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The Prime Minister: I think that we must get both sides of the matter right. Early on, the right hon. Gentleman said that he did not want any bank to fail, and we will take all the necessary action to ensure that banks are stabilised and can continue, and resume their normal process of lending. At the same time, we will insist in the conditions on which we issue shares that executive remuneration is as we want: based on responsibility, hard work, effort and enterprise. However, that will be part of the negotiations that we will hold. I think it is right to hold those on a one-to-one basis between the Government and the companies. Of course, those matters will be made public because that is what companies are required to do.

Mr. Cameron: No one wants banks to fail, but also no one wants rewards for failure. Taxpayers now have an investment, so taxpayers have an interest, and they will rightly be infuriated if they see their hard-earned money going in bonuses that are rewards for failure. The other thing that the taxpayer will expect is that everything possible will be done to improve the regulatory system. One of the problems is that there is no one in the system who is there to take an overall view of indebtedness in the economy. Will the Prime Minister look with a genuinely open mind at restoring the role of the Bank of the England—the role that it had for decades—of calling time on debt levels in the economy? The regulatory system needs not just the right rules, but strong institutions. Should not the Bank of England be restored to its proper role in this regard, so that this never happens again?

The Prime Minister: Of course under the new legislation, for which I believe there is now all-party support, the Bank of England will have a statutory role in the supervision of the system. However, I have to remind the right hon. Gentleman that when we came in in 1997, there were seven or eight separate regulators all involved in the system. We co-ordinated that within the Financial Services Authority and we led the world in that way.

As for bonuses, the FSA will be responsible for issuing rules about capital adequacy to firms. It will take into account whether firms are taking excessive risk by rewarding people on the basis of short-term gains, not long-term success. So when the right hon. Gentleman asks what will be done, the answer is that on a case-by-case basis where we capitalise the banks, we will lay down conditions. As for other companies and the rest of the system, the FSA will now be in a position to regulate the capital requirements of firms according to the risk taking that is involved.

I hear what the right hon. Gentleman says about what he thinks about the irresponsibility of people in the City and some of the adjectives that have been used, but I have to remind him of what he said on the “Andrew Marr Show”:

Dr. Gavin Strang (Edinburgh, East) (Lab): Now that the Government have brought forward such a bold scheme of support for the banks, does the country not have the right to expect the bankers to show a bit of courage and resume normal lending among themselves and to the wider community?


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The Prime Minister: My right hon. Friend is absolutely right. What we are making possible to happen today is for that resumption of lending to take place. We are providing a guarantee for medium-term funding. I am thinking of the small business that is looking for funds for investment or the small firm with an overdraft that wants the help that a bank can usually give. I am thinking of the mortgage holder who wants to buy the next home or the first-time buyer. That is the cash that can be provided by a good banking system. To have it on a sound footing is an essential element of the programme, but to resume the medium-term funding is one of the least publicised elements of the programme that we have announced today. Not only will we do this in Britain—the £250 billion guarantee—but I have talked to my European colleagues over the past few days and I have hopes that this can become a wider scheme that other countries will take up. I hope that we will show that we have led the world in changing the terms and conditions on which we can help to renew the flow of money in the system.

Mr. Nick Clegg (Sheffield, Hallam) (LD): I would like to add my own expressions of sympathy and condolence to the families and friends of those brave British servicemen who lost their lives during the summer recess in Afghanistan.

This is indeed a day of reckoning for the British economy. It is also a test for this House. We must show the British public that we can work together to halt the downward spiral in the British economy. That is why, speaking for the Liberal Democrats, I can confirm that we wholeheartedly support the Government package. When a ship is sinking, we send out the lifeboats. We do not argue about who has steered it into an iceberg—that is a debate for another day.

This is a national response to what the Prime Minister has rightly called a global crisis, so we need global responses, too. Will he give the House a bit more detail on exactly what he is doing to ensure that the European Union finally acts together? Will he and the Chancellor press the IMF later this week to provide support to Governments, such as Iceland’s, who are overwhelmed by the crisis and unable to cover the liabilities of their banks on their own?

The Prime Minister: Once again, I am grateful for the right hon. Gentleman’s question, because it allows me to explain, if he will allow me to do so, what we are doing in concert with our European partners and what we want to see happen at a global level.

First, the co-ordinated cut in interest rates is an important signal that the world will come together to deal with this economic problem. I believe that it has come at the right time to show that the action that we are taking, the action that the Americans are taking and the action taken in other countries in Europe is action that is designed to solve together the problem we face.

The problem is that the banking system has been overwhelmed by the fall-out from the sub-prime market in the United States and the bad assets that have been taken by many banks. Our method of doing this is to strengthen the banks in our country. In America, they are trying to move those bad assets into a Government fund. We feel that what we are doing is best for the banking system here, so while action is co-ordinated, each country will choose different things to do.


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On Friday, the G7 will meet and agree co-ordinated action on transparency, disclosure and how we deal with accounting standards. I believe that the changes such as the new colleges of supervisors that will regulate multinational companies across frontiers should come in immediately and be set up before the end of the year. There will be a meeting of the IMF on Saturday, which I believe will agree the same principles. Having talked to President Bush yesterday, I think that we will have an international leaders meeting soon to look at what we can do together.

We need to have responsibility and integrity at the heart of the global financial system. We need a global early-warning system and co-operation among regulators that, to be frank, we in Britain have tried for for years, but have not been able to persuade other countries to support. We will continue to see co-ordinated action on economic policy.

Mr. Clegg: I am grateful for the Prime Minister’s reply. I am sure that he will agree that although this package is hugely important, it is only one part of the jigsaw that needs to be put together to get the economy back on track. He has said, rightly, that this is a time for new thinking, not for old dogma, so does he recognise that struggling families facing huge bills need more money in their pockets now? Will he act to close the numerous loopholes in the tax system, which benefit only the very wealthy, and use that money to cut taxes for people on low and middle incomes, who need that money the most?

The Prime Minister: I am grateful to the right hon. Gentleman. Of course, wherever there are loopholes in the tax system we will act to close them, and have done so over the last nine years. He asks about money going to hard-working families in this country to help them through these difficulties. Every family—in fact, 22 million families, basic-rate taxpayers—will receive £120 as a result of the decisions made by the House to give a tax cut. Equally, at the same time, as he knows, pensioners will receive £250 in the next few weeks for their winter fuel. Pensioners over 80 will receive £400 to help with their fuel bills. We have also extended help to low-income families by increasing the social tariff numbers to half a million and more. We are trying to do more in that area. We are trying to deal with the unacceptable problems raised by pre-payment meters. We will legislate if necessary to stop the practice of discriminating against those on pre-payment meters and we will continue to do everything we can to help the hard-working families of this country.

Paul Flynn (Newport, West) (Lab): Does the Prime Minister agree that the best way for the House to show its admiration for our troops in Afghanistan would be to investigate an alternative peace strategy that sought to consolidate the gains already made, end the bloodshed and bring stability to Afghanistan and Pakistan?

The Prime Minister: My hon. Friend is absolutely right in one thing: this is not a military strategy alone. I applaud the professionalism, dedication and ingenuity in the face of huge difficulties displayed by our British armed forces—more than 8,000 men and women who are in Afghanistan at the moment. As everybody knows, they face a new problem—not front-on combat with the Taliban, but guerrilla warfare, roadside bombs, devices
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such as car explosives and suicide bombings. We have had to restructure and reconfigure our troops to deal with that problem.

In addition, we are training the Afghan army to do its own job for itself—80,000 people are being trained. The Afghan police force is being trained, which is a more difficult task. Corruption has to be avoided so that it can also provide a policing role. I may say also that in what we have done in increasing the facilities available—for example, the dam in Afghanistan—we are trying to help to develop the economy of Afghanistan. We are trying to give people education and health, and all the opportunities that a civilised society should give. However, let us remember this: some criticise the effort in Afghanistan, but Afghanistan is now a democracy and millions of children, including 2 million girls who never went to school, are now going to school.

Q2. [224399] Angela Watkinson (Upminster) (Con): Does the Prime Minister share my disgust that some banks are charging small businesses more than 15 per cent. interest on their overdrafts?

The Prime Minister: That is exactly the problem that we are considering at the moment. Small businesses need the lifeline of banks that are able to service them. We are examining how we can use money from the European Investment Bank, the small firms loan guarantee scheme, and money that regional development agencies have to help businesses in their community, to get the banks to be better intermediaries to finance loans for small businesses at affordable rates. We have been discussing in detail with our European partners how a £25 billion scheme can be introduced. We are also considering how the small firms loan guarantee scheme can be improved. The situation is difficult and tough. Banks have increased the margins that they charge, and have responded to their difficulties by making it harder for small businesses. We should accept that that problem must be dealt with. But we must create a means by which the banks can be better intermediaries in getting funds to the 4 million small businesses in our country who deserve, and will have, our support.

Liz Blackman (Erewash) (Lab): I too congratulate my right hon. Friend on this bold, comprehensive financial package, especially as it has been struck voluntarily with the banks and will therefore not be delayed by legislation. Can he tell the House how quickly he thinks that the major banks will take up the offer on the table?

The Prime Minister: One of the reasons that the programme had to be completed in full before it was announced was that we had been in detailed discussions with the major banks. We have an agreement in practice that they will all join the scheme. The detailed working out of the scheme, through the conditions that we are attaching, will happen in the next few days. We must accept that this is a long haul for every economy of the world. But I hope that in a reasonable time we can get the funds from the banks into the small businesses, and resume the mortgage lending that is so essential, especially for young people looking for their first home.

Q3. [224400] Stephen Hammond (Wimbledon) (Con): When the Prime Minister was Chancellor of the Exchequer, he often used the occasion of the IMF
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forecast to revise his public borrowing figures. In the light of today’s revised IMF forecast, will he revise those public borrowing figures today?

The Prime Minister: If I may say so, public borrowing forecasts have always been revised in the pre-Budget report and in the Budget. I have never done that at the IMF, although sometimes at the IMF I have said what I think the growth pattern of the economy will be.

Chris McCafferty (Calder Valley) (Lab): In the light of today’s historic and dynamic intervention, does my right hon. Friend consider that the proposed takeover of HBOS by Lloyds TSB will still proceed? If so, will he reassure my constituents in the Calder Valley, and those of my hon. Friend the Member for Halifax (Mrs. Riordan), many of whom are employed by HBOS in Halifax, that he will do everything that he can to ensure that there are no compulsory redundancies in the next three years?

The Prime Minister: My hon. Friend takes a huge interest in those matters, and I too am concerned with the interests of her constituents and those employed by HBOS and Lloyds TSB in Yorkshire and Humberside. When we changed the competition rules to make possible the takeover by Lloyds TSB of HBOS, the alternative that we faced—that a major bank that served a large part of our community would not be able to survive—was a great deal worse. We took the right action to make sure that Lloyds TSB could take over Halifax Bank of Scotland, with the company wishing to expand over time its business in banking, servicing the people not just of Yorkshire and Humberside but the rest of the United Kingdom. I will look at the matter carefully, and would be happy to meet her to discuss the conditions of employment that she finds. With Bradford & Bingley in the same area, I realise that people face difficulties. Our determination, however, is to stand on the side of those people who are worried about their jobs, and to help them through this difficult period.

Q4. [224401] Mr. Andrew Mackay (Bracknell) (Con): Following the Prime Minister’s pronouncement in New York last week, will he now tell us when the age of irresponsibility began?

Chris Ruane (Vale of Clwyd) (Lab): In 1979!

The Prime Minister (Mr. Gordon Brown): I am tempted to use my experience of studying history to go back quite a long time to explain what has happened.

I was talking about irresponsibility in the financial markets. Now everyone agrees about irresponsibility in the financial markets, but let me say, because I think it should be clear to the people of this country, that the dividing line here is not between business and being anti-business, or between market and being anti-market. The dividing line that we have is between rewarding hard work, effort and responsibility—rewarding enterprise—and rewarding excessive risk-taking or irresponsible risk-taking. [Interruption.] The all-party consensus seems to have dissipated a little.

I personally think that the whole country will agree that that is the right thing. Let us reward work, let us reward effort, let us reward enterprise, let us reward
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responsible risk taking; but let us deal with the problem—and sort it out once and for all—of excessive and irresponsible risk taking.

Nigel Griffiths (Edinburgh, South) (Lab): When the Prime Minister gave badges of honour to the women and male Spitfire pilots and others in the Air Transport Auxiliary, did he convey the great pride that the whole House shows in them, and the tremendous thanks of the whole country for their sterling service during our darkest hour?

The Prime Minister: I had the privilege, over the summer, of meeting many of the women Spitfire pilots, and the men and women of the Air Transport Auxiliary and I was able to congratulate people who had come from all over the country, and who had given a huge service to the country. Their contribution was in delivering aircraft between factories and airfields during the second world war. It is right, even 60 years after the war, that
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the nation has now determined that it will recognise the contribution of some very brave and courageous women and what they did.

Q5. [224403] Mr. Mark Harper (Forest of Dean) (Con): I listened very carefully to the Prime Minister’s answer when he said that he often used the occasion of the IMF forecast to publish new growth forecasts. I repeat the question put by my hon. Friend the Member for Scarborough and Whitby (Mr. Goodwill): can the Prime Minister confirm that the Government agree with the IMF that next year the economy willshrink?

The Prime Minister: I said that I often forecast the path along which the economy will move forward. We publish— [Interruption.] I think the hon. Gentleman has been in the House for long enough to know that it is right for a Government to publish the exact figures of its forecasts at the time of a Budget and pre-Budget report. Anything else leads to uncertainty; and, if I may say so, the hon. Gentleman betrays some immaturity in expecting that we will give a running commentary on the economy.


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Financial Stability

12.33 pm

The Chancellor of the Exchequer (Mr. Alistair Darling): 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 41/2 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.


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