Financial Markets

Part of Olympics – in the House of Commons at 3:34 pm on 6th October 2008.

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Photo of Alistair Darling Alistair Darling The Chancellor of the Exchequer 3:34 pm, 6th October 2008

I welcome the shadow Chancellor's offer of co-operation and help, especially as he appears to have changed his tune somewhat about what remedies he now thinks are appropriate. I hope that he will now recognise that it is necessary for Governments to play an active role in trying to resolve the problems that we face, in order to produce greater stability as well as to help depositors.

I disagree with the hon. Gentleman in one respect in particular. Our position is not that one has to choose between generalised measures of support and looking at particular cases case by case. When we were confronted with the problems at Bradford & Bingley 10 days ago, for example, we had to deal with that specific case, because the problems were peculiar to that bank—it was the same for Northern Rock, and different particular issues arose in relation to Lloyds TSB. In addition to dealing on a case-by-case basis, it is necessary to have an overall approach. That is why the special liquidity scheme, which the Bank of England operates, was put in place, and there will be other measures, too.

I am glad that the hon. Gentleman welcomes the Bill, and I hope that we will get support for the measures in it. I very much welcome the fact that he and Dr. Cable, who speaks for the Liberal Democrats, are anxious to ensure that we try to get the legislation on to the statute book by the middle of February next year, when the provisions we made to take Northern Rock into temporary public ownership will expire. That would be extremely helpful and useful.

So I welcome the support of Mr. Osborne, although I notice that his tendency to lapse into points-scoring and party politics did not take long to reappear. I must make this one point to him in passing: our interest rates are 5 per cent. now, and while people obviously have their views on that, they compare rather favourably with the 15 per cent. interest rates that we had some 15 years ago.

The hon. Gentleman went on to raise some perfectly pertinent points, which I want to deal with. First, in relation to guarantees and what happened over the weekend, as far as I am aware no Government—nor the European Commission—was made aware of what the Irish Government were proposing to do last week. I took up that matter with Brian Lenihan, the Irish Finance Minister, and he explained that they did that because, in their judgment, they needed to take action because of what was happening in Europe. I understand that, but it demonstrates the problems that arise when member states take unilateral action, because, of course, it has a knock-on effect for other member states. Similarly, Germany announced action yesterday. As I understand it, Germany has made a declaration that is not legally binding; it is a political declaration about guarantees.

This emphasises the need for us all to work together, which is why from last night we have been working with the French presidency to get a declaration from all member states—a pledge to work together, to act together. As I said, that statement was finally agreed just an hour ago. I very much hope that when we meet in Luxembourg tomorrow we will agree that, whatever is done, European member states act together. That is very important; otherwise, we will end up with a situation that is confusing not just to depositors, but to institutions themselves.

On the hon. Gentleman's points about accounting rules, the European Union is looking at that. On Friday, the International Accounting Standards Board said that it would look at the lessons to be drawn from what has been happening in markets, to see whether any changes ought to be made and also to make sure that we do not find that European and American rules start to diverge. However, I say to the hon. Gentleman that it would be a huge mistake to assume that changing the accounting rules would sort out the problem. Especially at this time, markets want to know exactly what is going on, and they do not want to think that the situation has apparently improved simply because the ways in which things are accounted for are different. That issue is not somehow a "get out of jail free" card; it needs to be looked at, but it does not provide the answer that the hon. Gentleman might have been suggesting.

Finally, on capital, I said in my statement that we stand ready to look at the issues of liquidity, capital and regulation. They all need to be looked at, and we are ready to do whatever is necessary. I also went on to say—here, I agree with the hon. Gentleman—that we saw from what happened in the United States that nothing is worse than coming forward with a plan that is not sufficiently developed and about which questions cannot be answered, which resulted in some $1.5 trillion being lost over the 10 days that followed. I am determined that when we take action, we take it quickly, we take it decisively and it works. That is what I am determined we will do.

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