Ministers clashed with the banks yesterday after most refused to pass on in full the one percentage point cut in interest rates announced by the Bank of England.
Gordon Brown said the Government would hold another round of talks to urge them to lower their rates for borrowers. "Remember last time there was a cut, we had to speak to them before it was passed on and we will be speaking to them again," he said.
The Prime Minister dismissed criticism that savers, including many pensioners, are seeing their incomes squeezed by low interest rates. "What I would be worried about most is if we had inflation going up and taking away the value of people's savings," he said in a television interview yesterday. "The interest rate going down is necessary to get the economy moving again. If you are a saver the best protection you have is that inflation is kept low."
Alistair Darling, the Chancellor, added: "It really is important that we see these reductions passed on because that is the best way of helping the economy get through this difficult time."
Banks faced further criticism as it emerged that first-time buyers and people who remortgage newly-bought homes face an interest rate of about 6 per cent – three times the new base rate. Moneyfacts, the personal finance publisher, said banks were making considerably more money from their fixed-rate mortgages than a month ago. But Angela Knight, chief executive of the British Bankers' Association, said: "The cost of funds to lenders and the rates they charge to borrowers depend on a range of factors, of which base rate is one."
Sir Howard Davies, the Bank's former deputy governor, said the Government should stop trying to dictate terms to the banks. He said: "The banks have got to raise money both from depositors and indeed from the inter-bank market."
The Government's attempt to reassure householders that they would not lose their homes in the recession were called into question as the Tories accused Mr Brown of over-hyping the scheme under which people will be able to defer mortgage interest payments for up to two years. On Wednesday, the Prime Minister said: "I am pleased that I can announce today that the country's eight largest lenders have already agreed to sign up and work this new scheme, the detail of which will be published in the next few days."
But Mr Darling told BBC Scotland: "What we need to do is work to make sure the banks are on board ... The time for signing up is once the details have been finalised."
George Osborne, the shadow Chancellor, said: "Keeping people in their homes has got to be a priority, but listening to the Chancellor, you get the impression that the details of this scheme have been scribbled down on the back of an envelope. It's very important in this difficult economic time that the Government inspires confidence in its activities and people feel it knows what it's doing."
Speaking in Newcastle yesterday, Mr Osborne said ministers should admit that the injection of taxpayers' money into banks had not unblocked the lending logjam. "The Prime Minister can either stubbornly stick to a plan that isn't working, stand on his soap box and lecture the banks while they ignore him, and watch the economy slide deeper into recession," he said. "Or he can swallow his pride, admit he got it wrong, change the bank rescue package to make it work, so that instead of more ministerial grandstanding the banks actually start lending again and passing on rate cuts."
Vince Cable, the Liberal Democrats' Treasury spokesman, accused ministers of giving banks conflicting signals. "On the one hand they are being called on to make rate cuts and on the other being told to operate commercially and strengthen reserves," he said. "Bankers are being pushed and pulled all over the place with no clear sense of direction or strategy. The top priority must be to maintain lending to keep the economy going."
Retail woe: Five days of devastation
The bicycle retailer and car maintenance chain Halfords Group announced it would be cutting 250 jobs at its stores across the UK.
Moss Bros, which includes the Moss high street chain and the Hugo Boss retail franchise, announced sales had fallen by 3.6 per cent since the start ofthe year.
Glasgow-based retailers Bowie Castlebank, the group behind Klick Photopoint and Max Spielman film processors, and William Munro dry cleaners, called in administrators and cut 817 jobs.
The world's third-largest retailer Tesco posted its worst sales for 15 years, down 3 per cent for the same period last year.
Marks & Spencer opened for its second 20 per cent off sales day in a fortnight after sales fell by around 19 per cent for the week ending 29 November.
Nearly 200 people lost their jobs when the 80-year-old York-based toy and stationery distributor J A Magson, which supplies supermarkets including the Co-op, Sainsbury's and Somerfield, appointed administrators.
The Pier, which employs more than 400 people in 31 home-sector stores and 17 concessions, also called in administrators.
Struggling JJB Sports, whose share price fell by 50 per cent last week, confirmed that it was in talks with banks regarding the restructuring of existing loan arrangements.
Some 450 jobs have been cut at Woolworths by its administrators. The jobs were lost in support operations at Marylebone Road in London and at Castleton in Rochdale.