George Osborne says first Government bank bail-out failed

In the company of his new front bench colleague Ken Clarke, Shadow Chancellor of the Exchequer George Osborne responded to the Government's statement on financial markets yesterday.

Alistair Darling announced a new £50 billion Bank of England fund to purchase corporate assets from banks, that Northern Rock may no longer rapidly reduce its mortgage book and that the Government will convert its stake in RBS into ordinary shares, taking up perhaps 70 per cent of RBS.

Mr Oborne responded:

"I begin by thanking the Chancellor for his statement, but he should have been straighter with the British people about the announcements that he is making today. This is not some long-planned, carefully thought-through second phase of Government policy; it is instead the clearest possible admission that the first bail-out of the banks has failed, and now the Government have no option but to attempt a second bail-out—a bail-out whose size we still do not know, whose details remain a mystery and whose ultimate cost to the people of Britain will be known only when this Government have long gone.

Of course we cannot allow the banking system to fail—but for two months now, the Opposition have warned the Government that bank recapitalisation was not working, that the cost of the preference shares was too high, that the liquidity operations had to be extended, that the promised lending to businesses was not taking place, and that Government guarantees to get lending flowing to the real economy were needed."

The new team has started well, and it is perfectly clear that Mr Osborne is as happy about having Mr Clarke on board as the Conservatives are claiming.