 now be allowed to change it. Order! The question is that this House has considered money, creation and society. Mr Michael Meature? I too very strongly congratulate the honourable member for Wiccombe on securing this debate, which I think everyone recognises is vitally important and 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 2008-09 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. 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, trading and financial markets. Those are really extraordinary figures. On the basis of what he has just said, does he not think that there is an argument for the Bank of England to intervene in that particular situation where you have got unlimited credit from banks? My Honourable Friend anticipates the main line of my argument, so if he could be patient, I think I will satisfy him very fully. This is a crucial point. It means that only 8% went to businesses outside of the financial sector, with a further 8% funding credit cards and personal loans. It is a grateful hon. Gentleman for giving way. He already says about money going into building and housing and mortgages, but is that not because the holders of money reckon they can get a decent return in that sector? 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 unlike Germany is that 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 would be more likely to happen in Germany. 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 in 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. It is only this last six, the two 8%, lending to businesses and consumer credit that has a real impact on GDP and economic growth. Only that 16%. 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, and 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. 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. 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. Even to the point where after the financial crash of 2008-9, the state was obliged to undertake direct bail-out costs of nearly £70 billion, plus provider 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. As always, I'm 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 the collapse of Fannie Mae, for example? Are we in a similar situation? I do. Again, this takes me down a different path, but I do actually think there's a very considerable weed across. Yes. 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 mean, I have a go to sympathy with what the honourable gentleman is saying. Hold on, just to be one of the size. I was going to say a little bit more than that, I just have sympathy. I am going to talk at the end. I mean, 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 that 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 depositor protection. Is my hon. Friend saying he's again, is there any form of depositor protection? The protection of deposits is underwritten by, is up to £85,000 of those deposits, and it is guaranteed, is underwritten by the state. Oh, no, no, sorry. No, no, I'm not, well, I'm neither for nor against what I am making, I'm really making the point that this is not something, this encourages the banks to increase their risk-taking, because if they are caught out, for each depositor that £85,000 is guaranteed by the state. All I'm saying is we really need it, and here I totally agree with my honourable, the honourable Member for Wickham, 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? 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 from which the world is still suffering? I think the answer to that is unambiguously no. 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 centralised 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 and where 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 women. 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 Dodds Franks Bill has a staggering 8,000 pages or more that it is impossibly bureaucratic, 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 it 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 give way to my I always very good on these subjects but what are we going 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? 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 18 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 he will 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 has been 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 will 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 at the present time. It's like all systems if it is inadequate it can be modified, changed and increasingly enforced. Now as to lending to 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 insofar as that origins of that are to deal 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 over the present system it would 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 my friend is 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 in manufacturing would this 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 he 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 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. Yes well again I think that's a totally true 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 the churning that goes on in the city of London where profits have to be increased or well 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.