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Indemnity to Bank of England

Volume 501: debated on Wednesday 25 November 2009

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.

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?

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.

We all accept that the intervention had to happen and that it was right in principle to have confidentiality. That confidentiality has to be balanced against accountability to Parliament for the expenditure of very large sums of money. The question is why only yesterday it was judged sufficiently safe for the public and Parliament to be given the information. Why, for example, were we not told about it on 7 March, when those banks entered into the asset protection scheme, or in the Budget a few weeks later? If there was still some major doubt about the stability of the banks, why was that not revealed a month ago when the Chancellor made a statement on the completion of the asset protection scheme? Why was Parliament not told then? Why has he waited so long to give us this information? One has to note, as the shadow Chancellor did, that yesterday’s announcement occurred not in Parliament but in the middle of a statement from the Governor. That statement was a devastating indictment of the Government’s policy of not splitting up the banks, and this announcement was hidden in the middle of it.

My second question is about the Chancellor’s clear statement that there was no cost to the taxpayer. Is that true? My understanding of the lender of last resort facility is that it carries a commercial rate of interest, but my understanding of these loans is that there was no interest involved. Will he clarify the position on this? If there was a concessional element to the lending, that would mean that a very large public subsidy was involved, even though the loans were repaid. A very large risk was taken with taxpayers’ money, and there was an enormous potential cost. We need to be absolutely clear that that cost was paid for by the banks. Will the Chancellor clarify what the interest rates actually were?

My third question is on the link with Lloyds. The Chancellor has just brought the historical record up to date by reading out what was said by the directors at the time. Indeed, he is quite right to say that there was a general warning that continuing liquidity was required for HBOS, but was it not clear on 1 October, when HBOS became the first bank to require major liquidity help—indeed, half the major package was for HBOS—that this was a can of worms, and that the situation was far worse than had initially been believed? That has been made clear in his statement today. Would not the correct course of action at that time have been to take HBOS into full public ownership in the way that Bradford & Bingley was taken in? Instead, the Lloyds shareholders continued to be encouraged in their belief that this takeover should take place.

My final question is this: are there any other loans that we do not know about? Can the Chancellor give us a categorical assurance that no other financial institutions have outstanding records of loans that have taken place in this emergency about which he has not yet told the House of Commons?

I am sure that, when the hon. Gentleman has time to reflect on what he has said, he will agree that his last question was really ridiculous. No Chancellor of the Exchequer or Governor of the Bank of England is going to provide a running commentary on what they may or may not be doing, for perfectly obvious reasons that I would have thought even the hon. Gentleman would recognise. In fact, he did recognise them when Northern Rock was at the height of its difficulties. His question was just plain daft.

I can tell the House that, to a large extent, because of the action that we and the Bank of England have taken, the banking system is now far more stable than it was. We have got through many of the difficulties that we faced, and we are working our way through others. Only by taking that decisive action were we able to do that. I appreciate that the hon. Gentleman has the luxury of being a commentator, as opposed to someone who actually has to do these things, but speaking from the other side of the fence, I can tell him that, because of the action we have taken, the banking system is now far more stable, not just here but in other countries as well.

The hon. Gentleman went back to the question of Lloyds. I will not read out what I have already said, but the directors of Lloyds clearly have an obligation to their shareholders, and they clearly had an obligation in anticipation of their takeover of HBOS. It was for them—properly advised, as I said—to disclose what they needed to in the prospectus. As the hon. Gentleman knows, there then followed a vote by the Lloyds shareholders and a vote by the HBOS shareholders. Both those votes were overwhelming. It is for the members of the Lloyds board itself to decide what to disclose to their shareholders, and there are all sorts of legal considerations that they have to take into account. It is for them to be satisfied that that was the case.

I really do not accept the hon. Gentleman’s argument about splitting the banks. We discuss this at just about every statement and Question Time, and I refer him to what I have said on previous occasions. He should bear in mind that Northern Rock was a narrow bank—a classic retail bank—and it got into deep trouble. At the other end of the scale of exotic activities, there was Lehman’s, which did not take a single deposit. It, too, got into terrible trouble. The US authorities at the time did precisely what some people suggested and let it go down. We do not have to speculate about what happened: it brought the entire system down at the same time. I disagree with the hon. Gentleman on that matter.

Order. Many right hon. and hon. Members want to take part in these exchanges, and I would simply remind the House that we have a further statement and the continuation of the debate on the Loyal Address to follow. I therefore issue my usual appeal to all hon. Members that each of them should ask a single, short supplementary question, and I ask the right hon. Gentleman on the Treasury Bench to provide us with an economical reply.

At the time of Northern Rock, the Governor came before the Treasury Committee and said that his inability to ensure lender of last resort facilities on a confidential basis was a grievous omission. It is therefore important to remind ourselves that discretion has to be given to the Bank of England and to the Governor in relation to all these issues. There is a separation between the Bank and politics, but the Chancellor knows—as he said in his letter to me yesterday—that emergency liquidity assistance was advanced to HBOS and RBS in October. Was that decision a short-term notice, or part of a long-term contingency plan? Was any consideration given to the right of the Lloyds TSB shareholders to have that information disclosed to them?

My right hon. Friend asks me about the decision, and I think that, at the time, the Governor was of the view that we had to provide emergency liquidity assistance. I therefore had to indemnify the Bank for that. Let us remember that the decision related to banks in general; it was not about a specific institution. At that time, we were seriously concerned about the banking system as a whole. This was not about an individual bank, although subsequently—this is obviously how the system works—the Governor had to form a view about HBOS, as he did about RBS. However, my decision—his decision—was taken in relation to the general principle, and that was why we took it.

I should have said to the hon. Member for Twickenham (Dr. Cable) that, yes, RBS and HBOS did pay a fee in respect of the facilities that they got.

Chapter 5 of the Treasury’s own document “Managing Public Money” says that when indemnities are given by the Chancellor and full disclosure is not possible, he should write in confidence to the Chairman of the Public Accounts Committee immediately to explain what has happened. Will the Chancellor now explain to the House how this procedure was followed at the time?

The hon. Gentleman is quite right: there are long-standing provisions that require that, when the Government take on a contingent liability, we write to him in that way. He no doubt forgot to mention that I have written to him on numerous occasions for very obvious reasons, drawing his attention to contingent liabilities. This particular issue of lender of last resort facilities was actually carried out by the Bank of England, however, and not by the Government. When Parliament decided—pretty much unanimously—that the Bank should have discretion as to when to report, it clearly had in mind that there would be times when it would be dangerous to report exactly what it was doing, because to do so might destabilise the system. So there is a distinction between the emergency liquidity assistance provided by the Bank—which is provided for in the Banking Act 2009, although its origins date back to long before that—and the normal procedures that we have, which we have followed at every single turn.

It is plain that the workers and shareholders of Lloyds were mugged. Does the Chancellor agree that all those who were knowingly party to the mugging should go, if they have not gone already?

I am not sure that I accept the general premise underlying my hon. Friend’s question. I have said on a number of occasions—today and previously—that the responsibility to shareholders lies with the board of directors, who are there to represent them, and I have read out to the House what they said in the prospectus that they published last November.

Will the Chancellor confirm that neither the amount nor the scale of these loans was reported properly on page 19 of the HBOS prospectus or on page 33 of the Lloyds prospectus, or reported fully in the Bank of England’s report and accounts? If shareholders cannot trust a prospectus, and if the public cannot trust the Bank of England’s accounts, who can they trust?

The prospectuses issued by HBOS and Lloyds are a matter for those banks, and the hon. Gentleman needs to direct his question to the directors who were responsible at the time.

On the Bank of England, I assume that the hon. Gentleman was at the Treasury Committee sitting yesterday, where I think the Governor made the point that he was of the view, when his report was published, that those operations should remain confidential, so he exercised his judgment to withhold the precise nature of what was being done. However, by yesterday, he had judged that the time was right to reveal what had been done. I refer the hon. Gentleman to what I said earlier: it is always a fine judgment on the question of when to make such information available. Had the information been released prematurely and had it caused further problems in the banking system, I am sure that he would have been the first to jump up and complain about it.

Does my right hon. Friend agree that, if the Governor had not had the courage to take the action that he took, instead of sitting here nit-picking about the timing of the announcement, we could have been contemplating the collapse of the banks and the devastating consequences for our constituencies? Will my right hon. Friend therefore congratulate the Bank on having had the courage to put up the money, get it back with fees and charges and protect the national and public interest?

The reason why all central banks throughout the world have the power to provide emergency liquidity assistance is obvious: there will be times when a bank or several banks get into difficulties. However, the system will work only if central banks are able to carry out such operations, where appropriate, confidentially. Of course, once the crisis and the difficulties are over and the system is stabilised, the central bank can disclose what it has done, but, as countless debates in this House have reflected, the need for that facility is beyond question.

In the post-mortem on Northern Rock, it became clear that the impediment to covert intervention was disclosure requirements not on the Bank of England, but on the company concerned. Would that still have been true if such covert intervention had been contemplated in the instances under discussion?

No, I do not think that there was any difficulty in operating the support for RBS and Lloyds. There was, as the hon. Gentleman knows, a lot of debate about the precise strictures on Northern Rock, and whether a particular European Union directive was a problem, and we are pursuing that. However, I have never taken the view that that was the major problem. Northern Rock appeared then to be an isolated case, although it was clear to many that it was not. The major problem at the time was that, despite the Bank’s provision of lender of last resort facilities, far from reassuring people it had the opposite effect. However, I do not think that the European directive was ever the major sticking point, but we are pursuing the matter.

I, like my hon. Friend the Member for Northampton, North (Ms Keeble), congratulate the Bank and, indeed, the Chancellor on the speedy action that they took 12 months ago. There is a danger, 12 or 13 months after the event, of trying to second-guess judgments that were extremely difficult at the time. This morning, as I listened to Radio 4, I thought it faintly bizarre that one criticism of the whole effort was that it had been kept confidential, and that not even Robert Peston had managed to find out the information. Does my right hon. Friend share that thought? I congratulate those who maintained that confidentiality over the past 13 months. Perhaps we could have a little more of it.

In the Chancellor’s answer and supplementary answer to my hon. Friend the Member for Twickenham (Dr. Cable), he mentioned the fee that was paid, but he did not address the interest rate. Was it a commercial rate of return, or was there an element of public subsidy?

The fees are meant to reflect the cost to the public purse. At the time when such work is done, it has to be done very quickly, so the arrangements are not like a normal commercial loan. However, the most important thing is that the money was repaid, and it was fully covered.

I congratulate the Chancellor on an excellent statement and on his firm grasp of complex issues. However, what advice would he give to a constituent of mine—a small business person—who phoned me this morning and said that he employs 30 people and has done everything that Lloyds has asked him to do, yet there is a danger to his company because the cash-flow problem is simply not being dealt with? He congratulates the Chancellor, as I do, but wonders why the Chancellor’s policy of extending the commitment of the banks to small businesses appears in this case not to have been applied.

As my right hon. Friend knows, part of the arrangement with Lloyds and RBS is that we have lending agreements. I am not familiar with the individual circumstances of the company to which he refers, but I strongly advise him to take the matter up, as I do, with the person who is responsible for, in this case, the bank’s Scottish operations to see whether it can be resolved. I have found that that can be fruitful, at times, although I should not want anyone to think there are not any difficulties even for my constituents.

I think that Lloyds staff would no doubt have a view on that matter, but the key thing is that the shareholders of those banks decided whether they wanted to go ahead with the merger. The responsibility for passing information to shareholders and prospective investors lies fairly and squarely with the boards of directors of both banks.

Will the Chancellor confirm that at no point did he instruct or advise the Governor not to disclose before yesterday? When did the Chancellor become aware of the Governor’s decision to disclose?

The Governor and I have many discussions about a wide range of matters, as the House will know. However, it is quite clearly for the Governor to decide whether those operations are necessary—especially at that time, the end of 2008 and the beginning of this year. Of course, we talked about those things regularly, and it was for him to decide when he decided to make the disclosure.

I need to write to the hon. Lady. My recollection is that the bonuses for that financial year would have been announced subsequent to that, but I do not want to mislead her. Bonus payments are generally announced in spring, and that would have been after the payments were repaid.

On the hon. Lady’s general point, I must say that there is not a bank in the world that does not owe a great deal to taxpayers throughout the world, because, if they had not stepped in, every single bank would have been affected—not just those that we had to support directly. If we had not stepped in, the banks that we are discussing would have gone down, and the wider problem for all of us is that the situation would not have stopped there: it would have brought down the rest of the banking system and large parts of the economy. No Government could possibly have contemplated that.

Covert lending is one thing; encouraging a bank to merge with a recipient is quite another. Surely a merger without complete information, but with a gargantuan loss of shareholder value, should simply not have been allowed in those circumstances.

As I said, the decision to go ahead with the merger was eventually taken by the shareholders of both Lloyds and HBOS. They had a vote, and the obligation, as the hon. Gentleman well knows because I can see it from his smirk, lies fairly and squarely with the directors to tell the shareholders what they know.

Order. I say to the hon. Member for Beverley and Holderness (Mr. Stuart) that I have been good to him: I have got him in—he has asked his question. He must listen to the reply.

I am not so sure that the hon. Gentleman is interested in the reply, but as I said earlier the Lloyds directors were fully aware of the circumstances in relation to HBOS. They were told by the Bank of England.

I will be good, Mr. Speaker. The Government have thrown billions at the banks while the banks have hardened their attitude enormously to small business, to the point where they refuse to extend overdrafts and force expensive loans on small businesses, which do not want them but have no option but to take them. Will the Chancellor look into that business and come back to the House to tell us that he has changed what is an unsatisfactory process for small businesses?

I suspect that we will have ample opportunity to return to that tomorrow afternoon on the last day of the debates on the Queen’s Speech. Let me just make a general point. Yes, over the past 18 months or so we have had to put a substantial amount of money into the banking system. However, I remind the hon. Gentleman, and the House, that the exceptional liquidity assistance was repaid. As for the other schemes, fees are charged for the credit guarantee scheme, and the money has to be repaid under the special liquidity scheme. Ultimately, of course, we will get back the money that we have put into RBS and Lloyds when we come to sell those banks at whatever time is appropriate.

Will the Chancellor of the Exchequer publish now or in future the rate of interest charged, and if not, why not?

I am happy to discuss further with the Governor of the Bank of England what further information we can put before the House. The general point of importance is that when these facilities are provided the banks have to lodge collateral, they have to pay a fee, and we get the money back.

The Chancellor knows that over the past year I have repeatedly asked him about the true level of indebtedness of the United Kingdom. He also knows that the Office for National Statistics itself has had some difficulty in obtaining the figures; I have raised that issue with him. Would he be good enough to tell me whether the ONS was informed at the appropriate time about the matters that he has raised today? Has it been given the truth, in line with its new independence under the Statistics and Registration Service Act 2007, on which we wholly rely; and has it raised any matters of concern, as it is entitled to under the Act?

The ONS’s concern is about how the banks in which we have shareholdings should be accounted for in the national statistics. The hon. Gentleman is well aware of the conclusion that it has reached. The responsibility for loans of this nature is properly a matter for the National Audit Office, as well. Between all the public authorities, I hope that there will be sufficient examination and disclosure of what is going on. Now that the situation has stabilised, I think there is no difficulty in explaining to people exactly what happened. Indeed, there is everything to be said for doing so, especially for those people who thought at the time that we were doing things that were precipitate or that we perhaps did not need to do. I am afraid that just over 12 months ago we were faced with a quite extraordinary set of conditions that required very dramatic and unprecedented action.

I think that the whole House recognises the importance of the Bank of England’s acting as lender of last resort to ensure the liquidity of the banking system. However, does the Chancellor accept that that then places an obligation on these banks not to cause liquidity problems for their customers by the unilateral withdrawal of overdraft and loan facilities or unexpected changes in those conditions? What price has he sought to extract from the banks for this continued level of public support?

I updated the House in my statement at the beginning of November. In view of what Mr. Speaker said, I am not going to repeat that, but I urge the hon. Gentleman to look at it. In it, I set out what the arrangements were and what the banks were paying. I agree with him, and with other hon. Members who have raised this, that there is still a particular problem with small businesses getting funding; that is something that we are pursuing.

On the particular cases, I strongly advise him, as I advised my right hon. Friend the Member for Coatbridge, Chryston and Bellshill (Mr. Clarke), that it is well worth taking the matter up with the bank concerned; sometimes matters can be resolved, sometimes not. There is a general problem in this regard. In the case of HBOS customers, for example, there is no doubt that that bank’s pricing policy caused it massive problems in not reflecting the true cost of making the loans. Obviously, I do not know what business or bank the hon. Gentleman is referring to, but I strongly advise him to pursue the matter with the bank concerned if he has not already done so.

The Chancellor chastised the hon. Member for Twickenham (Dr. Cable) for asking questions about what other secret arrangements there might be, and suggested that he should be more than a commentator—he may well be so in the next Parliament. Does he think that in the context of the real drama that occurred 13 months ago, it would have been better if Lloyds Banking Group had used the asset protection plan instead of going to equity holders, whose confidence would have been shaken by the fact that they were not properly advised of the bank’s circumstances?

The asset protection scheme was not announced until the middle of January, which is of course after the events that we are talking about. The exceptional liquidity assistance had to be provided for at the time. It started as we were working up the capitalisation scheme and then putting it in place, so it predated the asset protection scheme. Had the asset protection scheme been in place and operating, the situation might have been different, but I do not think that anyone would be in a position to say that.

Does the Chancellor have a view about how much the taxpayer, and the country, can be allowed to guarantee to banks—that is, how much the country can afford in current circumstances?

I am quite clear not only that what we did last year was right but that we could afford to do it. I am afraid that the hon. Gentleman must ask himself another question. We saw what happened in America when the then American Government let Lehman Brothers go down—it resulted in the American banking system, and very soon the rest of the banking system, going down too. [Interruption.] If the hon. Member for Tatton (Mr. Osborne) wants to discuss my phone call, I will happily discuss it with him, but I am very glad that I did not take on the responsibility for an American bank; otherwise, I suspect that he would have a lot to say about it.

In the Chancellor’s statement, he says that £100 billion was taken in collateral by the Bank in support of these massive loans. Will he publish the document supporting that collateral and put a copy in the Library?

We accept that in the short term confidentiality is a good thing that gives confidence, but in the longer term openness gives confidence as well. In future, will the Chancellor encourage the Bank of England to report as soon as loans have been repaid?

I refer the hon. Gentleman to what I said earlier. The judgment for the Governor has to be when to disclose, and he has to take into account all the appropriate circumstances, not only in relation to when the loan is to be repaid. The hon. Gentleman will recall that at the time when these loans were being repaid—either side of Christmas and the new year last year—there was a great deal of turbulence in the system as a whole, which is why the Governor understandably decided that he thought he should let matters stabilise. The hon. Gentleman will no doubt want to reflect on this: the key thing is that we had the resources of the Bank of England, and therefore the UK Government, to intervene to deal with two Scottish banks that had got themselves into terrible difficulties. That has certainly given most people in Scotland pause for thought—it is time that the nationalists thought about it as well.