Vince Cable speaks for the Liberal Democrats in response to a government statement on financial stability

Liberal Democrat Shadow Chancellor, Vince Cable, responded to a government statement on financial stability in the UK, during which they had announced that the Bank of England would be advancing £50 billion of loans to banks.

Dr Cable criticised the Labour Government’s decision to tax low income families more at the same time as advancing billions of pounds to the banking system. He also enquired on what the discount was on the bonds given to banks and highlighted the importance of providing assurances so that it is not a liability to the taxpayer.

Vince Cable said:

“This is a strange day for a Labour Government. They are announcing that they are advancing billions of pounds to the banks at the same time as they are taking billions of pounds away from low-paid taxpayers. The Chancellor reminds me a little of a character whom I frequently encounter in the stories I read to my grandchildren - Little Red Riding Hood, who went around trying to be kind and helpful, but ended up being out-manoeuvred and then eaten by a wolf. The Chancellor is in the process of being slowly devoured by the British banking system.

“The banks are not in this position by some unfortunate accident. ? The Institute of International Finance, which is the bankers’ group, acknowledged only last week that the banks had engaged in substantial bad practice. British banks have, over the past few years, lent too much, too quickly and too carelessly. The correct course of action, which the markets now anticipate, is that the banks should make a rights issue to their shareholders to raise money to offset the losses that they have to own up to. The problem is that chief executives do not want to go to the markets because they face the sack, so they rattle the begging bowl to the Government and hope that the Government will help them out, which they are doing.

“The Government have assured us that they are covering risk as a result of the discounts on the transfer of assets. Can the Chancellor tell us what those discounts are? Only two weeks ago, the International Monetary Fund made an independent estimate that residential property in the UK was 25 to 30 per cent. overvalued. That is the IMF’s estimate; it has no axe to grind. Any asset-backed mortgages that have a discount of less than 30 per cent. represent a transfer of risk to the taxpayer. As I understand it, the Bank of England will provide a discount of up to 30 per cent. but not beyond it. Will the Chancellor explain that discrepancy?

“The statement also says - this was confirmed a few moments ago - that the Bank of England will accept credit cards as part of the transfer mechanism. It is said that they will be accepted because they have a AAA rating but after the complete mess that the rating agencies have made over the past six months and the meaninglessness of the AAA-rating designations, what possible confidence can we have in that assertion?

“My main point is this: if the Government are substantially to relax the conditions under which they make liquidity available to the banking system, surely conditions should be attached to that process. The most important condition should be that the banks accept up front and in writing that they will go to the markets to raise money in the way proposed by the Royal Bank of Scotland. Without that, there is no guarantee that the money raised in this way will not sit in the banks and will not be advanced to the markets, to small business and to residential borrowers. Without those guarantees, the package promises to be a liability to the taxpayer and to do little to sustain the domestic economy.”

Click here to read Vince Cable’s speech in full