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The Prime Minister:
I praise my hon. Friend for the work he has done in promoting a climate change agreement, and the work of Members of all parties who want to see success at Copenhagen. I will go to the Commonwealth conference this week to try to build a consensus between richer countries such as Australia and ourselves and some of the poorest countries in the world on how we
can finance climate change for developing countries as well as developed countries. If we are to get an agreement to cut emissions in some of the poorest countries in the world, it is absolutely essential that we get an agreement on finance. I hope all parties here will support the British proposal for $100 billion of funding for climate change in 2020 as a result of the contributions of the European Union, America and some of the other richest countries in the world. We will do everything in our power to secure a climate change agreement in Copenhagen.
Mr. John Baron (Billericay) (Con): Whatever our individual positions on Afghanistan, it is very important that there is clarity regarding the mission. The Prime Minister has said we are in Afghanistan to protect British people against terrorism, yet, almost in the same breath, he threatens to pull out of the country if President Karzai cannot clean up his corrupt Government. These are contradictory messages that are sending out mixed signals. Can the Prime Minister now square that circle?
The Prime Minister: We are in the country because of the threat to Britain. It is a threat that has been seen over eight years as a result of projected and actual terrorist offences in our country, three quarters of which come from Afghanistan and Pakistan, and mainly the borders of Pakistan. That is why we are there-to protect the streets of Britain. I was right to ask President Karzai to give us assurances about how, in his second term, he would tackle corruption. He has now announced an anti-corruption taskforce. I gather that 12 people were arrested yesterday from within the core administration. At the same time, I have asked him to appoint district and regional governors who are free of corruption and who will deal with the problems in hand, as Governor Mangal is doing in Helmand province, and President Karzai has agreed to do so. By his speeches, President Karzai has met the tests I have set him, and we have now got to see them being met in the delivery. I believe that next week we will see the American Government and the rest of NATO coming together in a strategy that will mean that we have sufficient forces to create the space for a political solution in Afghanistan that will make our streets safer. It is as clear as that.
Q9. [301125] Tony Lloyd (Manchester, Central) (Lab): The Prime Minister will be aware of the warning from Sir Hugh Orde, the top cop's top cop, of the dangers of and widespread unease about the investments in police commissioners. Can the Prime Minister tell the House whether this Labour Government will ever allow the police to be politicised, as the Conservatives propose?
The Prime Minister: The operational independence of chief police officers is and has been, and should continue to be, an important constitutional principle. It must be clear that chief officers-and chief officers alone-are responsible for running their force. I believe that the Leader of the Opposition should immediately withdraw his proposal, which would mean the politicisation of the police and which has been criticised by the chairman of Association of Chief Police Officers in the past few days.
Dr. Evan Harris (Oxford, West and Abingdon) (LD): In March, when the Lord Chancellor talked out my private Member's Bill to end the discrimination against Catholics in royal marriages and against women in the line of succession, he said that the Government recognised that this discrimination should end. Can the Prime Minister confirm that he is, as the Lord Chancellor said, ready to consult the relevant Commonwealth Heads of Government this week and that he is confident that we will then be able to sort this out, so that the all-party-
Mr. Speaker: Order. We get the drift. I call the Prime Minister.
The Prime Minister: The Act of Settlement is outdated, and I think that most people recognise the need for change. Change can be brought about only when all realms where Her Majesty is Queen make a decision to change, not just by the United Kingdom. That is why it is important to discuss this with all members of the Commonwealth, including countries such as Australia and Canada. That is the process that will be undertaken in due course.
Q10. [301126] Ms Sally Keeble (Northampton, North) (Lab): Is my right hon. Friend aware of the growing evidence, including in the recent report "Northampton Families and the Recession", to show that as a result of the recession, women are doing more of the breadwinning and men are doing more of the caring? What further measures will his Government take to support the flexible working arrangements needed for today's working families?
The Prime Minister: There are about 500,000 more families receiving working tax or child tax credit as a result of the help we are giving in a recession. People in this country have to make a choice: do we want to help families and help children through these difficult times or do we want to cut inheritance tax for the wealthiest people in this country? I think I know what choice the people of this country are going to make.
Indemnity to Bank of England
12.32 pm
The Chancellor of the Exchequer (Mr. Alistair Darling): Mr Speaker, with permission, I should like to make a short statement on the emergency liquidity assistance provided by the Bank of England to the banking system.
One of the functions of central banks is to provide emergency liquidity to banks when it is necessary to do so. Lender of last resort facilities have been a feature of the banking system for many years, because there will be times when an individual bank or, as we saw last year, several banks find it difficult or impossible to raise the funds they need from the market. It is therefore essential that the Bank of England has the power to lend to individual banks facing such temporary liquidity problems. It is important, too, that the Bank of England can do so effectively. Inevitably, on occasion, that means that the Bank has to be able to do so without disclosing its operations.
Disclosure of individual operations could lead to a loss of confidence and exacerbate any short-term liquidity problems. That was exactly the problem we saw with Northern Rock in September 2007. It was a problem recognised by the House, and by the Treasury Committee in its report on Northern Rock-it recognised that some operations needed to be kept confidential.
Early in 2008, we consulted on proposals to facilitate limited disclosure of the provision of emergency liquidity to ensure that such assistance could be made effective. Following that, the Banking Act 2009 provided an end to automatic disclosure of liquidity assistance by the Bank of England. This enabled the Bank to decide the most appropriate way in which to make disclosures to the market. The Financial Services Authority, too, has said there may be good reasons for delaying disclosure of emergency liquidity operations.
Twelve months ago, we faced a situation in which the world banking system was on the brink of collapse. No one should underestimate the gravity of the situation that we then faced. Protecting retail depositors and maintaining financial stability was essential. That was why I said in my statement to the House on 6 October 2008 that the Governor had made it clear that
"in these extraordinary market conditions, the Bank of England will take all actions necessary to ensure the banking system has access to sufficient liquidity".-[ Official Report, 6 October 2008; Vol. 480, c. 21.]
That was what we did. The Governor's decision to make emergency liquidity available was quite right and we supported it.
Yesterday, the Governor of the Bank of England told the Treasury Committee that the Bank had extended such emergency liquidity assistance to the Royal Bank of Scotland and HBOS in the autumn of 2008. He told the Committee that in most cases confidence can be best sustained if the Bank's support is disclosed only when the conditions have improved to a point where the disclosure itself should not be a cause for disturbance. However, he said that, as stated in his report, it is the policy of the Bank that such assistance should be disclosed once the Bank considers that the need for confidentiality has ceased.
The Governor's judgment is that now that RBS has signed up for the asset protection scheme and Lloyds Banking Group has embarked on its alternative strategy for capital raising, there is no longer a need for the assistance to remain secret and it is now appropriate to disclose details. I agree with his judgment.
As the Governor said, from 1 October 2008 the Bank provided liquidity to HBOS, and from 7 October to RBS. Use of the facilities peaked at £36.6 billion for RBS on 17 October and £25.4 billion for HBOS on 13 November. The total use of emergency liquidity assistance across both banks peaked at £61.6 billion on 17 October. At that point, the two banks concerned provided the Bank with collateral-including residential mortgages, Government debt and personal and commercial loans-totalling in excess of £100 billion. The banks were charged fees for the use of the facilities. The RBS facility was repaid in full by 16 December 2008, and the HBOS facility by 16 January 2009. There has been no cost to the taxpayer.
By that time, the Government's recapitalisation of the banking system was in place. That, alongside other action such as the credit guarantee scheme, stabilised the banking system. Because of the scale of these liquidity operations by the Bank of England compared with the size of its balance sheet, I granted an indemnity in October 2008 to cover potential losses in respect of further lending. The indemnity was provided for actions taken by the Bank of England from 14 October 2008 for a period of two months. In return, the Bank of England paid the Treasury a commercial fee totalling £18.9 million.
In my view, it is essential that the Bank has the discretion to provide emergency liquidity assistance when it judges it necessary to do so. Over the past year, we have had to provide extraordinary support in what are extraordinary times. I have kept the House informed with numerous statements and made it clear that we would do whatever it took to stabilise the banking system. As a result, no savers in UK banks or building societies have lost money.
Inevitably, some of the support had to be provided on a confidential basis-something that most people recognise. The judgment on when it is the right time to disclose such operations is a fine one, but I support the Governor's decision to disclose the information yesterday. I commend the statement to the House.
Mr. George Osborne (Tatton) (Con): Let me start by making it absolutely clear that we support the actions taken by the Bank of England to maintain financial stability. I completely agree with the Chancellor that, as a general principle, the central bank must be able to carry out its lender of last resort function with the discretion that it deems necessary to preserve the financial system. Its ability to do so will remain under the reform structure of financial regulation that we intend to implement.
As the deputy governor, Paul Tucker, said yesterday in his evidence to the Select Committee, these loans were a classic lender of last resort operation. So, we support the principle of covert lending operations by the Bank, but of course we also have a responsibility to ask questions on behalf of the taxpayer once the details of such operations are quite rightly made public. I shall therefore first ask the Chancellor specifically about his
role. He said that he authorised the indemnity, but will he confirm whether his authorisation was sought for the loans made by the Bank of England, and indeed its operation?
The Chancellor made this statement because the hon. Member for Twickenham (Dr. Cable) and I put in to ask an urgent question. Surely the Chancellor himself should be the person who initially informs Parliament of operations on this scale, particularly when there are very large taxpayer indemnities that he signs off. It has, of course, taken more than a year for the existence of these loans to be disclosed. What discussions has the Chancellor had with the Governor over the last 12 months about whether the disclosure could have been made earlier? In particular, once the Government had declared their intention to insure the assets of both banks in January this year, what did the right hon. Gentleman consider to be the remaining risks that would have resulted from the disclosure of the loans at that time?
My second question is partly to do with the issue of timing. Is the Chancellor personally satisfied that the Lloyds shareholders were given the maximum possible amount of information about the financial health of HBOS in advance of the merger of the two banks? Was the loan to HBOS fully repaid by the time of the merger in mid-January? What legal advice did he receive about the level of disclosure required, and is he expecting any legal challenges from shareholders?
Thirdly, as the Chancellor implied in his statement, the Banking Act 2009 removed the requirement for the Bank of England to publish a weekly balance sheet. Was the existence of the loans a motivating factor behind that change, which was of course proposed at the time that the loans were in existence? Is it desirable that the Bank essentially has no requirement to publish regular information about its balance sheet? Does he agree that that at least needs to be kept under review?
The sheer scale of the loans-they are more than the entire schools budget-raises the question of how the two banks were allowed to pursue funding models that left them so close to collapse in the first place. Does not that illustrate yet again the total failure of the tripartite system of regulation created by this Government? Does it not underline the need for fundamental reform to put the Bank of England back in charge of banking supervision? That argument is now explicitly supported by Jacques de Larosière, the architect of the European changes, and it is driving reforms in Germany, Belgium and America. Indeed, President Obama's economic adviser Austan Goolsbee said this month that separating bank supervision from central banking can cause one to
"get into a 'left hand doesn't know what the right hand is doing' kind of problem in a crisis".
When asked to cite an example, he singled out the UK, saying that the divided regulatory system had caused "a lot of problems", yet the Government's proposed Financial Services Bill, which we will debate in a couple of days' time, does absolutely nothing to address that flaw at the heart of the regulatory system. We all know why-it was designed by the Prime Minister of this country.
Finally, I should like to ask the Chancellor about something else that the Governor of the Bank of England said to the Treasury Committee yesterday in his comments on Britain's credit rating. When asked whether Britain was at risk of a downgrade, the Governor of our central bank said:
"The longer there isn't a credible plan that sets out what action will be taken on the debt, the more"
there is a risk to that credit rating. Does the Chancellor agree that the only possible interpretation of those remarks is that the Governor does not think that there is currently a "credible plan" to deal with our budget deficit? Why is the Chancellor taking these risks with Britain's credit rating?
Mr. Darling: The hon. Gentleman raises a number of matters, some of which are very important. I should like to deal with them, but I shall begin with a general point. He remarked on the state of RBS and HBOS, and no one could disagree that what the banks did was to get themselves into a situation where eventually they collapsed. However, his points about our regulatory system simply do not hold water, as banks right across the world got into trouble. Lehman Brothers was regulated by the American authorities, as were the other American banks that went down. The hon. Gentleman mentioned Germany, which has also seen banks go down. There was a problem with regulatory systems right across the world, and to suggest that the problem was somehow specific to us simply does not hold water.
I want to make another point about the American regulators. The problem for the Americans is that they have seven or eight different regulators. The Obama Administration are trying to get around it by establishing some sort of council to bring them together. We have only three organisations responsible-the Bank of England, the FSA and the Treasury, which will always be involved where public money is.
If the hon. Gentleman thinks for one moment that merging the work of the FSA and the Bank of England, under which the Bank would be responsible for interest rate policy, macro-prudential supervision and the individual supervision of everything from large banks such as HSBC to an independent financial adviser in Ullapool-doing all that at the same time-he is asking for trouble. The disruption would be tremendous. He should think long and hard-my guess is that he is-about whether he would ever see that policy through in the way that he originally announced it.
The hon. Gentleman asked some important questions, which I would like to deal with and on which I will do him a little more justice. First, he asked an important question about disclosure. The House will remember that during the period of Northern Rock, there was pretty much unanimous agreement that the Bank's inability to act in a confidential way was in itself destabilising. Indeed, the hon. Gentleman wrote to urge me to do something to make it less obvious that the Bank was engaged in such operations, and I agreed with him. The Banking Act 2009 means that the Bank has the discretion as to when it discloses what is going on.
That discretion lies with the Governor of the Bank of England. It ends the obligation to do a weekly return in which, if one looked at it closely, one could see what had been going on. At a time like last year, if people had realised the extent of what was necessary on a day-to-day
basis simply to keep banks open and their cash machines operating-if that had been disclosed at the time, with all that turbulence-far from reassuring people, it would have made a difficult situation much, much worse. I think that the hon. Gentleman agrees with that proposition. That was why we changed the law in the Banking Act-to try to make sure that there was not the exposure that we had in relation to Northern Rock.
It is for the Governor to decide when the information is disclosed. His judgment was that now we have RBS in the asset protection scheme-that agreement was finally signed just this week-and Lloyds is pursuing its alternative action, and with that water between us and the turbulence of last year, it was safe to disclose this information. As I said in my statement, the judgment will always be a fine one, but that was his judgment and I agree with it.
The hon. Gentleman asked the important question, in relation to Lloyds, of what was said. The legal responsibility to shareholders lies with the board of directors of a particular institution. In November 2008, when Lloyds published its pre-merger statement, it said:
"The HBOS Group expects that it will substantially rely for the foreseeable future on the continued availability of these government sponsored arrangements, including central bank liquidity facilities (such as those offered by the Bank of England)".
It put that statement in. It is for the directors of that bank, properly advised, to decide what they disclose, but I can tell the House that the directors of Lloyds were told by the Bank of England of the nature and extent of the operations, so they knew them at the time. The facilities were repaid at the beginning of January, as I said in my statement. I believe that the final vote taken by the HBOS shareholders took place at the end of January 2009.
For the sake of completeness, the current Lloyds prospectus in relation to its raising money on the markets at present discloses that it is receiving money, and the amount that it is receiving through the credit guarantee scheme, so it is telling prospective investors what the position is. That is the position in relation to Lloyds.
The hon. Gentleman asked about the indemnity. Of course, because of the size of what was going on in 2008, I had to indemnify the Bank of England. It has a limited balance sheet, but I felt it was my clear duty. Perhaps not at the time, but looking back, people will think we had to take this action, otherwise we would have been faced with a much more difficult situation.
On the hon. Gentleman's final point, both of us will be at the Dispatch Box tomorrow afternoon, and I intend to return to the wider economy at that stage.
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