Darling attacks HBOS blame game

Mr Darling, who was in charge at the Treasury between 2007 and 2010 during the worst years of the banking meltdown, said yesterday he accepts Sir James’s enormous pension pot remains a matter of “controversy”, but insisted blame for what happened to the British economy “spreads quite far” beyond one or two senior executives at the failed banks.

Parliament’s cross-party Banking Commission concluded last month that Sir James, the Leeds-born banker who ran HBOS from its inception in 2001 through to 2006, was the “architect of the strategy that set the course for disaster” at HBOS. The bank required a £20.5bn bailout from the taxpayer at the height of the financial crisis.

Sir James, who lives near Harrogate, had previously been seen as a leading light of the financial sector, having been handed a key role at the now-discredited watchdog the Financial Services Authority (FSA) in 2004, and being knighted for services to banking in 2006.

Sir James said last month the Banking Commission’s conclusions made “very chastening reading”, and offered to hand back both his knighthood and 30 per cent of his pension – though still leaving himself an annual deal worth more than £400,000.

Speaking at a Westminster lunch, Mr Darling refused to condemn the man he appointed to lead a review advising the Government on the future of the mortgage market, even as the economy was beginning to collapse in 2008.

“James Crosby has accepted, unlike some, that he was to blame, in that he’s going to hand back his knighthood as soon as possible,” Mr Darling said.

“His pension remains a controversy, as indeed does [former RBS chief] Fred Goodwin’s.

“But if you start looking for blame here it spreads quite far.

“I don’t think you can single out one member of a board or a company and say it was his fault and not anybody else’s, any more than you can go after someone on the next rung down and say it was his fault, and the board knew absolutely nothing about it.

“I think the boards of HBOS and RBS have a huge responsibility for what happened. But in addition to that there are regulatory failures. And of course Government was ultimately responsible for the regulatory regime – so we’ve got to accept responsibility as well.”

Mr Darling highlighted the FSA’s warnings in 2005 and 2007 about HBOS and Northern Rock which were not “followed through”, and insisted the most important thing now was to ensure mistakes are not repeated.

“Looking forward, any regulatory system that’s worth its salt does need to make sure that if people cross the line in the future, something is done about it, and it’s not just left to some hue and cry several years later,” he said.

Mr Darling, who is leading the pro-union campaign ahead of next year’s vote on Scottish independence, has been tipped by some for a return to Labour’s front bench – possibly even as a replacement for Shadow Chancellor and West Yorkshire MP Ed Balls.

He denied he has any ambitions beyond the referendum, but issued a stern warning that George Osborne’s austerity could lead to years of Japan-style stagnation.

“It has come to a pretty pass when people will say bumping along the bottom is OK because we aren’t going into a triple-dip recession,” he said.

“My fear is we could be bumping along the bottom for an entire decade, if not longer, as happened in Japan. The problem we have got is a lack of confidence.”