Be honest about bailout impact, Darling warned

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The Independent Online

The Government will defy the advice of independent watchdogs by keeping the liabilities of the banks in which it takes a stake off the public sector's books.

The Chancellor Alistair Darling faces accusations of "fiddling the figures". He intends to argue that because RBS is only in temporary public ownership, its £1.8trn of liabilities should not count towards the national debt. The Office for National Statistics, however, is likely to rule that the RBS liabilities should be added to public sector net debt because the Government has the "power to control" its general policy. It may do the same on LloydsTSB and HBOS which, along with RBS, will share the £37bn injection of taxpayers' money announced on Monday.

George Osborne, the shadow Chancellor, said: "Alistair Darling should be absolutely straight about the impact of the massive bank bailout on the public finances. Any attempts to hide it off-balance sheet will fool no one. How can he tell banks to be open and honest about their debts if he's not doing the same?"

Mr Darling insisted it would be "ludicrous" to allow the Government's intervention in the banks to distort its decisions on fiscal policy. Treasury officials said it would not be appropriate to count all of the RBS liabilities because that would not take account of the bank's assets.

The Chancellor is expected to confirm his decision when he delivers his pre-Budget report next month. But his ruling will not stop him breaching one of Gordon Brown's fiscal rules, that net debt should not exceed 40 per cent of GDP. It was only just below the limit when he delivered his March Budget but is already on course to exceed it because of the economic downturn. If the liabilities of the banks were included, the Brown target would be missed by a much bigger margin. Mr Darling is expected to announce that borrowing will rise sharply from the £43bn he announced in this year's Budget.

Today, Mr Brown will outline a five-point plan for the world to avoid a repeat of the financial crisis when he attends a meeting of EU leaders in Brussels. "We need to show that we have dealt with the difficulties' cause in the first place; that we are making the reforms that are necessary so that the global financial system will work," he said. "I believe the stakes are higher than ever before and the coming days will be crucial for the international community."

Addressing the Foreign Press Association in London, Mr Brown was asked how it felt to be viewed as a "superhero" after Britain's bank rescue plan was copied by other governments. Asked if he was Flash Gordon, he said politics had its "ups and downs" but insisted: "I'm just Gordon, I assure you."

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