Lib Dems: Govt promise still leaves many questions

Tuesday, 18, Sep 2007 12:00

The government must put long-term contingency plans in place to avert further economic turmoil, the Liberal Democrats have insisted today.

This comes as the chancellor confirmed the Bank of England will underwrite all remaining investments in Northern Rock, should the lender become insolvent.

This unprecedented action has been applauded for recovering Northern Rock share prices and returning stability to the wider financial market today.

But the Liberal Democrats argued this antidote would only provide temporary protection for a long-term illness.

Lib Dem shadow chancellor Vince Cable warned many questions still remained, saying: “Obviously the government has had to take drastic action to calm the panic and to give an absolute guarantee that deposits will be protected, but the government’s ambiguous commitment raises a host of questions.”

He outlined several areas of doubt, questioning whether the deposit guarantee will apply to other banks - such as Alliance & Leister and Bradford & Bingley - which also experienced jitters yesterday.

Mr Cable went on: “Is the Bank of England in effect proposing to nationalise Northern Rock to underwrite it?

“And what will be done about those irresponsible managers who led Northern Rock into its current problems?”

The last point rests the burden of blame on Northern Rock chief executive Adam Applegarth, who has been criticised for practicing unsound business strategies in the months leading up to the crisis.

Yesterday, Mr Cable heavily criticised Gordon Brown’s economic record in a speech at the Lib Dem conference.

He argued that an indebted economy was not sustainable and predicted the current boom would soon collapse.

The government’s rush to alleviate pressures on Northern Rock customers appears to have been fruitful today, as share prices recover and queues outside branches calm.