John Redwood was among those MPs scrutinising the Bank of England’s attempt to improve liquidity in the financial markets and its likely impact on mortgage borrowers when the Chancellor made his statement to the House yesterday. The exchange, taken from Hansard, follows.
Mr. John Redwood (Wokingham) (Con): How much extra cash do banks in the UK now have to deposit or keep for prudential reasons, as a result of the regulator’s change of rules? That will offset the beneficial effects of some of the package. Will the measures be enough to bring mortgage rates down?
Mr. Darling: In relation to the first point, the right hon. Gentleman is aware that the FSA is responsible for the prudential supervision of the banking system and specifying what arrangements are required, first under Basel 1 and then under Basel 2, which is in the process of coming into force.
In relation to the right hon. Gentleman’s wider point about mortgages, we want to make sure that financial institutions are in good financial health, as I said in reply to the hon. Member for Twickenham (Dr. Cable). That means that some of them will have to restore their capital position. I believe that this is a way of helping to restore the position in relation to financial markets. I have made it very clear that, as most people in this country would expect, in taking action through the Bank of England—either in direct interest rate cuts or through today’s support—the Government are entitled to expect that businesses, individuals and, in particular, mortgage payers see the benefits of what we are now doing.
Later, in the debate on the Finance Bill (implementing measures from the Budget 2007, the pre-Budget report last year and the Budget 2008), John Redwood reminded the House of those who would be hit hardest by the highly contentious abolition of the 10p starting rate. When the debate moved on to the fiscal position of the UK and its ability to withstand any economic turbulence, Mr Redwood pointed the huge amount of public sector borrowing as a major concern. His two interventions, taken from Hansard, follow.
1) (Mr Hammond:) …Then, it unravelled. Table A1 of the Red Book exposed the sleight of hand that paid for the tax cut with the abolition of the 10p rate. Then, the Institute for Fiscal Studies identified who the losers would be; the Chief Secretary to the Treasury apparently cannot say the figure, but I will: 5.3 million of Britain’s poorest families. That figure was confirmed, give or take, in the Treasury’s evidence to the Select Committee, and that is after taking account of the increases in tax credits.
Mr. John Redwood (Wokingham) (Con): My hon. Friend is making a very powerful case. Is it not even odder that the people who are going to pay this extra burden through the abolition of the 10p band are exactly those who are hit most severely by the surge in food and energy prices and by the further big hike in fuel duty when they want to travel in their car?
Mr. Hammond: That is what makes the timing of this all the more poignant, and I suspect that that double whammy has focused the minds of many Members in this House.
The thing is that the Prime Minister knew that his tax cut would be paid for by an increase in the tax burden of the poorest. The tax-cutting Budget became the tax con Budget, and boy, is the Prime Minister paying for his five minutes of glory.
2) Mr. Redwood: Does the right hon. Gentleman agree that if we add the unfunded pension liabilities, the PFI and PPP off-balance sheet liabilities and the off-balance sheet liabilities for Network Rail and Northern Rock, public sector total obligations are in excess of gross national product, at around Ă‚ÂŁ1.5 trillion? That is an enormous figure.
John McFall: As the right hon. Gentleman knows, the Treasury Committee comprises members of all parties—his own, the Liberals and Labour. We have concluded that the fiscal position of the UK is strong in comparison to other EU countries.