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I take issue with the noble Baroness, Lady Noakes, when she said that the action taken last week plainly had not worked. Although one swallow does not make a summer, I draw her attention to a 7 basis points reduction in the LIBOR rate today, which is the largest—
Baroness Ford: My Lords, I am sorry that noble Lords do not like the answer, but there has been a 7 basis points reduction in the LIBOR rate today. Here is my question: does my noble friend agree that that is an endorsement of the very strong and decisive action that was taken last week?
Lord Davies of Oldham: My Lords, the question from my noble friend was well worth waiting for. I am not surprised that she prefaced it by a repudiation of some of the comments which have been made across the Dispatch Box from the Opposition. As she rightly says, two crucial dimensions of this support for and development of the financial institutions are the credit guarantee scheme and the special liquidity scheme. That is clearly crucial to the oiling of the wheels which guarantee inter-bank lending which, only a week ago, was at a catastrophic, stationary level.
Lord Shutt of Greetland: My Lords, I am inclined to think that a few minutes is a long time in banking. I am sure that when the Prime Minister tapped Lloyds TSB on the shoulder and said that it would be rather helpful if it could merge with Halifax Bank of Scotland, he did not appreciate that only a few weeks later, a much bigger lifeboat would be required.
I am somewhat mystified. My question relates to paragraphs 35 to 38 in the copy of the Statement. In the case of Lloyds TSB and HBOS, the Statement says that,
It goes on to say that HBOS will get so much and Lloyds will get so much. However, if the purchase of shares is to take place when the merger is complete, you will not end up with shares in HBOS and shares in Lloyds TSB; you will possibly end up with shares in Lloyds TSB HBOS plc. What are the Government saying, or are they keeping their options open? The statement a few weeks ago about the merger was one thing, but the Government are now having to come with this great new lifeboat for the organisation that was going to help HBOS. Are we absolutely certain that, in the reality of what the Government are now proposing with this bigger lifeboat, the merger is necessary? Paragraph 48 of the Statement says that,
but earlier in the Statement there is talk about the Nationwide Building Society increasing its capital base. No doubt one of the reasons why Nationwide wants its capital base to be extended is that it wants to take
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Lord Davies of Oldham: My Lords, on the last point, Nationwide will act on the basis of commercial opportunity. That is its judgment; it is nothing to do with the Government, because Nationwide is not proposing to avail itself of government funds. On the merger, the noble Lord is right to point to the difficulties, which are apparent to the whole House. The Government want the merger to take place because it would strengthen the institutions concerned. However, the noble Lord cannot expect us to underwrite the situation if the merger does not take place. We are spelling out the exact terms between the two institutions. The availability of the money depends on the merger.
Lord Higgins: My Lords, my first question for the noble Lord is simple. What is the Government’s estimate of the total cost of the operation so far and how is it to be paid for? The next question is more difficult. However much taxation is increased or public expenditure is cut, there is likely to be a substantial increase in government borrowing. What is the Government’s policy on funding that deficit from the public? To the extent that they fail to do so, there is likely to be a massive increase in that old-fashioned concept of the money supply and a large increase in inflation after a time lag.
Lord Davies of Oldham: My Lords, the noble Lord reflects in part on the question that the noble Baroness asked, so I had better make an attempt to answer that part of her reflection on this matter. Can the Government fully cost this position at present? Of course they cannot. We are making provision of the resources but we do not know the level of take-up. We are committed to producing a Pre-Budget Report in the near future, which will require us to address ourselves to the issues that the noble Lord has identified. He asked me similar questions last week, when I was obliged to be somewhat vague in my response. He will have to forgive me for that. In changing circumstances, when we are involved with proposals rather than categorical allocation of government resources, there are bound to be some aspects that are uncertain. However, we will meet his requirements when we produce the Pre-Budget Report, which will also help to identify the extent of government liability. The judgment on the categorisation of government debt is a matter for the Office for National Statistics, but it will be some time before it reaches its conclusions on that.
Lord Elystan-Morgan: My Lords, while heartily congratulating Her Majesty’s Government on the bold and decisive action that has been taken, which I hope will achieve the stability that is essential for banking in the United Kingdom and the global system of banking, I should like to ask about the trickle-down effect. It is hoped that these massive subventions to the banks will have an effect in the ordinary home, in the life of the ordinary employee and in the small business world. I have not had the opportunity to read the Financial
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Lord Davies of Oldham: My Lords, I am grateful to the noble Lord for that question, to which there are two dimensions. I emphasise the fact that the Government are making this money available on proper terms and conditions on a commercial basis, so there will be a return to the taxpayer from the realisation of assets or the charging of commercial rates. Those returns will not be immediate in some cases, but the Government are concerned to ensure that the taxpayer’s interests are safeguarded. The other side of the noble Lord’s question—the concept of trickle-down—relates to whether the ordinary citizen will benefit directly from these arrangements. If nothing had been done and the financial system had gone into catastrophic collapse, that would have been felt in every home and business in the country. We are providing a structure that gives confidence back to the financial system and a basis on which banks can give loans to small businesses, which have a regular need for such loans, and on which mortgages are safeguarded for house owners. Those are the trickle-down effects, which we should all welcome.
Lord Desai: My Lords, I congratulate my right honourable friends the Prime Minister and the Chancellor on the quick action that they have taken. I just add that, when the Prime Minister was Chancellor, he was very astute in not joining the euro, given the totally shambolic nonsense that is going on and the unco-ordinated action. At least we have been quick and to the point. My question is about the public debt. Is it not important that we protect the real economy as much as we can and treat increases in public debt as temporary and necessary, rather than making a totem of and trying to protect the money supply? That is exactly what drove the US economy in the great depression in the 1930s, as shown by the great monetarist, Milton Friedman. Let us not go down the path of making those mistakes and let us protect the real economy.
Lord Davies of Oldham: My Lords, as my noble friend knows and the whole House appreciates, nothing brings greater joy to No. 10 than praise from him on its economic strategy. I emphasise the important point that he has made: it is not just this Government but European Governments and the Government of the United States of America who stared into the abyss of financial institutional collapse and recognised that the only solution lay in public resources being made available for the necessary investment. I emphasise that the British model is investment in the banking system which guarantees that, in due course, the taxpayer gets a return on the strategy being pursued. I always accept the right of the Opposition to be critical, but they will be very
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Lord Oakeshott of Seagrove Bay: My Lords, last week, after a meeting between the Local Government Association and the Treasury, a statement was issued that there was no evidence that any council had acted recklessly in placing deposits with Icelandic banks. Now that we know that some council officers who should have been more prudent were placing deposits with Icelandic banks right up to the end of September—these people are highly paid professionals and not amateurs running some charity—does the Treasury still stand by the view that no reckless deposit-placing took place?
I do not expect the Minister to know the answer to the following question now, but will he give me an undertaking that he will look into it and write to me? May we have some guidance on the role of two advisory firms, Sector Treasury Services and Butlers, which appear to have given councils advice and an A-rating for Landsbanki and Heritable virtually up to the moment that that firm bit the dust? Were those two somewhat shadowy operations remunerated in any way by Landsbanki or Heritable?
My other question follows on from that of my noble friend Lord Newby about mortgages, to which I am afraid that I did not hear an answer. What does keeping the availability of mortgage-lending at 2007 levels mean? That was a completely wild, once-in-a-lifetime year. It would be completely inappropriate for the amount of mortgage lending by the banks to continue at that level. Part of the reason that we are in the mess that we are in is that there was that much mortgage-lending. What does it mean and how will it be enforced?
Lord Davies of Oldham: My Lords, I will write to the noble Lord about his highly detailed second question, to which I do not have an answer. However, it is becoming apparent that one or two local authorities which have the resources to be well advised are overcommitted to the Icelandic banks, and there will be inevitable costs involved in that. The Government have made it clear that they do not fit into the pattern of the ordinary depositor with the limited resources of expertise that they have available.
I hope that the noble Lord will concentrate all his intellectual power and political activity as much on constructive solutions to the problems with which we are faced as on analysing those who got it wrong. We are all too clear about who has got it wrong and they ought not to get off scot free. The Government are making it clear that we need change to the system and that is what we will effect, but we need to concentrate a great deal more on how to repair the system than on identifying who was responsible for it going wrong.
The Financial Services Authority and the Government expect that, with the substantial amount of resources being put into banks, some priorities will be identified that reflect the priorities of the nation. There is not the slightest doubt that small and medium-sized enterprises and owner-occupiers in distress need support.
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Lord Gilbert: My Lords, I suspect that, contrary to the views of the noble Lord, Lord Newby, it will be the citizens of the euro-zone countries who will criticise their Governments and ask them why they have not taken such bold and decisive action as the Government of this country. Be that as it may, I have two questions for my noble friend the Minister. First, are the Government giving advice to the banks and other financial institutions on dividend policy? If so, are they giving it to the sector as a whole or confining advice to the situation of individual institutions?
I do not expect an answer to my second question because I understand that the Government have been thoroughly weighed down with matters of pressing urgency, but what will be the effect of all this on people’s pensions? The country will need some reassurance. I would be grateful if he could give an assurance that someone will talk to the House about that before very long.
Lord Davies of Oldham: My Lords, my noble friend has identified two important areas. Given the resources that the Government are putting into specific banks, they do have a view on dividend payments. We are concerned that the resources should be used to the benefit of the economy rather than to shareholders who have sustained the institutions in the past.
On pensions, my noble friend is right that, among the great anxieties arising from the catastrophic drop in share prices and values, the impact on pensions is significant and needs to be addressed.
Lord Neill of Bladen: My Lords, the Minister is inclined to brush aside—
Baroness Thornton: My Lords, I am sorry. Time is up. I apologise that not everybody was able to speak.
EU: Gaza and the West Bank
7.48 pm
Lord Dykes asked Her Majesty’s Government whether they will hold discussions with the European Union presidency and Commission to seek new initiatives to assist with the crisis in Gaza and the West Bank.
The noble Lord said: My Lords, with the whole world preoccupied with what I would still call the western world’s financial turmoil and crisis—although it has spread elsewhere as well—and with the whole world watching the campaign in the United States ahead of the 4 November elections, it would be understandable if this subject had gone off people’s radar screens recently.
However, when I originally planned this debate for around about this time of the year—that is, towards the last quarter of 2008, when the Palestinian state was supposed to have been created by what were anticipated to be fruitful negotiations—I had no idea, because anticipating the future is always impossible, that there would have been such little interest in the subject now. That is not to criticise people, but merely to state the reality that it has left the radar screen for
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I make a few brief points tonight, in my Question for a short debate, in the hope that the Minister will give some answers. It has been a long time; when we had our first exchanges at the beginning of January, I well remember the Minister’s very forthright answer, when he said that of course a completely genuine, wholehearted sovereign Palestinian state must be created out of these negotiations—nothing less will do. Then we had the terrible tragedies of violence in March, with more than 100 civilians in Palestine killed from Israeli Government incursions. Those mercifully and happily dropped off after that, because even the most hard-line Israeli Minister realised that it was a real dead end to pursue that kind of policy. Ever since then there has been quiet and silence, with hardly any references to the subject, although there has been plenty of speculative material in the Israeli press. There has been very little in the United States press or the election campaign about the subject and there has been very little in this country at all.
There was an Independent editorial in March, which, sadly with justification, said towards the end:
“Far from helping to bring about the end of the Middle East’s most intractable dispute, Mr Bush deserves to go down in history as a US president who has worsened it immeasurably by wholly abandoning even the pretence that the US should act as an impartial referee in the Arab-Israeli dispute”.
Without wishing to criticise Barack Obama at all, it was characteristic of a leading American politician and a candidate for the American elections that he went to Israel for 24 hours on a visit—rightly, and I was delighted to see that—but spent only one hour visiting Palestine, which is supposed to be a side-by-side sovereign state in literally a few weeks.
That slippage is causing great concern among many people, as I am sure the Minister will concede. This House and Parliament need answers from the Government about what is happening. I have rightly criticised President Bush; many people are disappointed with how he has reacted in sending Condoleezza Rice on endless missions, which seem to have no concrete result or progress. I admit that there will be many behind-the-scenes negotiations and talks and, therefore, a lot that cannot necessarily be revealed; that would be encouraging if the Minister could at least allude to some of the progress being made. But I have my doubts about that. I speak as a friend of Israel of many years standing, and a more candid friend now because I think that Israel faces the need for greater urgency to ensure that these negotiations are at long last fruitful.
We have the frustrating delays of there being only a provisional, putative Prime Minister designate as head of the Kadima party after the withdrawal of the
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I quote, too, from a Financial Times leading article from the end of March. It has always been a normative, standard friend of Israel, as we all are. We were all delighted—or I was personally—with the 60th anniversary this year of the celebration of the Israeli state. The FT is a moderate newspaper by any standards, but it said that,
- “next week, the Arab League will re-present its spurned 2002 peace offer: Israel returns all occupied Arab land, including ... east Jerusalem ... in return for full peace ... Israel and its friends should know that only war will come from continuing to spurn peace”.
Given the new, possible provisional Administration that may arise from the coalition-building that is going on in Israel, that may appear unfair, but that is what a lot of people pessimistically now feel about the situation.
I have a quote from Prime Minister Olmert from the end of September—this is a very striking statement, because very little had been said over that period, although we assume that there is a continuing format of more or less fortnightly negotiations going on, with senior figures in the outgoing Administration. There is a rather shaky tableau at the moment, and perhaps the Minister could give us more of a reply about the ongoing framework of these talks. Tzipi Livni herself referred to her regular meetings with the equivalent of the Palestinian Foreign Minister. We need to know more about that. At any right, on 30 September, Prime Minister Olmert said:
“I am saying what no previous Israeli leader has ever said. We should withdraw from almost all of the territories”.
Presumably he would have to say “almost” for Israeli public opinion.
In those exchanges earlier in the year, I asked the Minister whether he agreed—apparently he did—that more than 65 per cent of the Israeli public said that there must be talks, even with Hamas. We know that there has been the Hamas Hudna truce period suggestion, which was proposed for two years and which is still in place. The Israelis sought to ignore it originally but seem perhaps to have changed their minds about it. Coming up to date, last week the Israeli military commander of the occupied West Bank complained bitterly about the violence inflicted by extremist Israeli settlers on unarmed Palestinian residents, saying that it was getting worse and worse. There are other signs, too, of a very worrying situation, with the settlements apparently continuing to grow on the basis of a spurious formula by the Israeli authorities that there can be expansion of existing territorial footprint areas and not necessarily a brand new area. We all know how those things can be circumvented and manipulated to avoid the UN sanctions that might come if they do not respond to what the UN and the whole world community want.
The EU has been very disappointing in its portion of the quartet. We expected far more from it. The situation in Gaza is really desperate; it is estimated officially that well over 50 per cent of the population will be suffering directly from incipient and long-lasting
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It is surely now time for Israel to show generosity, as it has so much and the Palestinians have so little. Mahmoud Abbas has shown great patience in prolonging these negotiations, without any help or encouragement from the Americans. Surely those who are true friends of Israel see where the dead end is developing for that country, although it so brilliantly celebrated 60 years of existence in the summer. What if the Palestinians said that they would give up their struggle for a separate Palestinian state? President Bush originally promised it at the end of 2005 and it is already three years later. People are saying that maybe it will go into 2009 now, as the talks are difficult, and so on. But this cannot go on. The British Government should not condone or be a party to that going on, unnecessarily and unfairly. If the Palestinians renounced their objective of a separate sovereign Palestinian state with all that entailed and said that there should be one territory, whatever the structure might be—one state—the Israelis would have lost their own separate Zionist state. How blind and narrow-minded is that?
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