Page last updated at 12:51 GMT, Wednesday, 8 October 2008 13:51 UK

Tories seek bank plan assurances

David Cameron
Mr Cameron said his party would work constructively with the government

The Tories have sought assurances that the government's banking rescue will protect taxpayers' interests and not be used as "rewards for failure".

In the Commons Conservative leader David Cameron asked if a condition of the plan was that executives of failing banks should not get bonuses this year.

Mr Brown said there would be conditions attached but it was right that they were worked out on a one-to-one basis.

The Lib Dems "wholeheartedly" supported the government, leader Nick Clegg said.

"We must show the British public that we can work together to halt the downward spiral in the British economy," said Mr Clegg.

"That's why, speaking for these benches, I confirm that we wholeheartedly support this government package. When a ship is sinking you send out the lifeboats - you don't argue about who has steered it into an iceberg. That's a debate for another day".

Taxpayers will rightly be infuriated if they see their hard-earned money going on bonuses that are rewards for failure
David Cameron
Conservative leader

At prime minster's questions in the Commons, Mr Cameron said the banking system "cannot be allowed to fail" but the "real test of success" of the new package was not just about banks starting to lend to each other but that small businesses could get loans again.

He said some of those banks which would need the money the most were those which had taken the greatest risks and questioned whether banking executives would be denied bonuses this year under the deal.

"Taxpayers will rightly be infuriated if they see their hard-earned money going on bonuses that are rewards for failure," he said.

Public contracts

The prime minister said such conditions would be agreed on a case-by-case basis and each bank would want to take advantage of the package.

Remuneration should be "based on responsibility, hard work, effort and enterprise," he said.

Mr Brown announced an immediate 0.5% cut in interest rates to MPs and said it would reassure people that everything was being done to help businesses.

We will build on the FSA's work, which is to ensure that excessive risk taking is not rewarded but punished
Gordon Brown

He also said the government would seek to pay small businesses with public contracts within ten days to help ease liquidity problems.

"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," Mr Brown said.

"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 Brown said the government was "doing everything in our power to retain the stability of the economy in the interest of every single British person".

In a reference to the Conservatives, Lib Dem Treasury spokesman Vince Cable joked he was "stunned by the conversion of the advocates of the bonus culture" but added: "There has to be a fundamental change in banking culture and I hope that will be carried forward".

Eight banks and building societies are to be given up to 50bn of public money in return for preferential shares, in an attempt to increase lending.

Share prices had plunged as banks, unwilling to lend to each other, have struggled to access funding.

Initially 25bn of taxpayers' money will be used to kick-start lending between eight banks and building societies, with a further 25bn available if necessary for other eligible institutions.

Risks involved

Chancellor Alistair Darling said that the government expected to get the money back but admitted all investments carried some risk.

He added: "If we didn't do this then the risk is this problem gets worse and worse and worse and we don't see money being available for lending to businesses, to individuals and that would compound the problems."

A further 200bn is also to be made available by the Bank of England for short-term borrowing, to provide liquidity to banks and building societies.

There will also be a special company set up to provide up to 250bn in loan guarantees to banks and building societies - banks currently remain unwilling to lend to each other and it is hoped it can help lending resume.

At a press conference earlier Mr Darling was asked what level bankers' bonuses would be "capped" at.

He replied it would be "frankly ridiculous" for the government to decide on bonuses but the Financial Services Authority would be drawing up a code looking particularly at incentives.

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