BY JOHN REDWOOD John Redwood: 'Not so long ago, billions sounded like big numbers, now it is trillions' Is there no limit to what the taxpayer has to pay for? The Government put £37billion into buying bank shares. Those shares today are worth about £12billion less than Ministers paid, giving each taxpayer a loss of about £300. Now, they are looking at the taxpayer having to stand behind billions of pounds of so-called toxic debts or foolish loans the banks made in the good times. What have we done to deserve that? When the Government effectively nationalised RBS, it took over a bank with a £2,000,000,000,000 liability. It’s a huge number – £2trillion, yes, trillion. Not so long ago, billions sounded like big numbers, now it is trillions. How long before we are counting our debt in zillions? Two trillion pounds is more than every UK person and business together earn in a year. It’s four times the annual tax revenue of the country. Why does that matter? Because, as owners, we are responsible for any losses. If it turns out the assets of RBS are worth just two per cent less than when they bought them, it has lost the equivalent of the defence budget for next year. Why is the UK in this position? Because we have one of the world’s big banking industries, attached to a medium-sized country. Our banks lend money globally and employ thousands. They are such big enterprises they can lose sums of money big even for the Government to meet. The Government is not just going to the aid of our domestic banks to ensure they can lend money to you or me to buy a house or car – or to local companies to pay the wages. Gordon Brown and Peter Mandelson: 'Our banks are such big enterprises they can lose sums of money big even for the Government to meet' These banks are lending huge sums to Russian billionaires and to large multinationals for large projects. When it goes wrong, it could impose too big a strain on the UK taxpayer. Today we learn that the Government may not set up a massive ‘bad bank’ to buy all the bad loans UK-based banks have made in recent years. One cheer, if they have that much wisdom. However, they do seem to be planning to offer insurance for a very large number of bad loans made by all the main banks. This means we, the taxpayers, pay the bills if these loans default. On top of the huge risk we are already running by owning RBS and a big stake in Lloyds, that is bad news. HSBC, Barclays and Lloyds are also very large institutions. With RBS, they are several times the size of our national income. 'When the Government effectively nationalised RBS, it took over a bank with a £2trillion liability' If taxpayers had to pay all the losses on their loans over a threshold, the state would be in debt for a very long time and taxes would have to go up. It is not possible to decide today which of the many loans these banks have made will come good – and which will default. As the recession deepens and lengthens, more people and companies become unable to pay the interest. The price of more assets such as property, used to back the loans, falls below the value of the loan itself. Now is not a good time for the taxpayer to buy lots of dodgy paper. The Government does need to lend short-term to the banks against security and to sort out the money markets. It does not need to venture so much taxpayer cash backing dodgy loans to prevent a banking crisis. Offering guarantees to get new lending to UK customers moving again may be sensible. Underwriting lots of dubious past business is too risky. The problem is our banks are bigger than we are
Last updated at 11:08 PM on 17th January 2009
Sunday, 18 January 2009
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