Darling: Banks must pass on rate cuts

The chancellor has urged mortgage lenders to ensure borrowers benefit from interest rate cuts.

Speaking to the BBC on Sunday, Alistair Darling called on banks to "play their part".

The comments came after the Bank of England last week cut the base rate of lending from 5.25 to five per cent.

However while the cut will be passed on for many variable mortgage deals, some lenders have refused to reduce the cost of borrowing.

Speaking at a G7 finance ministers meeting in Washington, Darling said: "The Bank of England has put £15bn into the financial system.

"It has made it very clear it is prepared to take whatever action is appropriate to support the financial system in Britain.

"We are prepared to play our part. In turn, what we are saying to banks is you have got to help people as well.

"If you can pass on those interest rate reductions, if you can help homeowners, help businesses, that will help all of us get through a very difficult time."

The chancellor has said the current credit crisis is "the biggest economic shock since the Great Depression".

But Darling also sought to reduce fears of a 1990s-style housing crash.

"The key thing though is, unlike in the past, our interest rates are a lot lower," he said.

"And, critically, whereas in the early 1990s you had three or four million people out of work, today unemployment is the lowest it's been since the mid-1970s.

"So the fundamentals are much, much better than they were at that time, and I'm determined that we do everything we possibly can to support homeowners, businesses and the wider economy."

Meanwhile writing in Sunday's News of the World, Gordon Brown backed the chancellor's call.

"Although the Bank of England has cut rates in recent months, the banks have not always been passing those reductions to their customers," the prime minister said.

"So Alistair Darling will be meeting with the main mortgage lenders to discuss what further steps can be taken."

Brown also urged banks to own up to bad debts.

"If the world's largest banks could come together quickly and agree as a group to come clean about the potential bad debts they face, we could reduce the uncertainty and risk they face and restore confidence back into the markets," he added.

However shadow chancellor George Osborne said: "Everybody wants to see the cost of living come down for homeowners.

"But when it comes to the decisions Alistair Darling actually has control over, he has raised the cost of living with tax rises in his most recent budget.

"Instead of commenting from the sidelines, he should be showing leadership on alleviating the burden on people in these tough times."