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The hon. Gentleman went on to raise some perfectly pertinent points, which I want to deal with. First, in relation to guarantees and what happened over the weekend, as far as I am aware no Government—nor the European Commission—was made aware of what the Irish Government were proposing to do last week. I
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took up that matter with Brian Lenihan, the Irish Finance Minister, and he explained that they did that because, in their judgment, they needed to take action because of what was happening in Europe. I understand that, but it demonstrates the problems that arise when member states take unilateral action, because, of course, it has a knock-on effect for other member states. Similarly, Germany announced action yesterday. As I understand it, Germany has made a declaration that is not legally binding; it is a political declaration about guarantees.

This emphasises the need for us all to work together, which is why from last night we have been working with the French presidency to get a declaration from all member states—a pledge to work together, to act together. As I said, that statement was finally agreed just an hour ago. I very much hope that when we meet in Luxembourg tomorrow we will agree that, whatever is done, European member states act together. That is very important; otherwise, we will end up with a situation that is confusing not just to depositors, but to institutions themselves.

On the hon. Gentleman’s points about accounting rules, the European Union is looking at that. On Friday, the International Accounting Standards Board said that it would look at the lessons to be drawn from what has been happening in markets, to see whether any changes ought to be made and also to make sure that we do not find that European and American rules start to diverge. However, I say to the hon. Gentleman that it would be a huge mistake to assume that changing the accounting rules would sort out the problem. Especially at this time, markets want to know exactly what is going on, and they do not want to think that the situation has apparently improved simply because the ways in which things are accounted for are different. That issue is not somehow a “get out of jail free” card; it needs to be looked at, but it does not provide the answer that the hon. Gentleman might have been suggesting.

Finally, on capital, I said in my statement that we stand ready to look at the issues of liquidity, capital and regulation. They all need to be looked at, and we are ready to do whatever is necessary. I also went on to say—here, I agree with the hon. Gentleman—that we saw from what happened in the United States that nothing is worse than coming forward with a plan that is not sufficiently developed and about which questions cannot be answered, which resulted in some $1.5 trillion being lost over the 10 days that followed. I am determined that when we take action, we take it quickly, we take it decisively and it works. That is what I am determined we will do.

Dr. Vincent Cable (Twickenham) (LD): I thank the Chancellor for his statement. I do not think that any of us envy him for the very considerable weight of responsibility that rests on his shoulders, and we are going to have to work together in the common interest. There will be a time to decide who made mistakes, but the issue now is: have we moved forward?

The Chancellor said that he will do whatever he has to do in the financial crisis. He is right, and I hope that he will, but there are some issues that need clarifying. In the wake of the apparent German decision to give a complete guarantee for all deposits in the German banking system, it seems to us that the British Government will indeed have no alternative but to give a comparable assurance to people in the British retail high street
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banks. We all know that our bank deposits are safe. Some of my own modest savings are in the Bank of Scotland and some are in the Royal Bank of Scotland, so I am more than usually dependent on both the Chancellor and the Prime Minister and on the First Minister of Scotland not to let me down. However, there are anxieties. People have anxieties about specific questions such as merged banks, large deposits during house sale transactions and small independent businesses, and there needs to be more clarity about the guarantees than the Financial Services Authority has currently given.

Secondly, the Chancellor said in his statement that he is pursuing a case-by-case approach. He is right, and we have no quarrel with what he did in relation to Bradford & Bingley and HBOS-Lloyds—that seemed to be the right approach. However, we are now in a different situation, where banks are being picked off one by one. I set out proposals yesterday, and the Conservative leader said something rather similar this morning— [Interruption]—about the need for recapitalising the banks with a form of partial nationalisation. I hope that the Chancellor will confirm that those specific ideas are under active discussion.

Finally, I would like to say a little bit about interest rates. Of course, the issue is about the availability of credit, but it is also about official interest rates and the implications for mortgage borrowers and small businesses. I have been a very strong advocate of the independence of the Bank of England; I made my maiden speech about it in this House 10 years ago. Does the Chancellor not think it appropriate, in emergency conditions, to make it absolutely clear that the mandate of the Bank of England must include responsibility for averting a meltdown in the financial and economic system? Those members of the Monetary Policy Committee who are going around saying that the problems go no further than the financial system need a line of communication back to planet earth. We do need to be thinking about radical cuts in interest rates.

I know that the Chancellor has said that my comments on this subject are dangerous, and I recognise the dangers. These are very dangerous times, and decisive decisions are going to have to be taken over the next few days and weeks to safeguard millions of jobs and homes. I hope that the Chancellor will give us the leadership that we need on those issues.

Mr. Darling: I am grateful to the hon. Gentleman and for the fact that on many occasions over the summer he indicated his support for the general approach that the Government are taking. He asked three main questions, one of which related to guarantees. As I said earlier, I think it desirable that European member states act together. If the House looks at the statement that all 27 member states signed up to earlier this afternoon, it will see that there is a commitment there to work together, and it is important that we work together. We have the FSA announcement that it will increase the amount covered to £50,000, and as I said, that covers 98 per cent. of all accounts.

The hon. Gentleman mentioned liquidity and capital. May I emphasise to him that, as I said in my statement, I believe that we must look at three elements? First, we
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must ensure that there is adequate liquidity in the system. That is absolutely essential, which is why I welcome what the Bank announced this week and the fact that it is looking at providing facilities for far longer than is usual. The problem is not just an immediate one. He rightly says that we need more liquidity, because without it we cannot move to the second phase. I have also said that we need to look at regulation and at issues such as capital, and we will do so; when I have proposals to make, I shall come back to the House to set them out.

Finally, on interest rates, I do not think that I ever said that the hon. Gentleman is dangerous—whatever else he is, that is not quite the right description—but I think that in this case he is just wrong. If one establishes an independent central bank, distant from government, I do not think that one should change its terms of reference just because times are difficult. I should just remind him and the House of what the Bank of England Act 1998 says. The objectives of the Bank of England are

I do not see any need to change that remit.

Mrs. Linda Riordan (Halifax) (Lab/Co-op): There is much concern and anxiety in Halifax about the uncertain future of HBOS, which is the second largest employer in the town. Will the Chancellor guarantee that he will do all he can to safeguard these jobs and give a commitment that Halifax and other HBOS locations will be on a level playing field?

Mr. Darling: My hon. Friend has already raised with me the question of jobs in her constituency and the surrounding area. I understand that the future of HBOS and the developments at Bradford & Bingley mean that a much wider area is affected. I hope that HBOS and Bradford & Bingley will do everything possible to try to maintain jobs and to help people for whom there will not be jobs in the future to get jobs elsewhere. I have met the regional development agency and the Minister for Yorkshire and the Humber, my right hon. Friend the Member for Doncaster, Central (Ms Winterton). We are determined to do everything we can to help people through what is undoubtedly a very difficult time. I know, from my conversations with them, that HBOS and Lloyds are acutely aware of the impact on employment in my hon. Friend’s constituency. I am sure that she will continue to do everything she can for her constituents, as she has done ever since the announcement.

Philip Davies (Shipley) (Con): I know that the Chancellor understands the impact on the wider local economy of what has happened to both HBOS and Bradford & Bingley, and I sincerely appreciate the fact that there will be no compulsory redundancies at Bradford & Bingley for six months—that has been welcomed.

Many employees were also small shareholders in Bradford & Bingley, and many of them loyally supported their company through a recent rights issue in order to try to save the business. I understand that the business had £1.5 billion of equity at the time of nationalisation and that the sale of the savings side raised £400 million. The expected losses on the mortgage book are independently
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assessed to be about £1 billion. That leaves about £800 million, which, split between 1.6 billion shares, works out at about 50p a share. Does he recognise those figures? Can he give the House some idea of what might happen to those small shareholders?

Mr. Darling: The hon. Gentleman is understandably concerned about jobs in his constituency. As I said to my hon. Friend the Member for Halifax (Mrs. Riordan), we will work with Yorkshire Forward and the company to see what we can do. I am glad that he also recognises the fact that we were able to provide funding to ensure that people will be employed for six months. That will help, although the situation is clearly difficult. The problem with Bradford & Bingley was that its model just did not work. It tried, as did we, right up until last Saturday to find a commercial solution—or even an approaching commercial solution—but we could not do so.

The hon. Gentleman rightly asks about shareholders. We sold the branches and transferred the deposits to Abbey Santander, and the money from that will go into the pot. However, we also had to transfer and finance some £20 billion of deposits. That amount, which is due to the Government, will be reduced in time as the assets of Bradford & Bingley are realised and mortgages repaid. I cannot say what those assets will realise, or when; it will take years to repay some of them. Some of the buy-to-let mortgages might be worth something in a few years’ time, although they are not worth much just now.

I cannot say at this stage how much, if anything, will be left. I understand the position, because it is exactly the same as that with Northern Rock: people who were not big-time share dealers, but who lived locally, thought that they were doing the right thing in buying shares to support their local company, but then the company failed. We will do what is right, but at this stage it is impossible to say what, if anything, will be left at the end of the day. The bank has a lot of assets that, frankly, are not worth much at all.

Frank Dobson (Holborn and St. Pancras) (Lab): I congratulate my right hon. Friend on his steady and careful approach to this catastrophic situation and on trying to avoid it becoming more of a catastrophe. I welcome his commitment to improved regulation of the City, so that people’s homes and jobs are not imperilled by banks that were so stupid in making their complex arrangements that they could not distinguish between liabilities and assets; by firms of auditors that apparently did not spot that anything was wrong; and by ratings agencies that gave AAA ratings to spurious transactions, apparently unaware of the fact that the pieces of paper involved were worse than worthless. I hope that my right hon. Friend will accept my assurance, on behalf of every Labour Member, that we will support improved regulation even if the Tory party—the political wing of the banking industry—opposes it and speaks out against regulation.

Mr. Darling: I agree with my right hon. Friend that it is necessary to have a regulatory system that is robust. As I said earlier, it is not a question of light touch versus heavy-handed regulation. We will not pursue a knee-jerk reaction, but it is important that we avoid
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situations such as those experienced in the US—but by no means the US alone—in which banks were able to incur substantial risks, apparently without people at the top of the bank being fully aware of just how exposed they were. Nor do we want a repeat of the situation in which regulators, who were concentrating—for understandable reasons—on solvency, did not pay enough attention to the question of liquidity. Across the world there are lessons to be learned. Changes will be necessary, and I am grateful for my right hon. Friend’s support in that regard.

Mr. Kenneth Clarke (Rushcliffe) (Con): In the light of the Bank of England’s statement about the special liquidity scheme and the Chancellor’s statement today, is it right to assume that the Government now accept that the Treasury must support the Bank in providing just as much liquidity as is necessary on the widest possible class of assets as security for as long as is necessary, until the money markets start to function again and inter-bank lending is resumed? It is obvious that banks will not resume lending normally to businesses or households until there has been some recapitalisation. As there is open speculation about the Government using taxpayers’ money to take a stake, will the Chancellor accept that he needs to come to a decision rapidly on that issue to bring the speculation and uncertainty to an end and enable us to move towards a more normal banking system?

Mr. Darling: I agree that speculation can be harmful, which is why everyone has to be careful about what they say and when they say it. It is important that when we have proposals to make—whether on liquidity, regulation or capital—we make them as soon as possible, consistent with having proposals that are fully developed and ready to be implemented. As I said in my statement, it is also important to discuss the matter—as we did the special liquidities scheme—with the financial services industry, where appropriate, so that we ensure that whatever we do achieves what we all want, which is to begin to bring about a situation whereby we can return to sensible lending and where banks will start to lend more freely to individuals and to businesses.

In relation to the right hon. and learned Gentleman’s points about the special liquidities scheme, I have always said that we have never set a cap on the amount that the Government are prepared to make available. Although the scheme will run for three years, we will keep that under review. I am determined to do everything we possibly can to stabilise the present situation and to make improvements so that we can get out of the difficulties that we face. The special liquidities scheme is an essential part of that. The right hon. and learned Gentleman can rest assured that I will do whatever it takes to ensure that it works and that it does so effectively.

Mr. Mark Todd (South Derbyshire) (Lab): Does my right hon. Friend agree that the 100 per cent. deposit guarantees by the taxpayer that appear to be on offer in some major economies—he will need to be careful with his comments on this subject—are harmful and mistaken as policy instruments in this respect? They will encourage a huge moral hazard in the banking industry unless they are backed up with incredibly intensive regulation, which will stifle innovation and growth.

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Mr. Darling: As I said in my statement, it is far better—especially in Europe where so many banks have branches and subsidiaries in many different countries—that any action that is taken is taken together. I have always made it clear that countries need to do whatever they think is appropriate to look after those institutions for which they are directly responsible, but working together is very important. Ironically, the summit called by President Sarkozy in France on Saturday pledged each of the participants to working together. We need to get back to that, because it is the best way to try to resolve the matter.

Rev. Ian Paisley (North Antrim) (DUP): I am sure that the whole House will realise the very terrible times that we are in. I remember being a lad in Ulster and the soup kitchens, the poverty and the terrible happenings that took place. We must all, in our own way, do what we can to help one another to get some way through this very dark hour for our nation. I know that there are many beliefs in this House; my belief in God is well known and my religious convictions are known. I trust that our whole nation will turn in repentance and cry to God for an intervention so that the calamity will not come on our children and on the babes in their cots.

Mr. Darling: I think that I agree with the right hon. Gentleman on the need to work together. I am not as well qualified as him to comment on whether divine intervention can help us, but I think that Governments and financial institutions both have a huge role to play. Governments can make a difference and they need to make a difference, precisely to ensure not only that we stabilise the situation but that we get through it.

Nigel Griffiths (Edinburgh, South) (Lab): Will my right hon. Friend rule out a straitjacket on the Bank of England giving long-term help to banks if necessary and if it is decided on over the course of the next few weeks, months and perhaps even years? Will he also remember that when interest rates hit 15 per cent. and above, small businesses were paying 25 per cent., which is why so many of them, sadly, went bust?

Mr. Darling: My hon. Friend is quite right on that last point. We need to recall from time to time exactly what happened in the past when interest rates went way up—the consequences were devastating. That is all the more reason to ensure that we take the right action, including supporting the Bank of England. I have made it clear, as has the Governor of the Bank, that we will do whatever it takes and whatever is necessary. We will do that because it is essential if we are to ensure that money is available in future not just to individuals, to enable them to buy houses and to invest, but to businesses. British businesses depend to a large extent on their banks, and it is important that we do everything we can to ensure that banks remain in a position to lend to them, because without that lending those businesses would be in difficulty.

Mr. Iain Duncan Smith (Chingford and Woodford Green) (Con): I recognise that the Chancellor will have difficulty in answering a number of these questions, but I wonder whether I can return him to Germany’s statement about protection for its depositors. At the Dispatch Box, the Chancellor mentioned, quite rightly, that our
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protection covers about 98 per cent. of all depositors, but he will also recognise that we have significantly more money on deposit than Germany does. The reality is that that 2 per cent. represents a very significant amount of money. What concerns me right now is that, given the febrile nature of the markets—watching little things and then panicking—if they see any flight of capital, even that 2 per cent., towards Germany, it could cause another stampede and another crisis. I recognise the Chancellor’s problem about indicating what he may or may not do, but does he not recognise that that 2 per cent. alone is perhaps enough to tip over the markets if they saw a flight of that money to, say, Germany or even Ireland?

Mr. Darling: The right hon. Gentleman makes the point that I was making earlier: difficulties arise if different countries do different things at different times, and we should do our level best to try to avoid that.

Mr. George Mudie (Leeds, East) (Lab): I make a plea to the Chancellor that, when he speaks about protecting the taxpayer and depositors, he continues to include customers or borrowers. The whole House understands the importance of helping the banking and finance industry on the grounds of stability, but the sight of the same banks calling in loans to small businesses and making many thousands of good people homeless by making their mortgages unaffordable is totally unacceptable. If we are prepared to have a lifeboat for the finance industry, it should be prepared to participate in a lifeboat for its customers.

Mr. Darling: My hon. Friend makes a perfectly good point. It is important to remember when we talk about stability and the whole financial system what it actually means to people with houses or people who have businesses who depend on the ability to borrow money. In relation to people who get into difficulty with mortgages, we have been working very closely with the Council of Mortgage Lenders and others to ensure that there is a rigorous code of conduct, so that banks do everything that they possibly can to help any customer who might be getting into difficulty. Exactly the same thing applies to businesses. Of course, one of the other things that we are doing is working with the European Investment Bank to ensure that the substantial sums of money that are made available find their way through our banks into the hands of small businesses.

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