Kingston Upon Hull East Liberal Democrats

Cable rebukes ‘zombie government’ for betraying taxpayers

Lib Dem Shadow Chancellor Vince Cable responds to the government statement on an 'asset protection scheme' for banks

The Government's latest proposals for tackling the bank crisis are "absolutely dire", Liberal Democrat Shadow Chancellor Vince Cable has told Parliament.

Speaking in response to the Chancellor's statement on the asset protection scheme for banks, Dr Cable accused the Government of completely losing the plot: "The proposal for asset protection is a disgrace and a betrayal of the taxpayer's interests. It is a classic case of privatising profits and socialising loss."

Dr Cable criticised the government for allowing its fear of the word nationalisation to dictate its policy. Referring to comments made by former chairman of the US Federal Reserve Alan Greenspan, he said, "The problem is that we have not only zombie banks, but a zombie government: the walking dead, controlled by people who have a strong vested interest in protecting their bonus arrangements and covering up large-scale tax avoidance scams."

Full text of Vince Cable's response

Dr. Vincent Cable (Twickenham) (LD): In October, we broadly supported the Government because we thought that that was the right patriotic response in an emergency and because their proposals for bank recapitalisation were sensible. However, I am afraid that they have now almost completely lost the plot. The proposal for asset protection is a disgrace and a betrayal of the taxpayer's interests. It is a classic case of privatising profits and socialising loss.

We know from American experience that valuing bad assets is hideously difficult. We also know that the banks know more about their bad assets than the Government, so there is now an open invitation to the banks to dump their worst assets on the Treasury, for a fixed fee, knowing that the taxpayer will pick up 90 per cent. of the losses. That is a fraud at the taxpayer's expense.

There is a much better approach - the way in which the Government started dealing with the problem. It is to acquire shares in the banks - ordinary shares with full voting rights. That guarantees that any upside in recovery - if there is one - and any eventual sale fully accrues to the taxpayer. It also gives the Government full effective control over banks' lending strategy and remuneration, instead of the current feeble agreements, which the banks have treated with contempt.

We know what the Government are afraid of: being accused of nationalisation. Let me quote what the Government's old friend - the Prime Minister's hero - Mr. Alan Greenspan said about that only last week. That American Republican free-market ideologue stated:

"It may be necessary to temporarily nationalise some banks in order to facilitate a swift and orderly restructuring"

to

"allow the Government to transfer toxic assets to a bad bank without the problem of how to price them" -

the problem we have today.

"You",

he said to the Government,

"should not get caught up on a word" -

that is, nationalisation. He continued:

"It doesn't matter what you call it, but we can't keep on funding these zombie banks without gaining public control."

The problem is that we have not only zombie banks, but a zombie Government: the walking dead, controlled by people who have a strong vested interest in protecting their bonus arrangements and covering up large-scale tax avoidance scams.

The Government claim credit for being tough and stamping on the generous bonus arrangements of RBS and NatWest. I totally agree with the Conservative shadow spokesman - [Hon. Members: "Shadow Chancellor!"] I agree with his comments about Sir Fred Goodwin.

He was absolutely right. He could also have asked - and I will ask - how much in addition the Government have given to Sir Fred Goodwin and people in his position in tax relief.

However, there is a wider point about bonuses: they are public expenditure. These bonuses are a massive spending increase on public wages for which there is no justification whatever. What response will the Chancellor give this morning to Barclays, which has said that it will not deal with the Government unless all its bonus arrangements are fully protected? That is blackmail and he should make it absolutely clear that he will stand up to it.

I have one final question about what the Prime Minister said in the paper on Sunday about the proposal, which a growing number of people on all sides accept, that in the long term the low-risk high street lending activities of the banks have to be separated from the high-risk casino-type activities with which they have been associated. The Prime Minister seems to have capitulated to pressure to abandon that proposal altogether. I can understand why the banks want to hang on to the operations that generate their bonuses, but why on earth should the Government be giving a long-term guarantee for gambling activities on a global scale? It is incomprehensible and completely without justification.

I feel rather sad about this response, because I normally try to be constructive, but the Government's proposal is absolutely dire.

Click here to read Chancellor Alistair Darling's response to Vince Cable