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Tessa Jowell: I regularly meet the nations and regions group to ensure that the UK-wide legacy of such an important promise as the 2012 Olympics is delivered in practice. The groundwork for the legacy in the north-west is already in place. The hon. Lady will no doubt be aware of the success of firms in the north-west in procuring contracts for a number of training camps for Olympians and Paralympians. I am also delighted in respect of the broader legacy of greater participation in sport and about the significant number of local authorities in the north-west which have taken up the Secretary of States proposal to offer free swimming in order to get the north-west fit for 2012.
Ann Winterton: I am grateful for that answer and I can confirm that the Alsager campus of the Manchester Metropolitan university has been selected as a training camp, mainly because it is recognised as the foremost college of sports science and medicine and because it has outstanding facilities. What will be the specific benefits of the Olympic legacy to the north-west, particularly for young people? Will there be more coaches, more volunteers and more opportunities for physical activity? Will the Minister be more specific about the benefits?
Tessa Jowell: I have set out the what the benefits are nowwhat is happening and what is already in place. The hon. Lady may be interested in attending a briefing on 13 October, at which the Organising Committee and others will set out the legacy in more detail. Having been through the briefing papers on the legacy for the north-west, I will be happy to place a detailed report in the Library. Here on the Floor of the House, I believe Members are on edge to hear more about the financial markets rather than the Olympic legacy for the north-west, but I am happy to provide that information, as I said.
Tom Brake (Carshalton and Wallington) (LD): Does the Minister agree that the legacy in the north-west would be greatly enhanced if the Government moved with the same speed as our wheelchair athletes, swimmers and cyclists towards a system of gross profits tax, as suggested on the Liberal Democrat Benches three years ago, as that would enhance the resources available to good causes, not only in the north-west but everywhere else in the country?
Tessa Jowell: The hon. Gentleman should be aware that, although that matter is not entirely straightforward, the Government have reached an agreement to look at it again. It is in everybodys interest that every pound of lottery money is spent to produce maximum public interest, particularly given the commitment to the Olympics.
The events in America over the last few weeks and in Europe over the last few days have again demonstrated the global nature and the sheer scale of the problems affecting the global financial system. What started in America last year has now spread to every part of the world and the disruption in global financial markets has intensified, especially over the last few weeks.
People are rightly concerned about what is happening, and I have made it clear that we will do whatever is necessary to maintain stability. Along with Governments across the world, I have a responsibility to support a stable, well functioning banking system. Financial transactions are at the heart of everything we do. They allow people to buy goods, pay for services, buy homes, save for pensions and invest, so it is essential that we take action to support the banking system as a whole, as well as being ready to intervene in particular cases where it is necessary to do so. It is not a case of doing either one or the other. Both general support and individual intervention are necessary.
We need, too, to work with other countries to tackle the causes of those problems, as well as dealing with their consequences. Let me briefly remind the House of what we have done to stabilise the banking system as a whole. Since April, the Bank of England, with support from the Government, has introduced the special liquidity scheme providing funding to the banks. The Government have made available in excess of £100 billion of long-term funding to be lent through the scheme, and the Bank of England has extended it until January. I am willing to make further resources available as necessary and the Governor has made it clear that
in these extraordinary market conditions, the Bank of England will take all actions necessary to ensure that the banking system has access to sufficient liquidity.
The Bank of England has also continued to inject substantial funds into markets through its normal operations, and it will continue to do so. Tomorrow, it will put in another £40 billion, taking in a wider range of security, and those operations will continue into November.
We also need to deal with specific problems as they arise, to maintain stability. In February, we took special powers to bring Northern Rock into public ownershipnow seen by most people as the right thing to do. I can tell the House that Northern Rock has now paid back more than half the taxpayers money that was lent to it and it continues to repay its loan ahead of schedule.
In August, I announced that the Government would swap up to £3 billion of outstanding debt for equity, if required, to strengthen Northern Rocks capital position. In September, we amended the competition regime to allow the interests of financial stability to be considered in the proposed merger between Lloyds TSB and HBOS. We took that exceptional measure because financial stability had to come before normal competition concerns.
Ten days ago, we had to deal with the problems at Bradford & Bingley. We transferred the savings business,
the branches and the related jobs to Abbey Santander, protecting savers, and took the rest of the company into public ownership. We acted decisively to protect savers, and also the interests of taxpayers, ensuring that the financial sector bears its share of the costs.
I have made it clear on many occasions that our priority is to maintain stability and protect the interests of depositors, and safeguard the interests of the taxpayer. I want to set out what we have done so far here at home and also to deal with developments in Europe over the weekend.
The Financial Services Authority has announced a further increase from tomorrow to the compensation limit for retail bank deposits to £50,000 per depositor, which means £100,000 for joint accounts. That measure will ensure that 98 per cent. of accounts are fully covered. The FSA is consulting on whether to increase that limit further to ensure that arrangements here continue to be comparable with international best practice.
I have always been clear that each country needs to do whatever is necessary to deal with its own particular circumstances. However, I also believe that, wherever it is possible to do so, countries should work together and act to maintain stability. This afternoonin the last hourall 27 European Union member states have reaffirmed the need to take whatever measures are necessary to maintain the stability of the financial system, whether through liquidity support, action to deal with individual banks or enhanced depositor protection schemes. But in the light of what has happened over the weekend, it is especially important that EU member states work far more closely together. So tomorrow I will meet European Finance Ministers in Luxembourg to discuss further how we bring stability to the system and protect depositors.
This demonstrates that every country in the worldEurope includedis being affected by these problems. In the United States, Congress has now approved measures to support its banking system, which we welcome. Our approach has been different, but what has happened in America emphasises yet again the need for countries to take whatever action they believe is necessary while also working closely together not just to resolve these problems, but to try to prevent them from happening again.
Later this week, I will attend the G7 and International Monetary Fund meetings in Washington. Our aim is to reduce uncertainty and to improve confidence in financial markets by increasing the openness of financial institutions exposures. We also want to change and improve the effectiveness of credit rating agencies. These measures are now being implemented, but I believe that we need to move far more quickly.
Here at home, a number of specific steps are necessary. First, the Bank of England will continue to do whatever it takes to make cash available for banks to lend. Secondly, the banking Bill will be introduced tomorrow, building on the special powers we took in February to allow us to intervene quickly and decisively. It will also give the Bank of England a statutory role to maintain financial stability, to complement the role of the FSA.
Thirdly, just as at an international level, lessons need to learned. We need to ensure our regulatory system here is up to the mark. It is not about light touch against heavy-handed regulation; it is about making sure that we have the necessary rules in place and that
those rules are enforced effectively. I have asked Adair Turner, the new chairman of the FSA, to make recommendations for reforms. As recent events in the financial markets have shown us, regulation should be about liquidity as well as capital. That is why the FSA is considering changes to the liquidity requirements. It is also looking at remuneration structures in the institutions that it regulates.
Fourthly, we must do everything we can to ensure not only that banks have the confidence to lend to each other, but that lending is maintained to the mortgage market, businesses and individuals. I shall publish Sir James Crosbys recommendations on options for improving the functioning of the mortgage finance markets shortly.
These are exceptional times, and I am in no doubt as to the size of the task facing us and Governments across the world in bringing order to the financial system. The process of change will necessarily take some time to work through, and because we are dealing with international institutions and international markets, it will require not only action at a national level here, but concerted international action.
It is right that we look at every aspectliquidity, capital and regulationwith other countries and of course with the financial sector itself, but it would be irresponsible to speculate on the specifics of future responses. Indeed, providing a running commentary could add uncertainty in already febrile market conditions. But I want to make it clear that all practical options must remain open to us. I have made it very clear that the Government are ready, with the resources and the commitment, to do whatever is necessary, and I will keep the House informed.
Our priority, at home and abroad, is to bring stability to the financial system, to ensure that depositors and savers are protected, and to defend the interest of the taxpayer. I commend this statement to the House.
Mr. George Osborne (Tatton) (Con): As we see again from todays markets, these are times of great instability for our economy and of great anxiety for the people we all represent. Families are deeply worried about their savings, their homes and their jobs, and it is up to us to try to work together to get the country through this current crisis. I do not think that the British public would thank us if they saw happening here in this House of Commons what everyone saw happening in the American Congress. That is why we offer to look constructively at any proposals brought forward by the British Government.
For let us be blunt about it: if the banking system fails, it is not just the banks that go bustbusinesses fail, families cannot get mortgages, and people lose their jobs, not just in the banks, but across the wider economy. The Prime Minister said that we would never see a return to 15 per cent. interest rates. This week, one of our high street banks has written to many of its small business customers, increasing their interest rate to 15.8 per cent. All of us need to work together to stop Britain sliding from a banking crisis into a deep recession.
Of course, constructive support does not mean that we are suspending our critical faculties. We will return at a later date [Interruption.] Oh yes. We will return at
a later date to ask how on earth Britain found itself, at the end of this age of irresponsibility, with more personal and public borrowing than any other advanced economy in the world. But today I want to ask the Chancellor about the immediate issues facing the banking system: the issues of confidence, liquidity and capital.
The Chancellor mentioned the banking Bill. Will he confirm that it will create the Bank of England resolution regime that we think should have been used to deal with Northern Rock and Bradford & Bingley? As I told him last week when we met, the Bill will have our support. We also welcome the decision to raise the limit of protection on retail deposits to £50,000. We have been proposing that from the Dispatch Box for almost a year, and it is clearly the right thing to do. Even so, events are moving fast, with the broader guarantees issued first by Ireland and Greece and then by Germany, Denmark and others. Will the Chancellor confirm that none of those countries informed the British Government in advance, and does he agree that it is not helpful for European leaders to call for international co-ordination at summits and then, hours later, to act unilaterally? As he implied in his statement, their confusion is adding to market anxiety today. He is going to ECOFIN tomorrow. What reassurance can he give us that we can avoid descending further into a beggar-thy-neighbour approach that will, in the end, help no one?
Let me turn to the issue of liquidity. The increasing reliance of our banks on the overnight money markets is creating a hair-trigger effect which leaves individual institutions more and more exposed to events. That must clearly be undone, so we all support the Bank of Englands decision to extend funding to the banks from tomorrowit should address the urgent liquidity problembut let us be clear about what is happening here. The Bank of England is becoming not just a lender of last resort, but the lender of only resort. Does the Chancellor agree that, in the medium and the long term, that is unsustainable? We need to address not just the symptoms of the crisis but the cause, and that brings me to the issue of capital.
The cause of this crisis is that we built an economy on a debt-fuelled bubble. Now the bubble has burst, and the debt is being called in. That leaves banks under-capitalised and their balance sheets weak. There are steps that can be taken now to stop, for example, the mark-to-market accounting rules adding to a downward spiral of falling asset values and restricted lending. The Chancellors immediate reaction when we proposed that was to say that it would make no difference. Many, many banks disagree with him, and so do many European countries. If he will not accept our argument, will he at least engage with theirs?
That still does not address the central challenge: the need to recapitalise the British banks. Does the Chancellor agree that that must, in the first instance, mean shareholders accepting their responsibility? As I said to the Conservative conference, banks that pay out dividends instead of rebuilding balance sheets should be held to account by regulators.
I know the Prime Minister said when he went to New York that he wanted to handle the crisis on a case-by-case basis, but events have moved on. Does the Chancellor accept that the ad hoc approach is running out of road? No one is expecting the Chancellor to stand up here and speculate on every single option available, but he himself
confirmed yesterday that big steps were being considered by the Government. Would it not be irresponsible not even at least to consider more dramatic measures to help our banks, including support from creditors and Government injection of capital? Of course there would have to be very strict conditions to protect taxpayers and ensure that they benefited first from any gain, and we could not contemplate taxpayers money being used to prop up the kind of salaries and bonuses that we have seen in recent years. We must make sure [Interruption.] The Chancellor can ask his new City Minister in the House of Lords about that.
We must make sure that in return for any support the banks start lending again, but in the end, for all the risks to taxpayers involved, there is one thing worse than Government action, and that is inaction in the face of this crisisfor then the far greater risk to the taxpayer and the country is a long and lasting recession. Boom has turned to bust; now bust must not become something worse. That is why Conservatives stand ready to help.
Mr. Darling: I welcome the shadow Chancellors offer of co-operation and help, especially as he appears to have changed his tune somewhat about what remedies he now thinks are appropriate. I hope that he will now recognise that it is necessary for Governments to play an active role in trying to resolve the problems that we face, in order to produce greater stability as well as to help depositors.
I disagree with the hon. Gentleman in one respect in particular. Our position is not that one has to choose between generalised measures of support and looking at particular cases case by case. When we were confronted with the problems at Bradford & Bingley 10 days ago, for example, we had to deal with that specific case, because the problems were peculiar to that bankit was the same for Northern Rock, and different particular issues arose in relation to Lloyds TSB. In addition to dealing on a case-by-case basis, it is necessary to have an overall approach. That is why the special liquidity scheme, which the Bank of England operates, was put in place, and there will be other measures, too.
I am glad that the hon. Gentleman welcomes the Bill, and I hope that we will get support for the measures in it. I very much welcome the fact that he and the hon. Member for Twickenham (Dr. Cable), who speaks for the Liberal Democrats, are anxious to ensure that we try to get the legislation on to the statute book by the middle of February next year, when the provisions we made to take Northern Rock into temporary public ownership will expire. That would be extremely helpful and useful.
So I welcome the support of the hon. Member for Tatton (Mr. Osborne), although I notice that his tendency to lapse into points-scoring and party politics did not take long to reappear. I must make this one point to him in passing: our interest rates are 5 per cent. now, and while people obviously have their views on that, they compare rather favourably with the 15 per cent. interest rates that we had some 15 years ago.
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