Mr. John Maples (Stratford-on-Avon) (Con):
This is the worst problem that any Chancellor of the Exchequer has faced for a very long time indeed, and I am sure that the whole House wants to be able to support him in whatever proposals he makes to deal with it. He has done a lot on the liquidity front, but he has done relatively little, if anything, on the capital adequacy front. I urge him to address that problem fairly quickly, because such things get worse if they are allowed to drift on. I hope that he will consider the concept of supporting direct injections of capital, as opposed to what the United States did in buying bad assets at a premium in the market, which is a complicated way of doing the same thing. However, I also urge him to take another look at the Dormant Bank and Building Society Accounts Bill, which we will debate this afternoon and which will have the effect of extracting £400 million or
£500 million of the banks safest and most solid deposits and putting the money into a reclaim fund for good causes. Could we not start by allowing the banks to convert that to some form of capital security? The reclaim fund could still hold the money and distribute it to good causes in due course. That Bill was conceived when the situation was very different from now, and I urge him that that is at least a way to start to make some form of contribution to the capital of banks and that he should propose do to that in Committee.
Mr. Darling: I understand what the hon. Gentleman is saying. Of course, the proposal on dormant assets in the Bill that we will debate this afternoon is a long-term measure, but I am sure that he will want to return to such measures, perhaps during Second Reading, and my right hon. Friend the Chief Secretary will be happy to respond.
Mr. Peter Hain (Neath) (Lab): I commend the Chancellor and the Prime Minister for their calm and authoritative leadership, but global political leaders and central bankers seem to be behind the curve, as the financial crisis spreads rapidly into the real economy. Does he agree that it is no longer simply a question of sub-prime versus prime, but about asset quality in infrastructure, businesses, commercial and other property and even car loans and so on? In addition to the special banking powers that he is taking, will he consider legislating to enable reserve powers over infrastructurerail, vital utilities and similar thingsin case they fall into serious problems, as I fear they might, so that we are not behind the curve but ahead of the game, with those powers sitting ready to be taken, perhaps involving stakeholdings, recapitalisation and other matters and procedures that might prove necessary?
Mr. Darling: I am grateful for my right hon. Friends support, and I agree that it is important that all of usGovernments, central banks and regulators alikekeep an eye firmly on problems that might arise in future. I also agree that it is important to ensure that investment, especially in transport infrastructure, continues; I feel very strongly about that, for reasons that he will understand. That is why I am pleased that our Government have been able hugely to increase the amount of money that they are spending on transport infrastructure, and why it is important that, in what will undoubtedly be a difficult time, we ensure that investment does not suffer. Long-term investment in infrastructure is very important.
Stewart Hosie (Dundee, East) (SNP):
I agree with the Chancellor that we should consider every aspect of the issue, including liquidity, capital and regulation, and I would add confidence and stability to that list. I very much welcome his saying that all practical options must remain open to us. I understand that he will not speculate on his final plan, whether it be enhanced deposit protection, a guarantee of all sterling depositsthat is our favoured optionor an extension of the list of assets against which banks can borrow. May I recommend, as a matter of urgency, that he finalises his plan and makes a firm, detailed, comprehensive statement about the actions that the Government intend to take? Otherwise, as regards confidence and stability, the Government will be seen to be buffeted by events, and to be merely reacting. I am calling for a proactive statement and a
detailed plana comprehensive set of measures to provide stability and confidence. Will he draw up that plan, and set it out in a single, comprehensive statement?
Mr. Darling: What I have done this afternoon is set out for the House what we have done so far, in order to provide the House with an opportunity to question me about developments over the summer. However, the hon. Gentleman is right: there are further things that we need to do, and I will come before the House to announce them as soon as I am ready to do so.
John McDonnell (Hayes and Harlington) (Lab): Does the Chancellor agree that recapitalisation when property values are falling increases the risk to taxpayers and will prove ineffective, and that we therefore need the Bank of England advisory committee to recommend a significant decrease in interest rates in its recommendations this week? In addition, recapitalisation could start the round of speculation off again, so will he assure the House that he will stand ready with plans for nationalisation of the banks, if necessary?
Mr. Darling: Not even 20 years ago. On my hon. Friends point about interest rates, I do not think that I can add anything to what I said to the hon. Member for Twickenham (Dr. Cable), who speaks for the Liberals.
Malcolm Bruce (Gordon) (LD): Some of us on the Liberal Democrat Benches anticipated at least some of the problems, and were concerned about the fact that the regulatory authorities did not clamp down on the excessive unsecured credit that was put into the marketplace; that put pressure on financial services in London and Edinburgh, and it is that pressure that is causing us so much trouble.
Moving on, may I pick up on the point made by my hon. Friend the Member for Twickenham (Dr. Cable)? The Chancellor said that he thought that the remit of the Bank of England required no amendment, but can he really stand by that when inflation, which is the overriding concern, is outside the target? Does he not accept that it would be desirable temporarily to set aside the requirement on the Bank, so that the Government can deal with the crisis today? I campaigned for an independent Bankhe did notand I believe that independence is right, but the parameters have to be right. Would it not be good to ensure a cut in interest rates, so that we can get the economy going and get banks lending again, and a cut in taxes to help people deal with rising costs?
Mr. Darling: The right hon. Gentleman may have campaigned for an independent central Bank, but I was part of the Treasury team that legislated to put the measures in place. To be fair, the Liberal Democrats have been consistent on the issue, and did support an independent central Bank. However, if they are to be consistent, they should not, for goodness sake, ask for a change of rules when things get difficult.
Mr. Geoffrey Robinson (Coventry, North-West) (Lab): Does not my right hon. Friend agree that the Government have acted decisively and with great expediency on the issue, and will continue to do so? On interest rates, will he confirm whether my recollection is correct: is it not right that, although it will rightly be enshrined in statute that it is part of the Banks responsibility to maintain financial stability, it is his responsibility as Chancellor to set the interest rate? It is then the Banks responsibility to maintain that rate through the appropriate monetary and other policies. If that is the case, as I think it is, it is still for him, as an appropriate and necessary part of his normal functions as Chancellor, to set that rate. Will he bear that in mind in the months ahead, which are bound to be very difficult?
Mr. Darling: It is my responsibility to set not the interest rate but the inflation target, which is something that is done at the Budget every year. As I said, both in the House today and on previous occasions, I think that targeting inflation is important. Inflation has been a huge problem for this country in the past, and I believe that the Banks present remit, both in relation to its inflation target and, subject to that, to its broader objectives, is the right objective.
Mr. David Curry (Skipton and Ripon) (Con): We have not seen a Northern Rock-type run on the banksmercifullybut is the Chancellor aware that there is still huge confusion on the high street? There are a lot of people trying to shuffle money, and wondering whether they ought to do so, between institutions, to find some sort of safe haven. Should we not be grateful to building societies such as Skipton and the other five Yorkshire societies that have remained mutual societies? If I may make a suggestion to the Chancellor, perhaps he might talk a little less about systems, and a little more about people, because the anxiety spreads to every level of society, and the one question that they want answered is, Is my money safe? The sooner that he can answer that, the quicker we will get calm on the marketplace.
Mr. Darling: I agree with the right hon. Gentleman that what matters is people, and one reason why the FSA, with our strong support, increased the upper end of the compensation limit to £50,000 for an account holder was precisely to provide additional security, which is very important. He made a point about building societies, especially those that did not demutualise, and I understand why he did so, because I think that I am right in saying that all the building societies that demutualised have either been taken over or, sadly, are no longer with us.
Sir Stuart Bell (Middlesbrough) (Lab): The Chancellor of the Exchequer touched on this briefly, but may I congratulate the Prime Minister on his initiative in Paris at the weekend, in saying that the European Investment Bank should release £12 billion to £14 billion to the small and medium-sized business sector, with a further £12 billion to £14 billion coming later on? Building on the Chancellors response to my hon. Friends the Members for Edinburgh, South (Nigel Griffiths) and for Leeds, East (Mr. Mudie), is not this sector the most important sector in the country, and can we say, building on the point made by the shadow Chancellor, that if the banks are not lending to one another, at least they should lend to that sector at reasonable rates?
Mr. Darling: I strongly agree with my hon. Friend. It is important that small businesses in particular, as well as other businesses, can get access to the money that they need. The initiative to which the Prime Minister referred at the weekend from the EIB is very important. I had discussions with its managing director a couple of weeks earlier in France, and it is important that that money is not only released, which it will be, but that businesses in this country can get it through the banking system. I hope that we will have something to say in the not too distant future that will help with that.
Mr. Peter Lilley (Hitchin and Harpenden) (Con): Does the Chancellor agree that guaranteeing all deposits, although it may well prove necessary, is at best a sticking plaster, not a cure for the underlying disease, which is that the value of loans made by banks, and even more of the collateral that they have accepted, has fallen below their obligations and their ability to meet them from reserves? If he is not to have to make that good himself, he must provide incentives for those banks to raise new reserves. Will he consider guaranteeing the proportion of reserves newly raised from this date in the event of any subsequent reconstruction in which the state is involved?
Mr. Darling: The right hon. Gentleman is right. If we look at the fundamental causes of the problem, we see that banks took on risks that either they did not evaluate or, if they did, they did not take enough steps to ensure that they could withstand any fall in assets. That is something that we need to look at, and it is something that the regulators need to look at.
Mr. Barry Sheerman (Huddersfield) (Lab/Co-op): Will my right hon. Friend accept my congratulations, as the constituency MP for many Halifax Bank of Scotland employees? We were grateful for the work that the Prime Minister and he did in arranging a marriage between HBOS and Lloyds TSB, but on reflection, would it not have been a better option to part-nationalise HBOS to keep its integrity and independence and to keep the jobs, rather than creating a vast monopolya third of the marketwhich will come back to haunt consumers and those of us who represent Yorkshire constituencies? The bank is, after all, the largest private employer in Yorkshire.
Mr. Darling: I am very aware of the importance of HBOS as an employer in Yorkshire, but if it is possible to reach a commercial solution to problems, that is by far the best route to pursue. A commercial decision was taken by HBOS and Lloyds TSB. Yes, we intervened to waive the competition rules that would otherwise have stopped it, but as I said in relation to Northern Rock a year agoat that time many people believed that the best option was to try to find a commercial solution, but it did not work at the end of the dayone day even Northern Rock will have to be returned to the private sector. I do not think the Government can run banks particularly effectively, and I do not think that is desirable. If we can get a commercial solution in relation to these matters, that is far better, and it is what is proposed in this particular case.
Sir Peter Tapsell (Louth and Horncastle) (Con): Has the Chancellor studied the history of the Japanese economic crisis of the 1990s, where the failure of that Government to reduce interest rates in a timely manner led to a prolonged recession, which lasted for a decade?
Harry Cohen (Leyton and Wanstead) (Lab): The Chancellor told me in the summer that he had regular secret meetings with the top bankers. They seem to be coming with a begging bowl, which has been rewarded with massive liquidity. What has he got from them in returnfor example, to deal with the fat-cat bonuses and pay-offs that they have had?
Mr. Darling: I do not think I told my hon. Friend that I had secret meetings with the bankers. If I did, it clearly would not have been a secret any more. It is no secret that I meet people from the banking industry on a fairly regular basis. Indeed, people would be surprised if I did not. On my hon. Friends other point, yes, of course there is concern about the way in which employees were paid or incentivised. Many people are concerned that employees were paid bonuses to take on risks which, it turned out, did not just put the individual employer or their bank at risk, but put everybody else at risk at the same time. That must change.
Susan Kramer (Richmond Park) (LD): Does the Chancellor agree that without in any way compromising the independence of the Bank of England, he could put into abeyance the inflation target for a period, and therefore allow the bank to take the steps necessary to prevent the present crisis from spilling over into the rest of the economy? Our experience so far has shown that the idea that financial crises could be contained is holed below the waterline, and that the inevitable consequences of not stemming overspill will be detrimental to just about everybody in the country.
Mr. Darling: I do not agree with the hon. Lady. As I have said before, the remit given to the Monetary Policy Committee is wide. It was designed for the good times as well as the more difficult times. To chop and change it would undermine the idea and principles that underpin the concept of an independent central bank.
Mr. Frank Field (Birkenhead) (Lab): How are the Government measuring the danger to the British economy if, when trying to pursue a policy across Europe, we find that we are, for example, the last Government to offer 100 per cent. guarantees to individual savers with deposits in British retail banks? Will he give a guarantee that we will not find ourselves in that position?
Mr. Darling: We are not in that position. I said earlier that if action is taken, there is much to be said for having a discussion about these matters and acting in a way that avoids the distortions that I referred to. That is one of the things that we will be discussing tomorrow.
Mr. Brian Binley (Northampton, South) (Con):
The Chancellor may not know, but I can tell him that many small businesses will be disappointed with his statement today. They are facing increasing debt, including massively increased bad debt, and are under tremendous cash-flow pressures. They go to their banks, but their banks are
not being helpful; in fact, they are increasing interest rates. Will the Chancellor give the small business sector some confidence today, by saying that he will go to the banks and ensure not only that small businesses get their fair share of the guarantees being given, but that banks will cut interest rates to them?
Mr. Darling: I think that I have said on a number of occasions this afternoon that there is concern in all parts of the House about the impact that the credit crunch is having on businesses. That is why it is important that banks and Governments act together to try ensure that we help small businesses, whether directly or through the European Investment Bank or other such measures. That is what I want to do.
Jim Cousins (Newcastle upon Tyne, Central) (Lab): Does the Chancellor recognise that the markets are in a panic because the authorities are seen to be losing control of events? The right place for the risks of a rescue is not the balance sheets of national Governments, which are there to help the less well-off, not the super rich. Tomorrow he must go to Europe and get a Europe-wide run-off and rebuild facility that can really bear the strain of events and put the authorities across Europe back in control of the situation, not running constantly behind.
Mr. Darling: I agree with my hon. Friend that it is important for Governments not just to deal with day-to-day events, but to anticipate them and try to restore the calm to which he referred. That said, there are some things that can be achieved on a Europe-wide level, but there are other areas where that might prove more difficult. He may be aware that the Dutch Government came up with a proposal for a pan-European solution that, as far as I can see, has not attracted a great deal of support from the rest of the European Union. However, it is important that if we can take action together, we should do so. If that is not possible, we should redouble our effortsour Government and other Governments of like mindto ensure that we do precisely what he suggests: to anticipate and deal with some of the problems that we know are there or which are coming towards us.
Sir Patrick Cormack (South Staffordshire) (Con): As we address such issues in this place, should we not bear in mind that the crisis has been exacerbated because, during the summer, people in high places consistently forgot that there is no situation that is not made worse by panic?