The Economy
Debate between George Osborne and Gordon Banks(13 years ago)
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Mr Osborne
The Merlin deal was for this year, and it was a commitment to increase gross lending to small businesses, which is what the banks have done. Of course, the previous Government, having tried net lending targets, then had gross lending targets with just two banks. The Merlin deal extended that to all the main high street banks. It was a one-year-only deal; the credit easing package that I have set out is, I think, what is required—not least in view of the tightening credit conditions across the continent of Europe and, indeed, across the world at the moment. The Government are using the credibility they have in the financial markets to borrow at low interest rates and passing those rates on to small businesses. As I said at Treasury questions, we are seeking state aid clearance and hope to have the national loan guarantee scheme operational by early next year.
At a time like this, we also have to be alert to risks across the financial system. One of the weaknesses of the tripartite regime is that no one felt they had a particular responsibility for monitoring the overall health of the financial system or felt they had the tools to do anything about it. We have created a Financial Policy Committee to do just that. We have established it on an interim basis to get it operating as soon as possible, instead of waiting for next year’s primary legislation. The FPC reported last week. Let me put it on the record that it is absolutely the job of the Governor of the Bank of England to be frank with the country about the challenges we face.
As the Financial Policy Committee warned very starkly:
“Sovereign and banking risks emanating from the euro area remain the most significant and immediate threat to UK financial stability.”
The committee encouraged banks to improve the resilience of their balance sheets in a way that does not exacerbate market fragility or reduce lending to the real economy. Given what it calls
“the current exceptionally threatening environment, the Committee recommends that, if bank earnings were insufficient to build capital levels further, banks should limit distributions and give serious consideration to raising external capital in the coming months.”
That is the point put to me by the Chairman of the Treasury Select Committee just an hour ago at Treasury questions. Limiting distribution includes restricting bonuses. Excessive pay in the financial sector is a concern at any time because of the perverse incentives it creates.
When it comes to linking pay to performance and being transparent, we are implementing the most comprehensive regime of any financial centre anywhere in the world. Today the Treasury launches a consultation that will extend transparency arrangements at large banks by requiring the eight highest-paid non-board executives to disclose their pay and bonus arrangements. This will cover an estimated 15 banks, including the largest UK banks and the UK banking operations of large foreign banks.
Mr Osborne
I will certainly give way; I hope the hon. Gentleman will welcome this change.
Gordon Banks
Will the Chancellor tell us how transparency will actually reduce the income of those to whom he refers?
Mr Osborne
Transparency should make it clear to the owners of these banks—the shareholders—what the pay and bonus levels and the remuneration levels are; it will then be for them to take action. I am aware of our responsibilities as a shareholder in some banks. As I mentioned at Treasury questions, an encouraging statement was made this morning by the Association of British Insurers, which represents the shareholders who own many of these banks, saying clearly that it does not accept current levels of pay in the financial sector and that it expects reform. As I said, we had a very clear warning from the Financial Policy Committee to the financial system that it should be limiting its distributions at a time like this.
Eurozone Crisis
Debate between George Osborne and Gordon Banks(13 years, 1 month ago)
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Mr Osborne
I think they would have been in a better position if they had got ahead of the pressure from the markets rather than being pursued by them. That is precisely what this Government did in Britain. The markets are, for many people, an abstract idea, but as we have discussed, we are talking ultimately about the decisions of many millions of investors and people with pensions, life insurance policies and the like about where they put their money. If they do not have confidence in a country’s ability to pay its way in the world, that money disappears almost overnight.
Gordon Banks (Ochil and South Perthshire) (Lab)
Has the Chancellor had an opportunity to carry out the work that will determine if, when and by how much last night’s decision will impact on UK growth? If he has not had that opportunity, will he undertake to come back to us so we can have further debate on that very matter?
Mr Osborne
The honest answer to the hon. Gentleman’s perfectly good question is that, on the morning after the night before, we do not know because important details remain to be resolved. We need to see the detail of how this 50% write-down of Greek debt is going to happen and we need to see how the new firewall will work in practice. We have to see the details: until they are in place, this will remain unresolved and the instability might return. The answer to the hon. Gentleman’s question is that when the detail is in place, we should be able to make an assessment of whether it has calmed the markets and improved the UK growth position.
Banking
Debate between George Osborne and Gordon Banks(13 years, 10 months ago)
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Mr Osborne
My hon. Friend is right that competition in the banking industry is very important. In the past two or three years we have seen a massive consolidation of the banking industry, with many of the building societies being folded into the larger banks. HBOS disappeared, for understandable reasons, Northern Rock had to be nationalised and so on. One of the remits of the Vickers commission, the Independent Commission on Banking, is to examine competition in the sector, and of course John Vickers himself has personal experience of competition issues. That was one reason why I asked him to take up the post. The commission is examining the specific issue that my hon. Friend raises.
Gordon Banks (Ochil and South Perthshire) (Lab)
On the Chancellor’s aspiration to have an extra £10 billion lent by the banks to UK SMEs, may I ask him how that figure was arrived at? Is it what he considers is lacking in the economy, or is it all he could prise from his friends? Is it gross or net?
Mr Osborne
The number is gross, like the lending targets agreed by the previous Government for the nationalised banks, but this is, of course, an agreement across the banking sector. The number was part of the hard negotiations that we had in order to get the amount up. The banks were anticipating reducing lending in the British economy over the coming year, and we have reversed that and got a 15% increase in small and medium-sized business lending.