I'm amazed. The Monetary Policy Committee have cut interest rates in the last few minutes by 1.5% to a new rate of 3%. In doing so they proved two things. First of all, they can ignore their inflation remit. I have no doubt they did. Second, they are not independent. This body was not inclined to make that move. It only did so because it was, I am sure, leaned upon from on high.
That said, this is clearly a move in the right direction. The rate has not gone as far as I want. I argued, for example, when working on the Green New Deal earlier this year that a cut to 2% was desirable, although I admit this did not get in the final report. I continue to hold that opinion, but let's deal with the pragmatic issue of the moment, which is whether this cut will now be passed on to borrowers, or not.
It is obvious that some banks have little intention to do so, including Abbey, which is part of Santander. They put up their mortgage rates earlier this week. I am very worried that many banks will use cuts in base interest rates as an opportunity to boost their profitability, and to rebuild their balance sheets by increasing the differential between the rate at which they borrow and the rate at which they lend.
The government has a mechanism available to it to prevent this. It must force its partially state-owned banks, Lloyds TSB, RBS, HBOS and those whose rescue it engineered - the Alliance and Leicester and Bradford and Bingley, to pass on the full rate cut to their customers. And that should not just be to mortgage customers. The rate cuts should be reflected in bank overdraft rates as well for both businesses and individuals whilst credit card rates must also be subject to serious review.
If banks need more capital it is the job of the markets or government to provide it. This is not the time to overcharge ordinary people to achieve that result by indirect means.