PMQs: Clegg tells PM “to get tough on banks”

1.27.00pm GMT Thu 20th Nov 2008

Liberal Democrat leader Nick Clegg called upon the government to get tougher on banks refusing to lend, as small businesses continue to feel the effects of the economic crisis.

Speaking at Prime Minister's Questions in the House of Commons, he said local companies were being forced "out of business overnight" whilst the bankers could not believe their luck. He reiterated his call for the consideration of direct lending by government to small business that he had made earlier in the day on Radio 4's Today Programme.

Read the full exchange below:

Mr. Nick Clegg (Sheffield, Hallam) (LD): I would like to return to the bank bail-out plan. We supported that action because we were told that there would be strings attached-that the banks would be forced to lend. Yet every Member of this House will have heard about local companies receiving e-mails from their banks forcing them out of business overnight. What concrete evidence does the Prime Minister have to show that his bail-out plan is working?

The Prime Minister: The first thing to do was to provide liquidity to the banking system. The second thing to do was to recapitalise the banks so that they would not collapse. Some of these banks would not be in existence today had we not taken the action that we did to recapitalise them. I am pleased that the right hon. Gentleman supported us on this. The next thing to do is to secure the funding that is necessary for small businesses and for mortgages. We have expanded the small firms loan guarantee scheme, and we have arranged for £4 billion of funding from Europe. We are meeting banks and building societies almost every second day to consider the technical issues and other reasons why the lending has not happened in some cases, and we are ready to take further measures if necessary. I hope that he agrees that if we take further measures, that may cost money as well as costing the banks changes in the way that they operate, and I hope that he will support us when we do it.

Mr. Clegg: That was an extraordinarily complacent reaction when thousands of jobs are at risk. We all know that the Prime Minister likes to strut his stuff on the world stage telling everybody that his plan is better than their plan, but his plan is not working where it counts-here at home. The bankers cannot believe their luck. They have got billions of pounds of taxpayers' money, they can keep their bonuses, and they do not have to lend to companies. If he is too weak to get tough on the banks, will he instead consider ways of lending serious money directly to businesses?

The Prime Minister: First, they have not, under our scheme, taken their bonuses as members of the boards. Barclays announced just yesterday that they will not take those bonuses. We are having some success, and I hope that we will have more success, in persuading the executives of these companies to take full responsibility. As for the resumption of lending, every country in the world is facing this problem, and we are all looking at what we can do. What has happened-let us be honest-is that we have gone from a period where banks were prepared to take any risk to one where they are averse to risk, and we have got to turn that round. That means that we are going to have to build confidence in the future of the financial system. Some of the measures we have already taken, but I hope that the right hon. Gentleman will support the further measures that we will take.

Click here to read Prime Minister's Question in full

Click here to read more detailed Liberal Democrat plans to get banks lending