Martin Flanagan: Holding the banks to account is a worthy cause

Published on Monday 8 February 2010 19:46

WHITEHALL'S august committee of public accounts came out swinging yesterday, having a pop at both the partly taxpayer-owned banks and the Chancellor, Alistair Darling.

Royal Bank of Scotland and Lloyds Banking Group were slammed for what the MPs in charge of scrutiny of the public purse called a "poor performance" in meeting commitments to lend to struggling businesses.

And Darling was lambasted for failing to notify Parliament for 13 months about an 18 billion indemnity the Treasury had granted the Bank of England against potential losses in providing emergency support to RBS and HBOS (now owned by Lloyds).

Rounding things off, the committee's report also implied strongly that the Treasury was an unattractive combination of being pretty toothless in enforcing greater lending to business by the taxpayer-funded banks and at the same time being pretty casual with public money.

Anodyne the report was not. And to be fair, some of the bald business lending figures do not give the full story.

Leading lights such as RBS chief executive Stephen Hester and Robert Gibson, managing partner of Clydesdale Bank's Edinburgh Financial Solutions Centre, say part of any supposed business lending shortfall is lack of demand.

Many businesses uncertain of which way the economy will go, and how long a muted recovery will take, are choosing instead to pay down their debt (a sensible policy in many ways) rather than take out more bank credit lines.

In short, the banks, amid a crescendo of criticism that they are reneging on their side of the bargain of the taxpayer bailout, are saying you can lead a horse to water but you can't make it drink.

There is truth in this. But the truth is many-sided and there is also much anecdotal evidence on the business circuit that while money is available for business, it is the conditions attached to that money by the banks which have been ramped up in the current climate, thus making deals difficult at best.

It is also clear the committee is upset about being treated so cavalierly in not being informed about the extent of the indemnity given to the BoE for its lifeline for HBOS. This goes to the heart of good parliamentary procedure.

If confidentiality was an issue to stop a run developing on the troubled bank then surely this could have been finessed by informing the chairman of the committee and the relevant departmental select committee orally?

The current chairman of the committee of public accounts, Edward Leigh MP, makes this point well.

On any leverage the Treasury has with banks and their lending to business, Leigh says: "The Treasury does not seem to know why the banks are not lending and has few sanctions available to make them change their minds."

Equally, the committee's report raises disquiet about not so much the Treasury's use of external advisers on retainers for long periods during the financial crisis, but "the potential payment of success fees in situations where no success criteria was specified". As the committee says, this is totally incongruous in the public sector.

The Treasury – for which read the taxpayer – stepped in with an amazing 850bn in support for a financial sector in tumult. These were complex, nervy and fast-moving times. But the MPs have done a service in perhaps setting out some lessons to be learned from the whole affair.

'Oil crunch' details remain unclear – a debate is vital

TRANSPORT and energy bosses such as Sir Richard Branson (Virgin Atlantic), Brian Souter (Stagecoach) and Ian Marchant (Scottish & Southern Energy) warn that the world may face an "oil crunch" within five years to match the financial crisis.

In a report due out tomorrow, they and other leading figures on the Industry Taskforce for Peak Oil and Energy Security will say that the world is running out of oil and that could render Britain – a big importer of energy – particularly vulnerable.

Branson and the others say the government needs to act now with a consistent policy framework to enable Britain to adapt to a future of high-cost energy.

They say the difference with the financial crisis is it came unannounced from left-field. Oil shortages – which some experts dispute, it must be said – loom much more obviously. At least the necessity for a debate is unarguable.