Financial Crisis: Cable and Hemmings quiz the Chancellor [Oct 08]

• [Oct 08]: Vincent Cable (Deputy Party Leader; Twickenham, Liberal Democrat): My colleague and party leader has already made it very clear that we support these measures as being in the national interest.

They strengthen the banks and protect taxpayers' interests in a very difficult situation. However, the situation is fast moving: I think that the Chancellor is now aware that it has emerged in the past hour or so that eight London councils-and no doubt many others-have large holdings in Landsbanki. That problem will require his immediate attention.

The key question that I wish to pursue in relation to the Chancellor's statement has to do with how the investment in the banks is to be secured. When the IMF bails out countries, it imposes conditionality. How will the conditionality for the banks be enforced and monitored? How will the Chancellor ensure that the taxpayer's money going into the banks comes out at the other end, so that he is not in effect pushing on a piece of string? What sort of assurance can workers and companies have that, at the end of the month when salaries and bills have to be paid, the money will be there in the banking system?

Also on conditionality, I have been as stunned as the right hon. Gentleman has been by the sudden conversion of the champions of the bonus culture to advocates of a 1970s-style incomes policy. None the less, the Conservatives are right to say that there must be a fundamental change in banking culture. I hope that that will be carried forward in this programme.

I welcome very much the decision on interest rates, which is all the more powerful for having been done collectively. It represents a recognition that we are not, as the Chancellor said, simply dealing with difficult times. We are also dealing with different times that require a fundamentally different approach from central banks. The key point is that we are moving on from problems in the financial system to problems in the real economy. Ordinary people are going to ask, "If the banks can be bailed out, why can't we be?" In that context, will the Chancellor speak to the Justice Secretary about introducing new procedures for the courts, to ensure that repossession is the very last resort when people are experiencing serious difficulties with their mortgage payments? That is not the case currently for many of the creditors.

The Chancellor has been able to find £50 billion for the banks, so will he now ensure that the £8 billion that has been approved already for social housing is used rapidly to acquire the land and property that is becoming available at very big discounts, so that it can be made available for affordable housing? That would save many builders' jobs and prevent the new accumulation of toxic loans in the banking system. I think that we all acknowledge that this is the first and not the last step in what will be a very difficult process of recovery.

Alistair Darling (Chancellor of the Exchequer, HM Treasury; Edinburgh South West, Labour): Again, I am grateful to the hon. Gentleman for what he has said. I am very glad that he has welcomed the action taken by the Bank of England to cut interest rates to 4½ per cent. I hope that he will recall that, when he pressed me two days ago to intervene and take away the Bank of England's independence, I said that I thought that the remit was adequate to allow it to do what was right-and so it seems to have turned out. I am grateful to the hon. Gentleman for his welcome. I am sure that the whole House and the whole country will welcome the reduction in interest rates, and I hope that banks will ensure that people benefit from it as soon as they can.

I agree that one of the reasons why we put in place today's intervention is that we need to be mindful of the fact that if we did nothing, the effects would spread into the wider economy. This measure, and others that we have taken and will take in the future, will try to deal with that. The hon. Gentleman referred to our announcement about housing. He is quite right: I want to see that through.

The hon. Gentleman asked about agreements following my announcement today. The Government will obviously have to reach an agreement with individual banks, and those discussions need to take place. He asked what teeth there were. May I give him one example? As he knows, banks in the UK are regulated by the FSA. If it imposes a regulatory requirement-for example, following a code on remuneration, rewards or bonuses-the regulated banks have no alternative but to comply. That is the whole point of a regulatory system.

The hon. Gentleman asked about the Icelandic banks, and Mr. Osborne, who speaks for the Conservatives, also raised the question of councils. What we can do is make sure that we look after the retail depositors-the ordinary men and women who put in their money, and might not have fully appreciated that Icesave is a branch of a foreign bank and not incorporated in the UK. I understand the position of local authorities, but they are in a slightly different situation, in that they are a more informed investor. However, as I said earlier, the situation is evolving; we are trying to sort the matter out with the Icelandic Government. I have had conversations with Icelandic Ministers-both the Prime Minister and the Finance Minister. In addition, one of my ministerial colleagues hopes to speak to the Icelandic Finance Minister again today.

On the point about the Justice Secretary, I have spoken to my right hon. Friend about the points relating to repossessions-not just today-and I am sure he will pursue the matter.

• John Hemming (Birmingham, Yardley, Liberal Democrat): The Chancellor will be aware that the tier 1 and tier 2 capital ratios are a better indicator of a bank's stability than its share price. The Financial Services Authority will not publish those capital ratios, although the banks themselves might do so. Will the Chancellor discuss with the FSA the potential for a mechanism whereby ordinary investors can have access to a list of the tier 1 and tier 2 capital ratios, so that we do not have this unhealthy concentration on daily movements in the share prices?

Alistair Darling (Chancellor of the Exchequer, HM Treasury; Edinburgh South West, Labour): I cannot give the hon. Gentleman any undertakings on that today, but I will raise the matter with the FSA. I shall write to the hon. Gentleman and arrange for a copy of the letter to be placed in the Library.