; and when 25 per cent. of the world is in recession, it ill befits the Conservative party to fail to examine the need for fundamental reforms in the international financial system.

We supported the previous Government when they considered heavily indebted poor countries and international debt and when they went to Lyons to sign an agreement tackling unemployment. I believe that, on reflection, Conservative Members will think that all-party support for an agreement signed by everyone from Alan Greenspan and President Chirac to the Prime Minister of Japan and the new President of Germany would be a more sensible approach.

Let me deal with the right hon. Gentleman's individual points, such as they were. He says that constant repetition of "transparency" will bring no answers in itself. That is precisely why all countries have now agreed to follow a code of transparency. It would have been far better if the previous Conservative Government had taken the action that might have avoided some of the crises in the first place.

Yes, it is true that the International Monetary Fund was set up primarily to deal with balance of payments crises affecting individual national Governments, because of the risk that they would spill over into other national economies; but the world has changed since 1945, and we are dealing with global financial markets that need supervision and transparency not only nationally but globally. It is hardly surprising that central bank governors and international regulators are prepared, despite the shadow Chancellor's advice, to meet and consider big reforms in the international financial system.

When the shadow Chancellor sees the result of the work being done by the Basle committee, the International Monetary Fund and the World bank to reach agreement on a new mechanism for financial regulation that can spot problems before they arise in individual economies; deal with some of the current gaps in the regulatory system; and spot some of the difficulties that arise from the international operation of hedge funds, he will think twice about pouring cold water on a very sensible idea.

The crisis resolution system—the special facility of the IMF—was an idea originally proposed by America as a temporary facility to deal with crises arising from current events, and the House agreed the funding of the IMF behind it last July, so it ill befits the Conservative party to oppose a measure that is of good use to the international system.

When Japan has to nationalise many of its banks; when the public sector is buying shares in private companies in Hong Kong; and when the United States has had to mount a rescue operation for a hedge fund that was exposed to $1.3 trillion, it ill befits the Conservative party not to take seriously the problems of our international system. I hope that, on reflection, it will think again.

Mr. Robert Sheldon (Ashton-under-Lyne)

Is my right hon. Friend aware that his role in getting the G7 to provide the £90 billion has been widely applauded? Will he say something about the problems of contagion of perfectly respectable economies from some of those in crisis, and in particular about some of the hedge funds? We are dealing with very large sums, and at times of variability in the markets concerned, it is difficult to control them. What plans does he have, or might he think of having, to monitor such funds?

Mr. Brown

I am grateful to my right hon. Friend, and I agree with him that the issues are complex and detailed. The Conservative party should face up to that when it examines the issues.

The crisis prevention facility—the supplemental reserve facility, which has been set up by the IMF—is designed so that countries pursuing sound economic policies are not brought down by international events beyond their control. The emergency facility and the resources behind it should be accompanied by bilateral help from individual countries willing to contribute and a serious contribution from the private sector, which should now play its part—on this as on other issues—in helping to resolve some of the crises that arise from the operation of the financial markets.

On hedge funds, I assure my right hon. Friend that the measures that I have outlined this afternoon—including a code of standards, the examination of dependent territories and rules of capital adequacy—are being pursued urgently. The Financial Services Authority is taking a great interest in the issue, as is the Basle committee, which brings together all the banks, and I am confident that, although it is difficult to deal with the problems caused by the operation of hedge funds, those who invest in them will be prepared to follow codes of conduct requiring higher standards of transparency and disclosure.

Mr. Malcolm Bruce (Gordon)

I welcome the Chancellor's statement and his recent work on trying to tackle global market turbulence. Does he agree that we in the United Kingdom have a responsibility to address our domestic problems as part of the solution, including getting down our overvalued pound and exchange rates? He mentioned the monetary and fiscal codes included in the G7 agreement, but will he consider the connection between the two? In his Budget statement, will he undertake to avoid any fiscal easing, to make it possible for the Bank of England to bring down interest rates in accordance with the approach that he advocated on his summer tour of world capitals?

We all wish to see greater stability in the exchange rate. I welcome the Government's proposal for a parliamentary committee to prepare for the single currency, and, whatever difficulties the official Opposition have with the issue, we will be happy to co-operate. However, does the Chancellor accept that serious private sector preparation for the single currency will not happen unless there is evidence of serious public sector commitment to joining it? The two must go together.

The Chancellor pointed out the fall in exports to Asian markets, but does he accept that we trade more with the Netherlands than with the whole of Asia, Russia and South America combined? In those circumstances, he cannot blame our current problems on difficulties in those regions, and he must pursue an action plan at home to bring down our uncompetitive exchange rate and high interest rates.

Mr. Brown

I am grateful to the hon. Gentleman for being more generous than the shadow Chancellor in recognising that international issues must be addressed. The Conservative party seems to want to fail to recognise that. I will address the exchange rate issues again tomorrow, but I remind the hon. Gentleman that the exchange rate is now 10 per cent. below its peak. It was DM3.10 at one point, and is now below DM2.80. The dollar exchange rate has barely changed in the past three years.

It was announced some time ago that the Government were preparing a draft national changeover plan for the single currency. The Conservative party is, of course, free to use one of its Opposition days to debate its new policy on the European Union, and I would enjoy that very much.

Individual national economies have been severely affected by what has happened around the world for two reasons. First, although trade with Asia is smaller than trade with other continents, trade as a whole, which was growing by 11 per cent., is now growing by 4 per cent. Secondly, $3 trillion has been wiped off stock exchanges around the world, which is the equivalent of 10 per cent. of world GDP. That is unlikely not to have an effect on confidence in individual countries and people's ability to make decisions about investment.

I hope that the hon. Gentleman will come to understand that the combination of the downturn in world trade—arising initially from what happened in Asia, but affecting Russia and eastern Europe and Latin America, and now affecting some decisions being made in the United States—and what is happening on the stock exchanges, has had a powerful effect on the world economy and on confidence. I want us to steer a course of stability, but we must ensure that the world economy is also in a position to steer such a course. That is why we need major international financial reforms. I hope that, when the Conservative party grows up, it will welcome them.

Mr. Stuart Bell (Middlesbrough)

Does the Chancellor agree that the British Government, and our friends in the G7 countries, are acting so that nation states can come to terms with their own economies and seek to deal with the financial contagion of speculation that has spread across the world? Long-Term Capital Management was able to raise $100 billion on $4 billion of capital. At one point, it was $3 trillion in debt. Japanese banks were not regulated properly, according to the Basle agreement. Derivatives trading has stripped the world's economies of good money made by manufacturers. Does my right hon. Friend agree that what he has said today puts the emphasis back on the real economy, on manufacturing, on services, on sales and on exports by getting a grip on the financial economy?

Mr. Brown

I agree that, if a Japanese bank fails or a Korean industrial company is unable to continue its investment, there will be an effect on jobs in the United Kingdom. If a Japanese manufacturer, or even an American or Latin American one, cannot maintain investment, that too affects our ability to invest and to create jobs.

People are coming to recognise that events in individual economies, and the fragility of the banking systems in some developing economies, can have a powerful effect on the world economy. To deal with that is not just in the interests of one country; it is in the interests of all. That is why global financial regulation is a central issue. It was not an issue when capital flows were so small in the 1940s, but it is bound to be an issue in the 1990s, and that is why the international financial institutions must be reformed.

Mr. John Townend (East Yorkshire)

I have been in the House for 20 years, and I have never heard a statement from a Chancellor that contained so much waffle and so little detail. Is not the right hon. Gentleman's statement basically a diversionary tactic that will give him an alibi tomorrow when he will announce to the House that our growth rate next year will be way under 1 per cent. while growth rates in France and Germany are way over 2 per cent? Is not that due to the failure of his economic policy of spending too high, taxing too high and imposing too much regulation, which has forced the Bank of England to keep interest rates sky high, and has created a growing depression? The right hon. Gentleman talked of transparency, but there is none in the European Central bank, which he is keen to join. Will he advocate that the bank's minutes be published? How much will his package cost the British taxpayer?

Mr. Brown

I do not know what has happened to the Conservative party. [HON. MEMBERS: "Answer."] Answer? The hon. Gentleman made a statement of prejudice against the world, and he failed to recognise that what happens in Britain is affected by what happens round the world. If he were criticising a statement that I had made without the agreement of our G7 partners and of central bank governors, that would be all very well.

However, I have worked on the statement with the Chairman of the Federal Reserve bank in the United States, Alan Greenspan, the governors of all the central banks in Europe, and the Finance Ministers of those countries. That includes Ministers of right-wing views and left-wing views, all of whom agree that international financial reform is necessary. The only people who do not agree with that, it seems, are in the Conservative party.

Mr. Dale Campbell-Savours (Workington)

I warmly congratulate my right hon. Friend on his statement, and I pay tribute to the expert, confidence-inspiring way in which he set about it—[Laughter.] Oh yes, people all over the world will wish to thank the British Chancellor of the Exchequer for what he has done.

May I ask about a tax on speculative flows? Is that idea completely ruled out, or might it perhaps be on the agenda at some future point?

Mr. Brown

The key problem of a tax on speculation is how it would be applied, given the numerous financial centres that exist. We think that disclosure is the better answer to some of the problems that have arisen from the effects of speculative activity around the world, when it has become excessive. People must disclose the activities in which they are engaged, there must be proper international bodies that can deal with managing disclosure issues, and there must be proper standards that people have to follow.

I believe that even the Conservative party will see that that is the proper way forward. It wants to keep laughing, but we are talking about an international crisis that has left scores of millions of people in poverty. I wish that it would recognise what is happening around the world.

Mr. Peter Viggers (Gosport)

Does the Chancellor accept that he has a problem in the growing gap between income and expenditure, and that, at the heart of his statement, despite all the appeals for private sector support, is an announcement that the Government will commit more money to the International Monetary Fund? Will that commitment increase his problem by increasing public expenditure, or will it not count as public expenditure? If it does not, would it not be more honest if it did?

Mr. Brown

In the traditions that have been followed by Governments of both parties, the contributions to the IMF count as coming from foreign exchange reserves. Our IMF quota has been voted by the House. America was the last country that had to make a decision on whether to go ahead with it. There has been a great welcome around the world for the American decision that makes it possible to create the new reserve facility. Under the previous Government, the then Chancellor of the Exchequer, who seems to have become very unpopular on the Conservative Benches, supported these measures. I think that, on reflection, the Conservative party will again support them, but it is a pity that it cannot do so today.

Mr. Tom Clarke (Coatbridge and Chryston)

Does the Chancellor accept that, in any other forum in Britain, what he said would have been welcomed unanimously as sheer common sense? His two major points—the vulnerability of developing nations and the problem of debt, and the need for transparency in the IMF and the World bank—are surely self-evident. If people cannot be persuaded of the social and moral grounds that underscore his arguments, cannot we point out that economic interdependence means, for example, that, because of the meltdown in Asia, 1 million fewer Asian tourists are using the services of the British tourism industry than previously? On transparency, can he assure us that, with Oxfam and other non-governmental organisations, he believes that there should be separate representation at both the IMF and the World bank?

Mr. Brown

I am grateful to my right hon. Friend, who has long taken a great interest in development. I agree with what he says about transparency and the effect of what is happening all around the world on European economies. The agreement sets up a new emergency World bank facility that can give additional help to the poorest groups, particularly in Asia. The World bank is investing an extra $17 billion to help deal with social problems in Asia: 2.5 million children in Indonesia are being helped; a special employment programme is being developed in Thailand; in Korea, special adjustment finance is being provided. All those things are necessary to avoid not only unemployment but, in some cases, starvation. I hope that the whole House supports the measures.

Sir Teddy Taylor (Rochford and Southend, East)

One of the key recommendations in the statement is the reduction of European Union unemployment, which is now at the horrifying level of about 10 per cent., and more than 20 per cent. in some countries. Will the Chancellor say exactly how that is to be done? In light of the firm assurance by all G7 members that they are totally opposed to protectionism, will he say that the Government will wholly oppose the common agricultural policy, which is the greatest protection racket ever devised by man?

Mr. Brown

As the hon. Gentleman knows, the Government propose to reform the common agricultural policy. Conservative Members should welcome the fact that there is growth in Europe, and that the projections are for higher growth next year than in America, for example. [Interruption.] Conservative Members do not like it when Europe is growing, and they do not like it when Europe is not growing. Europe is set to grow next year. The employment action measures that we propose to adopt in Britain to deal with the structural problems of youth and long-term unemployment are increasingly being adopted in Europe. That will help to bring down unemployment.

Mr. Harry Barnes (North-East Derbyshire)

In an economic crisis, the weakest go to the wall first. In this case, the weakest are some of the world's poorest nations, which are looking for the removal of their international debt. Will the debt rescheduling measures that my right hon. Friend mentioned—new rules for the IMF and the World bank—begin to tackle that problem?

Mr. Brown

At the recent meetings of the IMF and the World bank in October, the United Kingdom proposed a number of measures that would help to get more countries into the debt reduction process. We are confident that, if action is taken both by them and by the world authorities, all countries can be part of the debt reduction process by the millennium.

We suggested a measure whereby post-conflict countries, particularly in Africa, which face the double burden of debt and an economy destroyed as a result of war, could get special help to ensure that they are part of the debt reduction process as well. I assure my hon. Friend that what the Churches and voluntary organisations throughout the UK and Europe are pressing for—action before the millennium on debt relief that genuinely helps people in difficulty, particularly in Africa—is part of the programme that the UK is pushing.

Mr. Peter Brooke (Cities of London and Westminster)

Before we set another unnecessary hare running, did the Chancellor of the Exchequer intend to agree with the hon. Member for Middlesbrough (Mr. Bell), as he seemed to, that financial services are not a real service industry, even if they require regulation?

Mr. Brown

No, I did not say that, and I do not think that it was the intention of my hon. Friend the Member for Middlesbrough.

Mr. Dennis Skinner (Bolsover)

My right hon. Friend should not pay a great deal of attention to the nervous laughter from the Conservative Benches when he was making his statement, because that party was responsible for seeing Johnson Matthey go down the pan to the tune of several hundred million pounds; they sat on their hands while the Bank of Credit and Commerce International lost £14 billion; and they did nothing when Barings lost £800 million. They are the Nicky Leesons of the political world. Will my right hon. Friend bear in mind that, although words like "codes of conduct" and "intervention" are well-meaning, if we are to tame the casino economy there must be some binding measures as well?

Mr. Brown

I am grateful to my hon. Friend for pointing out the Conservatives' record. If they do not believe in international financial regulation, it is doubtful whether they believe in national financial regulation. All G7 countries have agreed to follow the codes of conduct and the intervention that we propose, and there is now a timetable for action. At the beginning of next year, agreements on a number of those issues will be put into practice, and any further work will be completed by the next G7 summit. That is a record not only of moving the issue forward as a result of the financial crisis, but of trying to resolve quickly issues which, on reflection, Conservative Members should have resolved long ago, when they were in government.

Miss Anne McIntosh (Vale of York)

The Chancellor mentioned the need to reduce unemployment across Europe. Does he agree that those measures should be business led, and that it is not the role of Governments within the European Union to attempt to create jobs? That should be left to the business community.

Mr. Brown

I agree that businesses create jobs and prosperity, and that is exactly what I would say in every discussion I have. However, the hon. Lady must recognise that welfare to work would not have happened without government. The private sector often needs the Government's lead in helping with training and job opportunities for people who have been left out. We now have 140,000 young people in the welfare-to-work programmes under the new deal. I hope that the hon. Lady's remarks mean that she, at least, will welcome that on behalf of the Conservative party.

Mr. Jim Cousins (Newcastle upon Tyne, Central)

I welcome my right hon. Friend's statement, because it offers a firm platform for collective action by the new Governments of the left in Europe to promote growth and employment. However, can he assure the House that, in future, IMF packages will secure jobs and employment in the target countries, not simply bail out banks for risks that they should never have taken? Will he also assure us that Britain's offshore tax havens will have a firm regime of disclosure and transparency, of the kind that he wishes to see in the rest of the world?

Mr. Brown

I can say that we are looking at exactly that, in relation to the offshore independent territories.

As for the IMF, it is true that last year's initial programmes relating to countries such as Indonesia have been found not to be appropriate. That is why there must be more openness and more external audit in regard to what the IMF does, and I believe that some of the decisions that we have made will facilitate the process.

Mr. Michael Jack (Fylde)

In the early part of his statement, the Chancellor mentioned a number of actions that countries and groups of countries were expected to take in order to comply with the international agreement. Will there be a country-by-country timetable for such action? What sanctions will be imposed on countries that do not comply with that international requirement? Without a timetable and without sanctions, it will be a worthless and toothless agreement.

Mr. Brown

Countries will report what they have done by the time of the next G7 summit. As for sanctions, we propose that, when the IMF produces its national reports on individual countries, it should report on what has happened to, for example, reforms of the financial system. So there will be a timetable for reports, and sanctions in the form of publicity about what has gone wrong.

Mr. Gerald Bermingham (St. Helens, South)

Will the Chancellor keep a wary eye on our national clearing banks and other financial institutions, so that what has happened with hedge funds in the past does not happen again? When the financial institutions caught a cold in connection with third-world debts, the property boom and one or two other speculative enterprises in the 1970s and 1980s, they promptly recouped the money from customers in the United Kingdom, both industrial and private. Perhaps the Chancellor will keep an eye on them, because we would not like a repeat of something that caused so much damage to the personal and industrial economic health of the country.

Mr. Brown

I agree that it is important for our banks to service the needs of businesses in the best way possible, and the Government will keep that under continuous review. As for hedge funds, we intend to implement the initiatives that I have suggested this afternoon. I will report to the House later.

Mr. Michael Fabricant (Lichfield)

Does the Chancellor realise that the CBI and the Engineering Employers Federation will not be amused by his refusal to answer questions about the way in which his actions are exacerbating the effects of the decline in the world economy? Will he now answer the question posed by my right hon. Friend the Member for Horsham (Mr. Maude)? Will he tell us exactly why the Australian economy, which is more dependent on the Asian economy than ours, is growing at a rate of 2.2 per cent., while the United Kingdom economy—which, by his own admission, is less dependent on the Asian economy—is growing at a rate of only 0.8 per cent.?

Mr. Brown

As the hon. Gentleman knows, the British economy has been growing at an average of more than 2 per cent. over the past year. I shall give the figures tomorrow.

The hon. Gentleman should look at the figures relating to employment, which show that more people are employed in Britain than ever before. As for unemployment, which is another measure of bad performance, we have 400,000 fewer people unemployed.

I can tell the hon. Gentleman that the Australian Government are as interested as the British Government in reforming the international financial system. It seems that the only organisation that is uninterested in reform is the Conservative party.

Mr. Chris Pond (Gravesham)

I welcome my right hon. Friend's statement, especially the statement of the principles of social policy that have been agreed through the G7.

Will my right hon. Friend confirm—especially in the light of his last few words—that the country's employment record has been rather better lately than the record of the last Government, from whom we inherited the largest proportion of workless households in the European Union? Will he also confirm that it is understood by all members of the G7, on both right and left, that decent social standards are a precondition for economic progress, and that social justice is not an alternative to economic prosperity?

Mr. Brown

We have held discussions about the code of social policy, not simply with the G7 and the IMF but with the Commonwealth countries. They, too, are interested in how we can establish internationally agreed principles of social policy that can guide their peoples' behaviour. I like to think that we can make some progress on that, in terms not just of international debt, but of laying down social standards that all countries are prepared to adopt.

In view of what is happening in Indonesia—which I visited only a few months ago—and in Korea, Malaysia and many other Asian countries, the sooner we can secure agreement on what can be done to help in these difficult social times, the better. I assure my hon. Friend that, although I can, of course, make my party political points about the Conservatives' record on unemployment, it is more important to us to make progress throughout the world in dealing with some of the major social problems.

Mr. Andrew Tyrie (Chichester)

The Chancellor said that the IMF quota increase was agreed in July by the House. In fact, it was put upstairs in a Standing Committee, where there was an almost farcical exchange, with very little understanding by the Government of what had been agreed. Billions of pounds of British taxpayers' money is at risk here. Will the Chancellor acknowledge that, in future, all IMF quota increases should be taken on the Floor of the House?

Mr. Brown

I am happy to debate the issues of international financial institutions sensibly, and I hope that the whole Conservative party will join that debate when we have it. On the IMF quota increase, it is correct that, in Committee before the summer recess, we approved the UK share of the quota increase. It is also true that we approved in Committee last year the steps that the UK needs to take to participate in what are the new arrangements for borrowing.

I agree that these are important issues, but I think the hon. Gentleman would want Britain to continue to be the fourth biggest shareholder in the IMF, and to play our full part in the international institutions, and would want Britain's influence to count throughout the world. That depends on our playing a full part in the international financial institutions, and not on some cheap party political point saying that we should not pay our share of the quota.

Mr. Mike Gapes (Ilford, South)

Will my right hon. Friend confirm that, when he discussed these matters with his G7 colleagues, one of the matters that might have been discussed was how to promote such policies internationally? Will he confirm that the Conservative party has decided to get rid of the torch symbol and instead adopt the ostrich in its approach to these matters?

Mr. Brown

I know that, because the Conservative party failed in government, it wants to think that every Government will fail internationally, and is cynical about what can be achieved; but my hon. Friend is right. Progress on dealing with some of these international problems over the past few months has been important. We must go further, and make more progress on these issues. That cannot be done unless the G7, central bank governors and Finance Ministers work together and we can galvanise the IMF and World bank into action. I would have hoped that there would be all-party support for that throughout the House.

Dr. Vincent Cable (Twickenham)

May I add my support for the international economic initiatives, but specifically ask about exchange rate stability? Would the right hon. Gentleman confirm the written answer that was given to me by the Economic Secretary to the Treasury a few days ago—that, since the Government came to office, the pound sterling had appreciated by over 10 per cent. in real terms, when we take into account different rates of inflation and the movements of all currencies, including the dollar; in other words, the pound sterling is over 10 per cent. less competitive?

Mr. Brown

I do not accept the hon. Gentleman's interpretation of the figures. When we came to power, the pound against the deutschmark was, if I remember rightly, 2.79; it is now less than 2.79. For a time, it was up further. It has now come down 10 per cent. In relation to the dollar, the pound and the dollar have not changed a great deal over the past two or three years. I have understood the concerns of exporters in these matters, but I keep saying to the House, and I will repeat it: the bigger concern of every part of industry would be if we were ever to return again to the boom-bust conditions that were left to us by the Conservative party in the early 1990s.

Mr. Geoffrey Clifton-Brown (Cotswold)

Would not the Chancellor's statement this afternoon have been greeted with greater credibility if he had stopped blaming everyone else except the Government for this country's economic woes? Why did he say in public during the summer that the growth target that he announced in the last Budget had been revised downwards from 1.7 to 1 per cent? Why did he tell this morning's "Today" programme rather than Parliament that our borrowing was being increased to a staggering £22 billion? When will he take some proper measures to help manufacturing industry, and to save some of the jobs that are being lost in his constituency and elsewhere?

Mr. Brown

I do not know what question the hon. Member has been given to ask, but let me say that America is revising down its growth forecast, Japan has revised down its growth forecast, and Europe and Latin America are revising down their growth forecast. Every country is having to revise down its growth forecast as a result of what is happening throughout the world. The Conservative party wants to opt out of the world. We are part of a global economy, and the sooner it recognises that, the better.

Mr. Tim Collins (Westmorland and Lonsdale)

Will the right hon. Gentleman now answer the question he dodged earlier? If he believes in transparency on monetary policy, why has he not criticised the refusal of the European central bank to publish the minutes of its meetings? He has lectured Conservative Members on foreign policy, but has he not noticed that Germany has not a new President, as he said earlier, but a new Chancellor? That is something that Britain needs, too.

Mr. Brown

If the hon. Gentleman wants to be accurate, he will acknowledge that I have criticised the European central bank and asked it to have transparency in its operations. The hon. Gentleman should be correct rather than wrong in his assertions.