18 February 2008
Gordon Brown, accompanied by Chancellor Alistair Darling, answered questions from national and international journalists in Downing Street today. Questions centred on the Government’s decision to take Northern Rock into temporary public ownership.
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Prime Minister:
Good morning. Welcome back.
Alistair Darling is joining me this morning. He will make a statement to the House of Commons this afternoon and just before saying something about Northern Rock specifically, let me say something about the international economic context.
The global financial turbulence that started in the sub-prime mortgage market in America has seen a sharp down-turn in the American economy, the biggest write-off of assets in the history of the financial sector - already over $100 billion - a sharp fall in bank shares, some down 50%, and is now leading to a rescue plan being considered in America for the troubled Monoline insurance industry.
In Europe, in addition to the write-offs at Societe Generale, prior to the discovery of fraud, three German banks with potential write-offs running into billions of euros have either been taken over or had to be rescued by state-owned banks, and last week the German Government injected a further billion euros into one bank.
All my conversations with world leaders are dominated by the issue of global financial turbulence. Because we are the most open economy in the world and one of the major centres for financial activity obviously Britain is affected by sharp changes in the global financial markets. But because of the decisions we have made Britain is in a better position to deal with global turbulence. Because of our decisive action on public sector pay last year to support monetary policy in cutting inflation, interest rates which in the Euro area have not come down because of the pressures of inflation have been able to come down twice in recent weeks to the benefit of the public.
This leads me to the decision we have taken on Northern Rock. Our first decision - to isolate the problems at Northern Rock - has prevented its problems spreading to the rest of the financial system. We have ensured the stability of our economy. Our protection for depositors has given assurance that the savings of Northern Rock customers can not only continue as normal, but are safe and secure. So over these 6 months of financial turbulence around the world our first two objectives set out last summer have been achieved, stability, our paramount economic-wide objective and the protection of savers - our promise to the depositors and savers of Britain. We took the right decisions at the right time and for the right reasons. Our third objective is that having maintained stability and protection for depositors we secure the best value for money for taxpayers. The question is was it the right course of action to give the management, shareholders and competitive bidders the time to explore a private sector solution for Northern Rock? Of course the easiest decision, but the short-term one, would have been either to have taken Northern Rock into temporary public ownership immediately and not to have taken the time to seek a private sector buyer, or to have supported a private sector bid regardless of the cost to taxpayers. That would have been wrong. Given both bids that came forward involved a subsidy from government without an appropriate level of return for taxpayers, after detailed consideration and independent advice the Chancellor concluded that the right decision is to hold Northern Rock in temporary public ownership, to be run at arm’s length from the government, under professional management until adverse market conditions change, and then the bank can be returned to the private sector. We will, and always have, put the interests of taxpayers first.
Now throughout the last 10 years when faced with the Asian crisis, the US recession, the Wall Street crash, the trebling of oil prices and now the current turbulence, we have steered a course of stability through difficult times. So my message is, stability is our watchword and will remain so, to protect savers and to secure the best interests of taxpayers, we have the strength to take the long term decisions and the strength to see them through.
Chancellor of the Exchequer:
Yesterday I explained in detail why we had reached the decision that we have to take Northern Rock into a temporary period of public ownership and I will be making a Statement, as Gordon has said, in the House of Commons this afternoon and if the House of Commons approves the subsequent Business Statement we will be taking the second reading of the legislation tomorrow with a view to completing it as quickly as we can.
Since I made my statement the bank is open as normal as I said. In addition to that Ron Sandler who has been appointed as the new Executive Chair of the Company is in Newcastle now, meeting the management, meeting the representatives of the employees, and he has also said that he is going to ask Stephen Hester, who is the Chief Executive of British Land and former Chief Financial Officer of Abbey National, to join the Board as non-executive Deputy Chairman and there will be other appointments that are to be made.
But as I have been saying yesterday and this morning, we did have a choice but having looked at the options, we think the best option is this temporary period of public ownership and that is what we intend to do because that is in the best interests of the taxpayer and right from the start, when we took this decision to intervene, we did so because we had to save this bank because if we had not done so the problems could well have spread to the rest of the banking industry and we are doing what is necessary to see that decision through to a successful conclusion.
Prime Minister:
Thank you very much.
Question:
Prime Minister, do you agree with the analysis that suggests that nationalising Northern Rock will lead to a slow, lingering death for the jobs of its workers, its assets, and Britain’s reputation as a major financial services centre?
Prime Minister:
No and nor did the Chancellor. I think he was referring in that answer to [party political content]. You see the issue before us was, was it right to give a chance for a private sector solution to be found? We had dealt with the problem of stability, and over these last 6 months as you know the spreading out of the problems to the rest of the financial sector was avoided, we had dealt with the problem of protection of depositors, and so savers have been guaranteed. The question was then how can we best protect the taxpayers’ interests? And I believe that we would have been failing in our duty if we had not invited those private sector bidders who had said they had an interest in Northern Rock to submit their plans. I believe also we would have been failing the Board of the shareholders if we had not looked at every possible option available for Northern Rock. But having looked at the options and having had the bids in from the Branson Group and then from the Northern Rock management itself, it became clear that the best interests of taxpayers was served by moving forward with a temporary public ownership solution on the road back to the private sector.
So we were right to explore all the options, we would have been failing in our duty if we had not done so. We had a choice, we could easily have made a choice to go for the private sector option, but that was not in the best interests of taxpayers. Putting the interests of taxpayers first and the interests of stability, we have come to the right decision.
Question:
Inaudible.
Chancellor of the Exchequer:
If you are referring to something that was put to me this morning by your colleague, the excellent Mr Humphrys. You may recall that he first of all put a proposition to me which he said I had said, and then had to concede it wasn’t me that said it at all. He then quoted the first three words of my answer, but forgot to go on to mention the rest of what I said, and I will quote it in full. I said "It is regrettable and surprising that [party political content]. It would also however be a mistake to shut off all other options and simply go for one at this stage. That doesn’t seem to me to make any sense at all." So what I actually said was entirely consistent with what I have been saying ever since this started. I am very grateful for the opportunity to explain through you to Mr Humphrys what actually I said.
Question:
Prime Minister, the Tories say that they believe that you were told by your City advisers back in the Autumn to nationalise the Rock. True or false?
Prime Minister:
No. No. We have looked at all options as we should have done and when it was in September and October there were frankly very few people wanting to buy Northern Rock. In October, November and December there were a number of people expressing interest. When these expressions of interest came forward it was right for us as a government to look at all the options in detail. I think you have got to remember that we are dealing with a board and shareholders in an established company. We would be failing in our duty if we did not look at all possible options that were available to us. The question then was what is the best option to secure the long-term interests of the taxpayers given that we had taken the steps to secure the interests of the depositors, and having looked at all the options, we came to a conclusion on Sunday. Having looked at the Branson proposal, having looked at the proposal that has come forward from the management itself, the best interests of the taxpayers were served by not giving what would have been a substantial subsidy to these private sector owners but at the same time making sure that the taxpayer was in a position to sell Northern Rock on at a later stage. So we have made at all times the right decisions in the interests of both the taxpayers and indeed the stability of the economy.
Question:
Nonetheless I think you would both concede that this is not a triumph. This wasn’t the option which you regarded as most desirable and there are questions about economic competence and confidence indeed in the government. You only have to look at any survey of that. Now what I want to ask you is, if we take this and we put it alongside the Pre-Budget Report, the back-tracking we have seen on Capital Gains Tax, the problem with non-domiciles and now this, it appears that something is going wrong at the Treasury. What do you think is going wrong at the Treasury and what are you doing to do to put it right?
Prime Minister:
I think you would probably agree that we have had global financial turbulence. We have had a situation where banks have been failing in Germany, where banks have been failing in America, where the whole of the Monoline insurance industry in America is under scrutiny at the moment, where there is a down-turn already in America, unemployment is rising, the mortgage market is affected, home building has come to a halt. So we are dealing with a global financial situation. I believe that we have been better prepared because of the actions of Alistair Darling in the Treasury than in other countries, first of all because we have got inflation down as we did by the turn of the year as the result of very difficult decisions, and secondly because of the action we have taken to secure the stability of the economy. So if you look at what is happening in every part of the world, and it is easy to look simply at one or two instances of what is happening in Britain, if you look at what is happening around the world, then we have got a down-turn in America, we have got difficulties facing financial institutions in the rest of Europe, we have this particular problem with Northern Rock as a result of what was a business plan that did not work, could not raise the money in the market-place that was necessary to finance it. We had to intervene on grounds of financial stability and Alistair Darling has made the right decisions. I think if you look at what is the test of economic competence, the test of economic competence is running a stable economy, the test of economic competence is that we have growth in the United Kingdom in the last year higher than any of our G7 competitors, the test of economic competence is that we have low inflation and low interest rates as a result of the decisions that Alistair Darling and the Bank of England have made and the test is that we continue to have rising employment in our country where unemployment is at twice our level in Germany and France and it is rising now in America. Now these are the tests of economic competence which include the protection of the stability of the economy and the protection of the depositors and their savings.
Question:
Prime Minister, the government now owns a substantial mortgage business. Inevitably now the government is going to be repossessing people’s homes when they fail to keep up their mortgage payments. How do you feel about that?
Prime Minister:
This is Northern Rock being run as an independent organisation. Although it is publicly owned, it will be run independently by the management of the company and they will take the normal commercial decisions.
Chancellor of the Exchequer:
I made it clear yesterday that Ron Sandler and his team will run this board at arm’s length from the government and that makes sense. They will have to make the day-to-day decisions as to what is best for the company, they will deal with the bank’s mortgage holders as well as with people investing in the bank, and indeed someone with a mortgage with Northern Rock will be no different position than if they had a mortgage with any other bank or building society. Those decisions will be taken by the company. Indeed it would be unfair to treat a mortgage holder with Northern Rock more favourably than if they had a mortgage with another bank. So it is quite clear that the bank will, yes it will be owned by the government, but it will be run independently by it. And I would just say to Adam that it is worth bearing in mind, the reason that Northern Rock got into this trouble in the first place is because of problems that essentially started in the United States and affected the financial markets with the result that this bank which was totally dependent on an ability to raise billions of pounds in the financial markets, it could no longer do so, and we had a choice: we could either let it go down, which would be hugely damaging to the stability of the financial system, or to intervene to save it and of course that decision was very widely supported at that time.
Question:
[party political content]
Prime Minister:
[party political content]
Question:
Goldman Sachs, your own advisers on this sale, said in a note in early January that the Northern Rock saga had massively damaged the reputation of the City of London for financial services. Do you accept that that is true?
Prime Minister:
What I accept is that any casualty in the financial sector causes problems to every economy where it hits them, but what I do not accept is that London or Britain has been uniquely affected by world events and I think if people look round the world and they look at the collapse of the countryside in the United States, they look at the Monoline insurance industry, they look at the sub-prime market, they look at the three or four banks in Germany that have been in difficulty, they look at Societe Generale which even before the discovery of fraud had to write off very substantial sums of money, they look at the write-offs around the world that are in the order of $100 billion already, they know that these financial problems are not exclusive to Britain, indeed they did not start in Britain. They have affected Britain and I think they will conclude that we in Britain are dealing with them in a far better way than people might have expected given what happened in August. We have shown that we can maintain the stability of the economy, we have shown that depositors have been protected, we are now showing that we are taking the long-term interests of taxpayers into account by the decisions we have made not just to protect stability but to protect depositors and now to protect the interests of taxpayers and I think people will conclude that the test of competence is the stability of the economy and the stability of the economy is being maintained.
Chancellor of the Exchequer:
London remains the world’s pre-eminent financial centre and that is likely to remain the case and wherever you go in the world, London is recognised as being pre-eminent.
Question:
I wonder if you would give an undertaking or consider an undertaking to publish Goldman Sachs’ advice that they have been giving you. Can I also ask quickly, if City institutions are not willing to buy this bank at a price that you think is sensible, does that mean that you have now acquired a lame duck, [party political content]?
Prime Minister:
Not at all. When it came in 2005 to make a decision about Rover cars when it was in difficulty we decided that it was the wrong thing to do to bail out the company or to bring it into nationalisation. I think people do understand that we are dealing with financial sector problems here, the effect on the financial sector, and the spreading out to the financial sector of problems in any one company mean that there are issues of financial stability at issue in dealing with Northern Rock. And that is why we have made the decisions that we have made, and we have made the decisions being faced with a choice. We could have put Northern Rock back into the private sector yesterday, we could have accepted the Branson offer, we could have accepted the board’s offer. But we thought, and this was the difficult decision, that we had to put the long-term interests of the taxpayer first, that it was not the best value for money for taxpayers, that we take it into temporary public ownership and then to bring it back into the private sector when market conditions are better, is the better deal for the taxpayer. And the answer, therefore, to your first question is, we believe that as market conditions improve, we will be able to put it back into the private sector.
Chancellor of the Exchequer:
[party political content] But as the company is refocused, as the housing market comes back, there is every reason to believe that we can have a satisfactory outcome to this.
Question:
Will Northern Rock still be open for new mortgage business and if it is, are you not liable to challenge either the European Commission or in British courts on the basis that it is a publicly subsidised bank? And the second question is, is it a good use of taxpayers’ money to sponsor Newcastle United?
Prime Minister:
It hasn’t been very successful, has it?
Chancellor of the Exchequer:
On the latter point I suspect there is a contractual obligation until the end of the season. Whether it goes on beyond that, I don’t know. But I think in relation to your other points, obviously the bank can only operate at this time with approval from the European Commission under the normal state aid rules which preclude unfair competition. But the alternative is this, and that is rather than keep the bank going, trading as normal, would be to put it into administration and run it down. That would mean that the taxpayer would take the hit immediately. [party political content] I think it is right that this bank should be allowed to operate, continue to trade, but to do so in a way that is approved under state-owned rules, that would allow the company to restructure, to refocus, taking account of the market conditions we have got just now, and then as and when the market conditions improve, when it is right to do so we can return it to the private sector.
Question:
Are you happy to see Mr Sandler develop the bank by reducing it in scope and size, and if that means branch closures and other restrictions, are you happy in an independent way to let him do that?
Prime Minister:
Mr Sandler is free, as the Chairman of the company, to develop the company with a restructuring plan that he will produce in the next period of time. And I think it is important to stress that this is … management, he will look at what can be done but obviously we want a successful company that we can pass on to the private sector at the earliest opportunity.
Chancellor of the Exchequer:
I made that clear yesterday.
Question:
Why is the Chancellor introducing legislation tomorrow to give a general power to nationalise other banks and institutions? Does that mean you think there are more Northern Rocks out there?
Chancellor of the Exchequer:
No. This piece of legislation has to be drafted in this way, but the important thing to remember is there are two very high hurdles that would have to be passed to enable you to acquire a bank: one is that there has to be serious risk of financial instability; the other is that not only has the Bank of England had to provide support, but that in addition the government has had to underpin that support, underwrite that support and report it to parliament. These are exceptional circumstances and moreover we have quite deliberately drawn this Bill so the power to do that will fall 12 months after Royal Assent. Now as I have said earlier, we are consulting on longer term banking reforms which will result in legislation being introduced possibly later in this parliamentary session to put in place you know longer term mechanisms for supporting restructuring as they have got in other countries. But this piece of legislation is being introduced because of the particular circumstances that we face at the present time, it also gives us powers in relation to restructuring and re-ordering which are necessary for dealing with Northern Rock, but the powers to acquire will lapse 12 months after Royal Assent. So I think it does demonstrate that it is temporary and has been drawn up with the particular circumstances that we are dealing with at the moment.
Question:
Can I go on to the international scene for a moment Prime Minister? You will be seeing the Lebanese tomorrow. Is it the case that you are going to be able to put some proposals which will counteract the destabilising effect that Syria is having in stopping any Presidential elections there? And in relation to that are you going to be able to get any assurance that whoever is going to be running Lebanon, they can undo the damage which is being done at the moment by the massive arms build-up by Hezbollah on Israel’s northern border which is continuing apace?
Prime Minister:
Well this is a question you have raised with me before. We are concerned about these issues. I have been discussing with people in the region about what we might do about it, whether there is a case for a new UN resolution on this very issue and whether we can gain support to do so. But I have got nothing to add to what I have previously said before on that.
Question:
Given that you have now been forced to accept a policy which you didn’t want to accept on Northern Rock, do you accept that for all your reassurances today you are losing the public’s faith in your record for economic competence?
Prime Minister:
I think economic competence is about maintaining the stability of the economy, and we are maintaining the stability of the economy. If someone had said six months ago that facing the global financial turbulence we could have contained the problems at Northern Rock, they might have said that that was going to be very difficult. We have contained the problem, it has not spread across to the rest of the economy. We have protected depositors, no depositor has lost any money at all as a result of the guarantees that we have been able to give. And now the question is, and this is why it is important to look at it this way, is what is the best long term interest of the taxpayer when dealing with Northern Rock and its future? And as I repeat, we could have put it into the private sector, we could have had the Branson bid or we could have had the Northern Rock bid, but we judged that this did not give as much value for money for the taxpayer as we could achieve at a later date. So the soft option would have been taking the easy road out and putting it into the new private sector bidders; the long term question was what was the best interest of the taxpayer and we have decided that in the best interest of the taxpayer we will take that difficult decision to hold it in temporary public ownership, when adverse market conditions improve we will sell it back into the private sector. Now the test of economic competence is stability, it is also low inflation, it is low interest rates, it is also high levels of employment, it is also the large numbers of people who have been able to get mortgages in recent years, almost 2 million more home owners. And I believe when people look at that record they will be able to say that we have protected the stability of the economy and we will continue to do so. We will not retreat from ever taking the tough long term decisions that are necessary and we will maintain our record for economic competence.
Chancellor of the Exchequer:
And I did say time and time again that public ownership was on the table, it was an option. We were always serious about that. I have made that very, very clear, as Gordon has on many occasions.
Question:
Chancellor can I ask you, you must have received a piece of paper over the last few days that says worst case scenario on it. Can I ask you what is the full extent of taxpayer exposure as a result of the nationalisation of Northern Rock. And Prime Minister can I ask you that while the storm clouds were gathering over Northern Rock your attention and that of your advisors was focused on the move to No 10. Do you accept that those two are related?
Chancellor of the Exchequer:
I will deal with the position relating to Northern Rock. Look, at the moment the Bank of England has lent Northern Rock money, every penny of which is secured against Northern Rock’s assets, and we remain confident therefore that the Bank of England will be able to get its money back. The second thing we have done is to issue guarantees both in relation to individual depositors, savers, as well as also guaranteeing other parts of the bank. Not one single one of those guarantees has been called so there has been no cost to the taxpayer. In relation to the bank as a whole, yes we will be acquiring it, we will be acquiring its liabilities, we will also be acquiring its assets. And as I have said on a number of occasions Northern Rock does have a good mortgage book and I am confident that when market conditions improve and the housing market comes back then we will be able to return the bank to the private sector because that, everybody agrees, is the only long term solution and that we will be able to get back the Bank of England money which has been lent to the bank. But as I say in relation to the guarantees, they have been given but they have not been called - therefore there has been no cost.
Question:
£100 billion …
Chancellor of the Exchequer:
I have answered your question that in relation to the Bank of England lending it is secured against the assets, in relation to the guarantees which again everybody agreed it was the right thing to do to issue them, they have not been called and therefore there has been no cost.
Prime Minister:
You may be right, perhaps I should have spent the first half of last year looking at the sub-prime housing market in the United States of America and looking in intricate detail at what was going to come out of it. Nobody could have anticipated what was going to happen in that sub-prime market. Having seen the consequences of what happened we have acted quickly, first of all to protect the stability of the British economy; secondly to protect depositors and savers in the British economy; and now to secure the long term interests of taxpayers. I think some of your questions forget we are dealing with a global financial turbulence that is affecting every country, but particularly the main industrialised continents. All countries are having to deal with it in different ways or another, we have had to deal with a particular problem arising from the business plan of Northern Rock and we have dealt with it in the way that we have described today.
Question:
I would like to ask you about what the wealthy Gulf countries can do to repay Britain for their alliance, you know Britain has been their ally in the war against terrorism. How can they help Britain at the moment when you are facing this financial crisis? Is there a role that they can play you know in sort of like investing?
Prime Minister:
We work very closely with the Gulf countries. I may say that one of the issues that arises from the current financial problems around the world is indeed the price of oil. We would like to see a greater supply of oil, we would like to see a better match between demand and supply, that would make it possible for the oil price to come down but that is an issue that all governments round the world are concerned about.
Question:
Prime Minister just to change the subject again, was Mark Malloch Brown right to say that more pressure should be put on China to do something about stopping the killing in Darfur? And if so should that extend to the threat of boycotting the Olympics?
Prime Minister:
Well I have talked to Premier Wen about Darfur in some detail when I was in China and there has been a follow-up to that because the Chinese Envoy for Darfur will be visiting the United Kingdom this week and we hope that China will join us in playing our part in trying to bring both a ceasefire in Darfur and a return to the political negotiations that have stalled in the last few months. We have a developing refugee problem, it stretches right across to Chad, it is something that the United Nations has expressed its views about in the last few months. I believe that China, Britain and the other members of the Security Council can work together to get the African UN peace force into Darfur, to get a ceasefire which includes looking at every option necessary to achieve that, and then to get political talks moving forward. The decisions about the Olympics are a matter for the British Olympic Association.
Question:
Accepting that Ron Sandler has got the day to day management of Northern Rock in his hands, we are all now the owners of this bank and I was wondering if you could share with us some of your strategic thoughts about how we are going to run it. Do you see it a year from now as a bank with more branches and a bigger loan book, or about the same, or fewer branches and a smaller loan book? And do you have a plan if the housing market doesn’t just pick up again?
Chancellor of the Exchequer:
Well as I said yesterday and as I said a few moments ago, Ron Sandler has been appointed with his management team. He will want to assess what is a realistic option for Northern Rock given the current market conditions and he will make his proposals shortly. But you are right, assuming the legislation goes through, the government will own this bank and of course the ultimate decision as to when to return it to the private sector will be a matter for us. But the day to day operations and the running of the bank and those decisions will be made by Ron Sandler and his team.
Question:
… bigger, smaller, the same?
Chancellor of the Exchequer:
As I have told you, he is in Newcastle today, he will over the coming period want to look at the bank and then decide what is the best way in which the bank can be refocused to take account of current market conditions and the prospects for the future. When he has done that he will report.
Question:
Prime Minister we will really only know how politically and economically clever this decision is once Northern Rock is sold. Does temporary ownership mean this will be done and dusted and the sums done by the time of the next general election?
Prime Minister:
That depends on market conditions. We have always said that we want to get the bank into private ownership as quickly as possible, that will depend on how the markets improve over the next period of time and the restructuring plan that Ron Sandler brings in. And we will make a decision based on what is the best long term interest of the taxpayer. And I think throughout all this, when we could have taken an easy option and put it to a private sector bidder, but it would not have been in the best long term interests of the taxpayer, we have been determined to do what is right for the whole country.
Question:
Do you have a timetable?
Prime Minister:
We can’t have a timetable when we are talking about the return of better market conditions as a first step to resolving the issue.
Question:
The shareholders have already been complaining that they are not going to be receiving enough cash and threatening legal action. Can you reassure us that you will stand up to them? And also your Cabinet colleague, Hazel Blears, said yesterday it is very important for politicians to have fun and to relax. Have you managed to have any fun and relax recently?
Prime Minister:
I was at a football match on Saturday.
Chancellor of the Exchequer:
You were lucky. That’s where you were!
Prime Minister:
Unfortunately my team got beaten.
The independent valuer will make his recommendations, as you will see when the Bill on Northern Rock is published. Alistair do you want to add something?
Chancellor of the Exchequer:
Yes, the Bill provides for an independent valuer to make a valuation. But as I have said when answering about this over the last couple of days, this is a bank that had the government not intervened last September it would have failed because it had simply run out of money. It is also a bank that owes quite substantial sums to the Bank of England and we have to be fair not just to shareholders, we also have to be fair to the taxpayers who have supported this bank.
Question:
Prime Minister you said a while back that you intended to make a profit from the rescue operation of Northern Rock. Is that still your intention?
Prime Minister:
Well that is entirely possible. I mean as the market conditions improve and the valuation of the mortgage book improves as well, that will be the issue. You see we had a choice yesterday, we could have taken the private sector option but that private sector option involved a subsidy to the interest rates that were being charged against the new bidders and the return from the sale in what would have been the up-swing didn’t seem satisfactory to deal with that particular subsidy. So we could have taken that option, but the option ahead of us is to see the market conditions improve, to see the restructuring of the company take place and then to get the best long term deal for the taxpayer. And I believe that there is no serious person looking at this at the moment that suggests that this is the wrong thing to do. As far as the other option that has been suggested [party political content].
Question:
It has been a rather curious legacy for a Labour Chancellor to cut inheritance tax, though it is only paid by 6% of the people, and to have cut capital gains tax from 40% to 18% for second home owners and for buy to let owners. What does it say about a Labour Chancellorship?
Chancellor of the Exchequer:
I think it is entirely right that we should recognise that when people die they want to be able to pass on as much of their estate as they are able to do so. The proposals I made last Autumn recognise that people, not only can they pass their estates to their wives, but we have extended the circumstances in which they can enjoy the full benefit and I think that is entirely fair and reasonable to do so. In relation to capital gains tax I wanted to introduce a similar regime because the capital gains tax is very complex and you know I have also subsequently made proposals which I think will hugely benefit people setting up and running businesses. But I think it was the right thing to do, they are both fair and they are reasonable, as indeed is my proposal in relation to those who are non-domiciled. I think it is entirely reasonable that if someone has been here for 7 years or more they should make a fair contribution to the country in which they live.
Prime Minister:
And these proposals have got to be seen side by side with cutting the basic rate of income tax for the vast majority of people to 20p, the introduction of tax credits that benefit 6 million families, and the virtual doubling of child benefit, in particular the allowances for the poorest children in the country. And I think anybody who looks at the effect of that on low income families can see that in addition to all the changes that we have rightly made on inheritance tax and capital gains tax, we have benefited through the changes we made in child benefit and in tax credits to the poorest families in the country to a greater degree.
Question:
Prime Minister what is your message to our readers and also to the people of the North East where Northern Rock is a major employer and a very important part of the community, and similarly the Northern Rock Foundation?
Prime Minister:
That if we had not intervened in August, Northern Rock would have gone under and we have protected not just the depositors but ensured that Northern Rock maintain an existence as a company, and that while the decisions that we make are difficult for the future they have been the best decisions to protect both the depositors and the mortgage holders, and indeed the employees of Northern Rock. And we will continue to do what is in the best interests of the taxpayers as a whole and by doing so I think you will see that we have protected the Northern Rock Foundation which gives £50 million a year to charities mainly in the North East and that money, as Ron Sandler has said yesterday, will continue to be paid by the new Northern Rock company.
Question:
Regarding Kosovo’s declaration of independence I would like to ask what is so special about Kosovo, assuming that you will be recognising it? And what will Britain be doing to assure stability in the region? Thirdly what would be your message to Kosovo, Serbia and Russia’s leaders on this?
Prime Minister:
I think people agree that the old status quo in Kosovo was unsustainable, that the UN Security Council had agreed that there should be final status negotiations, that while an agreement has not been possible yet in the Security Council the European Union’s Foreign Ministers are discussing this very issue today and I believe a statement will be made this afternoon after the meeting about the attitude that the European Union will take to the future of Kosovo. We have had a policy for some time for supervised independence, but the statement has got to be made this afternoon after the meeting of the European Union Foreign Ministers.
Question:
Last week Babcock Marine announced 600 job losses at Devonport dockyard. It had already previously been warned that skills levels had reached a critical level on submarines. I was just wondering, doesn’t this then give you cause for concern, these further job losses and the impact that could have on future submarine work, including of course the nuclear deterrent which you voted to pursue with last year?
Prime Minister:
Well of course any job losses are to be regretted. But I think you will know that we have put in place a defence industrial strategy which is a ten-year strategy which guarantees very substantial work on the basis of orders being made by the Ministry of Defence. One of the biggest beneficiaries of that is Plymouth Devonport dockyard which has done a tremendous job over the years in refitting ships and submarines, and I believe that the defence industrial strategy shows that the future of Plymouth Devonport dockyard is secure.
Question:
I have been speaking to some of the banks and they are concerned that you are planning to extend the guarantee on savings and wholesale funding to all new savings and wholesale funding in the case of Northern Rock which could create an unfair playing field. Could you give some clarity on that?
Chancellor of the Exchequer:
The guarantees remain as they are, as announced at various stages last year. But as I said in reply to an earlier question the conditions under which Northern Rock will do business have to be approved under the state aid rules which are deliberately designed to stop there being unfair competition from something that has a state standing behind it with the private sector. And you know I am very aware of the banks’ concerns and I want to be fair by them, but I think they also recognise that we have got to have a situation where Northern Rock can continue to trade so that it maintains its business and that will then give us options for the future when it comes to transfer back into the private sector.
Question:
Prime Minister you have talked of a global economic downturn. Do you ever feel that the Brown government is actually on the downturn?
Prime Minister:
I think we will be judged over the long term by what we achieve and I think you can see that uppermost in my mind is ensuring the stability of the economy and the stability of the economy has been ensured over these last few months by difficult decisions that we have taken. And I think you will also see that our record on the economy is one that we can be proud of - creating jobs, creating a low inflation, a low interest rate economy and finding the funds that are necessary to expand our public services. And obviously we have to make difficult decisions but you have got to take the long term decision that is in the interests of the country as a whole. It is easy to go for the short term options but by taking the long term decisions I believe you make not only the right decisions but the ones that the public will eventually support.
Question:
Back in the autumn of course you were still thinking about a snap election and that is why you were all sucking up to the voters like mad and refusing to let the bank die. In the meetings you had here and around Whitehall at that time were electoral considerations part of the equation?
Prime Minister:
What we did over Northern Rock was at every time in the best interest of the country. If we had not intervened to save Northern Rock it would have collapsed and its mortgage book, its guarantees to depositors and of course the jobs in Northern Rock. And at the point that we intervened to save Northern Rock everybody supported us - including people who now oppose what we are doing. Everybody supported us, I am talking about every political party supported us, and the reason was it was the right thing to do, it was the right thing to do to stop instability spreading throughout the whole economy. And I believe now, as it was then, it was the right decision to take. We also protected depositors and their savings, but we have had a difficult decision to make subsequently about how we protect the long term interests of the taxpayer, and that is why we had to look at every option that was available to us, whether a private sector solution or whether a public sector solution was available to Northern Rock, and that is what we had to do over these last few weeks. We took the best advice, we listened to what all the different organisations, the FSA and the Bank of England, were saying to us and I believe we have made the right decision for the long term. So at every point, whether it is ensuring the stability of the economy, protecting depositors and protecting the long term interests of the taxpayer, we have been intent on making the right long term decisions for the economy. And of course over 6 months, stability has been maintained. No depositor has lost any money as a result of the guarantees that we have been able to give. Now we have to secure the long term interests of the taxpayer and I believe that yesterday we took exactly the right long term decision to do that.
Question:
When and why are you predicting a housing market upturn when most people, including the Governor of the Bank of England, are predicting a sharper slowdown this year?
Chancellor of the Exchequer:
Well that is not quite what he said. He said that this year, going through a period of uncertainty the economy would slow down. But he then went on to say that he expected the economy to return to growth. Now I have said, most commentators say that this year will see growth slower than last year, and last year this country had one of the fastest rates of growth of any developed country in the world, but obviously because of the fact of the problems which started in the housing market, hit the financial markets and are now affecting countries right across the world, and because of the fact that the American economy has been affected, there is bound to be an effect in different parts of the world and that is why we down-rated our growth expectations. What the Governor said the week before last was that he expected exactly the same thing to happen, that there would be a slowdown but he was confident that growth would return. And similarly with the housing market, yes there has been a slowdown but this is against a background which has been growing at about 10% a year, but as the economy starts to grow again to higher levels then the housing market will recover and will grow as well. So that is why I am confident that this will happen and I think that general outlook is shared by most commentators.
Prime Minister:
Can I just put it all in context? In the worst of global financial turbulence Britain has had the fastest rate of economic growth in the G7 countries because we have been able to maintain a stable economy with low inflation and low interest rates. Even this year when we expect right round the world, but particularly in the industrialised countries there is a downturn, the British economy continues to grow and it is likely to be at least one of the fastest growing economies in the G7 group of countries. Employment is at its highest level ever in the country, as you have seen from the employment figures in the last few days. And I think those people who act as if the economy is not performing, the economy is performing with growth, with inflation low, with interest rates low and with employment high, as we deal with what is a real problem of global financial turbulence.
Question:
We are reaching a critical point in the defence spending round now and as the defence budget is rising in real terms would you be able to pledge that as Prime Minister you will be able to maintain all of the Armed Forces’ strategic capabilities?
Prime Minister:
The defence budget is rising, will continue to rise over the next few years and is rising also because in addition to the ordinary defence budget all operational requirements of the defence forces, fighting particularly in Iraq and Afghanistan, are also being met. And we are determined to maintain the strategic capability that we have to do the jobs that we have got to do. And I have got nothing but praise for our armed forces because we have been operating in difficult theatres, particularly Iraq and Afghanistan, and they have done a tremendous job.
Question:
Could I briefly come back to Kosovo? Would you agree that it is essential for the European Union to be recognised as a serious player that they unanimously recognise Kosovo as an independent state?
Prime Minister:
Well we made a statement as governments in December at the European Council and we have got both civilian and military forces in Kosovo preserving the peace. I mean I realise that these are difficult days, there is an uncertainty because Serbia’s attitude to what has been declared by the Kosovans as independence is something that has got to be taken into account and we understand that they have difficulties with the decision. But this will be a European decision that will be announced this afternoon after the meeting of the Foreign Ministers and I don’t want to presume the results of that meeting here now.
Question:
It seems that [indistinct] countries are still struggling to deal with the attack on the global credit [indistinct] caused by the financial turbulence. Do you expect that the temporary public ownership of troubled banks will take place eventually in other G7 countries?
Prime Minister:
I am not going to predict that, but what I do know is that in Germany some of the state banks have had to be rescued by other state banks, and what I do know is that in other countries there are discussions about how public support is going to be necessary for the financial system. We have got to take our own decisions based on our own experience, and as I say we had a choice, we could have put Northern Rock into another private sector buyer or maintained the existing management, but the long term interests of our taxpayers are better served by the decision that we made.
Chancellor of the Exchequer:
At the G7 Finance Ministers last week in Tokyo we all agreed that we would take whatever action was necessary to support financial stability. Clearly what we did would depend on the particular circumstances in our own country. In America for example they have had difficulties with some of their banks, they have had to engage in support operations, there has been quite aggressive intervention by the FED and a package proposed by the President and they are continuing discussions in relation to the non-aligned insurance companies. In Germany, as Gordon has said, there has been intervention. But what is necessary in different countries will really depend on the circumstances and we did what was necessary here because if we had let Northern Rock fail there was a substantial risk that that problem would spread into the rest of the banking system, and if we had allowed that to happen we would have been standing here asking a very different set of questions I suspect. It was the right thing to do which is why the vast majority of people supported us when we announced it back in September.
Question:
Will you intervene to save other failing financing institutions, and who is better placed to save Scotland’s economy - you or Alex Salmond?
Chancellor of the Exchequer:
The test as to whether or not you intervene to save a bank depends simply on whether or not you think there is a threat to the wider banking and financial system. And a bank is different from an ordinary trading company making nuts and bolts or something where if it gets into difficulty then you know it can go down, but because of the nature of banks and the knock-on effect a failure might have to the wider system you therefore have to ask yourself as to whether or not there is a wider systemic risk. But if there is, then that justifies Bank of England intervention, which is precisely the position that Northern Rock finds itself in and that is why I reached the judgment that I did last year.
Question:
[Indistinct]
Chancellor of the Exchequer:
What was the second part, sorry I missed that.
Question:
[Indistinct]
Chancellor of the Exchequer:
I presume that is a rhetorical question.
Question:
I wanted just to ask you actually about the content of the famous quote, not who said what, and whether you meant it, and so on, literally the content. The quote was from a Newcastle MP that nationalisation would lead to a slow lingering death for the jobs of Northern Rock workers, its assets and Britain’s reputation as a major financial services centre. Three predictions, can you take them in turn, is that not a fair description of the consequence, even if you believe it was necessary to actually take this decision?
Prime Minister:
Well let’s be clear now. These are words from an MP, not the words of the Chancellor of the Exchequer. He is talking about jobs in Newcastle, which of course he has got an interest in protecting, and we wish to see the maximum employment in the north east and in the Newcastle area and we will do our best to achieve that, he is talking about the reputation of London. I believe the reputation of London is secure because we are taking the right long term decisions for the future of our economy. If we had allowed the problems at Northern Rock to spread right across the economy, as was the danger in August, then there would have been a threat to London and there would have been a threat to financial stability in this country. That has not happened because we took the right choice at the time. In the intervening period, as we looked at the other options available to us, we have lost nothing by doing so, there was no taxpayers’ money lost in doing so, we haven’t had to put extra capitalisation into the Northern Rock company during that period, and it was right therefore to look at all the options that were available to us. And we have reached the conclusion that it is better to bring Northern Rock into a temporary period of public ownership, on the road back to the private sector, which it was always our objective to achieve, and I believe that that decision is justified by the long term interests of the taxpayer being better protected, and that is what we have decided to do.
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