Banking (Asset Protection Scheme)

Oral Answers to Questions — Solicitor-General – in the House of Commons at 11:34 am on 26th February 2009.

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Photo of Alistair Darling Alistair Darling The Chancellor of the Exchequer 11:34 am, 26th February 2009

With your permission, Mr. Speaker, I shall make a statement on the bank asset protection scheme and today's agreement with the RBS Group. I hope that the House will understand, again, that it was necessary for the Treasury and RBS to issue market notices this morning, in the usual way.

In my statement to the House last month, I set out the principles behind the Government's proposals to put the banks on a stronger footing, insure their balance sheets, and boost bank lending. I can now tell the House that those measures are being implemented: at the end of January, the Bank of England's temporary special liquidity scheme was replaced with a permanent facility; last week, the Bank of England began purchasing assets to free up markets for commercial lending; and on Monday, Northern Rock announced that it would provide up to £14 billion of new mortgage lending.

Banks are at the core of all modern economies—they allow people and companies to make payments, and to save and invest for the future. Indeed, if we and other countries do not fix the banking system, we will not fix the rest of the economy. The basic problem that we are facing is a crisis of confidence about bank assets, which is preventing the UK banking system from providing loans for businesses, and mortgages for those who want to buy a home. The critical barrier to improving confidence and expanding lending is the uncertainty about the value of banks' balance sheets. We must now enable banks to clean up their balance sheets so that they can become stronger and rebuild for the future, making them more able to lend to people and business all over the country. That will not happen overnight, but it is the essential starting point; it must go hand in hand with a broader reform of supervision and regulation of the banking sector; and that action must be taken not only here but by Governments right across the world, because the alternative is a failure of the banking system, here and elsewhere, which will make the recession longer and more painful, putting more jobs at risk.

The challenge today is to provide certainty against a background of a sharply deteriorating global economy. The IMF, which in October was forecasting world growth this year of 3 per cent., is now forecasting growth this year of close to zero. In the last quarter of last year, the world economy shrank for the first time since 1945, with Japan, America, Germany and Europe, as well as the UK, all now in recession. All that followed from the sudden collapse in confidence when Lehman Brothers—the world's fourth biggest investment bank—went bankrupt in the autumn. That has meant even weaker banks, which are lending less, and in turn leading to further economic weakness. So getting the banks to lend again is essential to our economic recovery and to our fight against the global economic—financial—recession.

In October, we injected additional capital into the banking system to prevent the collapse of banks and to maintain their ability to lend to companies and home buyers. We had to act quickly—in a matter of hours, not months. We made available then up to £50 billion initially, of which £37 billion was taken up. I have always said that we stand ready to do whatever it takes to maintain financial stability. So, as well as additional contingent capital, today I am making a further allocation of £13 billion for RBS in return for non-voting shares. These shares will be purchased at a similar price to those purchased in October, and they in turn will pay a preference coupon.

The Government are currently set to own up to 70 per cent. of RBS, for which the taxpayer will benefit when the bank recovers and strengthens in value. We believe it is important that there remains some private ownership in RBS—by pension funds and individual investors, for example. We have therefore decided that in injecting this capital, we will do so by purchasing non-voting shares, in line with practice in other countries. That means that the Government could now own up to 84 per cent. of RBS in economic terms, but the institution will remain as a privately quoted company. That will provide potential gains in the long term for the taxpayer and an easier return to full commercial ownership when the shares are sold and the proceeds come back to the taxpayer.

In January, we announced the creation of a scheme to identify losses and clean up the banks' balance sheets, giving them the confidence to lend again. A range of different mechanisms have been suggested to do that, but in the end they all require the same basic approach: first, a thorough analysis of the banks' balance sheets to establish what their assets and loans are worth and whether they are likely to be fully repaid; and secondly, a comprehensive stress test of whether the banks are strong enough to survive bad economic scenarios and establish what further losses the banks can bear, to satisfy us that the banks have enough capital to get through the recession and to keep lending going. Thirdly, it enables the Government to judge the necessary scale of their intervention, either by buying up the assets or insuring them, in return for a fee or a share of future gains.

That is the approach that we will follow in the asset protection scheme that I announced in January. In arriving at the design of the scheme, we have taken account of the experience of other countries which in recent months have announced similar action: including the Swiss, with UBS; the Dutch, with ING; and the United States, with Citigroup and Bank of America. The scheme is open to all eligible banks and building societies, and I expect a number of them to apply to use it according to this approach. Lloyds Banking Group has today confirmed that it is in discussions with the Treasury regarding participation in the scheme.

In relation to RBS, which has announced its results today, let me set out how the asset protection scheme will be applied. When the Government purchased their stake in December, a new management team was put in place, and it has been going through the books, identifying potential losses. As the House will understand, that cannot be done quickly, because the assets are both complex and numerous. As we have seen only recently in the case of the United States, the valuation of these balance sheets takes considerable time, and all the more so if it is done against a background of sharply deteriorating global conditions.

Today, the chief executive of RBS announced a plan to restructure and rebuild the bank, including an agreement to extend its lending in the UK. To complement that, RBS will include £325 billion-worth of assets in the asset protection scheme. That will include a range of assets in the UK and abroad, most of them including mortgages and business loans that are currently hard to value. The Treasury, with the help of external advisers, has assessed the assets held by RBS and subjected its balance sheet to a series of different stress tests overseen by the Financial Services Authority and the Bank of England—a practice that the United States Government yesterday announced they will apply to institutions seeking support.

To protect the taxpayer, RBS will have to bear the first portion of any additional losses over the coming years, up to a total loss of 6 per cent., or some £20 billion, on top of the £22 billion of impairment and write-downs that it has already taken. As in any insurance scheme, RBS will have to bear the first losses. After that, the Government will cover up to 90 per cent. of any further losses. RBS will also pay a fee of 2 per cent. of the value of the assets insured—some £6.5 billion—again, as in any insurance scheme. It has also agreed for a number of years not to claim certain UK tax losses and allowances, meaning that when it does return to profitability it will not be able to benefit from the losses accrued in the intervening period.

In return for this, RBS has agreed to maintain and increase its lending for mortgages and businesses in 2009 by an additional £25 billion, with a further £25 billion in 2010 depending on market conditions. That is at the heart of the deal that we are striking with RBS. That new lending will be on top of maintaining lending on mortgages and other loans of just under £300 billion in the UK. These lending commitments with be legally enforceable and externally audited, and the Treasury will report annually on RBS's delivery of its lending agreement. RBS has agreed to continue treating its customers fairly, including by participating in the Government's home owner mortgage support scheme. That will go hand in hand with the tough conditions on RBS bonuses that we announced last week.

Together, these measures will help restructure and rebuild RBS, making one of the UK's biggest banks also a stronger bank, better able to serve the people and businesses of this country, returning to tried and tested principles of banking. Other participating banks that join the scheme will have to agree to make more lending available, and banks will also have to review their policies on pay and bonuses to come up with long-term strategies that prevent excessive risk taking and reward successes, in line with the FSA's new code of remuneration practice.

As with previous measures, the capital support for the banks is an investment that will eventually be sold to the benefit of taxpayers. With the insurance scheme, the eventual cost to the taxpayer over the lifetime of the scheme will depend on economic conditions and how the assets are managed. That means taking that risk on to the taxpayer for a fee, but in a way that ensures that the banks remain able to lend. That strategy for tackling the bad assets has worked elsewhere in the past. So while the taxpayer does face risks as a result, the cost of doing nothing is far greater. In the long term, the taxpayer will benefit from returning our stake in these banks to full commercial operation because, as I have said before, I am clear that British banks are best owned and managed commercially, and not by the Government.

The future of the UK as a financial centre, and the future of our economy and thousands of jobs, depend on being able to run banks commercially. All countries are having to deal with the same problem: how to isolate assets that are damaging confidence in the banking sector and preventing banks from lending more. Over the coming weeks, we will continue to discuss with other countries, including the new US Administration and with the European Union, how best to co-ordinate our approach to the common challenges we face. As part of our presidency of the G20, I have written to Finance Ministers setting out a set of principles for dealing with asset protection and insurance.

It is essential to restore confidence in the banks to allow them to clean up and rebuild, and get lending going again. The economic recovery, and thousands of jobs, depend on it, and I commend this statement to the House.

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Photo of George Osborne George Osborne Shadow Chancellor of the Exchequer

I thank the Chancellor for his statement, but to be blunt, we have heard all these claims before. Back in October, just like today, he told us that a huge taxpayer bail-out of the banks would "get lending started again". He stood there waving a piece of paper, just as he has again today, and claimed that he had binding legal agreements with RBS, yet of course business lending has fallen by £5 billion since October and, as the inflation report shows, continues to fall.

Back in October, just like today, the Chancellor said that his first bail-out was a good deal for the taxpayer. Indeed, the Prime Minister claimed that we would soon be making money on the shares that we had bought. But now we all know that the taxpayer has lost £16 billion to date on the deal that was done in October. Back in October, just like today, the Chancellor said that a key condition of the bail-out would be an end to excessive bonuses and rewards for failure, yet today we discover that the chief executive who helped to bring RBS to its knees is getting a £650,000 a year pension for life, negotiated with the Government. While a second bail-out seems inevitable, we will therefore treat the Chancellor's claims about his latest plans with a healthy degree of scepticism.

Let me ask the Chancellor these specific questions. First, on lending, he says that RBS has committed to lend £25 billion a year. Will he confirm that that represents just 3.4 per cent. of total RBS lending to non-bank customers? He said once again, as he often has, that he has a legally binding agreement, but the new chief executive of RBS said on the radio this morning that that agreement is subject to its continuing to price on arm's length terms. Given that that price is currently prohibitive to many businesses large and small, why does he expect this legally binding agreement to be any more binding than the last one? Indeed, he says that the lending agreement is legally enforceable. How exactly is he going to enforce it? Will he give RBS the money to pay the fine when he enforces the agreement?

My second set of questions ask the Chancellor to be absolutely straight with people about how much the taxpayer could lose. Of course, this is a sweet deal for the banks, their management, the remaining shareholders and above all their creditors. The first loss to be borne by the bank is just 6 per cent. That is much lower than the 10 per cent. that the Treasury was initially briefing and the 10 per cent. that the Dutch authorities have imposed on ING. The fee is just 2 per cent.—half the level that the Treasury set out to try to negotiate—and it is being paid only in non-voting shares. Will the Chancellor confirm that that is because otherwise, according to stock exchange rules, RBS would stop being listed altogether? What is more, we are giving the bank billions of pounds to pay the fee to ourselves. That is like saying, "Lend me a tenner and I'll buy you a pint."

Will the Chancellor now say exactly what the potential exposure of the taxpayer is under this deal? He did not answer that question on the radio, so will he answer it today? Will he now impose the full independent, asset by asset audit of the British banks that the Governor of the Bank of England has just called for in the Treasury Committee and that I called for at the Dispatch Box last month?

Finally, on excessive bonuses and rewards for failure, once again the Chancellor has promised there will be none. Yet this morning he said in his radio interview that he learned only a very short time ago that Sir Fred Goodwin was paid off with a £650,000 a year pension funded by the taxpayer. However, the new chief executive, who was on the same radio programme, said that the deal was negotiated with the Government. Who exactly in the Government knew about that deal? Will the Chancellor answer the claims that Fred Goodwin's departure was delayed so that he could secure that pension? Whichever way one looks at it, that obscene pension is unacceptable and the Government are on the hook. Either they did know and failed to act or they did not know and failed to ask the right questions. It is a totally irresponsible use of taxpayers' money. There is, of course, now only one person who can correct that huge error of judgment by the Chancellor, and that is Fred Goodwin himself, who should in all decency renounce his pension.

The Government have no option but to undertake a second enormous taxpayer bail-out of the banks, because the first enormous taxpayer bail-out has failed. Let us hear no more nonsense about what a good deal has been struck. The British taxpayer is insuring the car after it has crashed. The sad truth is that families throughout the country pay the price, while those responsible try to walk away from the wreck—so far, unscathed.

The Prime Minister who presided over the fiasco is off trotting on the world stage while the man he knighted, Fred Goodwin, is walking off with a £650,000 a year pension. That is why the Government have lost the confidence of the British people in their ability to deal with the recession that they helped create and the banking crisis that they failed to prevent. [Interruption.]

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Photo of George Osborne George Osborne Shadow Chancellor of the Exchequer

The Chief Secretary should just concentrate on her leadership campaign and stop barracking the Opposition.

The Government have announced so many different schemes, executed so many about-turns, made so many false claims and broken so many promises that no one believes a word they say any more. They are running around like headless chickens, trying to save their own necks. Once again, the British taxpayer will pay a huge bill for the mistakes of Labour's age of irresponsibility.

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Photo of Alistair Darling Alistair Darling The Chancellor of the Exchequer

First, once again, it is clear that, although the hon. Gentleman could not quite bring himself to say it, he agrees with what we are doing. Although he now tries to criticise what we did last October, at the time he expressed full agreement with it, because he recognised that our banks, along with those in other parts of the world, faced collapse, and that we had to step in to recapitalise them. We had to do it quickly—in a very short time. We did not have the luxury of months to go through the books and make decisions about what might happen further down the track; we had to take action quickly. At that time, the Opposition supported our actions, although they subsequently found it convenient to change their mind and walk away from that support.

On the agreement that we reached in October, we said that the banks in which we took major shareholdings—RBS and Lloyds TSB—would undertake to maintain the same level of lending as in the previous year. They have been able to do that, but against a background of a marked reduction of lending in this country, especially from foreign banks, which have either withdrawn to their own countries, or in the case of the Icelandic banks, for example, have got into such great difficulties that they cannot lend. In the last quarter of last year, there has also been a sharply deteriorating position in the economy.

We want—it is important—to get lending going again because, as I said earlier, if we do not fix the banking system, it will be difficult to fix the wider economy. It is a problem that we face, the Americans face, the Germans face, the Japanese face—it is a problem right across the world. That is why I said in January that we would have to do something about the problem of assets on bank balance sheets that people either could not value or had deteriorated in value because of what is happening in the economy. As a result of what we have been able to do, RBS will increase its lending by £25 billion this year and next year, on top of the £300 billion that it currently lends in this country.

I believe that the insurance rates are appropriate. It is also right to put in the additional capital to help the bank get through the recession. Nobody wants to be in that position—no Government wants to be in that position—but, throughout the world, we must all face up to the fact that banks need additional capital and that we need to ensure that they have a proper insurance scheme to enable them to continue lending.

The hon. Gentleman asked about audit. I said in my statement that there needs to be a thorough audit of banks that come into the scheme. I am aware of what the Governor of the Bank of England said this morning—I have heard him say it on previous occasions. I agree that, especially when insurance is involved, there needs to be a rigorous audit, not only so that banks understand the position, but so that we do, too.

The hon. Gentleman mentioned the remuneration of Fred Goodwin. It is beyond doubt that most people find it hard to understand, given what has happened to RBS, that such an enormous pension can be paid from the age of 50. Let me explain the position. First, the agreement was not negotiated by the Government; nor was it approved by the Government. Nor would it have been— [Interruption.]

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Photo of Alistair Darling Alistair Darling The Chancellor of the Exchequer

The agreement on remuneration—the pension arrangements—of employees of a bank is a matter between the employee and the board of directors. Last autumn, we were told that there was a contractual agreement between the bank's board and Sir Fred. We previously understood that his pension arrangements were an unavoidable commitment, but we did not know—we became aware of it only very recently—that the decision of the previous board of RBS to allow Sir Fred to take early retirement had the effect of increasing his pension entitlement, and that that might have been a discretionary choice. We did not know that and, on finding out—[Hon. Members: "When?"] Last week, actually. It became clear that the matter may have been a discretionary choice. When we found out, I asked United Kingdom Financial Investments, which holds the shares, to discuss with the new board of the bank whether there was any scope for clawing back some or all the pension entitlement, and whether the board made the decision in full knowledge of the facts. That investigation is going on at the moment. As I said, and I agree with the hon. Gentleman, the matter could be concluded swiftly, because Sir Fred Goodwin could decide not to take the pension—that has been put to him—but the ball remains in his court.

I believe that the measures that we have taken on RBS and the asset protection scheme are necessary and unavoidable. It is an essential part of what we must do and what other countries must do if we are not only to fix the banking system but, more importantly, to ensure that we can rebuild our economy and help people and businesses in this country.

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Photo of Vincent Cable Vincent Cable Shadow Chancellor of the Exchequer

In October, we broadly supported the Government because we thought that that was the right patriotic response in an emergency and because their proposals for bank recapitalisation were sensible. However, I am afraid that they have now almost completely lost the plot. The proposal for asset protection is a disgrace and a betrayal of the taxpayer's interests. It is a classic case of privatising profits and socialising loss.

We know from American experience that valuing bad assets is hideously difficult. We also know that the banks know more about their bad assets than the Government, so there is now an open invitation to the banks to dump their worst assets on the Treasury, for a fixed fee, knowing that the taxpayer will pick up 90 per cent. of the losses. That is a fraud at the taxpayer's expense.

There is a much better approach—the way in which the Government started dealing with the problem. It is to acquire shares in the banks—ordinary shares with full voting rights. That guarantees that any upside in recovery—if there is one—and any eventual sale fully accrues to the taxpayer. It also gives the Government full effective control over banks' lending strategy and remuneration, instead of the current feeble agreements, which the banks have treated with contempt.

We know what the Government are afraid of: being accused of nationalisation. Let me quote what the Government's old friend—the Prime Minister's hero—Mr. Alan Greenspan said about that only last week. That American Republican free-market ideologue stated:

"It may be necessary to temporarily nationalise some banks in order to facilitate a swift and orderly restructuring" to

"allow the Government to transfer toxic assets to a bad bank without the problem of how to price them"— the problem we have today.

"You", he said to the Government,

"should not get caught up on a word"— that is, nationalisation. He continued:

"It doesn't matter what you call it, but we can't keep on funding these zombie banks without gaining public control."

The problem is that we have not only zombie banks, but a zombie Government: the walking dead, controlled by people who have a strong vested interest in protecting their bonus arrangements and covering up large-scale tax avoidance scams.

The Government claim credit for being tough and stamping on the generous bonus arrangements of RBS and NatWest. I totally agree with the Conservative shadow spokesman about Sir Fred Goodwin.

He was absolutely right. He could also have asked—I will ask—how much in addition the Government have given in tax relief to Sir Fred Goodwin and people in his position.

However, there is a wider point about bonuses: they are public expenditure. These bonuses are a massive spending increase on public wages for which there is no justification whatever. What response will the Chancellor give this morning to Barclays, which has said that it will not deal with the Government unless all its bonus arrangements are fully protected? That is blackmail and he should make it absolutely clear that he will stand up to it.

I have one final question about what the Prime Minister said in the paper on Sunday about the proposal, which a growing number of people on all sides accept, that in the long term the low-risk high street lending activities of the banks have to be separated from the high-risk casino-type activities with which they have been associated. The Prime Minister seems to have capitulated to pressure to abandon that proposal altogether. I can understand why the banks want to hang on to the operations that generate their bonuses, but why on earth should the Government be giving a long-term guarantee for gambling activities on a global scale? It is incomprehensible and completely without justification.

I feel rather sad about this response, because I normally try to be constructive, but the Government's proposal is absolutely dire.

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Photo of Alistair Darling Alistair Darling The Chancellor of the Exchequer

On the last point that the hon. Gentleman made, there has been a lot of debate about whether banks should be separated, so that they organise themselves along the lines of what that they had in America for many years, with what he calls low-risk retail banks and, on the other hand, investment banks. I would just remind him that the first bank that got into trouble in this country was not an investment bank but Northern Rock, which is a retail bank. The problems have been experienced both by banks with complex models, and by investment banks pure and simple—indeed, many have now collapsed—and retail banks. The regulatory system should distinguish between the two. Perhaps on another occasion there will be an opportunity to discuss what we need to do on supervision and regulation.

In relation to the hon. Gentleman's broader point, about nationalisation—the one on which he takes fundamental issue with the Government—I just disagree with him. We have, as it happens, nationalised a bank already: Northern Rock. However, I have always made it clear that our long-term objective is to get that bank and the banks in which we have shareholdings operating back into the private sector. That is something with which the Liberal party and he agree. I therefore do not believe that it is in our interests to completely squeeze out the remaining part of the private shareholdings in RBS, which is what nationalisation would entail. Also, as we have 70 per cent. of the votes there, it is beyond doubt that we control the bank. It is not as though it could block a decision that we really insisted upon.

It is important to strike the right balance. Even in these times, we need to look at the long-term destination of those banks. It is right that we should strike that balance, as I said earlier this morning. I just think that the hon. Gentleman is plain wrong in what he said about that.

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Photo of Dennis Skinner Dennis Skinner Member, Labour Party National Executive Committee

Is the Chancellor aware that we all recognise that the reason why today's measure has been announced, as well as the previous one, is to ensure the bank deposits of the vast majority of people in Britain? However, it is becoming increasingly apparent with every statement that those in the banking fraternity have, by and large, been on a winner for a long time. They are no different, really, from Nick Leeson, and that fellow Madoff in America who made off with the money. I have a novel suggestion for the enemy within. Instead of paying out vast executive bonuses and Freddie Goodwin's massive £650,000 pension, why not tell them that those of us on the Labour Benches will gladly walk through the Lobby to ensure that all those executive bonuses and that pension fund for Freddie Goodwin and his mate will be paid for out of the toxic debt when it has been repaid, which will be never? That is the proposal that we ought to put to those bankers and we should treat them with the contempt that they deserve.

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Well said! I would however, go one step further. These Bankers have been in collusion with their colleagues around the world, commiting Fraud. There is no other way of calling it. They have failed in their duties to protect their Employer (the Bank and its Shareholders) and I believe that the assets of all those involved in this Fraud should be seized plus any rights to further salaries or bonuses should be forfeited. They cannot deny their actions, it was greed for their own gain, which they knew was unsupportable. Why else did so many Bankers take early retirement just before the collapse. To take their...

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Photo of Alistair Darling Alistair Darling The Chancellor of the Exchequer

I agree with my hon. Friend that it is essential that we change the culture that has been prevalent in so many financial institutions and that bonuses be tied to the long-term performance of a company and paid for some special effort or as part of a reward for working hard to ensure the long-term health of the bank. I also agree with him that the reason for the action that we have taken is to protect depositors and ensure that we do everything that we can do to get lending going again in this country.

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Photo of Michael Fallon Michael Fallon Chair, Treasury Sub-Committee

Will the Chancellor confirm that the full details of Sir Fred Goodwin's pension were set out in RBS's 2007 annual report? If he is really telling the House that he spent £20 billion of our money four months ago and has only just checked out the details of the chief executive's entitlements, he is even more hopeless and hapless than we thought he was.

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Photo of Alistair Darling Alistair Darling The Chancellor of the Exchequer

As the hon. Gentleman knows, that is not what I said.

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Photo of Liz Blackman Liz Blackman Labour, Erewash

Bank lending in Erewash is, as it is everywhere else, pretty variable and constrained by the current climate of uncertainty. The freeing up to lend initiative that was announced this morning has the prospect of helping some of the businesses and the families in my constituency, but can my right hon. Friend give some more detail about how it will be monitored locally, so that RBS does what we are asking it to do?

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Photo of Alistair Darling Alistair Darling The Chancellor of the Exchequer

As I have said, we will be publishing an annual report. Into how much detail and how local it can go remains to be seen but, in addition, it is important that we regularly monitor lending to ensure that it starts flowing through to individuals and businesses.

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Photo of Graham Brady Graham Brady Conservative, Altrincham and Sale West

Can the Chancellor tell the House what assumptions about the state of the economy and the performance of the assets at RBS were used in arriving at the level of the fee, or did he just pluck it out of the air?

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Photo of Alistair Darling Alistair Darling The Chancellor of the Exchequer

No, the fee was calculated taking into account RBS's position and the assets that were put forward. We will approach the other banks in exactly the same way.

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Photo of James Plaskitt James Plaskitt Labour, Warwick and Leamington

I welcome my right hon. Friend's statement. It is clear that large public holdings in the banks are beginning to drive major and essential structural change. However, as banking is a global business, does he agree that the restructuring that is starting to take place and the redrafting of the regulatory system need to be globally co-ordinated and if so, how will we help to achieve that?

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Photo of Alistair Darling Alistair Darling The Chancellor of the Exchequer

I agree with my hon. Friend on that. We need to do what is necessary in both restructuring and financing, but we also need to ensure that the regulatory and supervisory framework is effective. However, that only gets us so far, because most banks trade across borders throughout world. It is also necessary to ensure the same approach in different countries, which is why I said in my statement that we need to work with the Americans and in Europe. That will be very much part of the focus of the meeting of the G20 Finance Ministers in a couple of weeks here in London.

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Photo of Desmond Swayne Desmond Swayne Parliamentary Private Secretary To the Leader of the Opposition

If the amount that the Chancellor has said that RBS must lose before his guarantee kicks in is correct, then, if I were still doing the job that I was doing 12 years ago in group risk management in RBS—[Hon. Members: "Ah!"] It would not have happened on my watch. On the basis of traditional banking practices, I would be urging the bank to build up reserves rather than engage in additional lending. Why would I be wrong?

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Photo of Alistair Darling Alistair Darling The Chancellor of the Exchequer

First, I will happily pass on the hon. Gentleman's name to the new chief executive of the bank and see whether he can re-employ him. Secondly, and rather more seriously— [ Interruption. ] I am glad that Mr. McLoughlin is thinking of the health of RBS. In relation to the hon. Gentleman's general point, the Government have to intervene and make it possible for there to be more lending precisely because, if left to their own devices, banks stop lending to individuals and businesses, and that would simply make the present difficult situation far more difficult. That is why my argument is that doing nothing not only does not work, but is damaging to our future prospects.

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Photo of Lynne Jones Lynne Jones Labour, Birmingham, Selly Oak

I share concerns about socialising losses and privatising gains, but whatever means are used to back the banks and private financial institutions with public money, I think everybody is agreed that it is necessary. Given that situation, my question is: why are the Government still relying on commercial loans to secure investment in public-sector infrastructure projects and public services such as the Royal Mail? Should we not cut out the middle man?

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Photo of Alistair Darling Alistair Darling The Chancellor of the Exchequer

On PFI projects, I hope that we will shortly be able to publish proposals that will take account of the difficulties about funding that my hon. Friend referred to. On her more general point, I believe that a combination of the public and private sectors working together, whether it be for the provision of finance or elsewhere, is a good thing. That applies to the Royal Mail, too, as it needs more money to help it modernise and improve. That is why I think that bringing in private capital to work alongside the public sector is a good thing.

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Photo of Andrew Robathan Andrew Robathan Opposition Deputy Chief Whip (Commons)

I guess that the banking crisis and the recession are the most important issues facing the country and Parliament today. I do not know whether the Chancellor noticed while he was making his statement that there were only about a dozen Government Back Benchers behind him and three times that number on these Opposition Benches for a party half the size. To what does he ascribe that? Does he think that it is because Government supporters are not interested or are idle, or does he think that Government Back Benchers have, like the rest of the country, lost confidence in him and his Government?

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Photo of Alistair Darling Alistair Darling The Chancellor of the Exchequer

The hon. Gentleman is right to say that the banking problem is the most important that we face at the moment, so I am surprised that he did not want to ask a question about it.

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Small wonder that Mr Darling failed to answer the question asked by Mr Robathan; that is par for the course for...

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Photo of Sally Keeble Sally Keeble Labour, Northampton North

I welcome my right hon. Friend's statement. In addition to the commercial and residential property loans that are among the eligible assets for the scheme, the Treasury statement of this morning also mentioned structured credit assets, which are the ones that have proved very difficult for the banks. Who exactly in the Treasury or among the Chancellor's advisers will be doing the due diligence on this and roughly what proportion of those assets does he expect to make up the scheme?

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Photo of Alistair Darling Alistair Darling The Chancellor of the Exchequer

The diligence examination of the assets was carried out by the same people in respect of all the assets. It was not done by the Treasury alone, as we brought in outside advisers so that we could be satisfied as to what was being offered for insurance and then take a view on what price would be appropriate.

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Photo of Stewart Hosie Stewart Hosie Shadow Chief Whip (Commons), Shadow Spokesperson (Treasury)

I agree with the Chancellor that fear of the toxic assets was the main inhibitor to securing confidence in lending and I give a cautious welcome to the asset protection scheme. As to RBS, however, it will fund its insurance by taking the first losses, 10 per cent. of subsequent losses, a 2 per cent. fee and, most significantly, deferred tax assets. If any other eligible banks wish to take part in this, will they be subject to the same payment terms, the same deferred tax assets and the same attachment point, and will it be done on a bank-by-bank basis?

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Photo of Alistair Darling Alistair Darling The Chancellor of the Exchequer

The answer is that we will look at each bank on its merits. We do so because what is offered for insurance will vary from bank to bank and we will have to make an assessment of the position of the individual bank. In the meantime, I welcome the hon. Gentleman's general support for our proposals and his agreement that this is the right thing to do.

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Photo of Andrew MacKinlay Andrew MacKinlay Labour, Thurrock

Does the Chancellor understand that many ordinary people are bewildered and dismayed that, across the Atlantic, there are obligations to fiduciary duties, compliance and due diligence, which are backed up by the sanction of the criminal law, yet there is an absence here of such obligations. Unless or until financial institutions, managers and directors know that they could face the law, we will continue to see this recklessness and selfishness enduring. Will my right hon. Friend tell the House that Lloyds TSB and the RBS group are fully co-operating with the United States Justice Department in respect of the documents that were doctored in London in order to get round US sanctions on money for Iran, as the conduits were the RBS group, Amro and Lloyds TSB?

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Photo of Alistair Darling Alistair Darling The Chancellor of the Exchequer

I hope that any institution in this country would co-operate with the relevant authorities, whether it be in the United States or anywhere else. On my hon. Friend's more general point, it is important that people obey the law, irrespective of their area of work, and that has to be enforced by authorities that are independent of the Government.

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Photo of Nicholas Winterton Nicholas Winterton Conservative, Macclesfield

I am deeply concerned about the hundreds of thousands and perhaps millions of people in this country and abroad who have lost or are losing their jobs. We have to get the banks lending again to ensure that our economy can grow so that unemployment will not be as high as we perhaps fear. Does the Chancellor believe that the money put aside for Sir Fred Goodwin to enable him at the age of 50 to have an annual pension of £650,000 will give people the confidence—it is confidence that is lacking in this country and elsewhere at the moment—that we can come out of the recession? Will he give an assurance that that pension will be stopped because it is being funded by taxpayers' money?

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Photo of Alistair Darling Alistair Darling The Chancellor of the Exchequer

I said earlier that the board and UKFI on behalf of the Government are pursuing that matter. On the hon. Gentleman's first point, like him, I have the greatest concern for people at risk of losing their jobs; that is why we have put in place measures to help people back to work. For many years I listened to the hon. Gentleman when he sat on the Government side, so I know that he was consistent—unlike some of those sitting around him—throughout the '80s and '90s in expressing his concern. I share it and I welcome his support for the measures that we are taking to help people back to work.

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Photo of Andrew MacKay Andrew MacKay Senior Parliamentary & Political Advisor To David Cameron

Staying with Sir Fred's grotesque pension, why does the Chancellor think that the new chief executive of RBS stated clearly on the "Today" programme this morning that his predecessor's leaving arrangements were fixed between the old board and the Government? Was he deliberately misleading listeners or was he pointing out that the Chancellor was responsible for this grotesque pension and knew about it more than a week ago?

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Photo of Alistair Darling Alistair Darling The Chancellor of the Exchequer

As I said, the pension arrangements were agreed between the previous board and Sir Fred Goodwin. That remains the position.

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Photo of Michael Jack Michael Jack Conservative, Fylde

The long-term effectiveness of the Chancellor's measures is predicated on growth resuming in the British economy, but his statement referred to the International Monetary Fund's dire assessment of when growth is likely to return. Will the Chancellor confirm whether he still stands by his pre-Budget report, which said that growth would resume in the British economy in three months' time?

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Photo of Alistair Darling Alistair Darling The Chancellor of the Exchequer

I said at the time of the pre-Budget report that we would set out our next set of forecasts at the time of the Budget. We will do that. The IMF figure that I mentioned related to its forecasts for the world economy. Since October, when I published my forecasts—they were broadly in line with those prevailing at that time—there has of course been a very sharp downturn in economies here and across the world. The latest IMF world forecast reflects that.

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Photo of Philip Dunne Philip Dunne Opposition Whip (Commons)

We have just heard announced today, so far as I am aware, the largest commitment by any Government of this country at any time in history to an individual entity. The material provided with this information, as so often with this Government, is woefully short of detail. Will the Chancellor confirm two individual aspects of the statement? First, what level of certainty has he reached with the Royal Bank of Scotland that its assets—the £325 billion-worth of assets that will go into this scheme—have been agreed with the Government? RBS has just concluded a conference call with investors, confirming that in its perspective the total quantum of assets of individual assets included in the scheme has not yet been finalised with the Government. Secondly, will he confirm whether any of those assets include non-performing assets? When will he provide detail on the level of the non-performing assets that the Government are prepared to take into this scheme?

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Photo of Alistair Darling Alistair Darling The Chancellor of the Exchequer

I can perhaps help the hon. Gentleman on that: I hope very shortly to make further details available, and I will place them in the Libraries of both Houses. Inevitably, it will take time to finalise the detail and to hold some of the discussions that have to take place before an absolute, final agreement is reached, but I think that I was right to come to the House to indicate the general scheme that we are proposing, and the amounts involved.

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Photo of Peter Bone Peter Bone Conservative, Wellingborough

Will RBS be able to throw back the losses that it announced today and reclaim previously paid corporation tax, which would result in billions of additional pounds of taxpayers' money being invested in RBS?

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Photo of Alistair Darling Alistair Darling The Chancellor of the Exchequer

I set out the tax arrangements in my statement.

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Photo of Julian Brazier Julian Brazier Shadow Minister (Transport)

Having announced this dismal package—a one-way bet that rewards failure on the part of individuals—will the Chancellor accept that this is the sort of pusillanimous leadership, shown in many countries in the 1930s, that led to the rise of extremism?

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Photo of Alistair Darling Alistair Darling The Chancellor of the Exchequer

Even by the hon. Gentleman's standards, that is a particularly silly remark. We are taking this action because it is necessary to do so. Indeed, even his own party's Front Benchers have grudgingly admitted that. It simply is not possible to walk away from the problem—to wish it were not there and pretend that it had not happened. There is a problem, not just here but in other countries, and not just with RBS but with banks across the world. We need to do something about it; otherwise we will not get lending going again. If we do not get lending going again, the recession will be longer and more painful than would otherwise be the case. That is what the hon. Gentleman ought to reflect on.

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Photo of Nicholas Soames Nicholas Soames Conservative, Mid Sussex

Further to the Chancellor's answer to my hon. Friend Mr. Dunne, is the Chancellor clear and satisfied that he has been made aware by RBS, sector by sector, of the scale of the loans advanced by RBS that are now underwater?

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Photo of Alistair Darling Alistair Darling The Chancellor of the Exchequer

As I said in my statement and in answers to questions on it, the Treasury and its outside advisers have looked in some detail at the assets that RBS has offered and has asked to have insured. As I said to the House earlier, one of our difficulties is in trying to value such assets at a time when conditions are deteriorating. We are taking action against a background that is not static; it is moving all the time. We have made every effort to ensure that those assets have been properly looked at and properly valued.

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