Brown defends handling of banking crisis

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Indy Politics

Gordon Brown hinted at further cuts in interest rates yesterday after announcing he had consulted world leaders, including the US President George Bush, over the global banking crisis.

In an attempt to steady nerves in his own party about Labour's slump in the polls he appeared with the Chancellor, Alistair Darling, at his last press conference before the Christmas break and insisted that he was on top of the crisis.

The Prime Minister said the Governor of the Bank of England, Mervyn King had assured him that the "fundamentals" in the British economy, including low inflation, remained sound.

"We stand able to weather the global financial storms and to respond where necessary, as the Bank of England has already done, with a cut in interest rates," he said.

Pressed over the 57bn rescue of Northern Rock, Mr Brown refused to give a guarantee that all the taxpayers' money would be returned, but he insisted that the taxpayers' loans were covered by the bank's assets.

He confirmed that nationalising the troubled bank was one of the options still under review.

The Prime Minister said he held talks yesterday on the state of the economy with the Chancellor, Mr King and the chairman of the Financial Services Authority, Sir Callum McCarthy, who has been criticised for not acting on Northern Rock more quickly.

Mr Brown said he had invited the German Chancellor Angela Merkel and French President Nicolas Sarkozy to London in the new year for talks on their joint proposals for reform of the financial institutions to create an "early warning" system for financial trouble.

"I have been talking about the global financial turbulence with Chancellor Merkel, President Sarkozy, the President of the European Commission [Jose Manuel Barroso] and I will talk later to President Bush," said Mr Brown.

In a message directed at his party after rumblings of discontent over the "data disaster", the proxy funding scandal, and wobbles over Northern Rock, he said: "We are not going to be diverted."

The Prime Minister warned his MPs: "Focus on the long-term challenges. Focus on what matters to the people of this country. Many of the things that have been written about recently will be forgotten. Many of the things that are important to the people of this country affordable housing, health, education, access to GPs, cleaner hospitals these are the issues we will concentrate on."

He has ordered cabinet ministers to raise their performance by returning in the new year with a range of initiatives to regain momentum. Mr Brown promised radical proposals to tackle binge drinking, a White Paper on constitutional reforms including plans for a largely elected House of Lords and a clean-up of the honours system.

The Chancellor said he would bring forward plans for reform of the banking system. "I will be announcing some wide-ranging reforms in January which I believe will improve the position, especially in relation to banks which might get into difficulty," said Mr Darling.

The Prime Minister brushed aside reported criticism of his leadership by Charles Clarke, the former Home Secretary, who accused him of failing to support his Cabinet ministers.

Mr Brown spoke to Mr Clarke yesterday about the interview which is understood to have taken place two months ago, and reassured him that Mr Clarke still had a front-line role to play with a possible return to Government in the new year.

"I think Charles Clarke has got a very important role to play in the future," said Mr Brown.

In the face of growing anger over police pay, Mr Brown said that the decision to stage pay awards in the public sector, including the police, had been pivotal in keeping inflation down to 2.1 per cent, almost at target, compared to four per cent in the US and three per cent in the Euro zone.