Time for action
PUBLISHED: 10:22 16 October 2008 | UPDATED: 15:30 25 August 2010
A TREASURY committee member is demanding more openness and detail as the government pledges £37 billion to overturn the global banking crisis.
A TREASURY committee member is demanding more "openness and detail" as the government pledges £37 billion to overturn the global banking crisis.
Sevenoaks MP Michael Fallon spoke to the Times as the unprecedented bank bail out was announced on Monday.
He also warned residents the country is heading for recession but said with careful planning people can limit the risk of financial problems by seeking early advice.
The government now has a 60 per cent stake in Royal Bank of Scotland and a 44 per cent stake in the merged HBOS and Lloyds TSB, effectively meaning the public are shareholders too.
Speaking about the bail-out, he said: "There needs to be a two-year action plan to do this, we have started but the government needs to do more.
"There needs to be more openness and detail in the plan and the banks need to come clean about who they have been lending to and how. Basically, the government need to go further and do more to overturn this situation."
Despite his warning about the rescue package, he stood by local councils who stand to lose millions following the collapse of the Icelandic banking system. Bosses at Kent County Council (KCC) are in talks to claw back £50 million they deposited overseas, and a further £11.1 million invested on behalf of Kent Police. Bromley council is also trying to reclaim £5m it invested in buckled Icelandic bank, Heritable.
Mr Fallon said: "The government advises councils to spread their money thinly and I believe KCC did that. Councils have to go on the advice they are given.
"Although it sounds like a lot the £50 million is only a small fraction of KCC's budget and they did spread their money around as the government advised."
Concerns were raised in July by the Conservative MP when he issued a parliamentary question as to whether Icelandic banks were safe to invest.
He asked junior treasury minister Kitty Ussher how much money was in the compensation funds after press reports claimed there was a shortfall.
Miss Ussher told him: "I don't have figures for the Icelandic compensation scheme."
He then asked if she was satisfied that British investors in Icelandic banks were fully guaranteed in the event of a bank collapse. Miss Usher replied: "I am satisfied that the law exists to guarantee them, yes."
But last week the latest disaster in the global financial market prompted a worldwide response leading to the massive bail-out.
The move by Prime Minister Gordon Brown prompted a £1.9 trillion global rescue as European leaders followed his lead.
In return for the £37 billion investment, the government will get a say in how the banks are run and has already put a stop to bank bosses' bonuses.
Money is unlikely to affect the taxpayer as the funds were raised through auctioning government bonds and gilts.
During the next few years Mr Fallon is advising residents not to ignore or dismiss the financial crisis as the country heads for a recession.
He warned: "The situation is very serious, we are heading towards a recession and we are not through the worst of it yet. It is very hard to measure the real extent of the crisis or how long it will last. I can't tell you how bad it is going to get, but it is serious. All I can say is that I hope food, gas and petrol prices won't keep going up, but I really don't know what is going to happen."
He added: "My advice to people would be, if you are getting further and further into debt, don't go into denial, go to the Citizen's Advice Bureau at Swanley or wherever is nearest, and get some free advice about managing your debt. But you cannot go into denial.
"The effect of the crisis on the average person is going to be fewer mortgage products available and less choice, particularly if they have poor credit history.
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