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Mon 13th Oct 2008:

Clegg: Financial crisis may be an economic 9/11.

Liberal Democrat Leader, Nick Clegg has warned that the financial crisis could become an “economic 9/11”. During a speech to the IPPR think-tank at Canary Wharf, Mr Clegg said that the consequences of the banking crisis could breed conflict and instability and push democracies into narrow nationalism. He said: “In our world, economic strength is power. We do not yet know, when the dust settles from this crisis, where the power will lie. The financial collapse we are caught in may prove to be an economic 9/11. “9/11 was a security crisis, with security implications. This is an economic crisis, but its economic and social security implications are potentially no less profound.” Mr Clegg also welcomed the Government’s £37bn bail-out plan, and called for a “sea change” in the financial services industry bonus culture. He also demanded that European leaders “step up to the plate”. He added: “This crisis has proved that in our globalised world chains of cause and effect have no regard for territorial integrity. “European governments have a responsibility to reduce inequality in their own countries and to work together to reduce it across Europe as a whole. Extremists target vulnerable and marginalised groups. They will only find sympathy for their cause if disaffected groups feel that economic injustice has pushed them right to the edge. “It is up to European leaders to emulate the courage and cooperation that fixed the global economy the last time it lay in tatters. This time they must embrace the new powers of China, India and Brazil, rather than sustaining the post war settlement of over 50 years ago.”

Wed 8th Oct 2008:

Commons Diary 6th - 8th October.

MPs questioned Alistair Darling on the economic crisis, Ed Davey criticised the government and Tories for their responses to the South Ossetia conflict, Nick Clegg challenged Gordon Brown over cooperation on the economic crisis at PMQs. Monday October 6th MPs returned from the summer recess to question Alistair Darling on the economic crisis. Vince Cable urged the Chancellor make it clear that, in these emergency conditions, "the mandate of the Bank of England must include responsibility for averting a meltdown in the financial and economic system". Malcolm Bruce also spoke about the importance of getting a cut in interest rates, and said this should be accompanied by a cut in taxes to help people deal with rising costs. Susan Kramer made a similar point, saying that the inflation target should be put into abeyance for a period, to allow the Bank to take the steps necessary to prevent the present crisis from spilling over into the rest of the economy. Later, Jeremy Browne welcomed the second reading of the Dormant Bank and Building Society Accounts Bill, but said there was an important discussion to be had on the degree to which individual banks and building societies should be able to take a more local approach to projects that they have supported for a considerable period. Martin Horwood also spoke in the debate, making a robust defence of mutual building societies, noting that they were all still healthy while all those that demutualised had either crashed, been swallowed or been nationalised. Earlier, at DCMS questions, Don Foster challenged the government over the rules of ownership for football clubs. Bob Russell called for "a royal commission, or some other inquiry, into the whole stewardship and future of the national sport". Tuesday October 7th At foreign affairs questions Edward Davey accused the Government and the Conservatives of a 'deeply flawed' response to the summer crisis in South Ossetia, in proposing fast-track membership of NATO for Georgia and Ukraine. Lorely Burt asked about claims by a former CIA officer that the British territory of Diego Garcia had been used by the US to hold and interrogate terror suspects. In Westminster Hall, Steve Webb obtained a debate on the regional spatial strategy for the south-west. He attacked the strategy for being undemocratic and "incredibly top-down". Annette Brooke said the strategy would mean "the destruction of beautiful areas forever". Dan Rogerson said he hoped that, at some point in the future, there would be "a far more transparent, grass-roots-led programme that... gives communities control over their future." Matthew Taylor, Jeremy Browne, Julia Goldworthy, Stephen Williams, David Heath, Andrew George, Martin Horwood and Don Foster all contributed to the debate too. John Pugh obtained a debate on the Local Government Standards Board, in which he warned that the Board was presiding over a "grotesque failure of natural justice" in some cases. Tom Brake spoke in a debate on anti-drug awareness, calling on the minister to set out an action plan to address the patchy drugs and alcohol education in schools and prisons. Wednesday October 8th At PMQs, Nick Clegg challenged Gordon Brown over cooperation on the economic crisis at cross-party and international levels. He demanded the Prime Minister give more detail on plans for coherent EU and international action, and "recognise struggling families need money in their pockets now" while closing tax loopholes exploited by the rich.

Parties must work together to halt downward economic spiral - Clegg.

At Prime Minister's Questions, Nick Clegg asks for more detail on plans for coherent EU and international action, and urges tax cuts for struggling families On the day the Government announced a £50 billion rescue package for British banks, Liberal Democrat leader Nick Clegg challenged Gordon Brown over cooperation on the economic crisis at cross-party and international levels. He demanded the Prime Minister give more detail on plans for coherent EU and international action, and "recognise struggling families need money in their pockets now" while closing tax loopholes exploited by the rich. The exchange in full Nick Clegg I would like to add my own expressions of sympathy and condolence to the families and friends of those brave British servicemen who lost their lives during the summer recess in Afghanistan. This is indeed a day of reckoning for the British economy. It is also a test for this House. We must show the British public that we can work together to halt the downward spiral in the British economy. That is why, speaking for the Liberal Democrats, I can confirm that we wholeheartedly support the Government package. When a ship is sinking, we send out the lifeboats. We do not argue about who has steered it into an iceberg - that is a debate for another day. This is a national response to what the Prime Minister has rightly called a global crisis, so we need global responses, too. Will he give the House a bit more detail on exactly what he is doing to ensure that the European Union finally acts together? Will he and the Chancellor press the IMF later this week to provide support to Governments, such as Iceland's, who are overwhelmed by the crisis and unable to cover the liabilities of their banks on their own? Gordon Brown Once again, I am grateful for the right hon. Gentleman's question, because it allows me to explain, if he will allow me to do so, what we are doing in concert with our European partners and what we want to see happen at a global level. First, the co-ordinated cut in interest rates is an important signal that the world will come together to deal with this economic problem. 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 action taken in other countries in Europe is action that is designed to solve together the problem we face. The problem is that the banking system has been overwhelmed by the fall-out from the sub-prime market in the United States and the bad assets that have been taken by many banks. Our method of doing this is to strengthen the banks in our country. In America, they are trying to move those bad assets into a Government fund. We feel that what we are doing is best for the banking system here, so while action is co-ordinated, each country will choose different things to do. On Friday, the G7 will meet and agree co-ordinated action on transparency, disclosure and how we deal with accounting standards. I believe that the changes such as the new colleges of supervisors that will regulate multinational companies across frontiers should come in immediately and be set up before the end of the year. There will be a meeting of the IMF on Saturday, which I believe will agree the same principles. Having talked to President Bush yesterday, I think that we will have an international leaders meeting soon to look at what we can do together. We need to have responsibility and integrity at the heart of the global financial system. We need a global early-warning system and co-operation among regulators that, to be frank, we in Britain have tried for for years, but have not been able to persuade other countries to support. We will continue to see co-ordinated action on economic policy. Nick Clegg I am grateful for the Prime Minister's reply. I am sure that he will agree that although this package is hugely important, it is only one part of the jigsaw that needs to be put together to get the economy back on track. He has said, rightly, that this is a time for new thinking, not for old dogma, so does he recognise that struggling families facing huge bills need more money in their pockets now? Will he act to close the numerous loopholes in the tax system, which benefit only the very wealthy, and use that money to cut taxes for people on low and middle incomes, who need that money the most? Gordon Brown I am grateful to the right hon. Gentleman. Of course, wherever there are loopholes in the tax system we will act to close them, and have done so over the last nine years. He asks about money going to hard-working families in this country to help them through these difficulties. Every family-in fact, 22 million families, basic-rate taxpayers-will receive £120 as a result of the decisions made by the House to give a tax cut. Equally, at the same time, as he knows, pensioners will receive £250 in the next few weeks for their winter fuel. Pensioners over 80 will receive £400 to help with their fuel bills. We have also extended help to low-income families by increasing the social tariff numbers to half a million and more. We are trying to do more in that area. We are trying to deal with the unacceptable problems raised by pre-payment meters. We will legislate if necessary to stop the practice of discriminating against those on pre-payment meters and we will continue to do everything we can to help the hard-working families of this country. Click here to read the rest of PMQs

Cable responds to £50 billion bank rescue package.

Vince Cable questions the Chancellor over the conditionality of the rescue package, and calls for reposession to be made the very last resort when people are facing difficulties with mortgage repayment. Responding to the statement in Parliament by Chancellor Alistair Darling, on the Government's bank rescue plan and a cut in interest rates, Liberal Democrat Shadow Chancellor Vincent Cable said: My colleague and party leader has already made it very clear that we support these measures as being in the national interest. They strengthen the banks and protect taxpayers' interests in a very difficult situation. However, the situation is fast moving: I think that the Chancellor is now aware that it has emerged in the past hour or so that eight London councils-and no doubt many others-have large holdings in Landsbanki. That problem will require his immediate attention. The key question that I wish to pursue in relation to the Chancellor's statement has to do with how the investment in the banks is to be secured. When the IMF bails out countries, it imposes conditionality. How will the conditionality for the banks be enforced and monitored? How will the Chancellor ensure that the taxpayer's money going into the banks comes out at the other end, so that he is not in effect pushing on a piece of string? What sort of assurance can workers and companies have that, at the end of the month when salaries and bills have to be paid, the money will be there in the banking system? Also on conditionality, I have been as stunned as the right hon. Gentleman has been by the sudden conversion of the champions of the bonus culture to advocates of a 1970s-style incomes policy. None the less, the Conservatives are right to say that there must be a fundamental change in banking culture. I hope that that will be carried forward in this programme. I welcome very much the decision on interest rates, which is all the more powerful for having been done collectively. It represents a recognition that we are not, as the Chancellor said, simply dealing with difficult times. We are also dealing with different times that require a fundamentally different approach from central banks. The key point is that we are moving on from problems in the financial system to problems in the real economy. Ordinary people are going to ask, "If the banks can be bailed out, why can't we be?" In that context, will the Chancellor speak to the Justice Secretary about introducing new procedures for the courts, to ensure that repossession is the very last resort when people are experiencing serious difficulties with their mortgage payments? That is not the case currently for many of the creditors. The Chancellor has been able to find £50 billion for the banks, so will he now ensure that the £8 billion that has been approved already for social housing is used rapidly to acquire the land and property that is becoming available at very big discounts, so that it can be made available for affordable housing? That would save many builders' jobs and prevent the new accumulation of toxic loans in the banking system. I think that we all acknowledge that this is the first and not the last step in what will be a very difficult process of recovery. Click here to read the exchange and the statement in full

Clegg: All must support the banking rescue package.

Liberal Democrat Leader, Nick Clegg has called for all political parties to support the Government’s banking rescue package on what he described as a “day of reckoning for the British economy”. Speaking shortly after Alistair Darling announced the £50bn package, Mr Clegg described a “fundamental shift in the way we view banks” and called for the obligations banks have to the public to change for good. He said: "With the support banks are now receiving, it is no longer justifiable to impose aggressive repossession policies on homeowners and insolvency policies on businesses. “The short-term bonus driven ethos must end today, starting with an end to all bonuses for bank board members whose role it is to ensure the stability of banks over the next decade rather than maximising profit over the next few months. "However, this is only one part of the jigsaw. We also need wider changes to help ordinary families: a cut in interest rates, tax cuts for those on low and middle incomes and a significant overhaul of the regulations governing the banking system. "Finally, although we fully support the steps taken today by our own Government, its is clear that what is also needed is international agreement on a new regulatory framework. Unilateral efforts are unsustainable. "Today we have seen a national response to a global crisis. Any long-term solution must be global too."

Elderly paying £1.6bn in social care charges - Lamb .

Elderly people paid £1.6bn in charges for their social care last year, new figures released today have revealed. These charges, levied on older people by local authorities under the means-tested social care regime, accounted for one fifth of all spending on services for older people, which totalled £8.9bn. A breakdown of contributions shows that older people paid: · £892m towards residential care · £258m towards home care · £37m towards equipment and adaptations Commenting, Liberal Democrat Shadow Health Secretary, Norman Lamb said: “The current long-term funding system for personal care for the elderly in England is simply not workable. “It is unfair, ineffective and unsustainable. People who use or work in the system find it irrational, confusing and unjust. “The Government has been dithering over reform for too long. We need radical reform of the system now. “The Liberal Democrats have proposed an extra £2bn to help fund a Care Guarantee which would entitle all older people to a personal care payment, based on need and not the ability to pay.”

Tue 7th Oct 2008:

Clegg reveals changes to Liberal Democrat Shadow Cabinet.

Liberal Democrat Leader, Nick Clegg today announced changes to his shadow cabinet team to reflect the new Government structure. The new appointments are: Alistair Carmichael Shadow Secretary of State for Scotland and Northern Ireland Tim Farron Shadow Secretary of State for Environment, Food and Rural Affairs Sarah Teather Shadow Housing Minister John Thurso Shadow Secretary of State for Business, Enterprise and Regulatory Reform Steve Webb Shadow Secretary of State for Climate Change and Energy In addition, David Heath will lead a Commission on Privacy with a remit to examine the current state of privacy in the UK and how new technology can be used to protect rather than undermine the confidentiality of personal data. Commenting, Nick Clegg said: “The team I am announcing today is a reflection of the vast talent in the Liberal Democrat party which will be able to hold the new cabinet to account. “I look forward to working with them to take forward my agenda and show that the Liberal Democrats are the only party with practical plans to help people in their everyday lives.”

Mon 6th Oct 2008:

Cable: Government must be clearer.

Liberal Democrat Shadow Chancellor, Vince Cable has called for the Government to be clearer in its response to the financial crisis. Speaking after Alistair Darling pledged to do whatever was necessary to support the banking system, Mr Cable called for all parties to work together in the national interest. He insisted it was “not a time for recrimination about past mistakes”, but argued that the Government must be clearer about its plans while people are so anxious about their savings. Mr Cable said: “In relation to bank deposit guarantees, it seems to us that if the Germans are to make an explicit guarantee to protect depositors savings we shall have to do the same for the UK high street banks. “Of course deposits are totally safe. “But people are anxious and the Government needs to make it clearer than it is doing, what depositor protection actually means. There are questions about accounts in merged banks, small private businesses and large sums temporarily on deposit during a house sale. “Second, the Government’s case by case approach to bank failures has been sensible so far and the right one in the case of Bradford and Bingley and the Lloyds-TSB - HBOS proposed merger. But we are in a dangerous environment in which banks are being picked off one by one. “I made proposals yesterday in a Sunday newspaper and the Conservatives have done the same, supporting re-capitalisation of banks based on part-nationalisation. Such a scheme would protect the taxpayers’ interests better than a US style bail out. “If the Chancellor cannot say any more now can he confirm that this issues is under discussion with the bank chiefs at their regular meeting at 6pm. “Third, the central question is the availability of credit as much as the cost. But official interest rates are also vitally important for millions of mortgage borrowers and businesses. “I have been for the last decade a strong supporter of the independence of the Bank of England and made my maiden speech on the subject in 1997. The Bank must remain politically independent. “I believe, however, that it must be spelt out by the Chancellor that its mandate must include the possibility of decisive action, including a radical cut in interest rates, to head off financial and economic meltdown. “Deflation, not inflation is currently the risk. Some members of the MPC who are arguing that the crisis is confined to the financial sector need a line of communication to Planet Earth. “The Chancellor has called my comments dangerous. I recognise the dangers but we live in very dangerous times and emergency action is needed. Millions of jobs and livelihoods depend on decisive action in the next few days and weeks.”  

Sun 5th Oct 2008:

Cable: To halt the bank tsunami, slash interest rates.

The Chancellor should write to Mervyn King asking that the monetary policy committee assume a temporary central role in countering the economic crisis, thus allowing for large interest rate cuts says Liberal Democrat Treasury spokesman, Vince Cable. The rules of financial seamanship devised for calm waters and the occasional moderate storm are not proving much use in the face of the tsunami bearing down on us. Panic is the all-too-human reaction. And fear. Leadership is required. Leadership will not come from a committee of economic ministers standing behind the chancellor, debating where to steer and fighting for control of the tiller. There has to be a sense of policy direction. Fortunately there are lessons to be learnt from previous financial tsunamis. The first relates to monetary policy. There is now a severe monetary squeeze taking place, even though official interest rates are negative in real terms in the United States and low elsewhere, including Britain. Banks are hoarding cash and trying to avoid all but the safest customers. After the disappearance of new mortgage lending, lines of credit are being pulled from companies and individuals. History teaches us that interest rates should be slashed during a banking crisis to stave off deep recession. This has happened in the United States, but not in Britain. The approach of the Bank of England's monetary policy committee, dictated by its mandate, is to balance deflationary against inflationary risks with, in practice, occasional small adjustments in interest rates. The committee is in danger of becoming irrelevant in an environment where short and medium-term inflationary risks are massively outweighed by the danger of a once-in-a-lifetime collapse of the financial system. Central bank independence must be maintained - not least because, after the crisis has passed, intervention by governments could have big inflationary consequences. What is required is for the chancellor to write to the governor saying that on a temporary emergency basis the committee should assume a central role in countering the crisis with a large cut in interest rates. A big cut - conceivably as much as two percentage points - would have a big psychological impact on consumer and business confidence when it is most needed. Second, a far-reaching approach is required for the banks. Hitherto the Bank has provided unlimited liquidity (at a penalty rate and against sound security). Beyond that, banking crises have been dealt with on an ad hoc basis with, now, two nationalisations, an officially orchestrated merger (Lloyds TSB/HBOS) and various takeovers (Alliance & Leicester by Santander; smaller building societies folded into Nationwide). That approach has been right. The danger, however, is that the collapse in investors' confidence in banks could result in the remaining high street banks being picked off, one at a time, resulting in a succession of messy nationalisations or forced mergers. There is a case for a more systematic approach. A good model for managing a banking crisis is Sweden. After the collapse in the property market in the early 1990s, not dissimilar from America and Britain today, the banks had insufficient capital and there was a confidence crisis. The focus was on recapitalising the banks. Debt-equity swaps and new equity issues were generated under a government-managed programme. The government either nationalised banks or acquired a stake in them. When the banks' balance sheets were sufficiently robust and economic conditions had improved, the government sold its stake (and made money for the taxpayer). A variant of the Swedish model could be applied here. One step would be to help banks to raise fresh capital from the markets. At present banks cannot make rights issues because share prices are depressed and confidence has gone. Even in better conditions, underwriters have been left with a large chunk of shares. Were the government to agree to act as underwriter (for a fee) it is much more likely that capital would be raised or, if not, the government would acquire convertible preference shares and hold them up to the underwriting limit. The shares could be sold later, as in the Swedish case, but in the meantime they would generate an income for the taxpayer. The financial crisis has touched only the edges of the real economy. Nobody seriously expects that to last. There has to be a coherent government response starting with the most vulnerable part: housing. It would be wrong to try to prop up house prices which still have some way to fall to restore affordability. A better approach would be to use the £8 billion the government has committed to social housing for social landlords to buy surplus land and property at the hefty discounts being offered. A large programme of social house building and property acquisition would help to reduce housing need and revive the sheltered house building industry while creating a public sector asset. Beyond that lies the need for a new regulatory deal with the financial community. This should not be done when the public mood is understandably for hanging, drawing and quartering anyone connected with banking, although there is scope for some early practical reforms linking bank capital requirements to the economic cycle. There will be time enough for post-tsunami reconstruction. The priority now is disaster management. Vince Cable is the Liberal Democrat Treasury spokesman

Fri 3rd Oct 2008:

Clegg: Europe has to work together to end this turmoil.

Writing in the Financial Times, Nick Clegg calls for a Europe-wide response to the financial crisis that is both systemic and consistent. Traumatised by the devastation of the second world war, the founders of the European Community were guided by a simple insight: economic integration and stability are the cornerstones of peace and prosperity. Economic meltdown and nationalism in the 1930s created the seedbed for extremism and war in the 1940s. So, as EU leaders meet at an emergency summit this weekend, Europe's history provides them with a stark lesson: collective action is vital in the face of an economic crisis that recognises no borders. As national governments scramble to come up with their own solutions for the turmoil in their financial markets, the risk of beggar-thy-neighbour policies is becoming apparent. When the Irish government announced this week that it would extend a 100 per cent guarantee for all deposits in Irish banks, savers promptly moved their money from other European banks to Irish ones. Such dissonance in the policy responses between interdependent European economies is a recipe for uncertainty. This is the last thing we need when markets and consumers are suffering a crisis of confidence. So this weekend's summit must draw a line under the ad hoc reactions of national governments and start spelling out a response that is systemic and consistent between one country and the next. First, a broadly similar approach to depositor protection must be adopted. We have the perverse situation where levels of protection vary not only between countries but, in the UK, between banks too. Those with savings in Barclays can expect protection up to £35,000 (€44,000, $62,000) while those with Northern Rock or Bradford & Bingley are fully protected. Such discrepancies are unsustainable. The level to which deposits should be protected is an issue of much debate. But one thing is certain: in an open European market the playing field must be level. Second, the EU must urgently decide where it stands on the application of existing state aid and competition rules. Individual states have already unilaterally waived competition rules because of the exceptional gravity of the crisis, such as in the UK with Lloyds TSB's takeover of HBOS. It is now time for Europe as a whole to decide whether in the short term the public interest is best served by the continuation of competition and state aid rules or whether a more flexible approach for a temporary period of time is justified to facilitate private sector solutions for failing banks and to boost depositor confidence. Third, we must forge a common approach to credit rating agencies that failed so spectacularly to identify the huge and accumulating risks in the banks they were rating. While they must not be made into scapegoats for the failings of lenders, they must be subject to higher levels of scrutiny and transparency. Compelling them to publish in full who is paying their fees would be a good start in eliminating any suspicion that they may have been operating under conflicts of interest. Fourth, the EU must play a pivotal role in redesigning the architecture of the international financial system. The Bretton Woods institutions, designed to deal with the challenges of the 20th century, have been impotent when faced with a 21st century crisis. Banks are global entities and, as the credit crunch has shown, their actions in one or two regions have a ripple effect across the world. In this corporate world without borders we must now consider the case for an international watchdog with real powers to identify and prevent systemic risk. Finally, European leaders must demonstrate that they can learn from each other to sketch out a systemic approach to the future of financial services. The Swedish response to its own banking crisis in the 1990s and the more stringent approach of Spanish regulators to the use of new financial instruments are two examples that may provide a guide to policy responses. While the immediate task is to restore liquidity to lenders and confidence to depositors, wider public faith in European capitalism requires leadership beyond existing ad hoc reactions from national governments. We are in the eye of a storm, the enormity of which we still cannot fully grasp. It is difficult for policymakers to work with others when they are barely able to keep track of what is going on in their own backyard. But the corrosive effect of fear and panic will only lift once we start working with each other and planning for the future. That is the challenge - and opportunity - for Europe's leaders. The writer is leader of the Liberal Democrats Original Financial Times article.

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