Afternoon:
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The pressure on the banks to pass on yesterday's interest rate cut to borrowers shows no signs of diminishing.
Far from it: today the Prime Minister insisted on GMTV that they must pass on the cut in the base rate. Yet the Halifax, for example, which is part state-owned, was the most egregiously tightfisted, cutting rates by only 0.25 per cent. As for credit card companies, they have been shameless in maintaining rates for debtors which, at around 17 per cent APR, far outstrip the base rate.
The banks say, as Angela Knight does in her commentary for this newspaper today, that there are several factors involved in setting their lending rates, of which the APR is only one. And they are right to point out that the Government's insistence that they should liberalise credit by passing on cuts in interest rates is contradicted by their other brief from the Bank of England, that they should bolster their cash reserves. But the banks do have some flexibility: some are far more responsive than others. And while no sane individual would want them to return to the profligate lending habits of the last decade, which constituted one of the chief reasons for the credit crunch — of which the Halifax was a notable practitioner — there is good evidence now that lenders are refusing credit even to perfectly reputable small businesses and individuals.
The upshot is that savers, particularly the elderly who rely on their savings for an income to top up their exiguous state pension, are being squeezed by the banks through cuts to savings rates at the same time as borrowers are seeing far less of the lower interest rates than they should.
Banks should remember that they are effectively in hock to the taxpayer, if not through a direct stake in their equity then through the massive sums that have been thrown by the state into the financial system to maintain liquidity. Now it is payback time for mortgage payers, for credit card debtors and for small businesses desperately in need of credit. The banks are obliged to be prudent in respect of their lending — belatedly in most cases — but prudence is not the same as self-interested “caution”. They should think again, quickly.
Think on, Geoff
The Transport Secretary, Geoff Hoon, has told this paper that he will announce his decision on the third runway at Heathrow in January — it had been expected today — and that it will be final. There will be no vote on the matter in the House of Commons. This seems reasonable; it would be a remarkable departure for the decision to be made by a vote.
But it is no bad thing if Mr Hoon has indeed postponed his announcement in order to think hard about the evidence, because the case for a third runway, which the Government has given every indication of favouring, is looking very tenuous. Some 30 per cent of travellers at Heathrow are transfer passengers who contribute relatively little to the economy. The economic downturn has resulted in a corresponding decline in aviation and the Government's commitment to reductions in emissions is hard to square with expansion in the airline industry. Mr Hoon should take his time.
And celebrating...
CHARITY. At noon today the Evening Standard's Christmas charity auction is launched on eBay, in aid of London young people's charity Greenhouse which does extraordinary work with teenagers from deprived communities. There is a wonderful range of lots, from a New York shopping trip with Kate Moss and Sir Philip Green to an audience with our own Brian Sewell. We hope that our readers will take part with the same generosity they did last year, when the auction raised £180,000. What better way to mark the season of peace and goodwill than by buying a lot which will both delight the recipient and do real good to others?
Reader views (2)
If the government insist that lowering intrest rates is the way forward, then they should INSIST that the full benefits be passed on by the banks, and not just advise the banks to do it.
- Heidi, Stafford, 05/12/2008 12:13
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Call to force banks to lower interest rate is the worst idear i've ever heard. If you do you'll only may the slump deeper and longer. Stop this madness and allow bank to charge a resonably rate; it after all its homeowners naked greed got us here.
My advice run for the hill as Gordo is goting to ruin this country.
- Paul John Graham, Greenwich, 05/12/2008 10:40
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