With permission, Mr. Speaker, I shall make a statement on the proposals that I announced this morning. I hope the House will understand that it was necessary for me to issue a statement this morning ahead of the opening of the markets, for very obvious reasons. Before I return to that, let me tell the House that the announcement made by the Bank of England half an hour ago of its intention to cut interest rates by half a per cent. to 4½ per cent. will help our objectives of maintaining stability and rebuilding the banking system.
As I said in my statement to the House on Monday, the disruption in the global financial markets has intensified over the last few days and weeks. I also said that the Government were ready, with the resources and the commitment, to do whatever was necessary—in terms of liquidity and capital—to maintain stability in the banking system. That is why today I put forward measures designed to restore confidence in the banking system and to put banks on a stronger footing.
There are three strands to what I have outlined today: first, to provide sufficient liquidity now; secondly, to make available new capital to UK banks and building societies to strengthen their resources and to restructure their finances, while maintaining their support for the real economy; and thirdly to ensure that the banking system has the funds necessary to maintain lending in the medium term. My proposals today, as well as supporting stability in the financial system, will protect depositors, safeguard the interests of taxpayers and play an important part in the international response to this global crisis. That, in turn, should help people and businesses, as well as support the economy in these extraordinary times.
Let me set out for the House further details and the purpose of our measures. First, the Government and the Governor of the Bank of England will take whatever action is necessary to ensure that the banking system has sufficient funds, or liquidity, to function properly. That crucial measure is needed to allow money to flow through the banking system.
To that end, I have agreed further immediate liquidity measures with the Governor. Until markets stabilise, the Bank of England will extend and widen its injections of funds into the system to build on the £40 billion that it put in yesterday. The Bank of England will continue to lend those funds to banks, in both sterling and dollars, by taking a wider range of security in exchange, and today I have increased the amount available to the Bank of England to lend through the special liquidity scheme to a total of at least £200 billion.
By injecting that short-term funding into the system, the banks will be better able to conduct their daily business with their customers. Importantly, that form of funding, which allows banks to swap assets for Government securities, keeps the risk of losses with the banks and not the taxpayer. The Bank of England will next week bring forward its plans for a permanent regime underpinning banking system liquidity, including a discount window facility.
The second step is to help the banking system to become stronger, so that it can better deal with the current turmoil in global financial markets. Banks will do that by raising the level of capital that they hold.
A healthy banking system is the cornerstone of the economy. Strong banks underpin a strong economy, but many banks, all over the world, do not have sufficient capital and banks need adequate capital, so that they can keep on lending to people. That is why today the Government have established a bank recapitalisation fund to allow UK banks to increase their capital position. The eight major UK banks have today announced that, in aggregate, they plan to increase their capital by £25 billion. Banks can raise that capital in the open market, in the usual way, or they can raise it through the newly created bank recapitalisation fund. Other eligible banks and building societies can also take part.
Through the fund, the Government stand ready to buy preference shares in the participating banks. Preference shares rank above the stock of ordinary shareholders. The Government will receive a fixed regular payment for holding those shares and will get better protection against any future losses. In addition to that, the fund will be ready to provide at least another £25 billion of capital to strengthen the balance sheets of any interested bank. The taxpayer, therefore, will be fully rewarded for that investment.
Additionally, the Government are also prepared to consider standing behind the issuance of new shares by any bank taking part in the recapitalisation fund. The fund will cover a wide range of financial institutions, from UK-based multinational banks to high street branches and regional building societies. Through those measures, UK banks will be strengthened to above the standards required by international conventions. It will put the banks on a stronger footing, making them better able to deal with future shocks and more willing to lend to people, families and businesses.
That brings me to the third element of the Government's proposal today. The root cause of today's problems is that, because banks all over the world are worried about each other's positions, medium-term lending between them has frozen up. Many banks have simply lost confidence in each other. If banks do not lend to each other, they will also not lend to people and businesses up and down the country.
To free up bank lending and reduce dependence on overnight lending, I want to remove one of the key barriers by offering a temporary underwriting for any eligible new debt issued by banks. That means that participating banks can start having confidence in each other again, because they will know that the Government are standing firmly behind them when they want to issue new debt. That guarantee aims to unblock the system, so that banks can go about their business of lending to people and businesses, and because it will be priced on commercial terms, taxpayers will be rewarded for the risk that they take on. The guarantee is expected to cover an amount of around £250 billion but we will keep this total under review. Over time the cost of lending between banks should fall, reducing the need for such a guarantee.
The freeze in global markets is a problem for all countries. Yesterday, at the meeting of European Finance Ministers, we agreed to work together to rebuild confidence in the banking system. I believe that the measures that I am announcing today are an important part of that. I shall be having further discussions with Finance Ministers, and when I go to Washington tomorrow I will be discussing with my colleagues there the extension of these proposals, as well as continuing our work towards strengthening the system of international supervision. The Prime Minister, as he has just said in Prime Minister’s questions, has agreed with other major countries on the need for a meeting of Heads of Government.
I believe that these measures are essential for the economy, but let me deal with the implications for the Government and, of course, for the taxpayer of those new proposals as well as others announced on previous occasions. When we nationalised Northern Rock, the Government had lent it around £30 billion. It has now paid back more than half of that ahead of schedule. When we nationalised parts of Bradford & Bingley, it was clear that we would run off its assets in an orderly way and get back as much as possible of the money that we provided to cover depositors. The injections of liquidity through the special liquidity scheme to which I have just referred simply allow banks to swap securities with the Bank of England, so the risk remains with the banks and not the taxpayer; in other words, we get our money back.
For all the operations of the recapitalisation fund announced today, we will be charging the banks on full commercial terms. We will hold a capital stake as part of the investment and that will include a payment of dividends on shares and the appropriate charges for the use of the guarantee ensuring that the taxpayer is appropriately rewarded. The implications for the public finances as a result of today’s announcements will be exceptional and mostly temporary and, in fact, will protect taxpayers by ensuring stability in the economy now.
In return for this offer to invest in banks I will need to be satisfied that the banks have the appropriate policies in place: policies to prevent the irresponsible behaviour that we have seen in some parts of the global banking system. The public are entitled to share in the upside of these proposals, so in return for our support, we will be looking at executive pay, dividend payments and lending practices, particularly to home owners and small and medium-sized enterprises.
I want to say something about the three Icelandic banks; Landsbanki, its UK subsidiary, Heritable, and Kaupthing, which was put into liquidation within the last hour. The Financial Services Authority decided yesterday that Heritable could not continue to meet its obligations and today it has taken exactly the same decision for Kaupthing. I have therefore used the special powers that I have under the Banking (Special Provisions) Act to transfer most of their retail deposits to ING, the Dutch bank, which is working to secure business as usual for its customers to protect its savers’ money. The rest of those Icelandic businesses have been put into administration.
On icesave, we are expecting the Icelandic authorities to put Landsbanki, which owns icesave, into insolvency. Despite the fact that this is a branch of an Icelandic bank, I have in the exceptional circumstances that we see today guaranteed that no depositor loses any money as a result of the closure of icesave and I am taking steps today to freeze the assets of Landsbanki in the UK until the position in Iceland becomes clearer.
Those actions demonstrate my strong commitment to protect UK retail depositors in these exceptional times. The purpose of these proposals is to get lending started again and to get the economy moving forward. It is one of a number of measures that we are taking to deal with specific cases as well as providing general support. We are ready to do more whenever it is necessary. Failure to act would have meant far greater risks to the economy and to the public finances in the future. I have made it clear that we will do whatever it takes to maintain stability, to protect savers and to rebuild the confidence to help businesses, people and the wider economy. I commend this statement to the House.
I am grateful to the Chancellor not just for his statement, but for discussing it with me this morning.
This has, of course, been another day of turmoil on the financial markets, and people watching us remain desperately anxious about their savings, their mortgages and their future jobs. That is why we continue to offer our constructive support for the package announced today, including the important steps on interbank lending that the Prime Minister mentioned at Prime Minister’s questions. Of course, as my right hon. Friend the Member for Witney (Mr. Cameron) said, the real test of the success of this rescue will be if credit starts flowing again through the veins of the economy. We want to see banks not just lending to banks again, but also lending again to the small businesses that need a loan extension and to the families who are trying to get a remortgage.
So may I ask the Chancellor the following specific questions? He said in his statement that he will require a full commitment to lending to small businesses and home owners. How exactly will that commitment be enforced? Does he have a commitment that the banks, for example, will not be charging small businesses 15 per cent. interest rates of the kind that we described on Monday? Does he have a commitment that the banks will pass on to customers the kind of rate cuts that the Bank of England has just announced today—and, perhaps, will also announce in the future? May I press him again on a question that my right hon. Friend asked of the Prime Minister? Does the Chancellor have a commitment that those banks that are most in trouble and most in need of taxpayer support will not be paying bonuses this year to their senior executives? The Prime Minister did not answer that question clearly and it would be good to have an answer from the Chancellor; there should not be rewards for failure—no bonuses for those who took their banks to the edge of bankruptcy. [Interruption.] Labour Members can ask the new Minister appointed in the House of Lords all about bonuses when they leave the Chamber. The Chancellor says that this is all the Financial Services Authority’s responsibility, but it is the Chancellor who is ultimately responsible for tax money, and how is he going to enforce these commitments, because while the Government can give their support now and strike a deal now, they will, of course, find it very difficult to withdraw that support once it is offered without risking further crisis, so what are the real sanctions that the FSA or the Treasury have to help small businesses?
Secondly, may I ask the Chancellor about the concerns of people with savings in Icelandic banks? They will welcome what the Chancellor says, but may I ask for some clarification for all our constituents? He says there will be no depositor losses as a result of the closure of icesave. Does that include—I assume it does—deposits of more than £50,000? Does it also include wholesale deposits, because, as I am sure he knows, many local authorities have large deposits with these Icelandic banks? Are their deposits protected as well? Also, where will this money ultimately come from? The FSA compensation scheme will be under considerable strain after the Bradford & Bingley deal. Is the Chancellor expecting, in the end, the industry to make a contribution? May I also ask whether the Chancellor has other plans for other UK deposits in other foreign banks that may be in difficulty at this current time?
Thirdly, will the Chancellor be using this moment to start driving through the longer-term changes we need to our system of regulation? There will be plenty of time to assess the mistakes that have been made and how we got into this situation, but one thing is clear: we must ensure that in future it is the banks and their shareholders who set aside capital, not the taxpayer. The Prime Minister talked in Prime Minister’s questions about the banking Bill and the Bank of England’s role in liquidity supervision, but is he going to consider giving the Bank of England new powers to manage overall debt levels in the economy, with perhaps an open letter system with the FSA?
Finally, may I also ask the Chancellor about the international front? We welcome the news of co-ordinated cuts in interest rates across the western world. He is, of course, travelling tomorrow to the meetings in the United States. What prospect is there of genuine co-ordination across western Governments on other areas of policy, such as support for financial systems, so that we can perhaps have some common approach to the guarantees that are being offered to different parts of those financial systems? On the broader economy, as we have just heard in questions the International Monetary Fund is now predicting negative growth for the UK, the biggest downgrade it has made of any major economy that it monitors.
In the Budget, the Chancellor predicted growth this year of 2 per cent. and 2.5 per cent. next year, and as the Prime Minister very helpfully just confirmed, when he was Chancellor he used the IMF meeting to set out what I think he called a broad pattern of growth, but what I seem to remember being very specific figures—he would often get out his downgrade before the pre-Budget report at the IMF meeting. Will the Chancellor be using this opportunity to predict growth, so that the country is fully prepared and aware of the very difficult economic times that lie ahead?
This is an extraordinary moment, when the British taxpayer is forced to step in and bail out the banking system, but let us be clear: we do this not to rescue the banks or the bankers, but to rescue the economy and the millions of families who depend on it. That will be the true test of whether today’s package succeeds, and we all hope that it does.
I am grateful to the hon. Gentleman for his support. I am glad that I had the opportunity to speak to him and to the hon. Member for Twickenham (Dr. Cable), who speaks for the Liberal Democrats, earlier this morning and to explain what we were doing and why. I also very much welcome the spirit of cross-party co-operation, and I hope that it lasts.
I shall now deal with the various points that the hon. Member for Tatton (Mr. Osborne) raised, beginning with Iceland. This afternoon, we will publish further details about how the financial services compensation scheme intends to proceed. I have to tell the House that getting information out of Iceland is proving to be quite difficult. That country obviously has severe difficulties, and that is why I decided that I had to intervene. It would have been quite wrong to say to people covered by the Icelandic scheme, “Sorry, you’ve got to go to Reykjavik and try to get your money there.” That is especially true when it is not clear to me whether the Icelandic scheme can be funded. So we have taken steps to freeze the assets of the bank involved, and I hope that we will be able to recover some of those assets in order to offset the money that we will have to provide to help people in the meantime.
The hon. Member for Tatton also asked about regulation. It is important that we learn from what has happened. First and foremost, we need to appreciate that, although it might have been sufficient in days past to allow a country to regulate within its own borders, it is now essential for a country that sees problems occurring within its own borders to discuss them with and report them to other countries. We saw problems in America, when that country was getting into the mire of the sub-prime market, and in the old days, that would have been a problem just for America, but it is now a problem for every country. So I think that the whole culture of and approach to regulation needs to change, and there are obviously developments that we need here—although I am bound to say that no one will convince me that we should go back to the old days when we had nine or 10 regulators in this country who were all tripping over each other. It would also be absolute nonsense to go back to the days of self-regulation. However, I believe that the Bank of England should now have a statutory role in ensuring financial stability—[Hon. Members: “Ah!”]—as I announced in January of this year. I am glad that there is support for that in every part of the House.
The hon. Gentleman asked about the proposals that I announced today. What I have done today is announce the principles that will underpin our approach. As I said, and as the Prime Minister said at Question Time, we will reach individual agreements with the banks concerned. If they choose to use the facilities that we are offering, we shall sit down and discuss the detailed proposals with them.
I am grateful for the Conservative party’s support for our approach to the excesses that we have seen. It is far more interventionist than I had always understood the Conservative position to be, but we must make sure that we go down what is a fine line. We must ensure that the public interest is maintained and yet not get ourselves into a position where we somehow think that we can sit in a boardroom and take all the decisions for everyone. At some point the hon. Member for Tatton came perilously close to suggesting that, but it is important that we make sure that we deal with some of the damaging effects of the bonus system that we have seen over the past few years.
The final point made by the hon. Gentleman had to do with international co-operation. I believe that such co-operation is more urgent now than it has ever been, and that is why I believe that we should remain fully engaged in the EU, as the obvious place to start is right on our doorstep. I also think that we need to remain engaged and take a lead in making sure that we maintain stability by improving supervision and regulation internationally. That is very much the theme that I shall be pursuing in Washington this weekend.
I refer to the point made by the Prime Minister that the media have not yet homed in on the Government’s medium-term financial strategy, under which £250 billion is being made available to small and medium-sized enterprises so that they can renew their overdrafts and loans when they mature. That is in addition to the £4 billion from the European Investment Bank and the £200 billion from the Bank of England’s window. Both the Prime Minister and the Chancellor have referred to home buyers and small and medium-sized enterprises, as well as to lenders, borrowers and depositors, but not all this country’s taxpayers welcome the measures that have been taken today as being in the interests of the wider community of which we are all beneficiaries.
I agree with my hon. Friend. I think that everyone in the House would acknowledge that all of us—whether individuals or small businesses—depend on an efficient and effective banking system. In many ways, in addition to helping banks recapitalise, the key measure today is the one that we are taking to guarantee lending. Unless banks start lending to each other over a wider period, we will merely see the existing problems continue. That measure is very important but, as my hon. Friend said, it is equally important that we see the benefit of that going to small businesses and individuals.
My colleague and party leader has already made it very clear that we support these measures as being in the national interest. They strengthen the banks and protect taxpayers’ interests in a very difficult situation. However, the situation is fast moving: I think that the Chancellor is now aware that it has emerged in the past hour or so that eight London councils—and no doubt many others—have large holdings in Landsbanki. That problem will require his immediate attention.
The key question that I wish to pursue in relation to the Chancellor’s statement has to do with how the investment in the banks is to be secured. When the IMF bails out countries, it imposes conditionality. How will the conditionality for the banks be enforced and monitored? How will the Chancellor ensure that the taxpayer’s money going into the banks comes out at the other end, so that he is not in effect pushing on a piece of string? What sort of assurance can workers and companies have that, at the end of the month when salaries and bills have to be paid, the money will be there in the banking system?
Also on conditionality, I have been as stunned as the right hon. Gentleman has been by the sudden conversion of the champions of the bonus culture to advocates of a 1970s-style incomes policy. None the less, the Conservatives are right to say that there must be a fundamental change in banking culture. I hope that that will be carried forward in this programme.
I welcome very much the decision on interest rates, which is all the more powerful for having been done collectively. It represents a recognition that we are not, as the Chancellor said, simply dealing with difficult times. We are also dealing with different times that require a fundamentally different approach from central banks. The key point is that we are moving on from problems in the financial system to problems in the real economy. Ordinary people are going to ask, “If the banks can be bailed out, why can’t we be?” In that context, will the Chancellor speak to the Justice Secretary about introducing new procedures for the courts, to ensure that repossession is the very last resort when people are experiencing serious difficulties with their mortgage payments? That is not the case currently for many of the creditors.
The Chancellor has been able to find £50 billion for the banks, so will he now ensure that the £8 billion that has been approved already for social housing is used rapidly to acquire the land and property that is becoming available at very big discounts, so that it can be made available for affordable housing? That would save many builders’ jobs and prevent the new accumulation of toxic loans in the banking system. I think that we all acknowledge that this is the first and not the last step in what will be a very difficult process of recovery.
Again, I am grateful to the hon. Gentleman for what he has said. I am very glad that he has welcomed the action taken by the Bank of England to cut interest rates to 4½ per cent. I hope that he will recall that, when he pressed me two days ago to intervene and take away the Bank of England’s independence, I said that I thought that the remit was adequate to allow it to do what was right—and so it seems to have turned out. I am grateful to the hon. Gentleman for his welcome. I am sure that the whole House and the whole country will welcome the reduction in interest rates, and I hope that banks will ensure that people benefit from it as soon as they can.
I agree that one of the reasons why we put in place today’s intervention is that we need to be mindful of the fact that if we did nothing, the effects would spread into the wider economy. This measure, and others that we have taken and will take in the future, will try to deal with that. The hon. Gentleman referred to our announcement about housing. He is quite right: I want to see that through.
The hon. Gentleman asked about agreements following my announcement today. The Government will obviously have to reach an agreement with individual banks, and those discussions need to take place. He asked what teeth there were. May I give him one example? As he knows, banks in the UK are regulated by the FSA. If it imposes a regulatory requirement—for example, following a code on remuneration, rewards or bonuses—the regulated banks have no alternative but to comply. That is the whole point of a regulatory system.
The hon. Gentleman asked about the Icelandic banks, and the hon. Member for Tatton, who speaks for the Conservatives, also raised the question of councils. What we can do is make sure that we look after the retail depositors—the ordinary men and women who put in their money, and might not have fully appreciated that Icesave is a branch of a foreign bank and not incorporated in the UK. I understand the position of local authorities, but they are in a slightly different situation, in that they are a more informed investor. However, as I said earlier, the situation is evolving; we are trying to sort the matter out with the Icelandic Government. I have had conversations with Icelandic Ministers—both the Prime Minister and the Finance Minister. In addition, one of my ministerial colleagues hopes to speak to the Icelandic Finance Minister again today.
On the point about the Justice Secretary, I have spoken to my right hon. Friend about the points relating to repossessions—not just today—and I am sure he will pursue the matter.
If £250 billion has been pre-emptively committed to securing the banks, for reasons that we all understand, how does my right hon. Friend envisage funding, presumably, stage 2 of his recovery plan—securing the real economy, manufacturing industry and jobs—if in fact a recession has already been set in train? I recognise that, of course, safeguarding the banks must come first, as clearly it must, but what leverage do the Government and taxpayers have to ensure that credit starts to flow freely again to businesses, mortgages and employment if long-term incentives have been given to the banks without—it appears—any enforceable conditions?
I am glad that my right hon. Friend agrees that we need to support the banking system. I refer him to what I said in the last few exchanges about how we propose to enter into agreements with the banks concerned. He rightly says that we shall need to take further steps to ensure that we protect the economy and jobs, which is something that I will return to in the pre-Budget report.
Does the Chancellor accept that yesterday’s gyrations in the markets were due in large measure to leaks and briefings from the Government? Is it not the case that such preferential disclosure is both highly improper and probably illegal, so will he invite the Financial Services Authority to carry out an investigation into his Department and No. 10 to identify those responsible for such disclosure, and take all appropriate action in the light of the findings?
No, I do not agree with the underlying premise of the right hon. and learned Gentleman’s question. Speculation, especially in relation to things that are highly market-sensitive, is deeply regrettable and it should not happen. I agree with him on that, but I do not agree at all with the other suggestions he was making.
I am sure that my right hon. Friend shares the joy of the whole House that the shadow Chancellor has managed to wipe that perpetual smirk from his face. May I put it to my right hon. Friend that memories in the City are short? There is a danger—is there not?—that once this crisis has blown over, although it may take some time to do so, old habits will be reverted to. He may recall that in the 1970s the building societies got themselves into similar trouble, although not quite on this scale, and had to be bailed out by the then Labour Government, but before long they were back at it again. What assurance can he give that the measures he takes to deal with the excesses of the past will make sure that they never recur?
My hon. Friend raises a valid point. Memories can be short. In another 15 years, when there is another generation, there is that risk. That is why we have to make sure that our regulatory system is constantly kept up to the mark, to take account of the fact that markets change, practices change and people change. People forget what happened in the past, so it is important that we maintain a collective memory both in the private sector and also, I suspect, in the public sector. It is very important, and we need to make sure that the regulatory system helps us to do that. Companies themselves have a responsibility. The first line of defence against irresponsible risk taking ought to lie in the boardrooms of British companies, and directors of companies should never ever forget that.
When the Liberals sound like Labour and the Conservatives like communists, the kaleidoscope has definitely been shaken—but while the pieces are in flux, why do we not reorder this world? What is so wrong about the taxpayer having a seat in the boardroom? Fifty thousand million pounds will buy a chair in any boardroom in the world. It would be taxation without representation, and will run the risk that the hon. Member for Sunderland, South (Mr. Mullin) has just adumbrated—that without a Government presence in the boardroom, those habits will soon be reverted to again.
The Chancellor and the Prime Minister have performed admirably and impressively over the last couple of days, but the real test will be how they respond to the crisis in the real economy. The country will not understand if banks can be bailed out but factories can go to the wall, jobs can be lost and the public can lose their houses.
I am grateful to the hon. Gentleman for his unaccustomed support for our position. I shall make the most of it.
In relation to Government nominees sitting in boardrooms, I never thought that a particularly useful course of action to follow—
Oh yes you did!
Oh no I didn’t—and now I know who wrote that column in Private Eye; I always thought it was the hon. Gentleman. I appreciate what he says, but as with so many of the other things he has said, we shall probably have to part company on it.
I join other Members in welcoming the Chancellor’s statement, the scale of the action the Government have taken and the calibration of the risk involved. The Chancellor said that in return for Government support for the banks, the Government will be looking at executive pay, dividend payments and lending practices. Will they also keep an eye on the banks’ investment practices, so that they do not get back into speculating on futures and commodity indices so that they fuel energy and food price rises in ways that we have all suffered from? Can he assure the House that no matter what it takes, this will never turn into the taxpayer being taken for whatever? To help in that regard, will he support the establishment of a special Committee of the House to oversee these exceptional measures—to oversee both how the banks use and respond to them, and the returns that come to the taxpayer?
I expect that the Treasury Committee, with good reason, probably believes that is one of the things it is supposed to do. I am sure that our right hon. Friend the Member for West Dunbartonshire (John McFall) will want to reflect on what the hon. Gentleman has just said. However, he makes a fair point. For good and understandable reasons, which I think are shared everywhere in the House, we have had to intervene in these exceptional circumstances, to maintain stability in the banking system. Banks, too, have to remember that they need the public’s support. Just as in the good times they go out trying to win customers, I hope they also remember that in more difficult times people will appreciate it if the bank stands by them.
The Chancellor referred to the regulation of the Financial Services Authority. Another feature I should like to remind him about is the requirement for retail banks to abide by the principles of treating customers fairly. He has announced a very welcome cut in interest rates today, and we hope there will be further cuts to come. Surely, any banks helped by this system should treat their customers fairly by ensuring that those interest rate reductions are passed on to home owners and borrowers.
I am sure that many, if not most, people in this country agree with those sentiments.
Given that we are compensating people who lost money in the Icelandic banks, does the Chancellor agree with me that it would be fair to look again at the collapse of Equitable Life, which, the parliamentary ombudsman tells us, was a result of a decade of regulatory failure? Would not people who lost money in Equitable Life look askance at people who put their money overseas being compensated when they were not?
The reason for my decision in relation to the Icelandic banks is the systemic problems that we now face in the banking industry. The Government will report on Equitable Life shortly, and of course the ombudsman’s findings will be taken into account, but we also need to take account of the findings of Lord Penrose, who investigated what happened at Equitable Life at some length and concluded that that company was substantially the author of its own misfortunes. We have a duty to treat policyholders fairly, but, as people have been saying today, we also have a duty to be fair to taxpayers. I will report back to the House as soon as I can.
I thank the Chancellor for advance notice of his statement. I very much welcome it because it is systemic and comprehensive, which I had asked for, and because the package as a whole is big enough to be very credible and to deliver confidence and stability. I hope that it does so. I particularly welcome the additional liquidity, and the fact that the Government will stand behind interbank loans.
The Chancellor said that he would guarantee that no depositor would lose money as a result of the problems at Icesave, and implicit in much of what he has said recently is that no depositor will lose money in the event of the failure of a UK institution. Notwithstanding my welcome for the package, I must ask him whether he stands ready to make his implicit all-deposit guarantees explicit, if required?
I am grateful to the hon. Gentleman for his comments on Icesave and what I said about the retail depositors there. I have always been clear that it is very important to protect the interests of savers and depositors and to give people reassurance. I have also said on many occasions that I will never rule anything out. In what we have done so far, approaches have varied from institution to institution. For example, there are legally binding guarantees in place in relation to Northern Rock, and in relation to Bradford & Bingley, we were able to transfer people’s savings accounts to Abbey Santander, so they have the backing of one of Europe’s biggest banks. We deal with these matters as we think appropriate, but the hon. Gentleman is correct: giving confidence to savers is important.
I welcome the package of proposals and the decisive action announced by the Prime Minister and the Chancellor this morning. Hard-working families in my constituency want assurances that the package will afford them greater protection and will not just be a bail-out for the banks. Will my right hon. Friend assure me that in the coming weeks and months, he will continue to communicate to those hard-working families that this Government’s priorities are their savings, their pensions, their jobs, their homes and their security?
My right hon. Friend is absolutely right: we should all remember that, at the end of the day, we are here to look after the interests of the people we represent—the people of this country and their businesses. That is what we are here for. We talk about ensuring the stability of the banking system, but we must remember what that actually means to people: if we do not have a banking system that functions properly, the first to be affected are our constituents. We need to make sure that they are protected.
I welcome what the Chancellor said about Icesave today. A recently retired couple in my constituency sold their home and deposited all they have—the £740,000 proceeds of the house sale—in a six-month bond with Icesave, so they will be particularly pleased. The Chancellor said that he would give more information later today. Will he tell us when depositors will be given clear guidance on how to recover their money—I suspect that they will want to do so as soon as possible—and what sort of time frame he is working to?
The hon. Lady asks a perfectly good question. The financial services compensation scheme, which is the lead organisation for dealing with this matter, has already issued guidance and it will issue further guidance as soon as it can. For our part, as I said in reply to the hon. Member for Twickenham (Dr. Cable), we shall continue to pursue with the Icelandic Government their responsibilities here. When one has responsibilities to people outside one’s own country, it is important to stick by them. I understand Iceland’s problems, and I hope that the authorities there will work closely with us to resolve them.
Does my right hon. Friend agree that the financial support for banks that he has announced today is the most comprehensive package in the world, that it puts us ahead of the game, and that it proves that the Government is not in the hands of a novice?
The steps that we have taken today are important, but I would say to the House that they are part of a process. What is going on in the world today has had severe implications in almost every corner of the world, and the reasons for these events are sometimes quite complex. Today’s steps are important, but I hope that other countries will help. We need to do what we can to help our banks and the banks here in this country, but that support must be replicated in other parts of the world.
The Chancellor will be aware that the tier 1 and tier 2 capital ratios are a better indicator of a bank’s stability than its share price. The Financial Services Authority will not publish those capital ratios, although the banks themselves might do so. Will the Chancellor discuss with the FSA the potential for a mechanism whereby ordinary investors can have access to a list of the tier 1 and tier 2 capital ratios, so that we do not have this unhealthy concentration on daily movements in the share prices?
I cannot give the hon. Gentleman any undertakings on that today, but I will raise the matter with the FSA. I shall write to the hon. Gentleman and arrange for a copy of the letter to be placed in the Library.
Will the Chancellor put my fears to rest? I see the market putting its invisible hand into the pockets of the taxpayer, taking £50 billion away and perhaps putting up two fingers as well. Can we arrest that? Does he agree with me that, in the wider context, what the international crisis represents is the end of neo-liberal ideas about the supremacy of the market, and all that that means in the social and political spheres and every other sphere of our lives?
I was going to say, in the nicest possible way, that my hon. Friend sounds like a new Conservative, but I am sure that he does not mean to. I do not agree with everything he says. On the availability of funds, if banks choose to use the recapitalisation fund rather than raise money on the markets, it will be in return for, usually, preference shares, and they will be remunerated in the usual way. As I said, other agreements will go with that.
I am glad that the Government have finally acted to recapitalise the banks. Of course, the litmus test of whether it works will be whether the interbank market unfreezes. The Chancellor has been closeted with the key banks for the past 24 hours. What estimate have they given him of the likelihood of an early unfreezing of that market— particularly before Christmas, which is one of the deadlines in his press release on the implementation of the scheme?
The hon. Gentleman knows very well that there is a lot of uncertainty in the market at present, but I hope that the measures will help. It will be helpful if our action is complemented by action taken in other parts of the world. One of the reasons why I attach so much importance to the meeting of the European Finance Ministers yesterday and the G7 meetings this weekend is that countries can do a lot themselves. Our interbank rate is lower than the United States’ rate at the moment, and obviously we would all like to see it lower still, but it is important that countries—especially the larger developed economies—act together in relation to both the banking system and their wider economies. It is all about restoring and building confidence.
I congratulate my right hon. Friend on his comprehensive and substantial set of proposals to restore confidence in the banking system, in which every citizen of this country has such a large vested interest. In particular, I congratulate him on his coup in obtaining a co-ordinated reduction in interest rates on a wide international scale, in which we know he played a leading role. As far as small businesses are concerned, I congratulate my right hon. Friend on the great measure that he has taken to provide liquidity and working capital requirements, which, as we all know from experience in our constituencies, is now very necessary. Only one point in his statement was not clear: are the shares that he proposes the Treasury have the right to subscribe to intended to be convertible? If not, I urge him to consider making them convertible, as that would ensure a further return to the taxpayer on another front.
Again, I am grateful to my hon. Friend for his support, and I agree with him about the decision taken by the Bank of England, which of course is independent of the Government; I attach considerable importance to that. The fact that it and the other central banks of all the major economies took the same decision at the same time sends a very important message. That very much complements what we have announced today.
Many smaller companies, particularly those trading in the emerging markets, are reliant on central banks to minimise regulation. There has been evidence recently of some central banks blocking money. Given the importance of cash flow to those smaller companies, will the Chancellor consider extending the export credits guarantee system to cover some of those smaller trading companies?
I am not aware of central banks blocking lending. I am aware that some people in this country have experienced difficulty in getting access to funding through our banks, and we are looking into that. [Interruption.] I think that I can hear the hon. Member for East Devon (Mr. Swire) say, from a sedentary position, “South America”. I would need to check the position there, because I do not want inadvertently to mislead the House on what is happening there. I agree with the hon. Gentleman that when we do have help, whether from the Export Credits Guarantee Department or the European Investment Bank, we must make sure that it feeds through to where it matters.
I, too, welcome the Chancellor’s statement, and particularly his point about Northern Rock. Many of my constituents and others in the north-east benefit greatly from the decisive action that the Government took to rescue Northern Rock. However, will he say more about how the package of measures announced today will benefit savers in my constituency, and small and medium-sized companies in my constituency and throughout the north-east?
My hon. Friend is right to say that the action that we took on Northern Rock is now seen as having been the right thing to do. Clearly, things are still difficult for Northern Rock, as it is for other organisations, and as she well knows, it is also difficult for the people who lost their job with that bank. We are doing everything we can to help. The broader answer to her question is that if we had not done anything, the position would have gradually become more and more difficult. I think that the measures that we announced today will go a long way to help. Obviously, there are a lot of other things going on around the world at the moment, as is shown pretty graphically in the newspapers and on television every day and every night, but I think that the measure is a major step forward. To come back to points that have been raised by Members on both sides of the House, it is important that we try to persuade countries in different parts of the world to deal with the problem. The global economy is a reality now. It brings fantastic opportunities, but there are also some pretty big threats, and we have to deal with them.
Along with everything else, people are worried about their savings, pensions, mortgages and jobs; that is what people are talking about all the time. I welcome what the Chancellor announced today, and we hope that it is successful, but people are also worried about tax. Will he indicate what the overall impact of the financial package will be in the short and, possibly, medium term, on the tax burden of the average hard-working family in this country?
As I indicated earlier, a lot of the money that we have been discussing today is money that the Government will fund through borrowing, but the money will come back. In relation to forecasts for the Government’s borrowing generally, I will set them out in the pre-Budget report. However, I very much agree that it is important to protect jobs. I am glad that over the past 10 or 11 years we have been able to do a great deal and to achieve so much by working with the political parties in Northern Ireland, especially after the Good Friday agreement. Anyone who lives in, or visits, Northern Ireland will have seen a tremendous difference in the past 10 years. Ensuring that Northern Ireland is a good place to work and live, and ensuring that there are jobs, is very important.
I very much welcome what my right hon. Friend said about supporting small businesses, and I particularly welcome the aspiration to ensure that the Government pay all bills from small businesses within eight days. However, as I am sure my right hon. Friend will appreciate, many of the companies working for Government are large contractors that have a number of small contractors working for them. If those small contractors are to benefit from this fantastic initiative, which would undoubtedly save them from going bankrupt, my right hon. Friend will have to ensure that the large companies pass on that benefit to the thousands of small-to-medium-sized ones that support them.
I agree with my hon. Friend. As she rightly says, there are many companies that do not depend on the Government directly, but are sub-contractors. That issue is worth pursuing, and she might want to take it up with the new Secretary of State for Business, Enterprise and Regulatory Reform, our noble Friend.
The Chancellor rightly wants to protect hard-working taxpayers, but some of those taxpayers also pay council tax. Is he wholly content, given what he has just said, that local authorities are informed investors, and their investments in Iceland will not be covered by the guarantee? Is he aware that we are not talking about trivial sums, but about hundreds of millions of pounds, and about some investments involving payroll? That will create a cash-flow problem. Is he wholly content that the burden should fall on council tax payers?
The point that I was making is that there is a distinction between the ordinary man or woman on the street—the retail investor—and others. I am aware of the problem for local authorities, and I will look into it, but my No. 1 concern is to make sure that we protect individual savers, and I am sure that we are at one on that.
My right hon. Friend will, I am sure, agree that the British people have an excellent track record of solidarity when it comes to putting up with difficulties in times of great national need, such as now. The British people will accept their share of the burden, especially if the action taken is seen to be both fair and necessary. Will my right hon. Friend therefore confirm that the review of regulation and remuneration in financial institutions being undertaken by Lord Turner will urgently address the need for fairness and transparency, so that in future we can all see that the system is operating properly?
I agree that the system needs to be fair and open. My hon. Friend is quite right that people accept the fact that somebody may be well rewarded for improving the performance of a company or working extremely hard. No one wants to stop that, but we do want to stop situations in which, by accident or as an unintended consequence, people are rewarded for doing things that seriously undermine the financial world, and which are bad not only for their company but for everybody else.
During the recess, the Government waived competition requirements so that Lloyds TSB could proceed with the takeover of HBOS. Ministers subsequently made supportive statements. However, part of the instability in the banking system is due to continuing doubts as to whether the merger will go ahead. Will the Government use any increased leverage in both banks to bring that uncertainty to an end?
The decision to merge was taken on a commercial basis by the two companies, Lloyds TSB and HBOS. The Government’s role was to waive the competition requirements that would have put an absolute block on it, because we think that a commercial solution would be far better. However, it is a decision for the companies. There are processes that need to be followed; not least, shareholders have to be consulted. That process is following its course now.
My right hon. Friend referred to the effect on the markets earlier this week of weekend speculation about this package. I understand that at the end of last week, the Governor of the Bank of England gave a briefing to the shadow Chancellor. I wonder whether the Chancellor of the Exchequer could confirm whether that briefing was confidential. Is he of the opinion that that confidence has been kept?
The Governor of the Bank of England is entitled to meet whomever he thinks appropriate. I am sure that discussions between anyone and the Governor of the Bank of England will, in the normal course of events, remain confidential.
Often, the gravest risk to accountability in this House lies when both sides agree; there is sometimes a lack of proper scrutiny. Given that there are now unrivalled risks to taxpayers and that, historically, Governments have a poor record of intervening in the marketplace, what is the Chancellor going to do to protect the interests of the taxpayer and ensure accountability to this House, through the National Audit Office and the Public Accounts Committee, for this taxpayers’ money?
I am not sure whether that was the first discordant voice that we have heard this afternoon, and the hon. Gentleman is saying that he does not support what we are doing. If that is the case, I just disagree with him. As the Chairman of the Public Accounts Committee, he knows perfectly well that there are mechanisms—through that Committee and, of course, through the National Audit Office—for holding Government spending and Governments to account. That is not the only way; there is also the Treasury Committee, and I am accountable to the House, as are other Ministers. There is plenty of scrutiny, and we are very happy to answer questions.
Has the speculation by the shadow Chancellor about recapitalisation helped the Chancellor or hindered him in his quest to bring calm and confidence back to the banking sector and the markets?
The right hon. and learned Member for Folkestone and Hythe (Mr. Howard) is no longer in his place, but I said to him earlier that we all sometimes have to be careful about what we say and that we need to choose our words carefully. The speculation over the weekend was unhelpful, but that is something that we just have to deal with. It is important that during normal exchanges and proper, healthy debates, people’s views are properly explored. But whatever happened then, I hope that people will see today’s announcement as an opportunity to make a step change and a real difference. That is what I would like to concentrate on.
May I assure the Chancellor of the Exchequer that I was briefed by Irwin Stelzer on the need to recapitalise the banks—and I leaked that information?
Will the Chancellor enlarge on the potential liability to the taxpayer? The £50 billion for the recapitalisation fund will have to be raised by the Government. How will that money be raised? Will the Government issue bonds, simply print the money or sell more of our gold reserves? What will the interest charge be? How will that be paid for, particularly if the preference shares that the Government buy from the banks cannot pay dividends because the banks themselves lack distributable reserves?
As I said earlier, the money will be raised through the Government’s normal operations when it needs to raise money. I also said that if firms choose to use the recapitalisation fund, the Government will take preference shares. That is pretty straightforward. The taxpayer will therefore be remunerated for those shares; of course, in due course they will be sold.
Order. We come now to the ten-minute rule motion.