Downing Street Says

Asked to respond to the Times story on legally forcing the banks to lend, the PMS replied that we had always made clear that we had to look at a range of options in order to do what was in the best interests of British businesses and British families. Nothing was ruled out as we were saying last week and as the Governor of the Bank of England was saying yesterday. The PMS added that we did want to work constructively with the banks in order to ensure that they delivered on the commitments that they themselves had entered into.

Asked how long the banks had to deliver on their commitments, the PMS said that we were starting to see some of the benefits of the re-capitalisation programme feed through. The banks were able to pass on in full the reduction in interest rates; we had seen the announcement from one of the large banks that we had a stake in saying that they would freeze overdraft rates for small businesses. So we were seeing some progress but clearly there was more to be done.

Asked if the Government would like to see more progress before Christmas, the PMS replied that we wanted to see help for businesses and families as soon as possible and that was why for example, the Government had taken action to make a significant cut in tax, effective as of next Monday. People needed help now, they needed help from the banks, but they also needed help from the Government.

Asked if the nationalisation of banks was one option being kept under review, the PMS advised people not to get too far ahead of themselves. As the Government and the Governor of the Bank of England had said before, it would be foolish to rule out specific options, but we did want to work constructively with the banks and we wanted them to operate as banks.

Asked why Northern Rock couldn t set an example with lending, the PMS replied that Northern Rock operated as an arms length body. It was a mortgage bank and didn t lend to small businesses. There were issues in relation to the mortgage market as well and we had been addressing those through the action we had taken to guarantee inter-bank lending. There was also a package of help for the housing market in PBR and we had seen the Crosby Review in the PBR that the Treasury was considering.

Many of the issues that people were raising related to small businesses, which was not an area of business that Northern Rock had any involvement or expertise in.

Put that some of the businesses that the banks were lending to two years ago were no longer viable businesses for the banks to lend to, the PMS said that we had re-capitalised the banks in order to ensure that they had the liquidity and the capital to maintain their lending to viable businesses through a downturn.

Asked if the Prime Minister was embarrassed that the Chancellor had to reverse the rise in whisky duty, the PMS advised people to speak to the Treasury.

Put that the opposition had said that there was a 10billion black hole in the PBR and what was the view from Downing Street on the proposed rise in VAT to 18.5% that was outlined in a Treasury document, the PMS replied that clearly the black hole comment was complete nonsense. If people looked at what was actually happening to tax revenues as a proportion of GDP, we actually finished up in our cautious forecasts with the tax burden lower at the end of the forecast period in 2013/14 than it was in 2007/08.

Tax receipts would fall quite sharply as a proportion of GDP when the economy was slowing and would then pick up as the economy grew again. They finished at the end of the period lower as a proportion of national income than at the start of the period. The tax burden was actually lower over this period so the PMS wasn t quite sure that he understood the point about optimism on tax revenues.

In relation to VAT, the Prime Minister was also concerned about suggestions that we were going to increase VAT, because we were not going to and that option had been rejected for good reason. We were in fact reducing VAT as of next Monday. Asked if VAT would rise in 2011, the PMS said that we had set out our plans and those did not involve any increase in VAT.

Put that a drop now was not inconsistent with a rise later, the PMS replied that he would not come to lobby and make announcements about future Budgets; that was for Minister s to do. While we considered a whole range of options ahead of any PBR, this particular proposal was rejected and rejected for good reason.

Asked what the reason was, the PMS said it was because of the impact it would have on many families and businesses. That was why we decided to reduce VAT now, because in the Government s view that was the best way of providing direct support to every family and business in the country.

Asked if it was right to think that a rise in VAT was rejected in favour of the National Insurance changes, the PMS said that that was a reasonable interpretation of events.

Asked who had suggested the VAT rise, the PMS reiterated that a whole range of options get put forward and presented to Treasury Ministers before any PBR or any Budget. This particular option was rejected. Asked who had rejected it, the PMS said that it was rejected by the Chancellor and the Prime Minister. Put that it had been suggested that it was only rejected when the Chancellor had shown the plans to the Prime Minister, the PMS replied that the Chancellor was against it and that s why he didn t announce it.

Asked if people could assume that this option was ruled out for the period that the PBR covered, the PMS repeated that it was not for him to come to lobby and start making future policy statements about taxation. That was for Minister s to do. People should be clear that this option was one of many that was looked at and was firmly rejected.

Asked if there was a mole hunt under way, the PMS said that that was really a question for the Treasury.

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» Wednesday, November 26, 2008

Economy

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