Chancellor to urge lenders to pass on rate cuts to borrowers
Banks and building societies will be urged at a crisis meeting with the Chancellor today to pass on cuts in interest rates and give greater flexibility to customers in trouble with their mortgage repayments, after the biggest bank bail-out in a generation.
The unprecedented £50bn injection of funds by the Bank of England, backed by the taxpayer, will allow banks and building societies to ease the credit freeze, and Alistair Darling did not rule out the possibility that the taxpayers' aid could be higher.
Lenders will be told to pass on the benefits to hundreds of thousands of mortgage payers who are having difficulty with their repayments at a meeting with Mr Darling, the Housing minister, Caroline Flint, and the Treasury Chief Secretary, Yvette Cooper.
Northern Rock shareholders protested that the bail-out was an "astonishing U-turn" by the Prime Minister. Roger Lawson of the UK Shareholders Association said: "Not content with rigging the compensation payable to Northern Rock shareholders, the Government now rubs salt in our wounds by offering every other UK bank and building society a state-sponsored solution to their credit crunch woes. This is fundamentally unfair and raises the question whether nationalisation of Northern Rock was really necessary."
As Mr Darling laid out his plan it emerged that Britain's second largest mortgage lender is to reserve its best deals for customers with large deposits, which will further disadvantage first-time buyers. Abbey announced that it will reward customers who can stump up at least 25 per cent of the price of their home with lower rates and that its tracker mortgage would only be available for those with a large deposit.
Privately, anxious Labour MPs warned that the £50bn bail-out was Mr Brown's last chance to rescue his Government from the economic downturn. They believe it is more critical to the Government's chances of winning the next election than the row over the doubling of the 10p lower rate of tax.
On the defensive, Mr Darling said the banking system was so crucial to all businesses and mortgage borrowers that no government could ignore the problems of the banking system.
Under the scheme, the banks and building societies will be able to swap highly rated "triple A" asset-backed securities for government bonds, underwritten by the taxpayer. But the assets comprise both mortgage-backed securities, such as homes, and credit card debts, including credit card debts from the US. Foreign banks are also entitled to bid for the extra finance, if they have branches in Britain.
George Osborne, the shadow Chancellor, said: "We are trying to keep people in their houses not prop up credit card lending." He also claimed that the Treasury was indulging in creative accounting to avoid the banking rescue damaging the Chancellor's national debt figures. He said the £50bn was being carried over 364 days. If one more day had been counted, it would have to be shown as a huge increase in the total for national debt.
Vince Cable, the Liberal Democrat Treasury spokesman, said: "It's a strange day for a Labour government when it is advancing billions of pounds to the banks and at the same time it is taking billions of pounds away from the lowest paid taxpayers."