Brown and Darling turn the screw on reluctant bankers

premier and chancellor publicly demand full rate cut be passed on

By David Perry

Published:

The prime minister and chancellor stepped up the pressure on the major banks last night.

They called on them to pass on interest rates to their customers amid growing criticism of the UK Government-backed bailout package for the big lenders.

Both Gordon Brown and Alistair Darling made public demands for them to act now to get the economy moving.

The heads of financial institutions have been summoned to crisis talks at the Treasury next week where they are likely to face more “arm-twisting” from senior ministers, following reports that many are not passing on the full 1% interest-rate cut or restoring the level of lending to what it was last year.

Those baulking at reducing their rates include the Royal Bank of Scotland – bailed out with billions of pounds from taxpayers eight weeks ago.

Rescued Bradford and Bingley will cut its standard variable rate by 0.75%, but not until the new year.

Banks are now making a larger profit on lending than a month ago, offering new borrowers deals around 2.86% above the Libor inter-bank rate compared with just over 2% above the wholesale money market rate.

Seven of the top 10 lenders have said they will reduce their charges, with HSBC, Lloyds TSB and Barclays’ mortgage arm the Woolwich – which did not pass on the whole cut last time – promising to reduce their standard variable rate (SVR) by at least the full 1%.

But Nationwide is passing on a cut of just 0.66% and Halifax, Britain’s biggest mortgage lender, 0.25%. Smaller lenders are following their example.

Part of the problem is that the three-month Libor rate at which banks lend to each other has only fallen to 3.37% from 3.71% before the Bank of England cut, leaving lenders who rely more heavily on the money market than others with a strong base of depositors, dangerously exposed.

Liberal Democrat business and enterprise spokesman John Thurso, MP for Caithness, Sutherland and Easter Ross, blamed the UK Government for failing to secure a copper-bottomed deal before bailing out the banks.

He said: “Mr Brown and Mr Darling have only themselves to blame. I have been saying since the first announcement of the rescue that they must have a formal agreement before putting the recapitalisation money in.

“Now they have our money they can do what they wish.

“It was obvious from day one that without a formal agreement on the levels of lending and how they would operate, the banks would – quite properly – seek to improve their profitability and repair their damaged balance sheets.”

Aberdeen and Grampian Chamber of Commerce chief executive Geoff Runcie was “disappointed” at the banks failure to aid the economy.

He said: “The government and Bank of England’s intentions were very clear, and I do not think they included giving the banks the opportunity to recover some of their lost income.

“There is an absolutely clear role for the banks to do everything in their power to support businesses and provide competitive and flexible finance to ensure businesses can trade through these difficult and challenging times.”

Meanwhile, Treasury sources said the suggestion that banks in which the state has money could be fully nationalised if they fail to co-operate is “far fetched”.

Mr Brown said the banks “really should pass on the interest rate cut”.

Mr Darling said: “A number of the banks have said they are going to pass on the reductions to businesses and homeowners. I want to see them do more.”

Tory shadow chancellor George Osborne said the reluctance of banks to pass on the cut showed the government’s recapitalisation was not working and now needed “radical surgery”.

He said the problem was the cost of government capital was too high.

There was good news for motorists, transport and road haulage firms yesterday, with the AA reporting an average price of 90.78p a litre for unleaded petrol and 105.88p for diesel. Cuts in gas and electricity bills are also expected