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House of Commons Hansard
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Government Shareholdings
28 April 2009
Volume 491
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4. How much financial obligation the Government have undertaken as a consequence of taking shareholdings in banks and building societies. [271129]

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The Government have to date invested £37 billion in Lloyds and RBS. The Budget estimated that the one-off long-run fiscal impact of all the interventions to ensure stability in the financial system will be between 1.5 and 3.5 per cent. of gross domestic product.

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If the Prime Minister can express anger that the Royal Bank of Scotland should make an acquisition without fully understanding the extent of the commitments that it was taking on, how much more angry should we be that the Government have taken on commitments and made investments in banks without knowing, even now, the full extent on the taxpayer’s behalf?

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I am not quite sure what the hon. Gentleman is saying. The implication is that we should not have stepped in to save the financial system from collapse because of the uncertainty to which he refers. The cost of doing nothing would have been far, far greater. We took decisive action. We acted quickly and we saved the system from collapse; indeed, in the debate yesterday, the shadow Business Secretary recognised that those steps were right.

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One of the many damaging aspects of the greed and recklessness of the bankers is that markets do not know the extent of the losses that they made in deals. In cases where the British taxpayer now has a stake in banks, are we getting to the bottom of those losses so that we can start to restore confidence in markets?

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Yes, we are. A great deal of detailed work is going on at the moment to negotiate the specific terms for participation in the asset protection scheme. My hon. Friend is right; in particular, the future valuation of assets is very difficult, but I know that he will agree that the cost of not acting would have been far greater than what we have done.

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Is there any limit to the amount of financial risk and debt that the Government should assume? Can the right hon. Gentleman tell us if they are using any prudential rule at all to stop us heading towards national bankruptcy?

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The right hon. Gentleman will have seen what my right hon. Friend the Chancellor said in the Budget about returning the public finances to balance by 2017. He will also have seen the estimate I have mentioned already that the overall cost of all the interventions we have set out in the Budget will be between 1.5 and 3.5 per cent. of gross domestic product. It was absolutely vital that we took those measures.

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A moment or two ago, our right hon. Friend the Chancellor confirmed the Government’s intent to return state-owned banks to the private sector as soon as it was expedient so to do. Does my right hon. Friend the Minister agree that the problems of organisations such as Northern Rock and Bradford & Bingley started with demutualisation back in the ’80s, and would it not be a good idea, rather than just floating those two organisations back into the private sector without wider consideration, to consider remutualisation of at least part of their business, as at the moment that model has greater attraction and confidence among the wider community than does traditional banking?

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That must be a matter for the management and shareholders of those organisations. [Interruption.] I would say to my hon. Friend that we certainly need to learn lessons in regulation from what went wrong in the past, and Lord Turner’s report has been valuable in that regard. We need to make some changes, and we need to agree them internationally, to avoid repeats of those mistakes. In particular, we need to avoid the calls of those who, over many years, wanted minimal regulation of the financial sector.

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Although I appreciate that the Treasury is reluctant to commit to any timetable about divesting its interest in the banks, how will we all know when the financial system has been fixed?

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What we are looking for is a restoration of the flow of credit, in particular to mortgage borrowers and to businesses. We are some way from that position yet, but as my right hon. Friend the Chancellor mentioned, the Bank of England is now publishing a monthly report on trends in lending. We shall be scrutinising those reports carefully, as I am sure will the hon. Gentleman. We want to see the flow of credit go back to normal.