Rate cut shows our commitment, says Brown

The Prime Minister today hailed the dramatic 0.5 per cent cut in interest rates as evidence that the Government was prepared to do everything in its power to help businesses, mortgage-holders and consumers.

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Moments after the cut was announced by the Bank of England, Mr Brown told the Commons it would "assure people that all action is being taken in the economy, so we can help businesses move forward".

As the financial crisis dominated the first question time since the summer recess, he disclosed that the Government would also be seeking to pay small businesses with public contracts within ten days to help ease liquidity problems.

Tory leader David Cameron again offered support for the Government's response to the crisis, insisting that the banking system could not be "allowed to fail".

Mr Brown took the crowded chamber by surprise by revealing the cut in interest rates.

"The whole House will want to know that the Governor of the Bank of England has just announced an immediate 0.5 per cent cut in interest rates.

"He has done so in a co-ordinated action that is happening round the world in which the US Fed has cut interest rates by 0.5 per cent, the ECB by 0.5 per cent, the Swiss, the Swedes and other members of the G10 have all cut interest rates showing that global problems are best dealt with by global action," he said to cheers.

Tory Robert Goodwill (Scarborough and Whitby) asked if the Prime Minister agreed with the IMF that the British economy would "shrink" next year.

Mr Brown replied: "Every economy is facing problems and I don't want to make predictions about the future. We are in very difficult times."

Mr Brown said today's £50bn part nationalisation of the banks showed the "strength of the action" taken by ministers.

"We have produced additional liquidity to the system - up to £200bn. We have said we were prepared to buy shares in our banks and recapitalise our banks to the tune of £50bn.

"And we have also done something that other countries I believe will follow very soon - and that is provide medium term financing up to £250bn guaranteed by the Treasury.

"By taking co-ordinated action as a whole and leading the world in doing so, I believe we can get our banking system on a sound footing, and that is the key to the future.

"To have that combined with the macro-economic action, a cut in interest rates, is an important message that is being sent around the world that we will do everything in our power to make sure our economy moves forward."

Senior Labour MP Sir Gerald Kaufman (Manchester Gorton) called for a guarantee that the "fat cats of the City of London" would not be allowed to "line their pockets on the backs of the profound concerns of tens of millions of our fellow citizens".

He said people's jobs, homes, small businesses, savings and pensions should be the Government's top concern.

Mr Brown said: "We will do everything in our power to maintain our public services, to increase jobs in our economy, to protect the savings and deposits of the citizens of this country.

"I do want to reassure people that everything that can be done will be done to ensure there is a flow of finance for mortgages and small businesses despite the toughness of these times.

"The conditions we will lay down for support to the banks in this country includes executive performance and the way it is remunerated. We will build on the FSA's work, which is to ensure that excessive risk taking is not rewarded but punished."

Mr Cameron said: "Right across the country people are worried about their savings, pensions and mortgages.

"I said last week that if the Government needed to take major steps to secure the banking system, it would have our support.

"Do you agree with me that the message should go out loud and clear from this House that in a free enterprise economy, banks play such an important role for everyone ... that the banking system itself cannot be allowed to fail."

Mr Brown said he was grateful for the Opposition's support.

"I hope we can proceed now on the basis that there will be all party support for the actions we have taken today and will be taken in future days.

"I believe the scheme we have put forward, which is a stability and restructuring programme, is not simply about new capital for the banks. It is increasing liquidity into the system, so that there is overnight and short term lending available for the banks.

"It is dealing with what is perhaps the bigger problem at the moment and that is medium term funding. Small businesses need to get funding. At the same time, mortgage-holders and prospective homeowners need to know that the market can resume.

"The absence of that medium term funding ... is something that has hindered the market and the market is frozen up in these areas.

"So we are guaranteeing £250bn. It will be at commercial rates. But we will do the job that the banks usually do and should be doing in normal circumstances.

"The cut in interest rates will assure people that all action is being taken in the economy, so that we can help businesses move forward.

"We are showing we will do everything in our power to maintain the stability of the economy in the interest of every single British person."

Mr Cameron said the real test of success was not just about banks starting to lend to each other but whether small business could get loans again and whether prospective homeowners could get loans again.

"Aren't they the real tests that need to be met and can you explain how you will be measuring whether they are met?"

Mr Brown said the key issue for small and medium sized business was cash flow and access to finance.

"They need to be helped through this critical period." Late payments problems had intensified.

"The Government can ease this situation and we will help cash flow through prompt payment.

"The Government has already agreed to move its procurement rules from payments within 30 days to a commitment to pay as soon as possible.

"In the current climate we need to go further with a harder target. We will aim to make small and medium sized enterprise payments within 10 days."

To cheers, he said: "The Government will pick up the cost of this. But this is a small price for greatly increasing cash flow ... to small and medium sized enterprises."

The Government was also proposing the European Investment Bank increased its loans worth up to £4bn to UK banks for use by small and medium sized enterprise.

"We are doing and will do everything we can to assist small and medium sized enterprises throughout this difficult period."

Mr Cameron said taxpayers were making an "enormous investment and have potentially a huge liability".

He insisted: "They want to see their interests protected. That should mean no more irresponsible behaviour, no more inappropriate dividend policies and no more indefensible bonus packages.

"Will you confirm these will be conditions of the agreement for getting taxpayers' cash and how will these conditions be enforced once everyone is signed up?"