As we see again from today's markets, these are times of great instability for our economy and of great anxiety for the people we all represent. Families are deeply worried about their savings, their homes and their jobs, and it is up to us to try to work together to get the country through this current crisis. I do not think that the British public would thank us if they saw happening here in this House of Commons what everyone saw happening in the American Congress. That is why we offer to look constructively at any proposals brought forward by the British Government.
For let us be blunt about it: if the banking system fails, it is not just the banks that go bust—businesses fail, families cannot get mortgages, and people lose their jobs, not just in the banks, but across the wider economy. The Prime Minister said that we would never see a return to 15 per cent. interest rates. This week, one of our high street banks has written to many of its small business customers, increasing their interest rate to 15.8 per cent. All of us need to work together to stop Britain sliding from a banking crisis into a deep recession.
Of course, constructive support does not mean that we are suspending our critical faculties. We will return at a later date— [Interruption.] Oh yes. We will return at a later date to ask how on earth Britain found itself, at the end of this age of irresponsibility, with more personal and public borrowing than any other advanced economy in the world. But today I want to ask the Chancellor about the immediate issues facing the banking system: the issues of confidence, liquidity and capital.
The Chancellor mentioned the banking Bill. Will he confirm that it will create the Bank of England resolution regime that we think should have been used to deal with Northern Rock and Bradford & Bingley? As I told him last week when we met, the Bill will have our support. We also welcome the decision to raise the limit of protection on retail deposits to £50,000. We have been proposing that from the Dispatch Box for almost a year, and it is clearly the right thing to do. Even so, events are moving fast, with the broader guarantees issued first by Ireland and Greece and then by Germany, Denmark and others. Will the Chancellor confirm that none of those countries informed the British Government in advance, and does he agree that it is not helpful for European leaders to call for international co-ordination at summits and then, hours later, to act unilaterally? As he implied in his statement, their confusion is adding to market anxiety today. He is going to ECOFIN tomorrow. What reassurance can he give us that we can avoid descending further into a beggar-thy-neighbour approach that will, in the end, help no one?
Let me turn to the issue of liquidity. The increasing reliance of our banks on the overnight money markets is creating a hair-trigger effect which leaves individual institutions more and more exposed to events. That must clearly be undone, so we all support the Bank of England's decision to extend funding to the banks from tomorrow—it should address the urgent liquidity problem—but let us be clear about what is happening here. The Bank of England is becoming not just a lender of last resort, but the lender of only resort. Does the Chancellor agree that, in the medium and the long term, that is unsustainable? We need to address not just the symptoms of the crisis but the cause, and that brings me to the issue of capital.
The cause of this crisis is that we built an economy on a debt-fuelled bubble. Now the bubble has burst, and the debt is being called in. That leaves banks under-capitalised and their balance sheets weak. There are steps that can be taken now to stop, for example, the mark-to-market accounting rules adding to a downward spiral of falling asset values and restricted lending. The Chancellor's immediate reaction when we proposed that was to say that it would make "no difference". Many, many banks disagree with him, and so do many European countries. If he will not accept our argument, will he at least engage with theirs?
That still does not address the central challenge: the need to recapitalise the British banks. Does the Chancellor agree that that must, in the first instance, mean shareholders' accepting their responsibility? As I said to the Conservative conference, banks that pay out dividends instead of rebuilding balance sheets should be held to account by regulators.
I know the Prime Minister said when he went to New York that he wanted to handle the crisis on a case-by-case basis, but events have moved on. Does the Chancellor accept that the ad hoc approach is running out of road? No one is expecting the Chancellor to stand up here and speculate on every single option available, but he himself confirmed yesterday that big steps were being considered by the Government. Would it not be irresponsible not even at least to consider more dramatic measures to help our banks, including support from creditors and Government injection of capital? Of course there would have to be very strict conditions to protect taxpayers and ensure that they benefited first from any gain, and we could not contemplate taxpayers' money being used to prop up the kind of salaries and bonuses that we have seen in recent years. We must make sure— [Interruption.] The Chancellor can ask his new City Minister in the House of Lords about that.
We must make sure that in return for any support the banks start lending again, but in the end, for all the risks to taxpayers involved, there is one thing worse than Government action, and that is inaction in the face of this crisis—for then the far greater risk to the taxpayer and the country is a long and lasting recession. Boom has turned to bust; now bust must not become something worse. That is why Conservatives stand ready to help.
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