Chancellor Alistair Darling says UK banking system was just hours from collapse

Oct 23 2009 by Jonathan Walker, Birmingham Post

Britain’s banking system was just hours from collapse before the Government stepped in last year, Alistair Darling, the Chancellor, has revealed.

Banks were preparing to close their doors and disable cash machines to prevent customers withdrawing money.

The Chancellor set out the full scale of the disaster that nearly engulfed the financial system as he warned that the battle to revive the economy “is not yet won”, despite figures published today which are expected to show the recession is officially over.

Output figures for the period between July and September are likely to show the economy has stopped shrinking and instead grew by around 0.2 per cent.

Mr Darling also predicted that manufacturing would bounce back and new jobs would be created in the automotive industry, despite a series of blows to the sector including the closure of Birmingham vanmaker LDV.

Speaking to regional newspapers in Westminster, Mr Darling said: “About a year ago, we were pretty much along with every other country in the world looking into an abyss.

“The banking system had frozen, it was quite clear that we had reached the astonishing situation where the bank doors would be shut and the cash machines would switched off.

“Something that was incredible two or three years ago was in hours of happening across the world. Twelve months on, people are a lot more confident than they were.

“And I think that confidence is partly because we and other governments across the world took action quickly to do with the banks, but importantly, subsequently to that we were very clear that we had to take action to support the wider economy.”

Mr Darling and Gordon Brown announced in October that they were making up to £250 billion available to help the banks. On October 13 last year the Government bailed out Royal Bank of Scotland, Lloyds TSB and HBOS with a £37 billion part-nationalisation.

The Chancellor warned against complacency if figures suggested the recession was over, saying: “Unemployment is rising, although at a far lesser rate than we thought at the beginning of this year, but unfortunately people will continue to lose their jobs into next year.”

He added: “I certainly don’t think that people should be complacent. The battle is not yet won. We have a way to go yet.”

The automotive industry would grow in strength despite job losses at Jaguar Land Rover (JLR) and LDV, he said.

“I think you will see a recovery, as you will see in other parts of the economy.

“If you look at what’s happened in the last 30 years to the car industry, it went through big changes.

“But I do believe that it will come back. Particularly because we have a good reputation in terms of innovation, in terms of development.”

The Government had a key role to play supporting the motor industry, he said.

“If you take JLR for example, we have set aside money to help the industry and what the industry wants in particular is help developing new technologies and engines for the future, and we are able to do that, and when we get propositions we will look at them and help.”

Asked about the decision by LDV’s new owners to move assets to China, the Chancellor said it was “not surprising” if China wanted to manufacture its own vehicles.

But he added: “It is inevitable that cars are going to be assembled in different parts of the world. However in terms of R&D, and the development of the next generation of cleaner engines and hybrid technology and so on, that’s something where we are streets ahead.”