RT HON ALISTAIR DARLING, MP, MR DAVE RAMSDEN, MR TOM SCHOLAR AND MR NIKHIL RATHI

19 MARCH 2009

  Q2940  John Mann: You will take that back and look at that?

  Mr Darling: I would be interested in the example you raise with me.

  Q2941  John Mann: On job centres, decisions were made by your department about where they should be at times when unemployment had been falling and repeatedly falling, we are now in new times. Will you take that back and reconsider the reconfiguration of where those giving advice to the unemployed are based and will actually be in those areas that are seeing people moving—

  Mr Darling: You are talking about the configuration of Job Centre Plus, the network?

  Q2942  John Mann: Yes.

  Mr Darling: I have no doubt you raised that with James Purnell, the Secretary of State. I do think I should make the general observation that bringing the Employment Service and the old Benefits Agency together was a very good step. I also think the fact we have spent very substantial sums on that to make Job Centres the place where you can go rather than the terrible places some of them were in the 1970s and 1980s and even the 1990s, that was money well spent. But in relation to actually where the offices are, obviously you will have taken that up with James Purnell but, if you have not, if you have particular concerns I will take it up with him.

  Q2943  John Mann: I have but I am happy to hear you will as well. Excellent.

  Mr Darling: On a day-to-day basis he actually runs the Job Centre Plus. I have not done so for some time.

  Q2944  John Mann: In terms of the Halifax, will you consider remutualising the Halifax Building Society?

  Mr Darling: It does not exist at the moment. As you know, it is part of the Lloyds Group. The Lloyds Group are working on how they intend to structure their operations in the future. Although we do have a 65% shareholding in the Lloyds Group, the Halifax is not really a distinguishable part.

  Q2945  John Mann: At the moment but, would you agree with me, that the confidence that would give in the High Street, seeing the Halifax Building Society recreated, while only one small part of a solution, would boost consumer confidence in Government but, more important, in the banking sector?

  Mr Darling: I think there is a general debate to be had as to whether or not we will see the return of large mutuals. As you know, every single demutualised building society has either been taken over or has failed, and the question is whether or not there are mutual bodies in the future. The Halifax was a very big one. Apart from the Nationwide, which is a very substantial organisation, most mutuals are fairly small. There have been one or two mutuals which have been taken over because of the current circumstances. I think mutuals are very good, whether or not it is right for a particular institution is something we would need to reflect on, but I think there will be a debate as to whether or not the re-introduction of mutuals is a good thing and it could be that you see them. In relation to specific institutions, I am not in a position to say it would definitely happen or not.

  Q2946  John Mann: Lord Turner's Review gives macro-interventions and lots of them in terms of regulation, rather than the Law Society's model of regulation which is micro-interventions. You comment on Lord Turner's Review next week so I do not want you to do that now, but on the question of mortgages, he is suggesting some macro-powers in relation to what the overall system should be. He raises as well the question of second charges on mortgages, what he does not do—and every single case I see does do this—is look at multiple unsecured loans which in fact are the trigger to the problems of repossessions. That requires not looking at the products which are individual decisions for the FSA, and he wants more of, but looking at the behaviour which has led to a person being so geared that in essence they cannot balance credit, debit cards, unsecured loans and a mortgage. Will you look at this balance between those micro-interventions and the reluctance of the FSA to get stuck in on the micro-examples which influence the behaviour of the financial bodies?

  Mr Darling: There are two things you need to do. One is you need to make sure there is sufficient, if you like, micro-prudential supervision; sufficient supervision of the overall risk to which a bank or building society is exposed, to look at all the things which drive those risks and underpin those risks. There is a separate issue in relation to what you might loosely call "conduct of business", more micro-management if you like, which Adair Turner addresses in the fourth part of his report. He does not come to conclusions; he calls them issues for discussion. If you take, for example, the sale of mortgages, one of the reasons that the American sub-prime market problems arose is that their market was very much less regulated than ours was, and even at that time in 2005 there were people calling for less regulation of mortgages here because they said it would only affect the institutions and not the individuals, which I think was plain daft as we can now see. The point you make about individuals who take out a loan, a mortgage say, and then take out a second mortgage, then maybe get something secured on the house because of personal loans and so on, that is precisely what you want to avoid, where somebody just gets more and more into debt and takes far more than they can ever repay and we really have to stop that. That is why I do think the conduct of business rules, if you like the more micro-management side of things, is equally important. Striking the right balance between the two is always going to be a matter for debate. I think all the evidence we have had, particularly looking at what happened in America where there just simply was not that supervision, is that there are disastrous consequences.

  Q2947  Chairman: Chancellor, I just want to finalise on the Icelandic situation with a couple of questions. To what extent do you think the actions of the UK Government, both by using the anti-terror legislation and making public statements, increased pressure on the remaining Icelandic bank, Kaupthing, which the Icelandic authorities themselves seemed to believe could survive?

  Mr Darling: I just think anyone looking objectively at the Icelandic banks would find it difficult to come to that conclusion. Indeed the present Icelandic Government takes a slightly different view from the previous Icelandic Government, with which we were dealing last year. The thing that triggered the failure of these banks is that the FSA came to the conclusion they did not meet the threshold conditions and, as you know, this is a responsibility of the FSA, it has to decide whether or not an institution can carry on trading. If you take Landsbanki, which is the bank which we attached the order against, the chronology was that the FSA said it could not carry on, I took action really to protect people in this country because I did not want to find that the assets which were here were being shipped back to Iceland, especially when at the time, following a conversation I had with the then finance minister, we suggested Iceland was at that time trying to do something for its own Icelandic depositors it was not able to do for British depositors, which is why we have had to underwrite them. As for the legislation concerned, it is a piece of legislation which deals with anti-terrorism but actually it is designed to deal with a situation where there would be an economic harm done to the country, and that is why I did it. If I had not done it, the question which would have been asked is, "How come you allowed all this money to be taken out?" There is another issue to be raised too, which again Turner touches on, and that is this business of allowing people from outside the EEA to passport themselves into the European Union without us being able to have some control over the regulation, and that has to stop.

  Q2948  Chairman: Under the rules of the European Economic Area, is there any legal requirement for the Icelandic Government to compensate British depositors to the same degree they are compensating Icelandic depositors?

  Mr Darling: We think they have obligations. The view of the previous Icelandic Government was that they were not certain about that. We have tried to engage with the present Icelandic Government and they have shown themselves to be willing to talk to us about trying to resolve these things. The tragedy here is that we have had to use our British taxpayers' money to support UK investors in these UK branches, and we should not have been exposed to a situation where you have an EEA member who can come and set up here without the safeguards you would expect. What really brought down the Icelandic banks was not anything we did here but, as is self-evident from an examination of what happened at those banks in Iceland, the problems were, I am afraid, as ever home grown.

  Q2949  Chairman: Have you discussed with the relevant authorities in the Isle of Man and Guernsey whether the UK Government could provide a loan to ensure the rapid payment of affected depositors, even if only to £50,000?

  Mr Darling: I would need to check, Mr McFall, but I am not sure that a request of that nature has been made to us. I am not saying it may not have been discussed at some level but certainly I do not recollect any request being made of such a nature that we would treat as a formal request. If you think that is material to your enquiries, I will need to come back to you.

  Q2950  Chairman: That is a reasonable answer. The last point is the old moral hazard issue. Bailing out banks and ensuring no depositor has lost a penny of their savings has been the aim of the Government, but in that process the cherished concept of moral hazard has been left to wither away. I imagine you regret that as Chancellor but, if you do, how important is it that we have the restoration of moral hazard as a functioning market discipline in bringing about the reasonable financial discipline that we would all like to see?

  Mr Darling: I think it is important. You cannot have a situation where basically there is no risk for you. If you are a bank, there has to be a situation where, if there is a reward, there has to be a penalty if you fail. That is what went pretty badly wrong in a lot of the banking system. In relation to savers, for perfectly obvious reasons in the current climate I think it is necessary to make it very clear to savers we will do everything we can to look after their savings. If we did not do that, the situation would be very, very difficult. I think most developed countries are in that same position.

  Q2951  Chairman: Okay. We said we would let you away by a quarter past three, we are two minutes to the good. Thank you very much for your time.

  Mr Darling: Thank you very much.