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Last week, Members on both sides of the House said that one of the things that they wanted was the freeing up of lending to businesses and mortgage payers. Indeed, the shadow Chancellor mentioned that issue specifically. That is precisely what we have sought to achieve with the institutions with which we have these agreements. We are not saying that they should simply lend, willy-nilly, to anyone who turns up; that would be ludicrous. They must assess how much someone can afford to borrow, and whether there is adequate security. Banks have got to ensure that their lending is prudent and properly thought out, and the availability of funds will help. That is what Members on both sides of the House want, but nobody wants a return to the more irresponsible practices of the past.
The hon. Gentleman asked about board membership. It is important that we nominate people who have the relevant experience and can bring their influence to bear. I have made this point before: the boards are the first line of defence, not just in preventing banks from getting into difficulties, but in the wider system.
I agree with the hon. Gentleman on co-operation among countries. We had extensive discussions at the G7 meeting in Washington over the weekend, and at the IMF. He asked about China; it is, of course, a member of the G20, which we will chair in the coming year. The governor of the Chinese central bank was present at the IMF discussions and, I think, at the G20 meeting.
The hon. Gentleman made a point about the eurozone. Of course, we are not members of that group, but my right hon. Friend the Prime Minister addressed it yesterday, because it was recognised that Britain is an extremely important part of not just the European financial system, but the global financial system. It is quite right that our views are taken into account, and equally right that if we are to convince people that we need to act together, we need to be involved at every level. That is another advantage to our being fully involved in the European Union; I think that that is very important.
John McFall (West Dunbartonshire) (Lab/Co-op): I welcome the Chancellor’s statement. The Treasury Committee has just returned from speaking to the Japanese authorities about what to do, and what not to do, in a crisis, in the light of their problems in the 1990s. Two clear messages emerged: first, clear and decisive action about investments is necessary, on which the Government are therefore to be congratulated today; and, secondly, early communication is essential if the public are to accept this investment in the banks, for their sake and that of the country. Will the Chancellor and his colleagues who represent the tripartite authorities accept my invitation to appear before the Committee and give more detail about the initiative, so that we can communicate it to the public, and it can therefore be accepted?
Lastly, on recapitalisation, it is undoubtedly essential that the relationship between banks and the public as customers changes, and that banks face up to their new responsibilities. Does the Chancellor agree with that?
Mr. Darling:
I do, and all of us know full well that people in this country, some of whom are finding times hard and have to count the pennies, are asking what is going on in the banking system. The problem is that if
we do not have a banking system that works effectively, every one of us will suffer. A test that we have to apply to any measure is to ask what would happen if we did not take a particular course of action. If we had not taken the course of action that I set out last week, and that we have implemented today, it would have exacerbated an already difficult position, so my right hon. Friend is quite right about communications. As for his invitation to attend the Treasury Committee, I am always happy to do that, and no doubt we can discuss in the next few days when it might be best to do so.
Mr. John Redwood (Wokingham) (Con): Given that the three banks in which the Government are considering taking a public stake have combined assets and risks on their balance sheets of £3 trillion—twice our national income, and five times our tax revenue—does the Chancellor agree that it is very much in the taxpayer’s interest that all men and women of good will should work to get the maximum amount of share capital and other sources of money from the private sector into those banks, to limit taxpayer risk?
Mr. Darling: I fully agree with the right hon. Gentleman. He is absolutely right: we do need to work together, and that is something that I want to encourage.
Ruth Kelly (Bolton, West) (Lab): May take this opportunity—the first time that I have spoken from the Back Benches in many years—to congratulate my right hon. Friend the Chancellor on the calm, assured way in which he not only delivered his statement today but, together with my right hon. Friend the Prime Minister, has worked on the financial crisis over the past few weeks? I very much welcome his commitment in the statement to make sure that his intention was to stabilise the banking system and, in the long run, return to a well functioning, properly capitalised private banking system. Will he assure me and the House not only that he has been working on a strategy to inject capital into the banking system, but that he will turn his mind to a strategy to withdraw taxpayers’ support over the longer term from the banking system?
Mr. Darling: I am grateful to my right hon. Friend for her support, and I am sure that there are many of us on this side of the House who look forward to a time when she chooses to return to the Front Bench. In the meantime, I agree that it is important that we focus on the immediate step of ensuring that the banking system is stabilised. However, she is quite right that, in the long term, the banks are better off in the private sector, and that is something that we will need to manage. However, at the moment the key is to make sure that the banks are properly capitalised, get through this period and rebuild their strength, because that is the best way of ensuring stability.
Sir George Young (North-West Hampshire) (Con): Lloyds bank and HBOS have to make some difficult commercial decisions if the proposed merger goes through. Can we have an assurance that those will be taken on the basis of what is best for the bank and its customers, without any Government intervention?
Mr. Darling:
The decision in relation to the merger was taken jointly by the boards of HBOS and Lloyds TSB. That remains the position. I have set out our view and the steps that we are taking in relation to the
competition issue, but the decision to merge is a matter for those two boards and, ultimately, for their shareholders.
John Reid (Airdrie and Shotts) (Lab): The Chancellor and the Government have acted with clarity and decisiveness of action in the midst of this crisis, which is a sign of reassuring stability to the whole nation. As this is a wide, deep and ongoing problem, may I ask him whether he will continue to build alliances of that nature at home and abroad? Will he do so abroad with Governments of all different persuasions, and domestically with everyone inside and outside the Chamber who wants a solution to this problem? While I regret very much the fact that the Opposition spokesman appears to have lapsed from a consensual approach into a partisan one today, may I express the hope that that is temporary? Notwithstanding that, will the Chancellor continue to try to work with everyone on both sides of the House?
Mr. Darling: I agree with my right hon. Friend. It is important, on such an issue, and at a time like this, that we work together, both inside the Chamber and with everyone who has an interest in making sure that we get through an unprecedented period of instability. I also agree with him that it is important that the Government continue to work with people outside the House. Importantly, as many Members have said, we should remember first and foremost why we are doing so—to help the people and the businesses of this country.
Mr. Michael Fallon (Sevenoaks) (Con): Will the Chancellor confirm that Swedish taxpayers still own part of their bank 17 years after it was nationalised, so these things sometimes take a little longer than originally forecast? Will he also explain what degree of due diligence there is on behalf of the taxpayer in return for this very considerable investment?
Mr. Darling: The hon. Gentleman is correct in saying that it will inevitably take time to work through this. What happened in Sweden, of course, is largely in relation to that particular country; this problem, however, has affected the whole world. Our objective needs to be clearly stated in relation to our long-term intentions. On due diligence, I should say that over the last few days we and our advisers have been in intensive discussions with the two banks concerned. As I think I said this morning, the FSA has taken what it regards as a cautious view, having regard to the difficulties faced in the economy now, as to what the liabilities of the banks might be. That is one of the reasons why the sums in relation to those two banks are higher than might have been anticipated.
Kelvin Hopkins (Luton, North) (Lab): There is still a vast amount of toxic debt around. Will the banks not have to declare that on the balance sheet before total trust can be restored?
Mr. Darling: Banks here and all over the world are engaged in that process at the moment. As I have said on many occasions, one of the things that will help get us through this is when people have absolute confidence as to where everybody stands.
Mrs. Jacqui Lait (Beckenham) (Con): The Chancellor indicated that some of the package will be paid for by borrowing. What is his assessment of the appetite of the markets for gilts and the level of interest that the taxpayer will have to offer to shift the gilts?
Mr. Darling: I did indeed indicate that some of what I am announcing today will be met by borrowing. The Government raise that money through their normal operations, and continue to be able to do so.
Mr. Jim Cunningham (Coventry, South) (Lab): When my right hon. Friend was having discussions with the bankers, was there any mention of the protection of pension funds? I hope that they were part of the discussions.
Mr. Darling: If my hon. Friend is referring to the staff employed by the banks, I should say that the banks themselves are responsible for that issue. The capitalisation that the Government are able to make available will enable the banks to continue. Obviously, they will have to make decisions themselves on how they restructure their business and proceed in future.
Stewart Hosie (Dundee, East) (SNP): I thank the Chancellor for his statement and advance notice of it. I repeat what we said last week: the whole House should have the right to hope and expect that the package will deliver confidence and stability and unfreeze the banking system. Many others have made the point that the Chancellor expects lending to small and medium-sized enterprises and mortgage lending to be at 2007 levels. Does he mean that on a cash basis or on a loan and mortgage application basis? More importantly, because we are now in a recession, demand may be reduced. Should there be a failure to meet the 2007 targets, can the Chancellor make it clear to the House and the financial markets that in no way would that be a measure of failure for the recovery plan?
Mr. Darling: As I said earlier, the agreement with those banks is that the availability of support for mortgage holders and small and medium-sized enterprises will remain at 2007 levels. I am grateful to the hon. Gentleman for his support for the package and hope that he will acknowledge that it is the very strength of the United Kingdom Government that has enabled us to take this action.
Mr. Dennis Skinner (Bolsover) (Lab): Does the Chancellor agree that one of the most remarkable things in this time of adversity is that in the past few weeks it has become pretty clear that Governments around the world—left, right and sky-blue-pink—have come round to supporting this measure? Today, the Nobel prize winner Krugman said that the Brown Government have pointed the way for the rest of the world. Is that not in sharp contrast to the people opposite, who have come armed only with a “cunning plan”? Baldrick could have done better.
Mr. Darling: My hon. Friend makes a very good point.
Sir Peter Tapsell (Louth and Horncastle) (Con):
May I remind the Chancellor, since to him it might seem a long time ago, that last Monday I urged him to cut
interest rates as a supplementary measure to dealing with the problem of the under-capitalisation of our banks? He clearly agreed with me, because last Wednesday it happened. I put it to him that although all the measures that he has taken so far will obviously lead to serious inflation in the long run, in the short run the problem that we face is likely to be deflation. Will he therefore not just rest on his laurels with regard to interest rates? In 1931—when, by an unhappy coincidence, there was also a Labour Chancellor in charge, Philip Snowden—the decision was taken to reduce interest rates to 2 per cent., where they remained for nearly a decade and contributed in a major way to the recovery of our economy after that. Will the Chancellor go for really severe cuts in interest rates straight away?
Mr. Darling: I do remember what the hon. Gentleman said a month or so ago. I am sure that the decision taken by the Monetary Policy Committee of the Bank of England was welcomed here, as was the co-ordinated decision right across the world, but that decision was of course taken by the independent Bank of England, and rightly so.
Mr. David Crausby (Bolton, North-East) (Lab): I was a Labour councillor in 1992, when the Bank of Credit and Commerce International went bust and the Government of the day left us to flounder. May I urge my right hon. Friend to ensure that this Labour Government do a better job in protecting Tory councils than that Tory Government did in protecting Labour councils?
Mr. Darling: I think that my hon. Friend is referring to the problems that have arisen as a result of the collapse of the Icelandic banks. As I said in my statement, and I think I said last week, we are having discussions with the Icelandic Government. I met the Icelandic Finance Minister at the weekend to try to resolve this matter. Today we have taken action through one particular branch of the bank to try to help businesses, and we will continue to do what we can. Last week representatives of the local authorities met my hon. Friend the Minister for Local Government to discuss these things.
Mr. Peter Lilley (Hitchin and Harpenden) (Con): I wholeheartedly agree with the Chancellor’s remark in response to an earlier question—that the principal lesson of the past year is that delay and indecision undermine the impact of measures when they are eventually introduced. Is not that even more true of a lack of detail? Will he issue to this House a detailed paper on all the decisions that have been taken and let us know, for example, what interest rate—what dividend rate as a percentage—he is charging on the preference shares for these banks?
Mr. Darling: As I said in my statement, I will arrange for copies of the agreements to be put in the Libraries of both Houses in the usual way.
Mr. James Plaskitt (Warwick and Leamington) (Lab):
I welcome my right hon. Friend’s statement and the decisive action that the Government have taken. Does he agree that some longer-term issues are coming out of this that are international in their dimension, and that we will need to see banks with strong capitalisation, less leveraging and increased transparency? Does he think
that the right international institutions are in place to help us to achieve that, or must we do some additional work on that architecture?
Mr. Darling: Yes, we must. My right hon. Friend the Prime Minister has argued for the best part of 10 years that we need to ensure that the international institutions—the International Monetary Fund, for example—are reorganised to reflect properly the demands of the early part of the 21st century. They were brought into being at the end of the second world war when world leaders then realised that the IMF would be necessary. However, its role, while still very necessary, needs to adapt, and I think that it can play a greater role in relation to early warnings and greater supervision of problems that arise in the financial system. That is not the only thing that we need to do. We need to ensure that our regulatory bodies co-operate through the colleges of regulators that are now being set up, and other reforms will be necessary as well. We will face considerable difficulties if we do not recognise that in a global economy, a problem that in the past might have been confined to one state or one small part of the world can now spread to the entire world in a matter of weeks. That is why we need that international co-operation, which is so important.
Julia Goldsworthy (Falmouth and Camborne) (LD): The Chancellor spoke of the in-principle arrangement that had been agreed in relation to depositors and the accelerated payout. He gave no such detail for local authority deposits. Can he please give us a bit more detail about how close he is to an agreement with the Icelandic authorities? What are the terms and time scale of any agreement that he is pursuing?
Mr. Darling: Discussions are continuing with the Icelandic authorities, but part of the situation will depend on what Iceland proposes to do, given its current problems. It needs to resolve the overall problems before it can deal with the particular ones, but that process is under way, and we have people engaged in discussions in Iceland at the moment.
Dr. Tony Wright (Cannock Chase) (Lab): Everyone recognises that the Government are leading the world in their recovery plan to get us out of this mess. Could I ask the Chancellor to lead the world by putting in place an inquiry into the sort of reckless global financial system that has got us into this mess in the first place?
Mr. Darling: I have said for some time that we need to learn the lessons of what happened. Whether or not one can accomplish that in a single inquiry, I do not know, given that—of necessity—we would have to look at what was happening in just about every country in the world. There are perfectly obvious lessons that we can act on now. One of them relates to the beefing up of the supervisory regime, and the other, which is very clear, is that Governments can achieve an awful lot more when they act together quickly and decisively. That is what I hope we are in the process of achieving at the moment.
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