Speeches recovered from the Conservative party’s online archive More…

George Osborne: The second bank bailout

Mr Speaker, I thank the Chancellor for his statement.

But I think he should have been straighter with the British people about what is happening today. This is not some long-planned, carefully thought-through 'second phase' of government policy.

It is instead the clearest possible admission that the first bailout of the banks has failed and now they have no option but to attempt a second bailout.

A bailout whose size we still don't know, whose details remain a mystery and whose ultimate cost to the people of Britain will only be known when this government has long gone.

Of course, we cannot allow the banking system to fail.

But for two months now we on this side have warned the government that the bank recapitalisation wasn't working, that the cost of the preference shares was too high, that the liquidity operations had to be extended, that the promised lending to businesses was not taking place, and that government guarantees to get lending flowing to the real economy were needed.

For almost a year we have argued for counter-cyclical rules that control bank lending in the boom and encourage it in a bust.

Each one of these arguments was dismissed by those opposite and each one is today accepted by them. 

The Prime Minister finally has been forced to confront the truth: he hasn't saved the world; he certainly hasn't saved the economy, and he hasn't even yet saved the banks.

Let's remember what he promised last autumn.

He said from that Despatch Box "the aim of recapitalisation is to ensure the flow of money to small businesses and families in our economy" (Hansard, 22nd October 2008).

Yet he did nothing to make that happen. 

And the result since has been dozens of companies going bust through lack of credit, thousands of jobs being lost, while the Prime Minister and his Chancellor wasted their time on a temporary VAT cut the country could not afford.

The Prime Minister also said at the time of the first bailout in October that: "we believe these shares [bought by the taxpayer] will grow in value over the next period of time".

Well, perhaps the Chancellor could confirm today that on current market valuations the taxpayer has lost almost £17 billion on those shares.

And we now discover they didn't have a clue what they were buying, and they didn't bother to find out.

They didn't appear to know that Royal Bank of Scotland was preparing to post the largest loss in British corporate history.

Indeed, on today's share price that entire bank is worth less than the £5 billion of preference shares he is swapping.

And the Prime Minister says in his interviews he's angry with the bank - what about the anger of the taxpayers who trusted him with their money?

And so when the banks come to the government now and say "Please can I have some more?" - we expect the Prime Minister and Chancellor to answer these questions before they say yes.

First, will the government conduct its own full, independent audit, not just of the agreements signed, but of the balance sheets of the banks so we know exactly what we the taxpayer are now underwriting?

The Prime Minister called this weekend for the banks to come clean about their losses. 

Well instead of pleading with them, why doesn't he insist? 

This is what the Swedish government did when it pursued the bad bank model in the early 1990s.

It is the minimum required to price correctly the insurance the government is offering and to protect the taxpayer from catastrophic loss.

It is the minimum to reassure the public that there is some control on their losses and they are not writing a blank cheque.

And that is the second question the Chancellor must answer.

How much is the taxpayer in for?  What is the potential loss this time?

He couldn't tell us this morning on the radio, even as the Treasury was briefing everyone it was £200 billion.

What is the correct figure? What is his estimate?

Surely it's the very least that Parliament and the public have a right to know.

We need to be absolutely sure that the threat of insolvent banks does not turn into the threat of an insolvent country.

We need to be clear that our country's reputation in global markets and its credit rating is not put at risk.

Finally, will the Chancellor be straight with people about the announcement today of an 'asset purchase facility' which he mentioned in his statement.

He mentioned it in passing, but he didn't spell out that it could have implications for the whole country for years to come.

For this 'asset purchase facility' gives the Bank of England the power to use asset purchases for 'monetary policy purposes'.

That amounts to a programme of 'quantitative easing'.  It is the modern equivalent of printing money.

And while no one rules it out, it is a last resort for governments who have run out of other options.

Two weeks ago the Chancellor said in Liverpool that said it was an 'entirely hypothetical debate'.

Today it has become a real option for which the government is clearly preparing.

What has changed in the last fortnight?    

Mr Speaker,

The first bail out has failed.

The VAT cut has failed.

None of the endless summits and initiatives have worked.

Unemployment continues to rise and new figures out this morning show Britain is set to have the deepest recession of any major economy in the world.

The government has achieved nothing.

As the Prime Minister asks the British people to put more of their money on the line, surely the time has come for him to stop blaming everyone else - and start accepting his own responsibility for the boom that turned to bust.

When will they accept that the buck stops with them?

Keyboard shortcuts

j previous speech k next speech