Chancellor's 'complacency' criticised

Opposition parties have criticised the government's response to the financial instability surrounding the Northern Rock bank and questioned the chancellor's leadership throughout the crisis.

Following Alistair Darling's announcement that the government would be putting forward legislation to provide more protection for savers, shadow chancellor George Osborne said the Treasury should have done more to prevent the run on the bank.

Darling acknowledged there were "clearly lessons to be learned", but Osborne said the crisis had undermined the government's claims to have created financial stability.

"The chancellor of the Exchequer was supposed to be in charge, but he was not," Osborne said.

He said the government must take steps to tackle "the growing personal and public debt that leaves Britain's economy more exposed than others to financial turbulence".

Calling for Darling to "take responsibility for this mess", he argued: "The government's boasts about security and financial competence will now ring hollow."

"It's about time he provided the leadership and the decisive action that his high office demands," he added.

Liberal Democrat Treasury spokesman Vince Cable said the statement "reeks of complacency".

"The government has become complacent about large-scale and irresponsible lending," he argued.

He claimed that the taxpayer contributed £11bn in lending and £23bn in guarantees to the bank, roughly equivalent to spending on the armed forces.

Cable questioned why the chancellor had not insisted the management of the bank was sacked "when he agreed to the effective nationalisation of the liabilities".

"This is not just a passing embarrassment," he argued. "It's potentially a tragedy for the 5,000 or more people in Newcastle whose livelihoods depend on this bank. But it's also a scandal in which substantial numbers of people in the financial community are heavily involved."

Discussion

The chancellor had told MPs that the Treasury had launched a discussion paper on giving savers greater protection.

He said legislation would be introduced in the next parliamentary session for a new savings regime.

"This regime would mean depositors are insulated from a bank that has failed, greater compensation for them and certainty their compensation can be paid out quickly, Darling said.

The guarantee on savings up to £35,000 was extended recently and the chancellor described this as an "initial step towards more comprehensive change".

Northern Rock was "particularly vulnerable" to instability in the global financial markets, Darling told the Commons.

And he confirmed that changes would be made as a result of what happened at the bank "and the wider instability across the world".

"There are clearly lessons to be learned from what happened at Northern Rock," the chancellor said.

"But we do benefit from having a strong economy and a generally strong banking sector which I believe will enable us to get through these difficulties and to maintain our reputation as the world's leading financial centre."