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Will my right hon. Friend explain how his statement today might help my constituent with his problems?

Mr. Darling: First, I would be grateful if my right hon. Friend would let me have a copy of that letter. It is precisely because we are concerned about the way in which some banks are dealing with their customers that we have put in place arrangements to deal with those individual cases to try to resolve them, and it would be useful to have that information. On the general point, I have made it clear that if any bank in this country chooses to take advantage of the schemes that I have announced today, terms and conditions will attach to them. Without seeing the letter and the precise problems facing her constituent, I cannot answer the question in more detail, although I would be happy to do so and to write to her.

Mr. John Maples (Stratford-on-Avon) (Con): The situation is obviously vastly worse than the Chancellor or anyone else thought a few months ago. In the pre-Budget report less than two months ago, his forecast was based on the economy recovering in the second half of this year, and the maximum fall in gross domestic product being 1 per cent. On that basis, he forecast a Government borrowing requirement of 8 per cent. of GDP. Surely, those assumptions are now totally implausible. Would he care to revise them, and how bad does he think Government borrowing will be in 2009-10?

Mr. Darling: As I said to the House earlier, there is no doubt that conditions across the world have deteriorated sharply over the past few months. As the hon. Gentleman knows, the Government will next publish their forecast at the time of the Budget.

Sir Stuart Bell (Middlesbrough) (Lab): The Government are right to place the emphasis on jobs, people, employment and business. As my right hon. Friend is speaking to
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European Union Finance Ministers tomorrow, may I remind him that European Union Governments have put €180 billion into their banking sector?

Building on the question asked by my right hon. Friend the Member for Makerfield (Mr. McCartney), will not the first edict of President Obama be that banks should continue to lend to their customers during the recession, in addition to putting in $800 billion? Is not the problem a global downturn, and can the Chancellor resist the Opposition’s siren calls to stop the world, because they want to get off?

Mr. Darling: My hon. Friend is right that President-elect Obama has made it very clear that he wants a substantial stimulus to the American economy, and that that is one of the first things he will do when he is sworn in as President tomorrow. In addition, he has made it clear that the American Government need to take action on credit— [ Interruption. ] Opposition Members say from a sedentary position, “We know.” They know, but they are the only people in the world who are not prepared to do anything about it.

Sir Peter Viggers (Gosport) (Con): Does the Chancellor remember telling us in his Budget in March 2008 that the United Kingdom was in a better position than other countries to withstand the global difficulties, and does he remember that in October he told us, with much preening, that he had saved the situation? If the current blank cheque does not work, when will we move to the inevitable phase 3—the more careful analysis, appraisal and isolation of toxic assets, and the use of public money to support only sound banks?

Mr. Darling: In relation to the hon. Gentleman’s point about banks, it is important that we understand the nature of the exposure of the banks themselves, as well as any banks with which we enter into agreements on insurance, so that we understand the risks. I made the point earlier that I am afraid that it is necessary for the Government to take action. The action that Governments take may vary in approach. Some favour the “good bank, bad bank” approach, and others are considering insurance, but whatever happens, the position now—none of us wants to be in it—is that the world and countries depend on the banking system working efficiently, so we must carry out that investigation.

Mr. Elliot Morley (Scunthorpe) (Lab): This is clearly a severe global crisis, and the Chancellor is right to safeguard our financial institutions, but although I want companies of all sizes to be supported in terms of credit, I am sure that he understands that major sectors such as steel also need their share of attention. I take it from what he said today that they will have access to the credit that they need, because they are the bedrock of our manufacturing.

Companies such as Corus have subsidiaries in France and Holland. Can my right hon. Friend assure me that measures that we put in place in this country will be comparable to those in the EU, and that work forces in companies such as Corus will not be disadvantaged?

Mr. Darling: I can well understand my right hon. Friend’s concern about the steel industry, which he has raised with me before. It is important that we have help
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available to the larger companies, and the Bank of England scheme that I announced this morning will do that. I also agree with him that it is important that we act together with other countries, because the effect of us all acting together will be so much greater than if countries act individually.

Sir Nicholas Winterton (Macclesfield) (Con): The Chancellor has many times told the House that the crisis that arose last October was the reason that he invested taxpayers’ money, to the tune of £37 billion, in the banks. Have we learned the lesson? I have studied the views of many people, including expert economists and those from the City and in finance. They warned that what was happening in this country—excessive, irresponsible lending and borrowing—could not go on. Why did the Government not act sooner? Coming from a smaller business background, I certainly would have.

Mr. Darling: First, in relation to the recapitalisation of the banks, there are not that many people around who would argue that we were wrong to take the action that we did. We had to do it, and we had to do it pretty quickly, because we were facing a pretty dire situation. The hon. Gentleman raises a far broader point, however, which is that over a number of years we have seen massive credit flows going from the developing countries to developed countries, particularly the United States. Many people commented on those imbalances and wrote about them, but unfortunately the world’s international financial institutions were not, I think, up to the task of ensuring that we did something about them. The hon. Gentleman is absolutely right: that is an area that needs considerable strengthening, and it is precisely one of the areas that we will be pursuing through our presidency of the G20—the largest group of developed countries—at a meeting that we will have in London in April.

Ms Gisela Stuart (Birmingham, Edgbaston) (Lab): Does not the Chancellor share my anger at the banks’ failure to declare the true extent of their toxic assets? We seem to have to drag the banks, kicking and screaming, to declare them. Until we have a clear understanding of the extent of the toxic assets, we will not get the recapitalisations of the banks or any private investment to achieve that.

Mr. Darling: As I have said, it is important that we understand the extent of the problem. I would say to my hon. Friend, however, that when there is a downturn, there will inevitably be cases in which what might have been a perfectly good loan or investment last year will, because the economic circumstances are changing, turn out to be not such a good investment, and therefore a bad asset. We are in a position where things are changing fairly rapidly, but one of the things that will help restore confidence—we have been saying this for some time now—is that once people believe that they know the full extent of the losses, they will become more confident in dealing with each other.

Mr. John Greenway (Ryedale) (Con): Can the Chancellor say whether he thinks that the changed terms of engagement with Northern Rock will enable it to review its lending
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interest rates? Northern Rock’s standard variable rate is currently more than 5 per cent., against an industry average of 3.5 per cent. Does he share my concern that, with many people in negative equity, the prospects of finding a better deal elsewhere are nil? Such people rely entirely on their lender treating them fairly; this relates to the conversation about treating customers fairly that we had back in October. This issue is critical, so I rather hope that the Government will now insist that the Financial Services Authority use its regulatory powers to make bankers and lenders treat customers fairly, because some of them are not doing so.

Mr. Darling: I agree that all customers ought to be treated fairly. I think I am right in saying that Northern Rock announced recently that it would reduce its rates following the reduction of the Bank of England’s rates. [ Interruption. ] The hon. Member for Runnymede and Weybridge (Mr. Hammond) comments from a sedentary position. It was the case that Northern Rock was not reducing rates as much before then, but it did announce a change of policy, I think at the time of the last rate cut.

In general terms, when Northern Rock was the only bank that people were particularly concerned about, because of the difficulties that it had got into, it was right that it should reduce its exposure and repay the substantial sums that the Government had lent it, through the Bank of England, of course. Northern Rock has been reducing those sums and is ahead of its repayment schedule. However, given everything that I have said about capacity, it is now time to look at that policy again, because it does not make any sense to take people off the books of Northern Rock. In some cases they find it acutely difficult to find somewhere else. I therefore agree with the hon. Member for Ryedale (Mr. Greenway) on that point.

Mr. Michael Meacher (Oldham, West and Royton) (Lab): Since my right hon. Friend’s first attempts to restore lending did not wholly succeed, and since there can be no guarantee that this latest scheme will succeed, either because some of the big banks decline to participate or because the pricing of the insurance might turn out to be wrong, why, when we all agree that restoring lending is absolutely critical to the fate of the whole economy, will he not use the one device that is guaranteed to restore lending? Why will he not temporarily—I repeat, temporarily—bring the banks into public control?

Mr. Darling: My right hon. Friend has long held that view. His use of the word “temporarily” is actually a more recent amendment. I made it clear in my statement that the Government believe that the banks ought to be in the commercial sector, and that remains our position.

Nick Ainger (Carmarthen, West and South Pembrokeshire) (Lab): Bearing in mind my right hon. Friend’s statement that

will he make a clear commitment to the customers of our high street banks? Despite statements by the banks that they would maintain lending, many of their customers have discovered that that commitment has not been honoured. Will he ensure that any bank that takes part
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in the guarantee system, or in any equity arrangements, will have to inform customers of the arrangements that it has agreed with the Government, so that businesses up and down the country can compare their experience with the commitment that has been given?

Mr. Darling: As I have said, if banks take advantage of the facilities that I have outlined today, they will have to enter into specific, legally binding agreements, and people will be entitled to see those agreements. The agreements that have been reached so far attach only to the RBS group, because the Lloyds group came into existence only today. The RBS and other banks have increased lending, although it is becoming very obvious that, when we start to break down the figures, the picture can be very different in different sectors and different parts of the country. That is what we need to sort out.

Mr. John Redwood (Wokingham) (Con): Out of the colossal £2,000 billion that the RBS has at risk, only one pound in seven is being lent to British people and companies. Will the guarantee scheme apply to foreign loans, to derivatives and to other assets, or will it be ring-fenced to UK loans?

Mr. Darling: We would have to look at the loans that a bank had as a whole. We are trying to ensure that banks do not have to make so much provision that they would have to do so without the guarantee, and if we excluded assets that were not in this country, the scheme might not be as effective as it might otherwise be. It is important that we understand what is being insured, and that is the difficulty that banks all over the world are facing, because there has sometimes been a lot less clarity on that than we would have hoped.

Rob Marris (Wolverhampton, South-West) (Lab): I refer to the question asked by my right hon. Friend the Member for Oldham, West and Royton (Mr. Meacher). A lot of my constituents cannot understand why, when the banks have made a right mess of things, and the building societies, credit unions and mutuals have not, the Government still hold the

My right hon. Friend the Chancellor has just said that in his statement, but it seems rather counter-intuitive, given the mess that we are in today.

Mr. Darling: The Government do not actually own the building societies, which my hon. Friend is praising, either. In the long tern, the banks are better left in the commercial sector. Of course the Government have a
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regulatory duty and a duty to ensure that a proper supervisory regime is in place, but in the long term, in normal times, I do not think that they ought to be running banks.

Mr. Graham Brady (Altrincham and Sale, West) (Con): The Chancellor has given an undertaking that he would come back to the House if he were to change the policy to allow the Bank of England to use the new system to increase the amount of money in the economy, but can he set out today what criteria he would use to make that judgment?

Mr. Darling: What I said was that if the Government’s policy were to change in the light of further interest rate falls, I would come back to the House and set out our position at that time. As I said the other day, that is rather hypothetical at the moment.

Clive Efford (Eltham) (Lab): While I welcome what my right hon. Friend is attempting to achieve today, many small businesses are finding it extremely difficult to obtain credit when banks are refusing it or taking too long to make decisions over requests from businesses, particularly in my constituency. When my right hon. Friend next discusses these issues with the banks, I urge him to investigate exactly what arrangements they are putting in place to liaise with small businesses, to understand what such businesses need and to make speedier decisions to allow them either to keep their staff or avoid going under completely?

Mr. Darling: I agree with my hon. Friend, which is why our right hon. Friend the Secretary of State for Business, Enterprise and Regulatory Reform has set up a lenders’ group to work with organisations representing small businesses and try to work their way through these problems. My hon. Friend is absolutely right to raise these issues, as many small businesses have encountered difficulties. The object of that particular group is to try to get to the bottom of those problems and to try to resolve them.

Mr. Richard Spring (West Suffolk) (Con): Following on from that question, the Chancellor has indicated the vital importance of getting lending out into the real world, notably to small businesses. Surely this is an opportunity, considering how grievously they are all suffering, for the Chancellor to indicate that he will not proceed to increase taxation, as planned, on small businesses in this country.

Mr. Darling: The Government have taken a number of measures to help small businesses and they will continue to do so; such businesses are a very important part of our economy.

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4.32 pm

The Secretary of State for Foreign and Commonwealth Affairs (David Miliband): With permission, Mr. Speaker, I would like to make a further statement to the House on Gaza.

From the outset of the conflict, the UK has called and worked for an immediate ceasefire. I know from questions on my statement last week that the whole House will have felt enormous relief on Saturday night when Israel halted its military operations in Gaza, and on Sunday when Hamas stopped its rocket fire. Our relief at the ceasefire is matched by our distress that it has taken so long to be achieved. The respite has come too late for too many.

A ceasefire, as Security Council resolution 1860 made clear, was always going to be the essential first step. We urge Israel to complete the withdrawal of its troops from Gaza with all due speed. Hamas must put a definitive end to rocket fire at Israel. That is why the Prime Minister travelled to Sharm-el-Sheikh and Israel yesterday to join other world leaders in starting to embed that ceasefire and ensure it becomes the durable and fully respected ceasefire that we and the Security Council have called for.

In the last 22 days of the Israeli offensive, more than 1,200 Palestinians have been killed, many more injured, countless thousands displaced and critical infrastructure destroyed. We are yet to know the full extent of the destruction, but horrific accounts and images already fill our news bulletins and we can be sure that life for Gazans, which was already grim, has become desperate. Systems for power, sewage and food distribution are broken or under strain. Meanwhile rockets have reached further than ever from Gaza into Israel. Israel has lost nine soldiers and four civilians.

The Gaza crisis has reverberated around the world. There have been large demonstrations in the middle east, but also in the west. The conflict has also been used to whip up hatred, including in this country, and I am sure the whole House will want to send a very clear and cross-party message that we all denounce the anti-Semitic attacks that have taken place and vow to work for their elimination.

We are faced with two immediate challenges: stopping the flow of arms and starting the flow of aid into Gaza. In respect of trafficking in arms, as the Prime Minister announced yesterday, we are ready to play our part. The immediate security responsibility lies with Egypt, but the origin of these arms stretches way beyond the Egypt-Gaza border. This is where international help, aimed at interdiction, using intelligence and a range of military assets, is important.

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