Darling ready to rescue other banks

Chancellor Alistair Darling today said he was ready to offer assistance to banks which get into difficulties.

Mr Darling said that the Government was providing generalised support to stabilise the banking sector as a whole, but was also prepared to take action where specific banks are at risk of collapse, as it did with Bradford & Bingley and Northern Rock.

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He told BBC1's Andrew Marr Show that the Government was ready to take "pretty big steps that we wouldn't take in ordinary times" in order to ensure that Britain gets through the current crisis.

But the Chancellor said he would resist pressure to scrap the Bank of England's inflation target to allow for cuts in interest rates, insisting that it was vital to maintain economic discipline even in bad times.

And he indicated that he was ready to let state borrowing rise higher rather than increase taxes, arguing that now was not the time to take money out of the economy.

Setting out his approach to emerging difficulties in the financial world, Mr Darling told Andrew Marr: "It's important that we take action across the piece. That's why, through the Bank of England, we have put billions of pounds into the system to help the whole banking sector.

"But also you do need to be ready to take specific action - as we did with Bradford & Bingley last weekend, as we did with Northern Rock.

"The point I'm making is, it's important to take generalised action as well as being ready to take particular action if you get a particular problem with an individual bank."

His comments came as Germany's second-largest mortgage lender Hypo Real Estate teetered on the brink of collapse after a banking consortium withdrew from rescue talks.

Asked if he had a list of banks which may be in trouble, Mr Darling declined to name any but said the Treasury was constantly monitoring the situation not just in Britain but around the world.

Mr Darling pointed to Bank of England Governor Mervyn King's announcement on Friday that he will make a further £40 billion available to banks over the coming week as a sign that the authorities were taking action to stabilise the system.

And he said: "I want to make it clear that we will do whatever it takes not only to stabilise the system but to help going forward, and that means perhaps some pretty big steps that we wouldn't take in ordinary times, but we are ready to take them because we need to get through this difficult time, and I am determined we will do it."

Mr Darling insisted that the Bank would not be allowed to scrap its target of keeping inflation within a percentage point of 2%, which some critics argue is necessary to allow reductions in interest rates and prevent Britain sliding into recession.

"I am not going to change that remit," said the Chancellor. "I think it is very important, if you establish an independent central bank, that it remains independent and free of influence from ministers. That's one of the key ingredients of success.

"Nothing has changed over the last 11 years. That remit was designed to deal with difficult times as well as the good times and that remit is important in maintaining the central bank's independence."

It was "always important" to keep inflation under control, he stressed.

But he pointed out that, as well as the inflation target, the Bank also has a wider duty set out in its remit to support the Government's economic policies.

Asked if he will have to raise taxes to keep the Government's books balanced at a time of growing demands on funds and reduced income from levies like stamp duty and corporation tax, Mr Darling responded: "I have made it clear that at this time we need to support the economy.

"Because we reduced the amount of debt that we inherited in the 10 years after we were elected, we are now in a better position to allow borrowing to rise as the economy slows down.

"That is the right thing to do - you support it, you don't start taking money out of it."

Referring to Labour's 2005 election pledge not to raise the basic or top rates of income tax, Mr Darling said: "We have manifesto policies on tax and we are going to keep to those."

He added: "The end must be that not only do we stabilise the present situation - which is critically important here and in the rest of the world - but that we get through this, that we help businesses large and small, we help people deal with what is undoubtedly one of the biggest shocks we have seen to the system for decades.

"As we come through that, critically, we prepare for a different world where there are massive opportunities, where Britain can have huge, huge opportunities coming to this country provided we are prepared for it, provided we plan for it."

Shadow chancellor George Osborne told the Andrew Marr Show the practice of helping banks on a case-by-case basis was "running out of road".

He called for a "much bigger solution" - possibly including the Government taking stakes in several banks as happened in Sweden in the early 1990s.

Mr Osborne said: "I think we are in an exceptionally difficult situation and I think the ad hoc approach that we have had from the Government and the Chancellor so far is coming to an end. And we do need to look at a much bigger solution. I think the answer is around recapitalisation."

He added: "I think there will be a role for creditors, for existing shareholders in recapitalising these banks but also, potentially, for the Government."

Mr Osborne also said that returning to an era of political interference in the Bank of England was not the solution to the current problems.

"The whole point of an independent central bank is not that when times are very difficult, as they are now, you somehow override that independence, otherwise it's not really an independent central bank," he said.

"And I think to mess around with something which now works in terms of controlling retail prices would be a big mistake."

But Liberal Democrat economic spokesman Vince Cable called on the Chancellor to "clear the way" for the Bank of England to be able to make a significant cut in interest rates.

He said: "These are very exceptional circumstances and I think the Chancellor is going to have to write to the Governor of the Bank of England and say instead of worrying about whether inflation is 2% or 3%, the issue is the collapse of the financial system and the collapse of confidence.

"The Americans have cut interest rates by 2%. Arguing here about a quarter or a half is neither here nor there. A big cut is going to have to happen and the Chancellor is going to have to clear the way in order to enable them to do it."

And Mr Cable also called for a more comprehensive approach to helping banks, saying they were in "unknown territory" which could be an "edge of the cliff situation".

He said: "As far as the banks are concerned, instead of seeing it piecemeal which is the way we've dealt with it so far - rightly, that's not a criticism - I think we are going to have to have a more comprehensive approach.

"Essentially the banks need capital. They can't raise capital for the markets because confidence is shattered. So Government is actually going to have to help the banks raise capital for the market.

"That may involve them taking stakes in a whole lot of banks rather in the Swedish model of the early 1990s."