On a day of economic reckoning, the Prime Minister has followed up
a £50 billion banking rescue package by announcing a cut in interest rates.
Gordon Brown said the dramatic 0.5% cut was evidence that the Government was prepared to do everything in its power to help businesses, mortgage-holders and consumers.
Moments after the cut was announced by the Bank of England, Mr Brown told the Commons it would "assure people that all action is being taken in the economy, so we can help businesses move forward".
As the financial crisis dominated the first question time since the summer recess, he disclosed that the Government would also be seeking to pay small businesses with public contracts within ten days to help ease liquidity problems.
Tory leader David Cameron again offered support for the Government's response to the crisis, insisting that the banking system could not be "allowed to fail".
Mr Brown took the crowded chamber by surprise by revealing the cut in interest rates.
"The whole House will want to know that the Governor of the Bank of England has just announced an immediate 0.5% cut in interest rates.
"He has done so in a co-ordinated action that is happening round the world in which the US Fed has cut interest rates by 0.5%, the ECB by 0.5%, the Swiss, the Swedes and other members of the G10 have all cut interest rates showing that global problems are best dealt with by global action," he said to cheers.
Tory Robert Goodwill (Scarborough and Whitby) asked if the Prime Minister agreed with the IMF that the British economy would "shrink" next year.
Mr Brown replied: "Every economy is facing problems and I don't want to make predictions about the future. We are in very difficult times."
Mr Brown said today's £50 billion part nationalisation of the banks showed the "strength of the action" taken by ministers.
"We have produced additional liquidity to the system – up to £200 billion. We have said we were prepared to buy shares in our banks and recapitalise our banks to the tune of £50 billion.
"And we have also done something that other countries I believe will follow very soon – and that is provide medium term financing up to £250 billion guaranteed by the Treasury.
"By taking co-ordinated action as a whole and leading the world in doing so, I believe we can get our banking system on a sound footing, and that is the key to the future.
"To have that combined with the macro-economic action, a cut in interest rates, is an important message that is being sent around the world that we will do everything in our power to make sure our economy moves forward."
Senior Labour MP Sir Gerald Kaufman (Manchester Gorton) called for a guarantee that the "fat cats of the City of London" would not be allowed to "line their pockets on the backs of the profound concerns of tens of millions of our fellow citizens".
He said people's jobs, homes, small businesses, savings and pensions should be the Government's top concern.
Mr Brown said: "We will do everything in our power to maintain our public services, to increase jobs in our economy, to protect the savings and deposits of the citizens of this country.
"I do want to reassure people that everything that can be done will be done to ensure there is a flow of finance for mortgages and small businesses despite the toughness of these times.
"The conditions we will lay down for support to the banks in this country includes executive performance and the way it is remunerated.
We will build on the FSA's work, which is to ensure that excessive risk taking is not rewarded but punished."
Mr Cameron said: "Right across the country people are worried about their savings, pensions and mortgages.
"I said last week that if the Government needed to take major steps to secure the banking system, it would have our support.
"Do you agree with me that the message should go out loud and clear from this House that in a free enterprise economy, banks play such an important role for everyone ... that the banking system itself cannot be allowed to fail."
Mr Brown said he was grateful for the Opposition's support.
"I hope we can proceed now on the basis that there will be all party support for the actions we have taken today and will be taken in future days.
"I believe the scheme we have put forward, which is a stability and restructuring programme, is not simply about new capital for the banks. It is increasing liquidity into the system, so that there is overnight and short term lending available for the banks.
"It is dealing with what is perhaps the bigger problem at the moment and that is medium term funding. Small businesses need to get funding. At the same time, mortgage-holders and prospective homeowners need to know that the market can resume.
"The absence of that medium term funding ... is something that has hindered the market and the market is frozen up in these areas.
"So we are guaranteeing £250 billion. It will be at commercial rates.
But we will do the job that the banks usually do and should be doing in normal circumstances.
"The cut in interest rates will assure people that all action is being taken in the economy, so that we can help businesses move forward.
"We are showing we will do everything in our power to maintain the stability of the economy in the interest of every single British person."
Mr Cameron said the real test of success was not just about banks starting to lend to each other but whether small business could get loans again and whether prospective homeowners could get loans again.
"Aren't they the real tests that need to be met and can you explain how you will be measuring whether they are met?"
Mr Brown said the key issue for small and medium sized business was cash flow and access to finance.
"They need to be helped through this critical period." Late payments problems had intensified.
"The Government can ease this situation and we will help cash flow through prompt payment.
"The Government has already agreed to move its procurement rules from payments within 30 days to a commitment to pay as soon as possible.
"In the current climate we need to go further with a harder target. We will aim to make small and medium sized enterprise payments within 10 days."
To cheers, he said: "The Government will pick up the cost of this. But this is a small price for greatly increasing cash flow ... to small and medium sized enterprises."
The Government was also proposing the European Investment Bank increased its loans worth up to £4 billion to UK banks for use by small and medium sized enterprise.
"We are doing and will do everything we can to assist small and medium sized enterprises throughout this difficult period."
Mr Cameron said taxpayers were making an "enormous investment and have potentially a huge liability".
He insisted: "They want to see their interests protected. That should mean no more irresponsible behaviour, no more inappropriate dividend policies and no more indefensible bonus packages.
"Will you confirm these will be conditions of the agreement for getting taxpayers' cash and how will these conditions be enforced once everyone is signed up?"
Mr Brown said it would be a condition of the capitalisation of banks that they would accept new conditions on executive remuneration.
"We are in discussion on a case by case basis with the banks who want to take up this scheme about what will be the level of executive remuneration but particularly the bonus system, which has caused so much difficulty.
"Our aim is to support and reward work and enterprise and responsible risk-taking, but not to reward irresponsibility in risk-taking and excessive risk-taking, that has caused so much damage."
Mr Brown said there were "strings attached" to the deal and the FSA will be proposing a new way of dealing with executive pay, which would allow them to regulate according to the capital requirements of companies that took excessive risk.
Mr Cameron said: "Those banks that are most reliant on this scheme are the banks that have taken the greatest risks and in some cases have behaved irresponsibly.
"Can you guarantee that in those banks there will be no bonuses for senior executives this year?"
Mr Brown replied: "I think we have got to get both sides of this right. You said earlier on you did not want any bank to fail and we will take all the action that is necessary to ensure that banks are stabilised and they can continue and resume their normal process of lending.
"At the same time, we will insist in the conditions in which we issue shares that executive remuneration is as we want – based on responsibility, based on hard work and based on effort and based on enterprise. That will be part of the negotiations that we have.
"I think it is right to say that these should be had on a one-to-one basis between the Government and the companies. Of course, these matters will be made public because that is what companies are required to do."
Mr Cameron went on: "No-one wants banks to fail but also no one wants rewards for failure.
"Taxpayers now have an investment so taxpayers have an interest and they will rightly be infuriated if they see their hard-earned money going in bonuses that are rewards for failure.
"The other thing the taxpayer will expect is that everything possible is done to improve the regulatory system.
"One of the problems is there is no-one in the system who is there to take an overall view of indebtedness in the economy.
"Will you look with a genuinely open mind at restoring the role of the Bank of England, the role that they had for decades on calling time on debt levels in the economy?
"The regulatory system needs not just the right rules but strong institutions. Shouldn't the Bank of England be restored to its proper role in this regard so that this never happens again?"
Mr Brown replied: "Of course under the new legislation, for which I believe there is now all-party support, the Bank of England will have a statutory role in the supervision of the system.
"But I have to remind you that when we came in in 1997 there were seven or eight separate regulators all involved in the system and we co-ordinated that within the Financial Services Authority and we led the world in that way.
"As for bonuses, the FSA will be responsible for issuing rules about capital adequacy to firms and they will take into account whether these firms are taking excessive risk by rewarding people on the basis of short-term gains and not long-term success.
"On a case-by-case basis, where we capitalise the banks we will lay down conditions.
"As for other companies and for the rest of the system, the FSA will now be in a position to regulate the capital requirement of firms according to the risk-taking that is involved."
Mr Brown said he heard what Mr Cameron had to say about the irresponsibility of people in the City and the adjectives he used.
To roars from Labour MPs he said: "I have to remind you what you said on the Andrew Marr Show: 'What you won't hear from this week is the the sort of easy cheap lines beating up the market system, bashing financiers'."
Liberal Democrat leader Nick Clegg said it was a "day of reckoning" for the British economy and would be a "test" for politicians.
"We must show the British public that we can work together to halt the downward spiral in the British economy and that's why, speaking for these benches, I can confirm that we wholeheartedly support this government package.
"When a ship is sinking you send out the lifeboats – you don't argue about who has steered it into an iceberg."
Mr Clegg said this was a "national response" to a global crisis and asked Mr Brown if he would press the IMF to provide support for countries like Iceland that were unable to cover the liabilities of banks on their own.
Mr Brown replied: "The co-ordinated cut in interest rates is an important signal that the world will come together to deal with this economic problem, and I believe that it has come at the right time to show that the action that we are taking, the action that the Americans are taking and the actions taken in other countries in Europe is action that is designed to together solve the problems we face."
The Prime Minister said different countries would choose the solutions that best suited them but that international principles needed to be agreed.
"We need to have responsibility and integrity at the heart of the global financial system," he said.
"We need a global early warning system and co-operation among regulators, but to be frank we in Britain have tried for years but haven't been able to persuade other countries to support and we will continue to seek co-ordinated action on economic policy."
Mr Clegg also called on the Prime Minister to introduce tax cuts to benefit "struggling families facing huge bills" and to close tax loopholes.
Mr Brown said he had always sought to close tax loopholes and outlined the Government's record on helping low and middle income families.
"We will continue to do everything we can to help the hard-working families of this country," the Prime Minister added.
The full article contains 2331 words and appears in The Scotsman newspaper.
