Page last updated at 15:31 GMT, Tuesday, 4 November 2008

Pass on rate cuts, MPs tell banks

Lord Mandelson
Lord Mandelson urged banks to cut interest rates while visiting the Gulf

The Bank of England's monetary policy committee has been urged by a group of more than 20 MPs to cut interest rates when it meets on Thursday.

They have also tabled a motion in parliament urging all UK banks to pass on benefits to customers.

The MPs, led by Labour's Jim Sheridan, said the benefits of previous cuts had still not been passed on to consumers.

They acted after Business Secretary Lord Mandelson said the public would be "surprised" if no action were taken.

The motion stresses that cutting rates would assist the economy and all banks and financial institutions should try to "help ordinary people cope".

Mr Sheridan, the MP for Paisley and Renfrewshire North, told the BBC: "I think the government and the businesses should do everything they can to fix the economy.

"If the interest rates fall, this should be passed on to the customers. It is not an over-ambitious request and we expect even more colleagues to sign.

"MPs from all of the parties have heard from constituents who need help during this difficult period."

'Not unreasonable'

Lord Mandelson, while on a visit to the Gulf with the prime minister, also said small small businesses and mortgage-holders should benefit if The Bank of England does cut rates by at least 0.5%, as it is expected to.

He acknowledged that the government could not force the high street banks to cut rates.

"When official rates are being cut, it is not unreasonable for customers to see some benefit from that," he told the BBC's Today programme.

When the government bailed out some High Street banks, including the Royal Bank of Scotland, Lloyds TSB and HBOS, by taking a 37bn stake in the banks, one of its conditions had been for these institutions to restore credit lines, he pointed out.

"If it appeared that the banks were standing in the way between what the Government is doing and how the public wants to benefit, then I think many banking customers are going to be asking some difficult questions of the banks," Lord Mandelson went on.

He said that even when the government had taken a stake in a particular bank, it would be operating at "arm's length".

But this did not stop ministers from being entitled to express their views and encourage them to do what was best for their customers and the economy, he insisted.

He said that when the government took action, it had "strong expectations" of what it expected the banks to do.

This included resumed lending to mortgage-holders, to small-business and to other banks as confidence in the industry grew and liquidity "kicked" in.

'Grossly unfair'

He was responding to claims made by the HSBC's chief operating officer, David Hodgkinson, that mortgage rates do not just depend on the Bank of England base rate but also market conditions and inter-bank lending.

The senior banker was also travelling with Lord Mandelson and the prime minister.

When Gordon Brown was asked what he thought of the issue, he replied: "We have had two interest rate cuts in the last period of time, and some of that has been passed on. Let us see what the Bank of England does this Thursday."

We want to see all banks passing on the full amount -especially ones where they've been bailed out using taxpayer's money
Cathy Neal
Which?

But Mr Sheridan said it would be "grossly unfair" if HSBC and other banks did not pass on the cuts.

He added: "It will help consumers and the economy. So these banks would be acting extremely selfishly and should be forced to explain themselves."

He said the government had to seriously consider what action could be taken to ensure the cuts were passed on.

Mortgage expert Cathy Neal, from consumer rights charity Which?, told Radio 5Live that just 60 percent of lenders passed on the last rate cut and only about half of those passed on the full amount.

She said the organisation had begun its own campaign into the issue and added: "We want to see all banks passing on the full amount -especially ones where they've been bailed out using taxpayer's money."



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