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Britain's bailed-out high street banks risked the wrath of the government last night after they refused to pass on to all their mortgage customers the full benefits of the Bank of England's decision to cut borrowing costs to the lowest level since 1951.
Despite joint pressure from Gordon Brown and the chancellor Alistair Darling to match the one percentage point reduction in the bank rate to 2%, both the Royal Bank of Scotland and the Halifax said their standard variable rates (SVR) would not be reduced by the full amount.
Halifax, Britain's biggest mortgage lender, said it would trim only a quarter point off its SVR home loan although customers on tracker mortgages would receive the cut in full, worth £82 a month on a £150,000 mortgage. RBS said it would "strike an appropriate balance" between the needs of borrowers and savers, but would pass on the cut in full to business customers.
The cuts in mortgage rates were triggered by the announcement from Threadneedle Street that it had cut the bank rate to its joint lowest in history in an attempt to prevent the economy sliding deeper into recession.
Darling said last night that borrowing costs had come down by a total of three percentage points in two months. "This will help people and businesses - and I want to see these cuts passed on."
The chancellor met bank chiefs yesterday to flesh out plans to offer up to two years' holiday on mortgage payments if homeowners fell into difficulties.
The move from the Bank of England was widely expected after a run of poor data from every part of the economy this week suggested Britain was tipping into a longer and deeper recession than the chancellor predicted in last week's pre-budget report.
Brown welcomed the decision and predicted the cut would not be the last. "They made the right decision. If the banks pass the interest rates on, it's a benefit to homeowners across the country," he said. The prime minister also stepped up the pressure on the bank's monetary policy committee (MPC) to cut rates further in the coming months. "Interest rates could continue to come down. If you've got a period when inflation comes down, you've got to do different things."
TUC general secretary Brendan Barber said ministers should get tough with high street banks if they refused to pass on the rate cut. "This decision was spot-on. The Bank of England could not be clearer about what it expects the high street banks to do. The government must now pull every lever of influence to get banks lending. If that doesn't work, radical measures will be needed straightaway. The alternative is a wave of bankruptcy and redundancy."
The Halifax said its decision to cut its SVR from 5% to 4.75% was the result of balancing the interests of customers with "the commercial imperative of managing its business in a sustainable and prudent fashion".
Following the market mayhem this autumn, the taxpayer now owns almost 60% of RBS and is likely to have a stake of nearly 50% in the country's biggest commercial bank once the merger between Lloyds TSB and Halifax Bank of Scotland (HBOS) is completed. The high street banks believe they are receiving mixed messages from Whitehall, with ministers urging them to both increase their lending and to run their businesses profitably so that they can repay state loans.
Rewind to 1951
It was the year Britain returned Winston Churchill to office aged 77, Newcastle United beat Blackpool in the FA Cup, and free spectacles and false teeth on the NHS were halted. Pendlebury delivered the famous line "It's a good job we're both honest men" in The Lavender Hill Mob - a cinema ticket to see Alec Guinness and Sid James cost 2d, or 21p today, a Morris Minor around £520 (£12,000). Some goods were still rationed, and a loaf of bread cost 6d. The year was 1951, and it was the last time the Bank's base rate was 2%
