 If there are no further points of order, we come now to the main business, Backbench Business, and to the first of our two debates, that first debate being a general debate on money, creation and society, and I invite the honourable Gentleman, Member for Wycombe, to move the motion. Mr. Steve Baker. Mr. Speaker I beg to move that this House has considered the subject of money, creation sydd yn gyda hynny yn tro o gael i'r byw yaeth mae'n gweithio mor unrhywion, yn ymgyrchu'r oeddenni scanio cyfodiadol yn y ddyliadau er mwynodd, i'r bwysig, neu i'r bwysig, i'r bwysig i greu byw yng ngys affordable i'r bwysig i'r bwysig i ni i'r bwysig y taith gan hwysig i ni'r bwysig i ni maen nhw. Mae'n ystafell i ysgrifennu fod er mwynodd, mae'r bwysig i ni i ni i ni boi, Jom ni'n ddweud eich ynchydig yn gweithio ddawn, ac mae'n ddweud eich ffodus yr hynny diodd. Pwy i ddweud wedi'ch gwybod, hon. Rwy'n gweithio, pan yna, hynny'n ddweud yn y cyfan yn cael ei gydag. Roedd y Prifysgwr na'r dynion gyda'r hyn sydd yn amlwg i'r rhaghlastau? Mae'r ddweud wedi ddweud hynny'n ddweud i'r rhaglastau, yw ychydig yn gweithio dim ers i ddweud ychydig yng nghymru o'r betteryn yng nghymru yw ythodol ydym yn ei wneud. It is right. It would be a wonderful thing if the History Curriculum covered the 1844 Bank Outeract in particular. I would be a delight, I would be full of joy, but of course we would need to cover economics too in order for people to really understand it. Since he brings the subject up I have to say there were ideas at the time of that act which today are considered dwy o gweld yn Gymdeithasol Cymraenol i'r Bwgol, mae'n rhoi'r Gymraenol gyda'r fawr. as debt, with too few effective restraints on their conduct, and all the risks of doing so forced upon the taxpayer by the power of the state. A blend of legal privilege, private interest and political necessity has created over the centuries a system which today lawfully promotes the excesses which capitalism is so frequently condemned for. It is undermining faith in the market economy on which we rely not merely for our prosperity, but for our lives. Thankfully, the institution of money is a human social institution and it can be changed. It has been changed and I believe it should be changed further. The timing of today's debate is serendipitous. The Prime Minister has explained that the warning lights are flashing on the dashboard of the world economy. Quantitative easing looks like it will be stepped up in Europe and in Japan just as it is being ramped out in America and, of course, it has stopped in the UK. If anything, we are not at the end of a great experiment in monetary policy. At some midpoint, the experiment will not be over until all of this QE has been unwound, if it ever will be. Turning to the effects on society, we cannot really understand the effect of money production on society without remembering that our society is founded on the division of labour. We have to share the burden of providing for one another. We therefore, of course, must have money as a means of exchange, a final payment of debts and also as a store of value and unit of account. It is through the price system that money allows us to reckon profit and loss. That guides entrepreneurs and investors to best allocate resources to the needs of society. This is why, of course, every party now in this House accepts the market economy. The question is whether our society, or I believe our society, is vulnerable to false signals through that price system. It is certainly why any flaws in our monetary arrangements feed into the price system and become permeated through all of our society. In their own ways, Keynes and Meises, to men who economists who never particularly agreed with one another, were both able to say that currency debasement was the best way to overturn the existing basis of society. Even before QE began, we lived in an era of chronic monetary inflation unprecedented in the industrial age. Between 91 and 2009, the money supply increased fourfold. It tripled between 97 and 2010, from £700 billion to £2.2 trillion, accelerating into the prices. You just cannot increase the money supply at this rate without profound consequences. They are the consequences which are with us today. But it goes back further than this. Commons Library and the Office for National Statistics produced a paper giving consumer price inflation back to 1750. What we see is a flat line until about the 20th century when we had some inflation over the wars, but then from 1971 the value of money collapsed. What had happened, the Bretton Woods agreement had come to an end. The last link to gold had been severed, and that removed one of the most effective restraints on credit expansion. Perhaps in another debate we might consider why. I will on that. The Honourable Gentleman also agreed that getting off the gold standard and the increased supply of money enabled business and enterprise, enabled the economy to grow, because rather than being tied to the supply of gold, there were other avenues that could be used to grow the economy. He raises a very important point and preempts some of my later questions. There is no doubt whatever that the period of our lives has been a time of enormous economic, social and political transformation, but so too was the 19th century, and yet during the 19th century there was a secular decline in prices overall. The truth is any reasonable amount of money is adequate if prices are allowed to adjust. We are all aware of the phenomenon that computers, cars, more or less anything whose production isn't determined by the state. All of those things, their prices become gently lower as productivity increases. This is a rise in real living standards. We want prices to become lower in real terms compared to wages. That's why we argue about living standards. My hon. Friend is making an incredibly important speech. I only wish more people were here to listen to it. Does he recognise the—or does he remember or has he read the book by Nicolaus Wapshott on Hyacon Canes, which goes into his question very carefully? Does he agree that we are now in a new situation in which the unpleasantness of the Weimar Republic and the inflationary increase at that time led to the troubles with Germany later on, but that we are now in a new cycle, which also needs to be addressed along the lines that he's just been putting forward? I'm very grateful to him, Mr Speaker, because I think he does emphasise that the subject at issue today is one which goes to the heart of the survival of a free civilisation. It was something which Hayek wrote about, and I think it's absolutely true. If I were allowed props in the Chamber, I might wave this $100 trillion in Barbway notes, and you can hold bad politics in your hand. That is the truth of the matter. People try to explain that hyperinflation has never happened just through technocratic error. They happen in the context of, for example, extremely high-debt levels and politicians being unable to constrain them. In what circumstances do we find ourselves today, where we're still borrowing broadly triple what Labour was borrowing? I will give way. I'm very interested to hear what the Honourable Gentleman has had to say, but he'll be aware that over the last 30 years that the balance between wages in the one hand and capital in the other has become much more in favour of capital. Would he not agree that the way in which we tax and provide reliefs to capital is key to actually controlling that balance, and that we need to do more about increasing wage levels, which actually have been historically going down the way in relation to capital over a long period of time? I think I hear the echoes of a particularly fashionable economist at the moment there. If what she's saying is that she would like rising wage levels, real wage levels, well, of course I agree, who wouldn't? I want rising real wage levels. But something about which I get incredibly frustrated is this word capital. I've heard economists talk about capital when what they mean is money, and typically what they mean when they say money is new bank credit because 97% of the money supply is bank credit. Well, that's not capital. Capital is the means of production. There's a very lengthy conversation to be had on this subject that I'm sure she'll forgive me. I don't want to get into today. But I fear we've started to label as capital money which has been loaned into existence at interest without any real backing, and that might explain why it is that our capital stock has been undermined, that we've deindustrialised, and actually why it is that real wages have dropped, because in the end real wages can only rise if productivity increases, and that means an increase in the real stock of capital. Just to return to where I wanted to go, where did all this money that was created as debt go? Well, when I look at the sectoral lending figures, I see that some went into commercial property, there were some went into personal loans, credit cards and so on. Actually the rise of lending into real productive businesses, excluding the financial sector, was relatively moderate. But overwhelmingly where this new debt went was into mortgages and into the financial sector. Now exchange and the distribution of wealth are part of the same social process. If you buy an apple, then the distribution of apples and money changes. If money is used to buy houses, then we shouldn't. It would be a tool surprised that if you increase the supply of money into houses, you boost the price of those homes. But I will give way. As I'm talking about, it's a great debate. When you talk about ordinary people and their labour, because that's money as well, their labour, to them it's like looking for the end of the universe when you're talking about money and capitalism and how it works. To them it's just a matter of, I need money to survive and anything else is the end of the universe. Right, now welcome the spirit in which he's asked the question. I mean the vast majority of us live upon our labour. And it's absolutely true of all signs of the house, the vast majority of us live upon our labour. But what do we do? We work in order to obtain money, in order to obtain the things we need on which to survive. And he's preempted another remark I wanted to make, which is that there's a categorical difference between earning your money through the sweat of your brow and making money by just creating it when you lend it to somebody in exchange for a claim on the deeds to their house. It's fundamentally categorically different and it goes to the heart of how capitalism works. I appreciate very little of this is going on in election leaflet, but I think it nevertheless matters very much indeed. Perhaps I'll have to ask my opponent if he's followed the debate. But the point I'm making is this, if a great fountain of new money gushes up into the financial sector we should not be surprised that we find that the banking system is far wealthier than anybody else. We shouldn't be surprised if financings, housing, London and the south-east are far wealthier than anywhere else. Indeed I remember when QE began House prices started rising in Chiswick and Islington. The point is this, Mr Speaker, that money is not neutral. It redistributes real income from later to earlier owners, that is, from the poor to the rich on the whole. Now this distribution effect is key to understanding the effect of new money on society. I think it's the primary cause of almost all conflicts revolving around the production of money, the relations between creditors and debtors. He may be aware that before the last general election the member for working on myself and one or two others attacked the Labour party's position for its lack of growth and were concerned about the level of debt. If you add in all the debts of the network rail and the pension, unfunded pension liabilities and other matters, nuclear decommissioning, the actual debt, which is now reaching extremely high levels within the government's own stated statements, are now up to possibly as much as £3.5 to £4 trillion. Do you agree that that is extremely dangerous? It's extremely dangerous, Mr Speaker, and it's been repeated around the world. An extremely good book by the economist and writer Philip Cogan of The Economist sets out just how dangerous it is. His book is titled Paper Promises, Money Debt and the New World Order. An economist journalist is seriously suggesting that this huge pile of debt created as money will lead to a wholly new monetary system. I've not even come yet, Mr Speaker, to QE, and I'll try to shorten my remarks. But the point is this, having lived through this era where the money supply tripled through new lending, of course the whole system blows up. The real world catches up with this fiction of a monetary policy, and so QE was engaged in. Now a paper from the Bank of England on the distributional effects of monetary policy explains that people would have been worse off if the bank had not engaged in it. It was, of course, an emergency measure. But one of the things the paper says is that asset purchases by the bank have pushed up the price of equities at least as much as they've pushed up the price of guilt. The bank's Andy Haldane said, I paraphrase, we've deliberately inflated the biggest bond market bubble in history. I wonder what the Honourable Gentleman's view is about quantitative easing. How does he see that fitting into the great scheme of fling? I think it's quantitative easing. As I'm explaining, quantitative easing is a great evil. It's a substitute for proper reform of the banking system. But this is the point. If the greatest bubble has been blown in the bond markets and guilt and equities have been pushed up by the broadly the same amount, then that is a terrible risk to the financial system. I will. Surely there's a difference in where the quantitative easing goes to. In an economy that's needed as a demand deficit and is needing demand stimulated, surely if quantitative easing is going to the pockets of those who are going to spend the money, quantitative easing can actually create some more emotion in the economy. But if quantitative easing is going into already deep pockets and making them bigger and larger and deeper, that's a very different thing. He again touches on a very interesting issue. Once the bank legitimises the idea of money creation and giving it to people in order to get the economy going, the question then arises why not give it to other people if you're going to create it and give it away? Well, this goes to what is money? Well, I think money is the basis of a moral existence. Because we should be in our lives, we should in our lives be exchanging value for value. One of the problems with the current system is we're not exchanging value for value. Something's being created in vast quantities out of nothing and given away. Now, the bank explains that 40% of the assets bought, the assets that have been inflated, are held by 5% of households, 80% by people over 45, which seems then very clear to me if he'll allow me. Seems to me very clear then that QE, a policy of the state to deeply intervene in money, is a deliberate policy of increasing the wealth of people who are older and wealthier. Give way. If the normal gentleman, I'm very grateful and lead that he's allowed me to intervene again, one of the words he used there, morality, I think, on moral, touches really on what the economist Paul Krugman will say, that some on the right see the recession and what have you, as a morality play and confuse economics and the morals. And sometimes you get things going economically. It's not the straightforward morality money that I think he's touched on there and that could be one of the reasons that the recovery is taking so long. Conscious, Mr Speaker, that I've already used perhaps slightly more time that I intended and I have a little more to say because of these interventions. All of these subjects are easily, as my bookshelves attest, capable of being explained over hundreds of pages. But my bottom line on this is really that I want to live in a society where even the most selfish person is compelled by our institutions to serve the needs of other people. And that institution is called a free market economy, because in a free market economy you don't get any bailouts and you don't get to live at somebody else's expense. You have to produce what other people want. One of the things which has gone wrong is the right of ended up defending institutions, which are fundamentally statist. I'll give away. I'm very grateful to my own more friend for getting away and I congratulate him for bringing this really important subject to the attention of the House. Will he agree with me that this candy floss credit system that the state is presiding over, far from actually shoring up free market capitalism, replaces it with a system of crony corporatism that gives capitalism a bad name and undermines the very foundations of capitalism? Well, I'm very grateful, Mr Speaker, because I'm delighted to agree with my own more friend than he is, despite the fact that I won't be seeing Nigel later. He's absolutely right. We have ended up pretending that the banking system and the financial system is free market when the truth is it is the most hideous corporatist mess. What I want is a free market banking system, as I will come on to. Mr Speaker, I wanted to make some remarks about price signals, but I want to really just for short on them. I'll try and cover it as briskly as I can. It was the subject of my maiden speech. Interest rates are a price signal like any other. They should be telling markets about people's preferences for goods now compared to goods later. If they're deliberately manipulated, they will tell entrepreneurs the wrong thing. They'll therefore corrupt people's investment decisions. The bond markets, the equity markets, are there to allocate capital. If interest rates are manipulated, if new money is thrown into the system, those prices get detached from the real world values they're supposed to be connected to, what resources are available, what technology is available, what people prefer. The problem is these prices which have been detached from reality still continue to guide entrepreneurs and investors. But if they're now guiding entrepreneurs and investors in a direction which takes them away from the real desires of the public, the available resources and the technology, we should not then be surprised if we end up with a later disaster. In short, after prices have been bid up by a credit expansion, they're bound to fall when later the real world catches up with it. It's why economies now are suffering this wrecking ball of inflation followed by deflation and here is the rub because throughout most of my life the way that the monetary policy authorities have responded to these corrections has been to pump more new money. Previously it's been through ever cheaper credit, now it's been through QA. This raises the question of where this all goes. Back to the point my uncle friend Foot for Stone provoked in me, that this might actually be pointing towards an end of this monetary order. Now that is not necessarily something to be feared because the monetary order changed several times in the 20th century. Where I want to conclude Mr Speaker is we've ended up in really something of a mess. The governor asked whether the orderliness of the transition, sorry he was talking about the orderliness of the transition once interest rates normalised. He said whether it would be orderly was an open question. I think he's actually demonstrating considerable optimism appropriate to his role. I think it's extremely unlikely that we'll have an orderly transition once interest rates start to normalise. The problem is basically that government wants to spend too much money. It's always been the same throughout history. Governments used to want to fund wars. Now for all good moral decent humanitarian reasons we want to fund health welfare and education well beyond what the public will pay in taxes. That's meant that we needed easy money to support the borrowing. I'll finish by saying well what's to be done. A range of remedies are being proposed. They range from positive money's proposal to completely nationalise the production of money. Some want variations on a return to gold perhaps with free banking and some want the spontaneous emergence of alternative monies like bitcoin. I just would point out that Walter Badgill is often prayed in aid of the current system. If one reads Lombard Street he didn't actually support central banking. He thought it was useless to try and propose any change but what we see today is that with alternative currencies like bitcoin spontaneously emerging it is now possible through technology that in a generation we won't all be putting our money in a few big mega banks held as liabilities issued out of nothing. Now I want to propose three things which I think the government can practically do. The first is to continue the present trajectory of reform. After 15 years of studying these matters and now having made it to the Treasury Committee I'm ever more convinced that there is no way to change the present monetary order until the ideas behind it have been tested to destruction. And I do mean tested to destruction and it's an extremely serious issue but it will not change until it becomes apparent that the ideas behind the system are not tenable. Secondly very much with that in mind we should strongly welcome what Andy Haldane has said the chief economist of the bank that they would commission anti-orthodox research. They will put into the public domain research and analysis which has often challenges as support the prevailing policy orthodoxy on certain key issues he said. It is that research which will make possible fundamental monetary reform after the next calamity. Thirdly we should welcome the Chancellor's recent interest in crypto currencies and making London a real centre of financial innovation. Imperfect and possibly doomed as it may be Bitcoin shows us that peer to peer non-state money is practical and effective. I've used it to buy an accessory for a camera perfectly ordinary legal product. It was easier to use than a credit card and it showed me the price in pounds or any other currency I like. It is becoming possible for people to move away from state money. So what I would like to see is every obstacle to the creation of alternative currencies within the ordinary commercial law removed. We should expand the range of commodities and instruments related to those commodities which are treated like money like gold so exempt VAT and capital gains tax and it should be possible to pay tax in those new monies and we must not fall into the trap that the United States has fallen into of obstructing innovation. It looks like in the case of the Liberty Dollar and Bernard Von Mockhouse that a man may spend the rest of his life in prison simply for the crime the supposed crime of creating reliable money. Finally we are in the midst of an unprecedented global experiment in monetary policy and debt. It is likely as Philip Cogburn set out that this will result in a new global monetary order. Whether it will be for good or ill I do not know but as technology and debt advance I am sure we should be ready for a transformation. Society has suffered too much already under the present monetary orthodoxy free enterprise should now be allowed to change it. Order the question is that this house has considered money creation and society. Mr Michael Meacher. I too very strongly congratulate the Honourable Member for Wickham on securing this debate which I think everyone recognises is vitally important and which has not been debated in this house I believe for 170 years since the Robert Peels Bank Charter Act of 1844 and I remember the Honourable Member drawing my attention to that when we were both last speaking in a similar debate. And that act prohibited the private banks from printing paper money and in the light of the financial crash of 2008-9 and the colossal expansion of money supply that underpinned it no less than an increase of 22 fold in the 30 neoliberal years between 1980 and 2010. I think the issue today is whether that prohibition should be extended now to include electronic money. It is unfortunate as the Honourable Gentleman referred to that it is so little understood by the public that money is created every time by the banks that they make loans. In effect they have a virtual monopoly something like 97% over domestic credit creation and it is the banks therefore the banks which determine how money is allocated across the economy and that has led to the vast majority of money being channeled into property markets and into the financial sector. According to Bank of England figures for the decade to 2007 31% of additional money created by bank lending went towards mortgage lending, 20% towards commercial property and 32% to the financial sector including mergers and acquisitions and trading and financial markets. Those are really extraordinary figures. On the basis of what he's just said does he not think there's an argument for the Bank of England to intervene in that particular situation where you've got unlimited credit from banks? My Honourable Friend anticipates really the main line of my argument so if you could be patient I think I will satisfy him very fully. It means that only 8% went to businesses outside the financial sector with a further 8% funding credit cards and personal loans. Yes of course. It's grateful to the Honourable Gentleman for giving way. Here what he says about money going into building and housing and mortgages but isn't that because the holders of money reckon they can get a decent return in that sector? Now they would invest elsewhere if they thought they would get a better return. One of the reasons they probably get a better return in the UK is that unlike Germany is there are no rent controls here and as a result of the lack of rent controls money is more likely to go into property rather than to go into developing industry which I think will be more likely to happen in general. I very much agree with that argument and again I can assure him that I'm going to return to this. I think it's better to leave it to that point of my speech but he's absolutely right. It is of course the greater returns that the banks can get from the housing sector, the rental sector and we have a particular rental sector in this country different from Germany and other countries which causes it but I will come to this. Yet it is only this last six, the two eight per cent lending to businesses and consumer credit that has a real impact on GDP and economic growth. Only that 16 per cent. The conclusion I think is unavoidable. We cannot continue with a system where so little of the money created by banks is used for the purposes of economic growth and value creation and instead, now I'm picking up the point that the hon. Gentleman made a moment ago, the overwhelming majority of the money created has the effect of inflating property prices and therefore pushing up the cost of living. Now in a nutshell the banks have too much power and they have greatly abused it. Firstly they have been granted enormous privileges since they can create wealth simply by writing an accounting entry on a register and they decide who uses that wealth and for what purpose and they have used their power of credit creation to hugely favour property and consumption lending over business investment because the returns are higher and more secure and thus the banks maximise their own interests but not the national interest. Secondly, if they fail to meet their liabilities they are not penalised. Someone else pays up for them. The first £85,000 of deposits are covered by a guarantee underwritten by the state and in the event of a major financial crash they are bailed out by the implicit taxpayer guarantee and just let me finish and I'll of course give way. They've been encouraged by this into much more risky even reckless investment especially in the case of exotic financial derivatives. It's beginning to queue up but just let me finish and even to the point where after the financial crash of 2008-9 the state was obliged to undertake direct bailout costs of nearly £70 billion plus provide a further near £1 trillion in support for loan guarantees liquidity schemes and asset protection arrangements of course I give way. I wholly agree with what he's just said. The moral hazard problem here is absolutely enormous and one of the most fundamental problems. I just would share with him that the British Bankers Association picked me up when I said it was a state-funded deposit insurance scheme. They told me it was industry funded. I think the issue now is that nobody really believes for a moment that this scheme will actually not be backstopped by the taxpayer. I'm always very grateful for the intervention. I was going to say to my honourable friend that on this I think he probably is. On the question of banks in particular in terms of investing in the property market, does my honourable friend think we can learn anything from the United States with Fannie Mae, the collapse of Fannie Mae for example? Are we in a similar situation? I do and again this takes me down a different path but I do actually think there's a very considerable weed of course. I'm very grateful to my honourable friend for giving away. He's been absolutely magnificent in diagnosing the problem but when it comes to the solution, when it comes to passing power away from banks, rather than passing power upwards to a regulator or to the state, would he entertain the idea of perhaps empowering the consumer, the person who deposits money with the bank? Surely the real failure was the failure of the 1844 bank charter act to give legal ownership of deposits to the person paying money into the bank. The basis of fractional reserve banking is the legal ownership that the bank has when money is paid in. If we tackle that, power will pass from these big state subsidised corporations called banks outward to the wider economy. Yes, I have a great deal of sympathy with what the hon. Gentleman is saying. Hold on, just a minute. I was going to say a little bit more than I just have sympathy. I am going to talk at the end. Half of my speech is really going to be about what I think the alternative should be and why I think the capacity to regulate what is an increasingly exceedingly complex situation in the financial sector is not a proper way and I'm going to produce my own solution. But I agree to the degree to which people can achieve greater control over the money that they themselves have contributed. I would be very strongly in favour of structural changes which bring that about. I'm grateful to my hon. Friend. I was intrigued to hear my hon. Friend mention deposit or protection. Is my hon. Friend saying he's against any form of deposit or protection? The protection of deposits is underwritten up to £85,000 and it is underwritten by the state. I'm neither for nor against what I am. I'm really making the point that this encourages the banks to increase their risk taking because if they are caught out for each deposit up to £85,000 is guaranteed by the state. All I'm saying is we really need it and here I totally agree with the hon. Member for Wycombe that we need much wider structural change. It's not a question of just tweaking one thing here or there and I'd like to come on to that. Given that I think it raises the question at the heart of this debate. I mean who should create the money and I just asked this question. Would Parliament ever have voted to delegate power to create money to those same banks that caused the horrendous financial crisis on which the world is still suffering? I think the answer to that is unambiguously no. So the question then that needs to be put is how should we achieve the switch from unbridled consumerism to a framework of productive investment capable of generating a successful and sustainable manufacturing and industrial base which can securely underpin UK living standards? Now the two models which have been hitherto used to operate such a system. One was the centralized direction of finance used and I have to say extremely successfully by several Asian countries especially the Southeast Asian so-called tiger economies after the Second World War to achieve take-off but I'm not suggesting that that method is appropriate for us today. It's not suited to advanced industrial democracies. The other was to bring about through official guidance in inverted commas the rationing of bank credit in accordance with national targets which were necessary through quantitative direct controls. This was a policy which did work well for a quarter of a century in the UK in the post-world period until the 1970s when it was steadily replaced by the purely market system of competition and credit control based exclusively on interest rates which has in our experience of the last 30-40 years proved deeply unstable, dysfunctional and profoundly costly. I'll give one moment. Since then there have been sporadic attempts to create a safer banking system but these have been deeply flawed. Either regulation under the dictates of the neoliberal ideology has been ever so light touch and I have to say by new labour just as much as by the other government that it has been entirely ineffective. All the regulation is so detailed. Basel 3 I would remind the House has more than 400 pages and the US Dodd's Franks Bill has a staggering 8,000 pages or more that it is impossibly bureaucratic and almost certainly full of loopholes. All the regulation was so cautious like the Vickers Commission proposal of Chinese walls between the investment and retail arms of a bank that in my view frankly really missed the main point. Or whatever route was tried and this is actually significant it faced the regulatory arbitrage at the hands of the phalanx of lawyers and accountants in the city earning their ill-gotten bonuses by unpicking or circumventing whatever regulatory safeguards the authorities put in place. I'll give way to my Lord. Sorry. I thank the Lord of the Guild for his very good on these subjects but would I be gone too far if I was to suggest that we should nationalise the cities, nationalise the banks and run up ourselves as a government on behalf of the people? Well public ownership of the banks is I think a significant issue. I am not actually going to propose that in my speech. I do actually take the view that it would be a mistake to return RBS and Lloyds to the private sector and I think the arguments about Barclays and HSBC need to be made but I think not in this debate. I am going to suggest an alternative solution which changes the power of the banks in terms of money creation and puts it in different hands to ensure better results in terms of a national interest. Now against that background there are solid grounds I think for examining and this is where I do come to my proposal, the creation of a sovereign monetary system as recommended by several expert commentators recently. Martin Wolff who is everyone in this House will know is an influential chief economics commentator of the FT wrote an article a few months ago on the 24th of April to be precise entitled strip private banks of their power to create money. This is a Martin Wolff recommending switching from bank created debt to a nationalised money supply. Also Lord Adair Turner who was the former chair of the financial services authority delivered a speech about 80 months ago in February 2013 discussing an alternative to quantitative easing which he turned overt money finance which is also known as a form of sovereign money. Now such a system and here I will describe its main outline such a system would restrict the power to create all money to the state via the central bank. Changes to the rules governing how banks operate would still permit them to make loans but would make it impossible for them to create new money in the process. The central bank would continue to follow the remit set by the Chancellor of Exchequer which is currently to deliver price stability which is defined at the present time as inflation target of 2%. The central bank would be exclusively responsible for creating as much new money as was necessary to support non-inflationary growth. Decisions on money creation will be taken independently of government by a newly formed monetary creation committee or by the existing monetary policy committee either of which would be accountable to the Treasury Select Committee and I think that accountability to the House is crucial to this whole process. Yes I give way to my little friend again. Going back to the original question I asked them earlier on what role would the Bank of England have in this? I'm coming on to explain the Bank of England has an absolutely crucial role if he listens to the in fact the last bit of my speech you get a full answer question. A sovereign money system thus offers if I may say this a clear thermostat to balance the economy which is notoriously lacking at present. In times when the economy is in recession or growth is slow the money creation committee will be able to increase the rate of money creation to boost aggregate demand. If growth is very high and inflationary pressures are increasing they can slow down the rate of money creation. Now that is a crucial improvement over the present system whereby the banks will either produce too much mortgage credit in a boom because of the high profit prospects which produces a housing bubble and raises house prices or they produce too little credit in a recession which exacerbates the lack of demand. Now as to lending to businesses which I think is essential to this whole debate. I'm sorry I just want to second back just a few moments because he mentioned about accountability to Parliament and I think he said the select committee. I just wonder whether without just really just enlarging that a little bit and say when he says accountable what powers would Parliament have to ensure that this was followed through in a proper way and with the rules that's being made down. The purpose of accountability to the Treasury Select Committee is to enable Parliament fully to explore the manner in which the money creation committee or the money policy committee is working and I would anticipate a full three hours discussion with the leading officials of those committees before the Treasury Select Committee and if necessary they could be given a hard time. Certainly these persons who I would see as the most competent persons in this House to deal with the matter would make clear what their priorities were would make clear where they thought the money creation committee was not giving sufficient attention to the way in which it was operating and would suggest changes. They wouldn't have the power formally to compel the money creation committee to change but I think the whole point about select committees which are televised and discussed within the media would have a very big effect but it's a major change compared to what we have in the present time. Like all systems if it is inadequate it can be modified, changed and increasingly enforced. Now as the learning businesses which as I say I think is yes of course. With respect to the question of Treasury Select Committee does he see a potential role perhaps for some form of joint committee perhaps with the public accounts committee in so far as that origins of that are to do with taxation and spending and would he think that perhaps broadening it a bit in that direction might be helpful so that we got the full benefit of the all party agreement of both committees? Well I think it's a helpful intervention. I wasn't attempting partly because it's a relatively well I don't think it is relatively small it's a relatively big part of what I'm proposing but it's not for me to suggest exactly what the structure of accountability should be and I would be strongly in favour of increasing it in the way the Honourable Gentleman has said. I think until this house is content that it has a proper channel of accountability which is effective in terms of the way our financial system is run until that is reached I think we should bring in further changes to the structure of accountability as may be necessary such as the long alliance he suggested. Now if I could really get on with his question of lending to businesses which after the experience we've had in the last decade or war last half decade has been very very unsatisfactory the central bank under a sovereign monetary system would be empowered to create money for the express purpose of that funding role the money would be lent to banks with the requirement that the funds are used for productive purposes whilst lending for speculative purposes for example to purchase pre-existing assets either financial or property would not be allowed the central bank could also create and lend funds to other intermediaries and the Honourable Gentleman for Wickham referred to this such as regional or publicly owned business banks which would ensure that a floor a floor could be placed under the level of lending to businesses which would be a great relief I think to British business today guaranteeing support for the real economy and I should add that within the limits imposed and this is again I say this to avoid misunderstanding within the limits imposed by the central bank on the broad purposes for which money may be lent lending decisions would be entirely at the discretion of the lending institutions not of the government or the central bank now I conclude that I believe a sovereign monetary system offers a very considerable advantage is over the present system it will create a better and safer banking system because banks would have an incentive to take lower levels of risk since there would be no option of a bailout or rescue from taxpayers and thus moral hazard would be reduced second it would increase economic stability because money creation by banks tends to be pro cyclical as I've explained whereas money creation by the central bank would be counter cyclical thirdly sovereign money crucially supports the real economy when under the current system 83% of lending does not at the moment go into productive investment I underline that three times fourth yes of course normal friend has said that the aim of this would be to reduce risk and for banks to be more cautious but on the other hand if we are to encourage innovation and manufacturing we does not mean that we would require to have an investment bank at state level so we could actually fund the more riskier levels of innovation to ensure that they actually could get to market because they're not at the point where they would be commercially viable that's an extremely important point and again I strongly support that we do need and I think it's fair to say that the current Secretary of State for BIS has been struggling to introduce a a government supported business investment bank and has recently announced something along those lines I think that should be greatly expanded the book which I hope most of us have read by Mariana Mazzucato shows a degree which I think is a return of the entrepreneurial state the degree to which funding for major innovation not just in this country but in many other countries which she cites have been financed through the state because the private sector was not willing to take on board the degree of risk involved I want to understand that but one does need to recognise the role of the state is extremely important and I would like to see under a labour government something like this being brought in I'm very grateful to my honourable friend he's making a tremendous case for money creation and what we should be looking at in this house but I wonder if there's also a cultural issue here many businesses and many lenders say to me when I speak to them that there's a cultural problem in the united kingdom for businesses and particularly entrepreneurial businesses that we've heard about from honourable friend in Glasgow to giving away equity rather than debt so funding businesses through equity rather than debt and other countries across Europe who are incredibly successful at giving away equity rather than debt have much more growth in their entrepreneurial economy. Well again I think it's totally true a very important point and actually I think the proposals I'm making would support that there is a very different climate in this country largely brought about by the the churning that goes on in the city of London where profits have to be increased or or reach a relevant size within a very short period like three or six months and most entrepreneurial businesses cannot possibly produce a decent profit within that period of time so the current financial system does not encourage what my honourable friend is wanting and I think these proposals would make money creation available to the people we really want to support much more fully than a present. The fourth point and I've only got five in case members are wearying the fourth point under the current system house price bubbles transfer wealth as we all know from the young to the old and from those who can't get on the property ladder to existing house owners which increases wealth inequality whilst removing the ability of banks to create money should dampen house price rises and thus reduce the rate of wealth inequality. My fifth and last point which I think is a very important one, sovereign money redresses a major democratic deficit. Under the present system around just 80 board members across the largest five banks make decisions that shape the entire UK economy even though these individuals have no obligation or mandate to consider the needs of society or the economy as a whole and are not accountable in any way to the public it is for the maximisation of their own interests and not to those of the national interest. Under sovereign money the money creation committee would be highly transparent we've discussed this already and accountable to parliament. So for all of these reasons Madam Deputy Speaker I believe that the examination of the merits of a sovereign monetary system is now urgently needed and I would call on the government to set up a commission on money and credit with particular reference to the potential benefits of sovereign money which offers a way out of the continuing and worsening financial crises that have blighted this country and indeed the whole international economy for decades. Madam Deputy Speaker thank you it's a pleasure as always to follow the right hon. Member for Oldham who gave us a characteristically thoughtful and radical speech I don't necessarily start from the same premises as him but what he says I think was an important contribution to this debate on the securing of which I want to pay credit to my Hon. Friend the Member for Wickham he's done the house of service he's done the country of service by forcing us to focus on the issue of where money comes from and what banks do and he did so in a very insightful way above all I think he showed that he sees as are you an old university he's used to see economics as a branch of moral sciences it's not just a narrow analytical economic issue but a moral philosophical possibly a theological issue which he illuminated well for the house a lot has been made of the ignorance of members of parliament of how money is created and I suspect that that ignorance not just in members of parliament but in the intellectual elite in this country explains a lot of things not least why we entered the financial crisis with a regulatory system that was so unprepared for a banking crisis I suspect it's because people have not reflected on why banks are so different from all other capitalist companies and they're different in three crucial respects which is why they need a very different sort of regulatory system from normal companies first bankers not just rogue bankers but all bankers even the best the most honourable and the most honest do things which would land the rest of us in jail ne my house in France is a large grain silo after the harvest farmers deposit grain in it the silo gives them a certificate for every ton of grain that they deposit they can withdraw that amount of grain whenever they want by presenting that certificate if the silo owner issued more certificates than the grain he kept in his silo he would go to jail but that is effectively what bankers do they keep us reserves only a fraction of the money deposited with them which is why we call the system the fractional reserve banking system Murray Rothbart a much neglected Austrian economist in this country therefore said very flatly banking is fraud fractional reserve banking is fraud it should be outlawed banks should be required to keep 100% reserves against the money they lent out now I actually reject that inclusion conclusion because I think there is a value in what banks do in transforming short-term savings into long-term investments and that is socially valuable and that's the function banks serve but we need to recognise the second distinctive feature of banks which arises directly from the fact that they only have a fraction of the reserves against the loans they make and that is that banks individually and collectively are intrinsically unstable they're unstable because they borrow short and lend long I've been constantly amazed throughout the financial crisis hearing intelligent people say that the problem with northern rock or rbs or hbars or the german banks or the french swiss swiss french greek and other banks which ran into problems was the results of them borrowing short and lending long and they shouldn't have been doing it as if this was a deviation from their normal role but of course banks borrow short and lent long that is what banks do that is what they're there for if they hadn't done that they wouldn't be banks banking works so long as too many depositors don't try to withdraw their funds simultaneously but if depositors retail or wholesale withdraw or refuse to renew their short-term deposits a bank will fail now if normal companies fail there's no need for the government to intervene their assets will be redeployed in a more profitable use or taken over by a better managed company but if one bank fails depositors are likely to withdraw deposits from other banks about which there may also be doubts and a bank facing a run whether or not initially justified will be forced to call in loans or sell collateral causing asset prices to fall thereby undermining the solvency of other banks so the failure of one bank may lead to the collapse of the whole banking system the third distinctive feature of banks is that which was highlighted by my honorable friend that banks create money the vast majority of money consists of bank deposits if your bank lends your company at 10 million pounds it does not need to go and borrow that money from a saver it simply creates an extra 10 million pounds by electronically crediting your bank account or the company's bank account with 10 million pounds it creates 10 million pounds out of thin air by contrast when you repay an existing bank loan that extinguishes money it disappears into thin air so the total money supply increases when banks create new loans faster than old loans are being repaid and that's where growth in the money supply comes from normally it's the normal situation in a growing economy ideally credit should expand so that the supply of money grows sufficiently rapidly to finance the growth in economic activity but when a bank or banks collapse they will call in loans which will reduce the money supply which in turn will cause a contraction of activity throughout the economy so that respect banks are totally different from other companies even companies which also lend things if a car rental company collapses it doesn't lead to reduction in the number of cars available in the economy its stock of cars can be sold off to other rental companies or to individuals nor does the collapse of one rental company weaken the position of other car rental companies on the contrary they then face less competition which should strengthen their margins so the collapse of a car rental company has no systemic implications whereas the collapse of a bank can pull down the whole banking system and plunge the economy into recession that's why we need a special regulatory regime for banks and above all a lender of last resort to pump in money if there is a run on the banks or a credit crunch yet this was barely discussed when the new regulatory structure of our financial and banking system was set up in 1998 the focus then was on consumer protection issues and systemic stability and the lender of last resort function was scarcely mentioned that's why the UK was so unprepared when the credit crunch struck in 2007 nor were these aspects properly considered when the euro was set up as a result established a currency and a banking system without giving the new central bank the powers to actors lender of last resort it had to usurp such powers more or less illegally that's their problem the analysis this analysis is not one of those insights which come from hindsight a some while ago michael now a noble lord howard reminded parliament and leave me i completely forgotten that i was shadow chancellor when the bill that became the bank of england act 1998 1998 was introduced and he pointed out that i then warned the house that and i quote with a removal of banking control to the financial services authority it's difficult to see how the bank of england remains as it surely should responsible for ensuring the liquidity of the banking system and preventing systemic collapse and so it turned out and i added setting up the financial services authority may cause regulators to take their eye off the ball leaving spivs and crooks to have a field day and so that turned out to i could foresee that then because the problem was not deregulation but the regulatory confusion and proliferation introduced by the former chancellor resulting from failure to focus on the inherent stability of the banking system and to provide for it and this failure to focus on the fundamentals was not a peculiarly british thing the EU made the same mistake in spades when setting up the euro and at the very apogy of the world financial system they deluded themselves that indus instability was a thing of the past in its global financial stability report in april 2006 just less than 18 months before the crisis erupted the IMF the international monetary fund no less said and i quote there's growing recognition that the dispersion of credit risk by banks to a broader and more diverse group of investors rather than warehousing such risk on their balance sheets has helped make the banking and overall financial system more resilient the improved resilience may be seen in fewer bank failures and more consistent credit provision consequently the commercial banks may be less vulnerable today to credit or economic shocks the supreme irony is that the pinnacle of the world regulatory system believe the very complex derivatives which contributed to the collapse of the financial system would render it immune from such instability so we need constantly to be aware that banks are unstable that they're the source of money that if they are that unstability lead instability leads to a crash we lead it leads to a contraction in the money supply and uh that can exacerbate and intensify a recession i give way too many books and i thank my honorable friend for giving way and i'm listening very carefully does that mean that the banks are also uncontrollable as things stand no they can be controlled they should be controlled uh they're controlled both in being required to have assets and ultimately uh in the measures government should take to ensure they don't expand lending too rapidly and that's the point i want to come on to because the other thing that are failure to focus on the nature of banking and the nature of money creation uh the other confusion it's caused is a confusion about the causes inflation and the role of quantitative easing because we don't understand or too many people don't understand where money comes from there is confusion about quantitative easing and to some extent uh the monocrists of which i'm one are responsible for this confusion for most of our lifetimes the basic economic problem has been inflation there have been great debates about the causes of inflation ultimately those debates were won by the monocrists they said inflation is caused by uh too much money money growing more rapidly than output and if that happens inevitably and inexorably prices will rise the trouble was all too often monocrists used the shorthand phrase uh inflation is caused by government printing too much money in fact of course it isn't governments printing the money it's banks lending money and creating new money a too greater rate for the needs of the economy we should have said inflation follows when governments allow or encourage banks to create money too rapidly the inflationary problem wasn't who created the money but the fact that too much money was created we're now in a situation where the banks are not lending enough to create enough money to finance the growth and expansion of the economy we need and that's why the central bank steps in with quantitative easing and that is often described as the bank stepping in and printing money and those who've been brought up to believe that printing money was what caused inflation think that quantitative easing must by definition cause inflation it only causes inflation if there's too much of it if you create too much money uh i'll give her a second too much money uh at a faster rate than the growth of output and therefore drive up prices but that isn't the situation in which we find ourselves oppressive and give way to me is making a very good explanation of the different circumstances of the money creation when it comes to a situation when there is a demand required and he's spoken about the morality and he's spoken about quantitative easing what is his view on the theory of helicopter money and where this money then gets spread well i'm rather attractive as a disciple of milton freedman the idea of helicopter money i think it was he who introduced the metaphor that it will be just as effective if the money was sprayed by helicopters if it created by banks uh and uh hopefully since i live quite near the helicopter route to basi i will be a principal recipient uh but uh i i don't think there is a mechanism available for us to do that but i'm not averse to it in principle if someone can come up to it but all the point i'm making is that either the banks spontaneously all the banks encouraged by the central bank uh through quantitative easing must generate enough money to ensure the economy can grow steadily and stably i give way i give way it isn't a form of helicopter money it could be argued that increasing welfare payments because the people are more likely to spend money than people with very little money and the economic multiplier of putting money in the pockets of those who have little money actually is very positive as it gets spent and it circulates very quickly uh well i think there are far better reasons to give money to poor people than the idea that their money will then circulate more rapidly actually there's no evidence for that i invite the honourable member to read milton freedman's theory the consumption function which showed that that's all nonsense uh but uh the the uh there are there are good reasons for giving money to poor people namely that they're poor and they need money uh and whether whether or not the money should be injected by the government spending more than it's raising rather than the central bank expanding its balance sheet is a moot point but all i want to argue today is that we should recognise that the economy is as much threatened by a shortage of money as by an excess of money for most of our lifetimes the problem has been in excess of money now it's a shortage of money uh and we therefore need to balance in either occasion the rate of growth of money with the rate of growth of output if we're to have stability of prices and stable economic activity and i congratulate my honourable friend again on bringing to the attention of the house these very important matters austin mitchell i welcome this debate and congratulate my honourable friends on securing it because it is time that we debated this issue we haven't done so for well over 100 years so it's nice to be able to do so this house and the government are obsessed with money and the economy but we never debate the creation of money or the creation of credit and we should do because that's what it comes to our present economic situation and the way the banks are run and the way the economy is run the elephant in the room it's time to think outside not the box outside the banks and to think about credit creation and money we have and i'm speaking as i suppose a ready-gained social creditor but still influenced by social credit thinking not paying total allegiance to major dungals but still influenced by it as my honourable friend has pointed out 93 percent of credit is created by the banks and the characteristic of what's happened to the economy since the 70s is the enormous expansion of this credit there's a graph here from positive money which shows that the money created by the banks was 109 billion in 1980 and thanks to the financial reforms and the huge increase in power of the banks since then by 2010 that had risen to 2213 a billion whereas the total cash created by government that's the odd three percent had barely increased at all so what we've seen is that a huge more than a doubling since 2000 and since 2000 of the amount created by the banks and that's transformed this economy because it's financialized everything made money far more important it's created a debt fuelled growth and then a collapse it's been run controlled by the banks who directed the money into property and finance and financial speculation and only eight percent of that lending that credit creation has gone on to lending to new businesses we talk about the march of the makers so the government talks about the march of the makers but the makers aren't marching into the banks because the banks are turning them away and even commercial property is more important than actual makers so only eight percent of the lending is to new business this has created a very lopsided economy an economy with a weak industrial base and a weak industrial base which can't pay the nation's way in the world because the finance has been directed elsewhere and the investment has been directed elsewhere and a very unequal society which has showered wealth as Piketty shows on those at the top and taken away from those at the bottom so it's a very undesirable situation that's been created and it's an economy that's very exposed to risk and to bubble economics it's an unstable economy that we've built thanks to this financialisation process has gone on since 1979 in which the state controls allocates all credit creation to the banks and then has to bail out the banks and guarantee the banks that were enormous expenditure creating debt for the public when the bubble bursts and when the banks collapse now some argue i think a major Douglas would have argued that credit should therefore only be issued by the state to the bank of England that's probably a step too far to take in a present situation a present lack of education but we can and should create the credit issued by the banks we can and should split the utility function of the banks so it's serviting our our needs and our checkbooks and our pay and so on and so forth from the speculative role of the banks the americans have moved a step further to this with the vulcan rule which isn't quite strong enough we tend to rely on this country on Chinese walls which are not strong at all and i think only a total separation of the utility arm of the banks and the speculative arm of the banks will do it because chinese walls are infinitely penetable and are regularly penetrated we can limit the credit creation by the banks by increasing the reserve ratios reserve ratios are comparatively lower when the government's been trying to a gweld o'r grannu gyda'n rhoi cyfosibol, a chydigio'r cyfosibol yn y lleol iawn, yn gyfosibol i'r cyfosibol, ac mae'n rhaid i'r cyfosibol yn y cyfosibol a'r cyfosibol yn gael anghyntiau. Rwy'n cael ei gael gyda'r cyfosibol. Cynnydd i gael cyfosibol yn cyfosibol addysg. Rydyn ni'n cael ei fyddio ei wneud i gael cyfosibol yn y teimlo i'r cyfosibol. the money it needs, but that can be regulated by a public credit authority so that they supply much as the needs of the economy rather than being excessive as it has been over the last few years. So I think that kind of credit authority needs to be created to regulate the flow of credit. I think I have to point out here because the whole subject brings me to government's economic policy where the government tells us it's got a long-term economic plan. That, of course, is total nonsense. It's only a long-term economic plan. It's slash and burn, and the only long-term economic planning has been done by the Bank of England, which... I'm grateful for the Honourable Gentleman for giving way and to maybe quote Harry S Thruman, I think, who said, the worst of our economists is on the other hand. Now, he said about limiting and our committees regulating how much money was to go in to be sucked in by the economy. Who decided this? The difficulty is, while the economy might be overheating in a certain part of the economic area, for instance, the southeast of England, it might actually be very cool in areas, and I would think that off of Scotland or wherever. So what might be the geographical effects of a limitation of money into the economic bloodstream if there are certain parts of the plant to extend its metaphor that are needing the nutrients and parts of the plant that are getting too much? I don't have time to bring me into... I always ask tricky questions. This one is perfectly clear cut. I mean, the credit supply for the peripheral parts, and the old industrial parts of this economy, which includes Scotland, but also includes Gymsby, has been totally inadequate, and the banks have been totally reluctant to invest there. I mean, I think... I once argued that, like Simon Jenkins is proposing, helicopter money whereby we stimulate the economy by putting money into helicopters and dropping it all over the country. So people will spend it. Well, I'd agree to that, provided those helicopters hover over Gymsby, but I'll have them go to Scotland as well, because I think Scotland certainly deserves its share after the North of England, but that's a need to her. I don't want to get involved into a geographical dispute over where credit should be created. I was arguing that the only long-term plan has been that of the Bank of England, which has kept interest rates flat to the floor for what, six years or so, and the economy, in that situation, is bound to grow, and has supplemented that by what Sub-Delham makes coming to quantitative easing. We've created 375 billion, 375 billion of money through quantitative easing. It's been stashed away into the banks, unfortunately, so it's served no great useful purpose. But if that supply of money can be created for the purpose of saving the banks and building up their reserve ratios, it can be used for more important economic purposes and for development of investment and for expansion in this economy. It is printing money. We've been told for decades those of us who had a glimmering of social credit in our economics that you can't print money. It would be terrible, but disastrous for the economy to print money, at least to inflation. Well, we've printed 375 billion of money. It hasn't produced inflation. In mid diatribe, I don't mean that inflation is falling. It has been possible to do that. Now, why can't we do it for more useful purposes than shawing up the bank? The Americans have done it well over a trillion dollars of quantitative easing in the States. The European Bank is now contemplating it. Mr Draggy casts around for desperate solutions to the stagnation that's hit the Eurozone, and the Japanese, surprisingly, have done it only last week. So if all can do it, if it's been successful here, if it hasn't led to inflation, we should be able to use that for more productive economic purposes. If we create money, quantitative easing, go on and create more money, channel it through a national investment bank into productive investment, into contracts for house building, new town generation infrastructure, massive infrastructure work. I wouldn't include HS2 in that, but let's say massive infrastructure work. Then we can stimulate the economy, stimulate growth and achieve useful purposes, which we haven't been able to achieve. This is a here's a solution to a lot of the problems that's bedeviled the Labour Party. How do we get investment without a private financial initiative and the heavy burden that imposes on the health service, on schools, on all kinds of activities? Well, why not, through quantitative easing, contracts for housing or infrastructure work, which have a payoff point and which produce an investment, which produce an asset for the state. So that's my proposal, allocated by the monetary policy creation policy committee, which I advocated earlier under the article from Martin Wolff. That's the way we should approach it. That's why I welcome today's debate, because it has to be the beginning of a debate in which we open our minds to the possibilities of managing credit more effectively for the better building of the strength of the British economy. Thank you Madam Deputy Speaker. I'll speak very briefly. I want to put on record my gratitude, I suppose, to the Honourable Member for Wickham for having initiated this debate and his co-sponsors from various parties. I must say I'm having heard his speech, or most of his speech, I apologise for being late, even more satisfied that when I cast my vote for him to join the Treasury Select Committee it was the right thing to do, because he's introduced an incredibly important debate and, as has been mentioned already, this is an issue that has not been debated for well over a century. And I think we wouldn't be having this debate if it wasn't for the fact that we are still in the midst of tumultuous times. We had the banking crash, we had the corresponding crash in confidence in the banking system and in the wider economy, and now we have a problem of underlending, partly as a consequence particularly to small and medium-sized business. So this could not be more important. And the Member for, when I'm going to say Honourable Friend, as we work on many issues together for Oldham and Rownton, I pointed out at the beginning of his speech that this is an issue that is not well understood by members of the public. Well, and I think he could mention later on his speech, but if he didn't I'm going to add that this is an issue which is also not well understood by members of this House, by members of Parliament. And I would include myself in that and I suspect most people here would be humble enough to recognise that this is such a complex issue, this banking wizardry we're discussing today that very few people really properly understand it. I thank the Honourable Gentleman and I totally associate his comments about ignorance and I include myself in that. But it seems to me that the system is really broken. The system is broken because the banks won't lend money because the Government has told them they've got to keep reserves. We don't like quantitative easing because that means the banks aren't lending, therefore quantitative easing has to be. So there's something very wrong with the system. It is not, you know, if the system isn't broke, don't fix it. The system is broke and someone's got to fix it. He makes a valuable point and I'm going to be in my very brief remarks, I'm going to come to that. But the point I was just about to make that if members of Parliament don't really understand how money is created and I really believe that is the majority position, certainly based on discussions I have been having. How on earth can we be confident that the reforms we brought in over the course of the last few years are going to work, are going to prevent repeat, repeat, repeat collapse of the sort which we saw before the last election? And my view is that we can't be confident that it's the impulsive position of ignorant members and again I'm not pretending to be rude to be, I include myself in that bracket, but the impulse for so many people has been to simply call for more regulation as if that's going to magic away these problems. But as my own noble friend mentioned, there were 8,000 pages of guidance in relation to one aspect of banking that he discussed in his speech. The problem is not lack of regulation, it's the fact that the regulations that exist miss the goal in so many respects. The problem has become so complex, so complex, so complex, so convoluted that we need an entirely different approach and I would say the majority of people outside of Parliament when you talk to them about banking have a fairly simple view that the bank takes deposits and then lends and that's the way it's always been and of course there is an element of that but it's so far removed from where we are today that it's only a very tiny element. Most people, or many people at least, understand factional reserve banking I'm very grateful he mentions this idea of just sort of straight through or carried through lending. Of course when people talk about shadow banking they're usually talking about asset managers who are lending and in that case they are passing funds straight through and similarly peer to peer lenders and one of the things that I'm encouraged by is that when people are freely choosing to get involved with lending they're actually not using this expansionary process they're lending directly and whereas the banks seem to simultaneously fail both savers and borrowers things like peer to peer actually are simultaneously serving them. It's a really important point and I do think there is a move unfortunately it's a fringe move but you have in the credit unions for example something much closer to what original banking, pure banking, traditional banking might have looked like and even some of the new startups I hesitate to call it a startup because it's appearing on every high street but banks like Metro Bank have much more conservative policies than household name banks that we've been talking about today but I think most people do understand the concept of fractional reserve banking even if they don't know the term the idea that banks lend more than that and they can back up with the reserves they hold. The founder of Metro is setting up a bank which I should declare an interest in called Atom in the Northeast but that is one of over about 20-22 separate challenger banks of which Metro was the first and my point would be that whilst of course I missed the opening of the debate but I don't accept that it is all doom and gloom in banking the increased competition that is coming forward does he accept with me that agree with me is proof in fact that the banking system is changing and the old big banks are being replaced by the greater competition that we all certainly need. I certainly agree with the sentiment and I'm going to come to that in a second I don't believe it's enough but yes I'm excited by the challenges I think this is the competition has to be a good thing because it minimizes risk I know my friend on the front bench here this is an issue that she's dwelt on and looked at in great detail but but even fractional reserve banking is just the start of the story because as we've heard and I'm not going to repeat in detail but banks themselves create money they do so by making advances and with every advance they make a deposit and this is something which I think is so poorly understood by people outside and inside of this house and it this has conferred extraordinary power on the banks and and necessarily and naturally and understandably banks will use that power and have used that power in the interests of banks but it's created extraordinary risk and the risk unfortunately because of the size of the banks and because of the interconnectedness of the banks the risk is on us which is why I'm so excited by the challenges that my friend and my noble friend has just described but as I said this is fringe this is right on the edge I mean it's an extraordinary thing to think to imagine that at the height of the collapse that for every one pound 20 that the banks held just one pound 25 for every 100 pounds they had lent out so we are in a very precarious situation I remember when I was very very much younger and I was listening to a discussion and not understanding most of it between my father and various people who are asking his advice he was here had he was a man who had a pretty good track record in terms of anticipating turbulence in the world's economy and he was asked when is the next crash going to happen he said the last person you ask is an economist or a businessman you need to ask a psychiatrist because so much of it is around confidence and I think the point was proven just a few years ago so the banking system and the wider economy have become extraordinarily unhinged detached from reality and I think in a debate at another time I'd like to elaborate on on on this extraordinary situation where where it is a possible to imagine economic growth even as the last of the world's great ecosystems the last of the great forests come down the economy is no longer linked to the reality of the natural world which is the world on which all goods eventually derive but I think that is probably a debate for another time and I'm not going to dwell on that but we did have yes please I think the Honourable Gentleman makes an point there that we should remind ourselves of and it was one that was brought brought to me by a an Icelandic publisher beyond Yonys and appointed it that we're not in a situation where any volcanoes have blown up we're not in a situation of huge natural disasters of famine sort of catastrophe brought on by war it is as was alluded to by I think by a couple of his Honourable colleagues of a system failure and it's a system failure within the rules and I think it's just worth keeping that in mind and in some ways while it's while we have much gloomer on the banking system that in itself should give us some hope at the same time the Honourable Member is right but there are a growing number of commentators and voices out there who are anticipating a much larger crash than anything we've seen in the last few years and I'm not going to add or detract from the credence of those statements but it's possible to imagine how that might happen certainly ecological collapse we were talking about the banking system here and the two are not entirely separate but we did have a wake up call just a few years ago just just before the election my concern is that we haven't actually woken up that it seems to me that we haven't introduced any significant meaningful reforms which go to the heart of the problems we're discussing today it seems to me that we've been tinkering on the edges and I don't believe parliament has been as closely involved in that process as parliament should be partly because of the ignorance that I described at the beginning of my remarks so I just want to put on the record my support for a meaningful monetary commission of some sort to be established or an equivalent of where we are able to actually examine the pros and cons of shifting from a factional to something closer to a full reserve banking system as a number of members have discussed today this is something we need to understand what are the pros and cons of such a move how possible is that who wins who loses I don't think many people really fully understand the answers and I think we need to look at quantitative easing it's been accepted I think by everyone on all sides of the house the quantitative easing is not objective there are those who believe it's a good and those who believe it's a bad but no one believes it's objective and if there is a majority view that quantitative easing is necessary then we need to ask the question why not use those funds inject those funds into the real economy into housing into energy projects and so on of the kind of projects we've heard from the other side as opposed to using the mechanism in such a way that clearly only benefits very few people within a financial banking wizardry world that we're discussing today so I think these issues need to be explored and I think it is time for monetary commission to be established and for parliament then to become much more engaged than we have been this is a very small step in that direction I'm very grateful to the sponsors of today's debate I wish there were more people here today I was intending to listen not speak but there aren't all that many speakers unfortunately but it is the beginning and I hope we'll have many more such debates thank you madam deputy speaker I rise briefly to endorse what I think have been very significant points made by a number of honourable members in particular I want to pay tribute for the honourable member for Wickham for having secured the debate and opened it so strongly and I know from watching the honourable member on previous bill committees when we were dealing exactly with some of these issues in and around banking reform and other questions that he was someone who was dubious about some of the almost ffungswi-like arguments we were having about the regulatory furniture in circumstances where there were fundamental questions to be asked about the very foundations on which things sat and I think he amplified that in his contribution today the honourable member for Oldham West had made the point that the whole approach to a quantity of easing which many members have have questioned at a number of levels but one thing that it does prove that is that in many ways the underlying logic of the concept of sovereign money creation is actually feasible and workable so those who dispute that it is strange that some of those who would dispute and refute the case that is made around sovereign money creation sometimes are people who then defend quantity of easing in the form and with the features that it has actually had and in many ways what quantity of easing has shown is that if we are going to use the facility of the state and the state's main tool in this situation obviously is the Bank of England to alter the money supply to prime the money supply in a particular way then we could choose a much better way of doing it than the form that was chosen by quantitative easing because in a sense when it is meant to have achieved increases in the money supply where have people felt that in terms of business credit where have people felt that in terms of wages in terms of consumer power and the stimulus that that is able to provide and so we basically look back on the financial crash and it's aftermath and we see evidence and it's not just in the UK it's in Ireland and it's in other places as well where a lot of what we were being told up until the crash was the worth and the wealth of particular sectors in the economy has turned out to be vacuous but the poverty that lays in its trail is actually vicious so the wealth and the worth hasn't been real but the poverty is and so people then rightly question people like positive money UK or sensible money in Ireland are saying well maybe how we treat the creation of money and how politics and those of us who are charged with meant to be overseeing public policy as it affects the economy need to have a more basic look at how we're treating the banking system and the very nature of money creation itself. Obviously as someone from Northern Ireland we grow up very used to the idea of bank notes and so we're used to the idea of the banks themselves issuing their own money but we don't think very much about that we think but that's all happening against the Bank of England and on the Bank of England's license but as someone who sat on the financial services bill committee and also on the banking services on the banking reform financial services bill committee it seems to me that while there has been a recognition that some more by way of regulation needed to go back to the Bank of England there still seems to be a very cluttered arrangement around regulation and around the role of the Bank of England in fact I think there's maybe a risk that in trying to correct the regulatory deficiencies that went before the crash we have maybe created too many conflicting and potentially confusing roles for the Bank of England themselves and in terms of the various committees and the personages and the different roles and job descriptions that attach to some of the people who will be appointed to those committees it seems to me that there is a potential clutter in the role of the Treasury because the common denominator the common reference point in all of this in terms of these range of different committees and bodies and the different things that they will do is the Treasury and there was not enough in those bills and the arrangements that were made to make sure that what the Treasury would be doing and how the Treasury would be exercising its powers and influencing the judgments and informing the criteria and the considerations of those different committees under the Bank of England that little of it had was having enough scrutiny or backplay through Parliament and so again I would endorse the points that have been made by other Honourable Members about ensuring more accountability whether it be through more formal reference to the Treasury Select Committee or whether it be some other hybrid as has been suggested in an earlier intervention on the Honourable Member for Oldham but certainly there should be more parliamentary insight and definitely parliamentary oversight in relation to these matters so that we can't all say that we're suddenly shocked that all the confidence that was stated in various regulatory systems turned out to have been badly placed that was our experience the last time when people who are now criticising the previous government for not having had enough regulation were actually saying there was too much regulation and we're calling for more deregulation at that time if we in this Parliament have produced a new regulatory order we need to be prepared to face and follow through the questions that arise and leaving arrangements in place that mean that this only comes back in part to Parliament the next time there's a crisis and we then have to re-legislate I think is not good enough we should be doing more to be on our watch and that's one of the reason why I think the Honourable Member for Wickham and the others who have brought about this debate are doing us a service in that regard it's time to say we want more of a parliamentary watch window on these issues it's important Madam Deputy Speaker I think in this situation to recognise as well that if we are going to be talking about the creation of money and quantitative easing we are recognising that there is a role a necessary role for banks but we need to be sure that we are entrusting them with the right role and that it's in the context of the appropriate controls and disciplines and I think that's what's fundamental to this the idea that we just leave it to the whims of the banks and their lending reinforced supposedly and stimulated by quantitative easing to profile the performance of the economy I don't think is good enough or is strong enough we also have the question in relation to quantitative easing that if it works on the basis of the Bank of England through the asset purchase facility essentially using money that it creates under quantitative easing to buy gilts from a pension fund whose bank account is with the RBS which in essence is then owned by the Bank of England in Circumstance we get into a situation where okay RBS is bank account with the Bank of England then goes up by the value of that gilt purchase simultaneously the bank account of the pension fund goes up by the amount of that gilt purchase and we're told that the UK money supply has increased but what happens in that situation yes in theory the pension fund can now go and purchase all their assets is that what is happening but people are left with a sense that we can see how one percent of the one percent in terms of the big money holders and money players appear to have been advantaged in quantitative easing but where's the trickle down to all the rest of the economy it actually isn't there and again that brings me back to the point in terms of the sovereign money creation model which seems which seems to me to be primed much more specifically with a view of the total economy and providing a broad and stable and more balanced approach to stimulus and to economic performance there we've had the slowest recovery coming out of a recession in the circumstance of quantitative easing and I don't say that to try you know to get some voice activated reaction from people on the government benches to say but how good the recovery is in the performance or whatever but the fact is when we look at it in broader historic terms it is the slowest recovery and that leaves us questions about quantitative easing as well we also heard from the prime minister of course about the red warning lights on the dashboard of the world economy and I wonder if the prime minister would ever tell us that you know and to his mind those warning lights include the degree to which global banks are now back playing heavily in derivatives again and whether that's among those sorts whether that's among the warning lights that say that there needs to be more action and of course that raises this issue not just about regulation at the national level but also concerned at regulation at the international level as well. Thank you Madam Deputy Speaker. I wanted to start very much by congratulating the Honourable Member for Wickham on his very thoughtful and thorough opening speech but also the Honourable Member for Oldham Weston Brighton my Honourable Friend for his speech from this side of the house also but also now in the absence the Honourable Member for Brighton Pavilion and Clacton for securing today's very important debate and it has been this debate obviously comes following a significant campaign by positive money who have been raising some extremely important issues about how we ensure financial stability or how we as parliamentarians and indeed how members of the public can gain a far greater understanding of the way in which our economy works and in particular how money is supplied not just in this country but around the world as well. We've seen from today's debate that some very important questions have been highlighted and I think not all have been answered in this debate questions about how our money is created how that money or credit is used by banks and others how our financial system can be more transparent and accountable and but particularly how it can actually benefit the country as a whole and it's on that latter point in particular that I know particularly this side of the house have been acutely focused on how we rework our economy whether it's in the field of banking whether it's in relation to jobs whether it's relation to wages so that it does actually work for the country as a whole. I think though it'd be worth reflecting just for a moment on the system that we currently have in this country and what it means for money creation because as the Honourable Member for Wickham sat out very eloquently in his opening speech we know that currency is created in the conventional sense of being printed by the Bank of England but commercial banks can create money by ways of account holders depositing money into their accounts or by issuing loans to borrowers which obviously increases the amount of money that's available to borrowers and within the wider economy and as the Bank of England made clear in an article accompanying their first quarter the bulletin in 2014 this year when a bank makes a loan to one of its customers it simply credits the customer's account with a higher deposit balance at that instant new money is created so bank loans and deposits are essentially IO used from the banks and therefore a form of money creation however we know that commercial banks do not have unlimited abilities to create money monetary policy financial stability and regulation or influence the amount of money that commercial banks can create in that sense they're regulated by the Prudential Regulation Authority part of the Bank of England and the Financial Conduct Authority and these regulators some of which are quite rightly independent are the stewards of safety and soundness in financial institutions especially regarding banks money creating practices and so banks are compelled to manage the liabilities on their bank balance sheets to ensure that they have capital and longer term liabilities precisely to mitigate the risks to prevent them having effectively a license to print money so we know that banks have to adhere to the leverage ratio the limit on the bank's balance sheets compared with the actual equity or capital that they hold and that is something that we obviously very much support because limiting a bank's balance sheet does limit the amount of money that they can create through their lending or deposits and that there are a series of checks and balances in place when it comes to creating money some of which the opposition have strongly supported when we have debated on the legislative changes that have taken place in recent years and it remains our view that the central issue here the instability of money supply within the banking system is less to do with the powers that the banks hold and the way in which they create money effectively but more to do with the way the banks conduct themselves and whether they actually act in the public interest in the way in in other ways as well so we believe that the issues here are about the incentives that are in place for banks to ensure that loans and debts are repaid that they're only granted when there is a strong likelihood of repayment when the money supply increases rapidly with no certainty of repayment then that is when real risks emerge in the economy and these were the issues that were debated at a great length during the financial services banking reform act when it made its way through parliament in 2013 it followed recommendations from the Sir John Vickers independent commission of banking as well as the parliamentary commission on banking standards which looked at professional standards and culture in the industry that created the potential regulation authority and gives the regulators the power to split up banks to safeguard their future to name just an example two examples of changes that were made but we feel it did not go far enough because the concern is that the government's actions to date in this particular area have fallen short of the mark and it has failed to boost sufficient competition in the banking industry to raise those standards and to create that public confidence in the sector and as honourable members i'm sure who have an interest in this area know that we the opposition tabled a number of amendments to try and strengthen the bill including preventing banks from overreaching themselves and taking greater risks by ensuring that the leverage ratio is effective and that really goes to the heart of a lot of the issues that are being debated today. The government rejected our proposals to impose a duty of care to customers on all those working in the banking industry which would help reform banking so that it does work in the interests of customers and the economy and not solely in the interests of the banks themselves. These are areas that we still feel we need to see reform in the sector and it is clear from this debate that there are a whole range of issues to consider but our focus at the moment is that the banks need to be tightly correctly regulated to ensure that they work for the whole economy including individuals and small and large businesses. It's a key issue that we face at present and it's only when the banks operate in this way and they work in the interests of the whole economy that we will actually find our way out of this cost of living crisis that we know many people are facing. So I thank again honourable members for bringing this very important debate in front of the house as well as all the interesting contributions and interventions that have been made by honourable members from right across the house. I'm pretty certain from the discussion today that this is not the end of this conversation and the debate very much will go on. Thank you. Minister. Thank you Madam Deputy Speaker and I would like to also add my congratulations. This has been a really fascinating debate and one that is very long overdue and that is to actually consider not just what more we can do to improve what we have but whether in fact we should be throwing it away and starting again and I do genuinely welcome the debate and I do hope that there will be many more to follow and in particular I'd like to pay tribute to my honourable friend the Member for Wickham who is now on the Treasury Select Committee which I had the great honour to serve on for four years and I'm quite sure that his views his challenge to the orthodoxy will have been extremely welcomed and by them and by many others so good luck to him with that. I'm very happy to give one. On that point can I just say how much I'm enjoying her place on the committee and I do congratulate her on her promotion once again. I'm grateful to him for that. I'd also particularly like to point out to my honourable friend the Member for Hitchin and Harpenden who I think gave a fantastic explanation which I would commend to anybody who wants to understand how money is created to look at as a very good teaching perhaps he could consider going to deliver that under financial education curriculum in school because it really it really was very enlightening and not least of which because it highlighted actually the appalling failure of regulation in the run up to the financial crisis which I think has really is still reverberating in our economy today and I think all honourable members have made some very interesting points about what we can do better and whether we should be thinking again and I'd also like to pay tribute to the honourable member for Oldham for his good explanation of the positive money agenda which is certainly an idea worthy of thought and I will come on to that. So I want to start by saying money creation is a very important and complex aspect of our economy that I do agree with members is very often misunderstood so I'd like to very quickly set out how the system works at present the money held by households and companies takes two forms currency which is bank notes and coins and bank deposits the vast majority as my honourable friend for Wicom pointed out is in the form of bank deposits a honourable friend is right to say that bank deposits are primarily created by commercial banks themselves each time they make a loan whenever a bank makes a loan it credits the borrower's bank account with a new deposit and that creates new money however there are limits to how much new money is created at any point in time when a bank makes a loan it obviously does so under the expectation that this loan will be repaid in the future households repay their mortgages out of their salaries businesses repay their loans out of income from their investments in other words banks will not create new money unless they think at the time that new value will also in due course be created enabling that loan to be paid back so ultimately money creation depends on the policies of the bank of england changes to the bank rate affect market interest rates and in turn the saving and borrowing decisions of households and businesses and the idea is that prudential regulation is used if excessive risk taking or asset price bubbles are creating excessive lending so these checks and balances madam deputy speaker are an integral part of the system so i fully agree that the regulatory system was totally unfit in the run up to the financial crisis we saw risky behaviour excessive lending a general lack of restraint on all sides and of course the key problem was that the buck didn't stop anywhere and so what we had was when finally there were problems in the banking system regulators looking at each other for who was responsible and we all know that the outcome of that was the financial crisis of 2008 and i too see the financial crisis as a prime example of why we need not just change but also a better banking culture a culture where people don't spend their time thinking about how to get round the rules a culture where there isn't attention between what's good for the firm and what's good for the customer and a culture where infringements of the rules are very properly and very seriously dealt with and in a few minutes i'll touch on some of the things we're doing to change the regulations and change the culture but first i just want to briefly set out why we don't believe that the right solution is the wholesale replacement of the current system by something else such as a sovereign monetary system under a sovereign monetary system it would be the state not banks creating new money the central bank via a committee would decide how much money is created and this money would mostly be transferred to the government lending would come from the pool of customers investment account deposits held by commercial banks such a system would raise a number of very important questions how would that committee assess how much money should be created to meet the inflation target and support the economy if the central bank had the power to finance government's policies what would the implications be for the credibility of the fiscal framework and the government's ability to borrow from the market if it needed to what would be the impact on the availability of credit for businesses and households wouldn't credit become very pro cyclical wouldn't we incentivize financing households over businesses because in the case of businesses banks would presumably expect the state to step in wouldn't we be encouraging the emergence of an unregulated set of new shadow banks and wouldn't the introduction of a totally new system untested across modern advanced economies create unnecessary risk at a time when what people need is stability i will give away just make a couple of points i don't actually support positive monies proposals as they know i'm glad to work with them because i support their diagnosis of the problem but in 1844 of course they could have advanced this argument and they didn't but the final point really is to say that i of course haven't proposed throwing away the system and doing something radically new i've proposed getting rid of all of the obstacles to the free market creating alternative currencies i'm grateful to my noble friend for pointing that out and i must confess before this debate i was rather puzzled by the fact that such an intelligent and extremely sensible person to see should be making the case that what i would see in a sovereign monetary system for an extraordinarily state interventionist new proposal so i'm very glad to hear that that's not what he's proposing and of course bearing in mind our current set of regulators we would presumably then be looking at a committee of middle aged white men making the decision on what the economy needs and that also would be a significant concern to me were that to happen so my own position which i will of course give way to my before the minister leaves the whole question of sovereign monetary system which obviously she's totally opposed to and raised several objections which i cannot in an intervention answer but does she not believe at the present time that the system of bank money creation is highly pro cyclical and has enormously benefited property and financial sectors to the disadvantage of the vast range of industry outside the financial sector as i said at the beginning i sincerely congratulate the honorable member for raising this issue it is certainly one that's worthy of discussion i look forward to him coming back on some of the arguments that i've raised but very specifically yes i also agree with him that where we were in the run-up to the financial crisis was entirely inappropriate and i will come onto some of the steps that we've taken to improve not throw away the baby with the bathwater but to improve what we have now rather than throw it away and start again so i know that in addition some of my honorable friends and and members opposite have a particular concern about quantitative easing as i'm on the record of as having made clear that i do too and specifically how you might unwind it but they should surely agree that at least quantitative easing can be unwound unlike the proposal of helicopter money which seems to me to be a giant step beyond quantitative easing a step where money would be created by the state with no obvious way then to rein it back if necessary so madam deputy speaker if the tap in my bathroom breaks rather than wrenching the sink off the wall i would prefer to fix the tap and i think as martin wolf said last week nobody can say with confidence how a monetary system should be structured and what laws and regulations it should have given that and also the tumult going on economically across the world we should be devoting our energies to fixing the system we have mending the problems but keeping what works and so we in this government have taken significant steps to improve the banking sector making sure that it fulfills its core purpose of keeping the wheels of the economy well oiled we are creating a better safer financial system with the financial policy committee created in this parliament focused on macrocrudential analysis and action and as the honourable lady opposite pointed out that fpc is being given counter cyclical tools to require more capital to be held to increase the leverage ratio and the counter cyclical capital buffers at times where the economy is is experiencing overexuberance to push back against that as the previous government of the bank of england said to remove the punch bowl whilst the party is still in full flow and that's incredibly important we're also reducing dependence on debt since the financial crisis the uk banking system has been forced to significantly strengthen its capital and liquidity position and is continuing to do so but very importantly and i do want to stress this just regulation is never going to be enough in this government we are really promoting choice competition and diversity and i'm delighted that there are 25 new banks talking to the pra the prudential regulatory authority about getting a banking license and there are strong efforts from the government to promote the mutual sector to build and enhance the capacity of credit unions to better serve the real economy enabling to the boost of funding for small businesses to help families and to improve customer service so we've put in place a number of schemes to help the transmission the actual transmission of money from banks to customers now those include the funding for lending scheme that has lowered the price and increased the availability of credit for SMEs um as the honorable lady opposite pointed out i believe we've created the british business bank which is helping finance markets work better for small firms and we're putting a lot of resource and effort into building that to help the businesses in our economy and we also have a program of measures to increase competition in the SME lending market including flagship proposals to open up access to SME credit information that will help challenges to get in on the act and having banks pass on declined applications for finance to those same challenger banks in addition we now have an appeals process whereby small businesses that have been turned down for funding can get a second chance and that's actually secured an additional 42 million of lending just since its launch so these are all measures to try and help access to finance for small businesses and then to mitigate the very real problem of house price bubbles we're putting in place supply side reforms to promote home building and home owning as well as measures to the prudential regulatory authorities to enable them to limit the amount of lending that households can take on so but i do agree with members of all sides of the house that we should not be content with the system as it stands we have to be seeking to improve it and to make it function better and i do think in mark carney as our governor now we have an excellent central banker who has the experience and knowledge to put the right reforms in place and see them through and as he has said reform should stop only when industry and society are content and finance is justifiably proud so in the medium to long term we need to create a culture where research and analysis doesn't shy away from going against the orthodoxy as honorable members across the house have said we need to look at other alternatives and we should be having that discussion is very healthy to be doing it and that's how you get progress so andy helden as a deputy governor's call for a broader look at new monetary ideas and other existing monetary ideas is absolutely right and we do of course yes pleased she believes that alternative systems or alternative ways of trying to improve the monetary system should be explored will she give support to the idea that there should be a commission which is set up to examine this all the alternatives that was actually recommended by the honourable member for richmond park i think as well as by me so there is some cross party support is that not an idea in whose time has come for my own opinion i actually think that an organisation such as the treasury select committee that my honorable friend is a member of would be entirely the right place to have such a discussion of course we had the vickers commission that looked at what had gone wrong and what measures could be put in place the parliamentary commission on banking standards that specifically address the issue of incentives and motivations in banking i'm not somebody who normally would advocate the establishment of great new commissions i think we already have exactly the right bodies to be able to look further at different orthodoxies and of course as andy helden in the bank of england has said the bank themselves will be looking at and encouraging alternative views to be to be explored further but of course we also need to continue embracing innovation both in the if you like software of how payments are made and also in the hardware of the idea of new currencies such as cryptocurrencies and digital currencies both of those can open up competition and give customers greater choice and greater access to funding but we do have to do so with a degree of caution in november we published this month we published a call for information inviting views and evidence on the benefits and also on risks of digital currencies so digital currency businesses can continue to set up in the uk and people can expect to use them safely now i am the last person who could be described as statist but i would absolutely accept that we must always be ruthless in our determination to regulate new ideas that come to the forefront because as night follows day as new ideas come in through shadow banking through new lending ideas and so on there will be some people who seek to manipulate new schemes and new currencies for fraudulent purposes so i'm absolutely alive to that fact and it's very important that the government therefore carries out this research so in conclusion this government's belief is that the current system modified and improved with far greater competition is the one that will serve the economy best reform is vital again as andy held inputs it historically flexing policy frameworks has often been taken as a sign of regime failure quite the opposite ought to be the case we need banks to lend to young families wanting to buy houses and repay them out of future labour income rather than relying on the bank of mum and dad or for businesses wanting to seize opportunities gain new markets and create jobs and growth our existing system offers a forward-looking and dynamic framework in which tomorrow's opportunities are not wholly reliant on yesterday's savings and it builds on the expertise of banks in assessing risks and making the lending decisions that we badly need in 25 years myself in the heart of the financial sector i saw it at its best and sadly sometimes also at its worst we are trying to remedy the worst but madam deputy speaker let's also keep the best thank you madam deputy speaker this debate has been a joy at times i'm extremely grateful to these honourable and right honourable members who help me secure it the honourable gentleman for old and western reuton made clear his support for sovereign money and i have to say i think one of the great advantages of such a system is it would make explicit what currently is hidden and that's that it is the state that's trying to steer the monetary system and if such a system failed it would at least be clear that it was a century planned monetary order which had failed the honourable gentleman for clackton talked about the ownership of deposits and i was glad to support his private members bill but it reminded me of the intervention for the by the honourable honourable lady for hackney north who talked about deposit insurance of course one of the problems as we saw in cyprus in the context of depositor bail ins is that actually your deposits are akin to a share in a risky investment vehicle and actually a little bit more clarity about what deposit means and what risks a depositor is taking might go a very long way the honourable gentleman for hitching and harpenden indicated one of the greatest controversies amongst free marketeers and that is whether or not fractional reserve deposit taking is legitimate and the honourable gentleman for great grimsby made mentioned major douglass which i think he saw put a smile on my face major douglass was dismissed as a crank even by canes who in his writing dismissed him as a private and i think this points to one of the issues here is that the possible range of debate is absolutely enormous i'd like to leave my very final word madam deputy speaker with richard cobden a member for stockport back at the time when this was a big issue before he said i hold all idea of regulating the currency to be an absurdity the very idea of regulating the currency is an absurdity the currency should be regulated by the trade and commerce of the world and i wholeheartedly agree order the question is that this house is considered money creation and society as many as that opinion say i of the contrary no the eyes have it the eyes have it we now come to the motion on devolution and the union i must inform the house that none of the