Briefing from the Prime Minister’s Spokesman on: Brussels, taxes, Recapitalisation Programme/interest rates and misc
Brussels
The Prime Minister’s Spokesman (PMS) explained that the Prime Minister would be travelling to Brussels tomorrow for the informal meeting of the European Council and that he believed this was a decisive moment for the world economy. We were facing a global crisis that required a global solution, which was why the Prime Minister would continue to work with other world leaders on action to give British families and British businesses the support and security they needed to protect their mortgages, their jobs and their standards of living.
In recent weeks the Prime Minister had been discussing with world leaders (including in Gulf at the weekend and in Brussels tomorrow) the need to take action on five fronts. The first front was cooperative action on monetary and fiscal policy; second was reform of the international financial system; third was immediate action to stop the spread of the financial crisis, including more resources for the International Monetary Fund; fourth was the recapitalisation and resumption of lending by banks; fifth was progress on a world trade deal.
In regards to cooperative action on monetary and fiscal policy we had today seen decisive action on interest rates from the Bank of England (BoE) and European Central Banks. As central banks had taken action to support economic growth at this time, it was right that governments did likewise. We had cut taxes this year in Britain to stimulate growth and made clear that this was not the right time for short term cuts in investment and public spending. European Finance Ministers concluded on 7th October that the application of the stability packs should also reflect the current exceptional circumstances. Yesterday the German Government announced a fiscal stimulus plan and an increase in their borrowing projections. President Elect Obama was also committed to using fiscal policy to support the US economy. With action taken on monetary policy it was becoming increasingly clear that there was now an emerging consensus across the developed world of the need to use fiscal policy in tandem with monetary policy to support economic growth. The Prime Minister would be making this point tomorrow in Brussels where he would also raise the issue of how best to cooperate on monetary and fiscal policies in the future. The Prime Minister would also be setting out a number of things including; the reform of the international financial system and the action that needed to be taken; the five principals referred to earlier; action on crisis prevention, trade deal and the recapitalisation of a number of our banks.
Taxes
Asked when the Government had cut taxes, the PMS said that we announced a £2.7 billion reduction in taxes in May, and that we had also taken action in relation to stamp duty.
Put that the £2.7 billion had been a compensation for a previous tax rise, the PMS said no, not entirely; Alistair Darling made clear in his statement at the time that part of the reason he was taking action was to support the wider economy. Our action on fiscal policy 6 months ago was pre-emptive in order to help support the economy, and today we were seeing similar pre-emptive action from BoE on interest rates.
Asked if we could expect more in the Pre Budget Report (PBR), the PMS said that that was a matter for the Treasury.
Asked when the PBR would be, the PMS said that as and when the Treasury were in a position to announce a date they would do so.
Recapitalisation Programme/Interest Rates
Asked what Yvette Cooper had meant when she talked today about enforcing agreements with recapitalised banks, the PMS said that the banks had made commitments, we expected those commitments to be honoured and we would continue to monitor the situation. Lloyds, who took part in the recapitalisation programme, had released a statement saying that they would pass on the interest rate reduction in full.
Asked if the agreements included a commitment to reduce interest rates, the PMS said that the commitment was in the public domain as it was a public document; from memory the commitment was that banks would ensure the availability of lending at 2007 levels at competitive prices.
Asked repeatedly if the Government expected other banks to do the same as Lloyds, the PMS said that he was not going to make specific comments about the specific pricing of individual mortgage products in every single bank. Yvette Cooper had made clear that it was critical that banks passed the interest rate cut on to businesses and consumers right across the country because we wanted to see the benefits passed on to people.
Asked if the PMS was implying that in a year’s time tax would be lower than it is today, the PMS said that he was not implying anything at all, but stating, as a matter of fact, that we had already cut taxes this year. Issues for future years were for the Chancellor and the PBR/Budget. The key point was that this was now becoming an accepted mainstream view across the developed world. Even countries like Germany, which traditionally took a different approach to the use of fiscal policy, had felt it necessary to introduce a fiscal stimulus plan. We were seeing an emerging consensus that a temporary increase in borrowing in order to maintain public spending and support for the economy was the right and sensible thing to do at this time.
Asked about the reaction from other banks, the PMS said that we should wait as we had not yet seen the full reaction.
Asked if the Prime Minister supported the view held by some other MPS that all banks should pass on the interest rate reduction to their customers in full, the PMS said yes.
Asked if the Government would look at taking steps towards ensuring banks did pass on the interest rate reduction, the PMS said that when there was an interest rate reduction of this magnitude, the public felt they should see the benefit of that. Banks were commercial organisations, but the Government had taken significant action in order to ensure that banks’ customers could benefit from both the lending decisions, and lower interest rates from banks. We would expect banks to now play their part and ensure that customers saw some benefit.
Asked if banks were more likely to pass the interest rate reduction on as a result of the recapitalisation programme, the PMS said that the recapitalisation programme had strengthened the banks, which was its objective. The other objective was to try to free up the inter-bank money market. The intention of the recapitalisation programme was to ensure that customers could benefit from bank lending.
Put that the relation between recapitalised banks and the Government had been described as “arm’s length”, the PMS said that it was an “arm’s length” relationship and that was why the Treasury had set up a new “arm’s length” body to manage their share holdings. The banks made commitments at the time of recapitalisation and the public would expect those commitments to be met.
Asked if the Government had told the BoE to cut interest rates so dramatically, the PMS said no; the banks were independent and made their own decisions.
Put that the PMS had implied that the Government was behind the decision, the PMS said that he didn’t imply any such thing.
Misc
Asked if the Prime Minister would be staying up to watch the Glenrothes by-election result, the PMS said that he didn’t know. However, as he had young children the Prime Minister usually got up early, so he also went to bed early.
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