With permission, Mr. Speaker, I would like to make a statement on Northern Rock.
I hope that the House will understand that it was necessary for me to issue a statement yesterday, ahead of the markets opening, so that trading in Northern Rock shares could be suspended this morning. It was also essential to allow the management of Northern Rock time to tell its employees what was happening so that the bank could open as normal this morning.
As I said yesterday, the Government have decided to introduce legislation to take Northern Rock into a period of temporary public ownership. I took this decision after full consultation with the Bank of England and the Financial Services Authority. The draft Bill has been available in the Vote Office and the House of Lords since this morning to provide as much time as possible for right hon. and hon. Members, as well as the other place, to examine its provisions. If the House agrees, the Bill will begin its parliamentary passage tomorrow. I have also arranged for the principal Opposition spokesmen to be briefed by Treasury officials today.
It is important for savers and depositors to be reassured that their money remains safe and secure. Northern Rock will continue to operate as a bank on a commercial basis, and it is open for business as usual today. The Government guarantee arrangements that I announced last year remain in place and will continue to do so. Borrowers will continue to make their payments in the normal way.
I have appointed Ron Sandler as the executive chair. He is in Newcastle today and has had meetings with the company and its employees. The new board and the bank will operate at arm’s length from the Government with commercial autonomy for their decisions. I will publish shortly the framework agreement that will outline how the relationship between the Government and the Northern Rock board will work.
As I said yesterday, the board’s proposals will also cover the Northern Rock Foundation, which is very important to the north-east. The board will commit to guaranteeing a minimum income of £15 million per year in 2008, 2009 and 2010. That will be paid directly by Northern Rock, as now, and would be a condition of any sale, if it were sold in that time. The new board will be asked to identify a long-term future for the foundation.
I want to set out the reasons for the decisions that I made and to outline what the new legislation will do. Before that, let me remind the House that last September there was almost universal agreement that the Government were right to intervene to save this bank to stop its problems spreading to the wider banking system. There was also agreement that, ultimately, the long-term future of the bank must lie in the private sector. Even those who advocated nationalisation in the autumn did so on the basis that it could be only a temporary step—a stepping stone—to return the bank to the private sector when market conditions made that possible.
Throughout last autumn, and from the start of this year, the Government wanted to test all the options and to give the shareholders and the management time to find a solution that was acceptable and that met the three principles that I set out last year: to support financial stability; to protect depositors’ money; and to protect the interests of the taxpayer. I said throughout that all options, including a period of temporary public ownership, remained on the table.
As the House will know, the Government had two private sector bids to consider. Each was tested against the option of a temporary period of public ownership to see which met our objectives and principles, including best value for the taxpayer. Both proposals involved a degree of risk for taxpayers and a very significant implicit subsidy from the Treasury, involving a payment below market rate to the Government for continuation of our guarantee arrangements and for the financing that we would put in place.
Each proposal had its pros and cons. The Virgin proposal, for instance, would have brought in a new brand and management. However, the taxpayer would have received a share of the private sector return only if the business’s value to its investors reached at least £2.7 billion. The board’s proposal would have involved a similar level of subsidy, but it had other disadvantages compared with Virgin’s. It would have brought in less new capital, and the business would have depended longer on Government guarantees for new retail deposits. A subsidy on the scale required would not have provided best value for the taxpayer. The private sector rather than the taxpayer would have secured the vast majority of the value created, and that would have been a poor reflection of the balance of risk borne by the two sides. By contrast, under public ownership, the taxpayer will secure the entire benefit and proceeds from the sale of the business in return for bearing the risks during this period of market uncertainty. That is why we made the decision that we did. We made the decision to protect taxpayers having weighed up the various competing considerations. In deciding which was the best option for the taxpayer, it was clear that a temporary period of public ownership was the better option.
I will go through the contents of the Bill in more detail on Second Reading tomorrow. We have deliberately drafted it to ensure that a bank can be acquired only in certain tightly defined circumstances, and the power to do so will last for only 12 months. I have already announced a consultation that will lead to permanent legislation to deal with such situations in future. The Bill potentially applies to a range of financial institutions, but I want to make it clear that the Government have no intention at present to use it to bring any institution other than Northern Rock into temporary public ownership.
The Bill also provides for appropriate compensation to shareholders. As I explained on 21 January, those provisions are on the basis that all financial assistance provided by the Bank or the Treasury, including guarantee arrangements for depositors, had been withdrawn and that no further financial assistance, apart from ordinary market assistance from the Bank, would be provided to the deposit taker. I believe that that is fair both to shareholders and to the taxpayer. The Bill makes provision for transfer of the bank or parts of it to the private sector.
I remind the House that following the problems that started in the United States last summer, Northern Rock was unable to raise the billions of pounds that it needed to stay in business. We were right to save the bank and to do everything we possibly could to find a private sector buyer on terms acceptable to the taxpayer. Because of current market conditions, we are now right to take over the bank on a temporary basis, because that is what is in the best interest of the taxpayer. There were choices to be made. We could have let the bank go under, but the risks to the wider financial system, for savers and for the general public were not acceptable. Having made the decision to save the bank, maintain financial stability and protect savers, we are now taking this decision to protect the taxpayer. I commend this statement to the House.
Never before in the long history of his office has a Chancellor had to come to Parliament to announce the nationalisation of a high street bank. For months, the Prime Minister dithered and delayed, doing everything he could to avoid the very course of action that he now recommends to Parliament. We know why. As the Chancellor acknowledged at the Dispatch Box, nationalisation means the
“slow lingering death”
of Northern Rock
“and Britain’s reputation as a major financial services centre”,
“cast in the role of undertaker”.—[Official Report, 19 November 2007; Vol. 467, c. 968.]
I have three sets of questions to ask that self-confessed undertaker. First, will he reaffirm that nationalisation means that the taxpayer is
“bearing all of the risk”?—[Official Report, 21 January 2008; Vol. 470, c. 1210.]
That was the phrase that he himself used last month in the House when he argued against nationalisation. Nationalisation means that the taxpayer’s risk has doubled to £110 billion, or £3,500 for every family in Britain. Every family in Britain will now own the high street bank that wrote more mortgages at the top of the housing market than any other. Every time a home owner fails to meet a mortgage payment, every family in the country will bear the cost. That is what this nationalisation means.
Can the Chancellor tell us about the state of the £100 billion mortgage book that he wants the taxpayer to own? How many bad loans are there? The credit rating agencies now say that the losses are rising at Northern Rock. Is that true? Before we debate the Bill tomorrow, we are entitled to a full statement of the financial position of the company that we are being asked to buy. We are entitled to see the advice from Goldman Sachs that we have all paid for.
Secondly, will the Chancellor agree that it is totally unacceptable for Northern Rock to continue with business as usual? This is now a Government bank; it can borrow and lend more cheaply than any of its high street competitors. Indeed, today it is still offering some of the best savings deals out there—it is still offering the 125 per cent. mortgages that it wrote last year. That is politically and economically unacceptable. Nationalisation can never mean business as usual. The Chancellor said in his statement that the management would be at “arm’s length”. Why is there nothing in the Bill to prevent political interference?
Thirdly, will the Chancellor confirm that he is actually introducing unprecedented, sweeping, draconian powers that will let him nationalise any other bank or deposit-taking institution in Britain by ministerial fiat? [Interruption.] The Lord Chancellor should pay attention; he keeps talking about strengthening the powers of Parliament, but he is about to give the Chancellor of the Exchequer the power to nationalise any bank in Britain without coming to Parliament—not even Michael Foot dreamed of that. It will create further uncertainty in financial markets and do further damage to Britain’s reputation. If the Chancellor is giving himself those sweeping powers only to get round parliamentary procedures for hybrid Bills, he should give himself them for a week or a month, not for a whole year.
The Chancellor had opportunities to avoid the disaster of nationalisation last autumn, and he missed them. He has the opportunity now to avoid the disaster of nationalisation by opting instead for a reconstruction led by the Bank of England, and he will not take it. It would mean £55 billion less exposure for the taxpayer, and none of this farce of business as usual; it would be like the approach that the Chancellor himself recommends for future bank rescues. But instead, the Prime Minister and his Chancellor have dithered their way to disaster. Now what they call the “temporary nationalisation” could, in the words of Ron Sandler, “last years”.
In uncertain economic times, the British people have a right to expect decisive and strong leadership from their Government. Instead, this Chancellor has given us weakness and indecision, with humiliating reversals over capital gains tax, then non-domiciles and now Northern Rock. He has taken Britain back to the 1970s and the failed policies of Labour’s past. We can safely say that he will never recover his reputation for competence. He is now politically a dead man walking and if the Prime Minister could make a decision, he would move him. What matters to the rest of us is that the British economy and its reputation abroad recovers from the Chancellor’s disastrous time at the Treasury. Nationalising a high street bank is not the way to begin, and we will oppose it tomorrow.
The shadow Chancellor is increasingly someone who conceals cynical opportunism with a pretty thin veneer of abuse. One would have thought that he might rise to the occasion rather than playing petty politics with the serious matter of the stability of the banking system in this country. He has never had a consistent policy on what to do with Northern Rock—every day brings a new policy and a new stance. Last September, he and the Leader of the Opposition said that they wholeheartedly supported what we had done and that they recognised we were right to take the action that we did to stop the problem spreading into the wider financial system. But when things got difficult for them, they ran away from that support. They were in favour of administration, despite the fact that that could have provoked a fire sale with a huge loss to the taxpayer. They said they were against nationalisation, yet two days later the Leader of the Opposition said yes, he would have to consider all the options, including nationalisation. Their policy today appears to be nationalisation followed by some ill-designed plan to sort out the future of the bank. They have absolutely no coherent view about what to do with this problem. They also fail to recognise the problems that have caused the bank’s underlying difficulties in the first place—the problems that arose in the American housing market that have spread to the financial markets right across the world, making it necessary for us to take the action that we have.
The hon. Gentleman criticises the decision that I have taken today. He is entitled to take that view, but he might want to have a word with the shadow Chief Secretary, who said on television this morning:
“The Chancellor is quite right; if the private sector isn’t willing to pay an appropriate value for a business then it would be wrong to hand it over at an under value.”
I am deeply grateful to him for his support.
It is clear that the Conservatives have absolutely no idea how to deal with this problem—all they can do is to come up with proposition after proposition showing their cynical opportunism. Rather than dealing with a serious problem, they have absolutely no answers whatsoever.
I welcome the Chancellor’s statement on the basis that it protects the interests of taxpayers, which the Treasury Select Committee identified in its report. Given the arm’s length management that will operate under Ron Sandler, no doubt the Committee will want to receive regular updates from him and his colleagues to ensure for ourselves that accountability is the key here. Given the unique position of Northern Rock as a nationalised institution, does the Chancellor agree that accountability is extremely important in to ensure that it does not distort the financial markets at any time?
First, I thank my right hon. Friend and his colleagues on the Treasury Select Committee for the very thorough investigation and piece of work that they did in relation to Northern Rock.
It is important that the management team led by Ron Sandler has the opportunity to make its decisions, first, to come up with a business plan, which we need to submit to Europe as part of the state aid approvals process, and then to be allowed to get on with the job. Yet again, I profoundly disagree with what the shadow Chancellor said. He seems to imply that it would be better for the bank to go bust rather than to allow it to trade and get through the difficulties that it faces. We will be in some difficulty if we go down the road of holding the management team to account for every single thing that they do. I am sure that the Select Committee will want to know about the business plan and want to discuss these things, but it is important that the management team gets to operate at arm’s length from the Government and gets on with running the company, because that is the best way of ensuring that it can be restructured and refocused and can then be returned to the private sector when it is appropriate and right to do so.
After five months, the Government are now in the best position to ensure the repayment of the taxpayer’s money. They were right to decide that temporary nationalisation is a better option than a bad private sale whereby the taxpayer would have underwritten the risks and the private buyer would have acquired the profits. I am tempted to say, “I could have told you so”, but this is too important for that. I will content myself simply with making this comment: when the Chancellor receives a large multi-million-pound invoice from Goldman Sachs for its financial advice, could he perhaps return it politely with a little note saying that he received rather higher quality advice free of charge from me and the Liberal Democrats?
The Conservative spokesman talked about the dark satanic socialism of the 1970s, but will the Chancellor confirm that the last time a private bank was nationalised in Britain was in 1994, when the last Conservative Government acquired National Mortgage bank, paying its owners a total of £1? And was not the last major bank nationalisation in the western world undertaken by that loony left-wing Trotskyite President Ronald Reagan, when he acquired Continental Illinois bank, which was subsequently returned at a profit to the American taxpayer by the Clinton Administration?
Clearly, choices have to be made. The Government have made theirs and we have made ours. Until today, the Conservatives had no alternative. I think that they are now suggesting public administration under a publicly owned Bank of England. What is that but nationalisation in all but name? The hon. Member for Tatton (Mr. Osborne) is so determined to keep one foot on either side of the fence dividing the public and private sector that he is in imminent danger of being castrated by the serrated edge.
However, there are questions for the Chancellor. What sort of undertakings did he give to Sir Richard Branson and others to pay their fees for private bids? When will he commission a fully independent audit through the Bank of England to establish the quality of the assets—the loan book for which this enormous sum of public money has been advanced? When will there be democratic scrutiny of the new business model, which could involve contraction or expansion of the bank? I hope that the changes will put an end to the extreme loans to which the hon. Member for Tatton rightly referred, which lent more than the value of property.
In general, the Government have to face some difficult decisions. The bank will have to contract and there will be job losses. We all recognise that, but at least the bank and the north-east have some long-term hope. For that reason, we shall support the measures in Parliament, while giving constructive criticism. That is the right thing to do.
I agree with a lot of what the hon. Gentleman says. He is quite right to remind the House that there have been many occasions when Governments have thought it right to intervene to take action to preserve stability or, in some cases, to preserve vital industries. He will remember what happened in the 1970s because I seem to recall that he was in the Labour party then. He is also absolutely right in his description of the Conservatives’ policy. Their policy is nationalisation. It involves nationalisation, but the hon. Member for Tatton (Mr. Osborne) has the gall to say that he is going to oppose the Bill that will bring that about. The only way he could deliver his policy—in as much as it is understandable and that it will last for the next day or so—would be to nationalise, so it seems extremely odd that he intends to oppose the legislation tomorrow.
The FSA is responsible for regulating Northern Rock and it judges the mortgage book that Northern Rock holds to be of good quality. On the business model, as I said earlier, Ron Sandler and his team will introduce a model after they have had a chance to consider the options available to them. That will have to be endorsed by the Government, because it has to be cleared by the Commission under the normal state aid rules. Once we have taken that action, assuming that Parliament agrees to it in the next day or so, I believe that there is a good chance that we can help Northern Rock to get through this period, and that seems infinitely better than the Tory options of either bankrupting it or finding some other pretty ill-defined destination for it, which make no sense to me whatsoever.
Listening to media reports this morning, it seemed as though the Conservative party was dead set on destroying the great northern institution of Northern Rock, and was prepared to see its assassination in its bitter opposition to nationalisation. However, it now seems that we are hearing different things for different audiences. I can tell my right hon. Friend that people in the north-east, and particularly the bank’s staff, will welcome the announcement of the establishment of a framework agreement. He will understand the considerable anxiety among the population at large in the north-east, particularly those staff. May I press him to undertake early publication of a business plan so that stability is brought to the business at the earliest possible date?
I am grateful to my hon. Friend, who rightly sets out his concern for the future of Northern Rock and for the people who work there. I hope that the business plan can be produced as quickly as possible, but I want to give the management team time to work out a plan that actually stands up. It is better to take time to get these things right, rather than rush into something, which is what the Tories have been suggesting over the past few weeks. It is time to get a properly worked up business plan. I am grateful to my hon. Friend for his comments about the Northern Rock Foundation, which supports many organisations in the north-east. That is an important step.
The Chancellor will recall that I supported his guaranteeing deposits last autumn, although he did it three or four days too late. However, it seemed to me and most other people that the only case for nationalisation was through an orderly run-down of the bank, with the sale of the loan book, as and when the markets permitted, to get decent value for the taxpayer. If it is genuinely business as usual and if the bank is to remain open and take deposits, why should not every sane saver in this country rush to take their savings out of other banks and saving institutions to put them into the only institution that offers competitive rates of interest, fully backed up by the Bank of England? What would that do for the reputation of the financial services industry in this country? How much profit does the Chancellor expect to make eventually out of the extraordinary venture?
I knew who the right hon. and learned Gentleman was, even if he was taken aback. He appears to support precisely what I propose: that we give the bank time to reorganise and refocus. However, I do not agree with his proposition that the bank should simply be run down. The management team needs the opportunity to restructure and refocus the bank because the market conditions have changed. On its operation in the marketplace, the state aid rules exist to ensure that it cannot abuse its position, but it is in the general interest of stability and of taxpayers to have an opportunity to work things through. If we followed the course of action that the Conservative party advocates, the taxpayer would lose substantial amounts.
Is my right hon. Friend’s intention with nationalisation to grow on a successful business in the public sector or is it simply the beginning of a slow, lingering death for the business? The House is not even at the beginning of the affair. Does the statement mark a new beginning or the beginning of the end in many homes in my city of Newcastle?
Let me put it this way: we had a choice of accepting one of the two bids on the table from the Virgin consortium and from the board. However, when we examined those two bids and judged them against the option of public ownership for a temporary period, they did not stack up in value for money terms. It would have been wrong of me to make a proposal that involved significant subsidy and that, as the figures clearly showed, was not the best option. We must at all times look after three things: the financial stability of the system, security for depositors and savers, and value for taxpayers. That is why I reached the decision at the weekend that I have announced today.
I hope that Ron Sandler and the new management team can examine the bank, ascertain what needs to be done, especially given the market conditions that it now faces, and see what we can do to refocus and restructure the business. I cannot give my hon. Friend the answer today because, as I said, the management needs time to do that. However, the alternative of accepting a bid that was not good value would have been wrong, and the suggestion from the Conservative party simply to bankrupt the bank would have been a profound mistake.
I encourage the Chancellor to resist the calls from Conservative Members to run off the bank completely, and instead to keep it going as a business. I welcome his comments about the Northern Rock Foundation continuing to secure income. After all, if the north-east had been offered even a share of £50 billion in Government loans and guarantees, we could have used it to benefit the region. At least the foundation can give us some benefit.
The right hon. Gentleman is right: the Conservatives want the bank not to take any new business, which would involve it being run off. At least, that is one policy that they are advocating; it would not surprise me if they had another one by tomorrow. That sort of inconsistency would just compound the difficulties that Northern Rock faces. In relation to the action that we have taken, I am grateful for the right hon. Gentleman’s support.
The Chancellor is perfectly right to refer to the sub-prime mortgage crisis in the United States and the ongoing difficulties in the financial markets. Against that background over the past five months, has he not ensured financial stability, prevented contagion, defended the interests not only of the taxpayer but of Northern Rock’s depositors and savers, and provided guarantees that have not been called upon? Given that fact, will he ensure that temporary ownership is also prudent ownership and does not fall within the time scales of our 24-hour news media?
As I have told the House, if we had not intervened to save the bank last September and if it had gone down, there would have been a substantial risk of the problems that it had faced and the difficulties caused by its collapse affecting the rest of the banking system. We therefore intervened and we were right to do so, and as I have said, at that time we were supported in all parts of the House. I fully accept that the Conservative party moved from that position subsequently. In relation to the savers and depositors, we were right, too, to issue those guarantees, because we wanted to ensure that they would not lose their money. We have been successful in that, too. The third element is to ensure that we do the right thing by the taxpayers of this country. That is why I have made the proposals that I have made today—precisely to ensure that the taxpayer’s interests are protected.
It is a long time since we have seen so many smiling faces below the Gangway in response to an announcement by the Chancellor—he has certainly pleased one big audience down there.
May I press the Chancellor on the issue of competitiveness? As he said, the bank is going to trade through. He talked about it trading responsibly and not abusing its position under state control, but how will he guarantee that it will be unable to abuse that position or to continue as it has, which is what got it into so many problems in the first place?
It is very important that we take notice of the work force in the business plan and ensure that their jobs in Northern Rock are assured. I can tell my right hon. Friend that they are worried about what is going to happen to their jobs. As far as the bank is concerned, tomorrow morning I will be opening an account in the people’s bank.
It is not just the people’s bank that people are concerned about; it is the people’s debt. We have heard the figure of £100 billion, but what is the Chancellor’s estimate of the total liability to the taxpayer, including the guarantees, the loans and any shareholder compensation? Will that amount now also include subordinated debt, which also runs to some billions? He said that the FSA regulates Northern Rock, but is he content with that? The FSA is required to produce a risk analysis of building societies every six months, but where was it? Did it tell the Treasury of its concerns about the massive over-reliance on the wholesale market? If it did not tell the Treasury, heads should roll at the FSA; if it did, perhaps Ministers should be considering their positions.
As has been well documented, the FSA accepts that it should have taken action last year when it became aware that there were problems in relation to the bank. However, I remind the House that, as the Treasury Committee found, the primary responsibility for running Northern Rock lay with the directors. They got themselves into a position from which they could carry on trading only by securing access to billions of pounds of funds from the financial markets. When that became difficult and then impossible in September, they had no alternative but to go to the Bank of England. The primary responsibility for Northern Rock, as for any other bank, must therefore lie with its directors.
On the hon. Gentleman’s earlier points, Northern Rock has a good quality mortgage book, the funds that have been advanced by the Bank of England are secured against Northern Rock’s assets, and as to the guarantees that I have given to depositors, and other guarantees, none of them has been called, so there has been no cost to the taxpayer.
Maintaining banking stability is critical to all of us in the House. Does my right hon. Friend therefore accept that it would be valuable to have an all-party solution to the problems that Northern Rock is facing? With that in mind, will he tell us whether the Treasury has received and assessed any ideas from the Conservative Opposition, or has it in fact received no ideas from them?
Will the Chancellor confirm that clause 11 of his Bill will enable the Bank of England to offer financial assistance to any building society that might be in trouble? Is not the real signal from the nationalisation that he has announced today that from now on, any bank or building society that gets into trouble through its own incompetence can expect to be bailed out by the taxpayer?
No, that is not the position. There is provision in the Bill to allow for assistance to building societies, because that power does not exist at the moment; it seems to me prudent to include it in the provisions. The tests that have to be passed before a bank can be nationalised are quite high. There will have to be a substantial, serious threat to financial stability, or funding must have been given that has been underwritten by the Treasury, as with Northern Rock. The test that will be applied to any financial institution that is getting into difficulty is simply this: does it present a systemic risk to the system as a whole? If it does, there will be a case for Bank of England intervention; if it does not, that will not be the case. The tests that we shall apply have not changed, and they will not change as a result of the legislation.
Has my right hon. Friend noticed that The Daily Telegraph says today that he is doing the right thing in bringing Northern Rock into temporary public ownership, and that his action is likely to have considerable advantages for the taxpayer? Does not the view of that Tory newspaper contrast with the vacuous blather given from the Conservative Front Bench? That is the party that rushed the nationalisation of Rolls-Royce through the House.
I remember the nationalisation of Rolls- Royce; I was not here at the time, although I am pretty sure that my right hon. Friend was. I did indeed notice the remarks in The Daily Telegraph, although I must concede that it took me some time to get to the bit that said I was doing the right thing—it was a pleasure to read it. The problem for the Tories is that they do not actually have any coherent idea of what to do in this situation. Their position changes from day to day, and from week to week. Therefore, all that we see is cynical opportunism, because they have nothing else to offer.
A recent study shows that Northern Rock is already repossessing more homes than any other major bank. Does the Chancellor still stand by the assurance that he gave me and the House that Northern Rock has a high-quality loan book? If he does, and if he believes that it has a lower proportion of bad debts but is repossessing more of them, will he, as its owner, tell its managers to pursue a less aggressive repossession policy, or does he intend to wash his hands of what the managers do and be the Pontius Pilate of the repossession business?
This is an example of the Tories trying to have it both ways at once. Half of them say that we should not be interfering in the running of the bank, while the other half say that we should interest ourselves in every single transaction. I have made it very clear that the operational decisions and the day-to-day management of Northern Rock have to be a matter for its management. That is absolutely right. I would just say to the right hon. Gentleman, as he was a member of the last Conservative Government, that there are repossessions today, and that is extremely unfortunate, but they are at a fraction of the level they were when he was a Minister.
My right hon. Friend should know that his statement will be widely welcomed, even though we are all aware that difficult decisions lie ahead. He was right to stress a few moments ago that the primary responsibility for this debacle lies with the former managers of Northern Rock. Given that that is so, does he consider it remarkable that the hon. Member for Tatton (Mr. Osborne) has uttered not one word of criticism of the previous management—they were Tories to a man, incidentally—but has instead reserved his indignation entirely for those who are trying to clear up the mess?
You are, of course, right, Mr. Speaker. So, too, is my hon. Friend in his observation that the primary responsibility for Northern Rock’s difficulties has to rest with those on the Northern Rock board: they were responsible for the business model and had no fall-back position once it became clear that they could not secure the funding that was needed.
The Chancellor does not really believe all this stuff about restructuring Northern Rock, returning it to the market and giving money to the Northern Rock Foundation. His responsibility is to get the taxpayer off the £100 billion hook that that they are on, so that should be first, second, third and fourth on his list. To that end—this is a genuinely honest inquiry—will he explain something that I do not understand? Why has he chosen nationalisation rather than administration? He said again today that administration would result in a fire sale, but that is not necessarily so; he could quite easily have appointed Mr. Sandler as the administrator to proceed with the policies that he wanted him to pursue. That would have given the Chancellor far greater flexibility. He would not have acquired all the other liabilities of nationalisation that he is now taking on or have had the problem of compensating shareholders. In an administration, they would simply have taken what was left, which would probably have been nothing, whereas he is now going to face endless litigation from what looks like a group of very aggressive hedge funds that are latecomers to this party.
I know that the hon. Gentleman was trying to be helpful to his party, but I have to remind him of what the shadow Chancellor said in November last year—[Interruption.] I am quite sure that Conservative Members do not want to hear this, Mr. Speaker. When administration was being discussed, the shadow Chancellor said:
“The winding up of the bank would pose a significant risk to taxpayers’ money…and, of course, significant risks to the jobs of those people who work for Northern Rock”.
I could not have put it better myself.
Is my right hon. Friend aware that if the Opposition do not like hearing the good and sound words of The Daily Telegraph, they might care to read the leading article in today’s Financial Times, which described his decision as “sensible” and “non-ideological”, and likely to be very successful in achieving the purposes that were set out at the beginning? Is he aware that we wish the new management well in the job that it is about take on—ensuring that it will be a success for the taxpayer and others who have a stake in this business?
May I return the Chancellor to the questions put to him by my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) and my right hon. Friend the Member for Chingford and Woodford Green (Mr. Duncan Smith)? It is no good just saying that the state aid rules will deal with the issue of competition—they will not. The hon. Member for Blyth Valley (Mr. Campbell) has already named Northern Rock the people’s bank, so why should anybody retain support and deposits in building societies and other banks when this bank now has a Government guarantee? Will the Chancellor tell us what advice he has had from the Financial Services Authority about how to avoid any depositor thinking that all his deposit is guaranteed by the bank and not subject to the same financial services compensation scheme rules that apply to all other institutions?
Once again, half the Conservatives seem to want the bank to fail, while the other half are worried about its being too successful. I said in reply to the right hon. Member for Chingford and Woodford Green (Mr. Duncan Smith) that whatever business plan is approved has to meet the European state aid rules, which are there to ensure that there is not unfair competition when an institution has a degree of support from a Government. It is important for Northern Rock to have the opportunity to continue to trade in order to get through this difficult period—and I am sure that it will be painful for the company. However, if we take the opposite view of removing the guarantees and stopping it trading or offering products—I am not sure that the hon. Member for Ryedale (Mr. Greenway) was advocating that—we might as well put Northern Rock into administration, which would result in a significant loss to taxpayers. I cannot believe that that is his position.
Having many constituents who work for Northern Rock, I warmly welcome my right hon. Friend’s announcement. May I also add my welcome to that of the right hon. Member for Berwick-upon-Tweed (Mr. Beith) for the underwriting of the commitment to the foundation? Does my right hon. Friend agree, however, that the worst possible outcome for the work force, the shareholders, the Northern Rock Foundation and, more importantly, the north-east economy would be the nonsense proposed by the Conservatives of putting the bank into administration and having an asset sale?
My hon. Friend is right. Along with other hon. Members who represent north-eastern constituents, he rightly expresses concern about the bank and its employees. I very much hope that in the next few weeks, Ron Sandler and his team will continue to have the discussions that they started today with management and employees to see what can be done in restructuring the business to ensure that it has a future. It will be difficult because the market conditions are difficult, but what we have done gives the bank the opportunity to do that and at the same time ensures that we safeguard the interests of the taxpayer. To put it into administration—to run it down, which has appeared over the past half hour or so to be the developing policy among the Conservatives, would not be the right thing to do for anyone.
Following the Chancellor’s response to my right hon. Friend the Member for Chingford and Woodford Green (Mr. Duncan Smith), and following the Chancellor’s edict that it will business as usual at Northern Rock, how can he justify that Northern Rock’s special position in giving a better deal to depositors is within European Union rules? Is it or is it not?
As I said in reply to the hon. Member for Ryedale (Mr. Greenway), it would be a profound mistake to remove the guarantees that we have put in place. Those guarantees ensure the stability of the bank. They also protect individual savers. Removing them is not the right thing to do. I fully understand the concern that the bank should be allowed to continue to trade, but that it should not do so unfairly. The whole point of state aid rules is to ensure that that does not happen. That is certainly our intention, as much as, I am sure, it will be the intention of the Commission.
First, may I say to the Chancellor that he has been wise to take his time before arriving at this momentous decision? That is absolutely right. People will see it as a common-sense response to a difficult position. However, does he recall, in the days before demutualisation, that the bank was a sound building society, operating a good business model with significant reserves that were squandered on a pay-out at demutualisation? Does he accept that rather than rushing into another decision, which the Conservatives would like, to return it immediately to the market, further consideration should be given to the company’s mutualisation so that we return to the sanity of the days when building societies gave proper mortgages to people who required them for good purposes?
I am not sure that I can make a promise on the last point, but my hon. Friend is right that it was correct to give the management and shareholders time to come up with options and alternatives. We gave them that time. We had two bids. Unfortunately, when matched against the option of a temporary period of public ownership—I made the point many times that that had to remain on the table—it was not possible to proceed with those bids. He is right that it is important to get the correct decision.
The Chancellor is right to say that the Northern Rock Foundation is a crucial charitable institution in the north-east, but before he paints too rosy a picture of its prospects, can he confirm that the £15 million funding is less than half the £31 million that it received in 2006? Can he say what will happen to the foundation’s 15 per cent. stake in the bank, and whether any purchasers of Northern Rock’s assets will acquire an obligation to pay funds into it as the bank has done?
I do not think anyone would maintain that the foundation’s prospects have been affected by the difficulties in Northern Rock, which funded all its activities. On any view, the amount that Northern Rock was able to pay into it was going to decrease. We all recognise that it supports a great many activities in the north-east; I wanted to ensure that it had a considerable income, and although the £15 million is less than it was receiving, it is a substantial annual contribution. I did what I could to deal with that particular problem. As for the hon. Gentleman’s other question about the foundation, the legislation will make the necessary provision.
This morning I received an e-mail from a constituent who is a shareholder in Northern Rock. He said that he was a Labour supporter who would never vote Labour again because of what the Government had done. I have not yet had a chance to reply to my constituent, but should he vote for the Liberal Democrats, who would have nationalised the bank five months ago without seeking any of the private sector solutions that the shareholders required? Should he vote for the Conservatives, who would have let the bank sink with all the consequences for shareholders and employees alike? Or should he, on reflection, continue to support the Labour Government, who offer the best solution for the bank and the long-term future of the north-east’s economy?
Probably, the correct answer is the last one. Naturally we are all concerned about all those who experience a fall in the value of shares they have bought, but there is no getting away from the basic problem: these were shares in a bank whose business model was entirely dependent on the ability to raise large sums of money. Last summer, when the problem began in the international financial markets, the company had no fallback position, and it would have gone bust at that time if we had not intervened. That, I am afraid, is the stark reality, as I know my hon. Friend recognises. Today we are trying to ensure that we do the right thing by the taxpayers, while also helping the company to restructure and refocus its activities.
In his hat trick of humiliating statements, the Chancellor has told us that he is accepting the proposal in order to protect taxpayers. If that is the case, what independent assessment has the Treasury undertaken of the quality of the loan book? A year ago Northern Rock was writing mortgage business at two and a half times its market share, at a time of unprecedented house price inflation. It is highly likely that a large proportion of those mortgages will turn sour. Is the Chancellor relying entirely on the FSA’s assurances that the bank is solvent, or has he bothered to do a bit of independent checking himself?
The FSA is responsible for regulating Northern Rock. Ron Sandler and his new management team will want to make their assessment relating to the revised business plan on the basis of what they know about the bank, and they will make it their business to find out all that they need to know about it.
It was imperative for the Chancellor to intervene last year. He made the right decision, because in that very week Alliance and Leicester shares fell by a third, which signalled to anyone with any sense or political acumen that something had to be done. Now he has made the right decision again.
The Tories were not always where they are today. In 1971 Ted Heath did not run away from taking over Rolls-Royce, and it was saved. In 1975 Harold Wilson decided to save Burmah Oil, and as a result it too was saved. That is unlike the Notting Hill finance group, who run away at every single opportunity.
The European Commission has indicated that while the emergency loans made at commercial rates do not fall under state aid rules, the guaranteeing of deposits does, and it has given the Government six months for emergency restructuring. That six months runs out in March. For how long does the Chancellor think that the EC will condone this continuing situation before it bows to pressure from other banks and financial institutions to implement those rules?
We do have to submit a restructuring plan by March; that has been the case since last year. The hon. Gentleman touches on another important point by emphasising the problems that are faced. There have been similar difficulties in Europe—in Germany, the German Government and other authorities have had to take action to support their banks—because of issues that all stem from the same source: the problems that started in America last year and have spread throughout the world.
The Government have an enviable record in the last 11 years for economic stability and confidence in the economy. They took a decision last September on Northern Rock to preserve stability in the economy. What assessment has my right hon. Friend made of the stability of the UK economy? Is he aware, for example, of there having been a run on any other major bank or financial institution in the United Kingdom since last September?
My hon. Friend makes the point that this country has a very strong and stable economy. We have had more than 10 years of growth and we have very low unemployment and historically low interest and mortgage rates, which is in complete contrast to what we had in the early 1990s when the then Government lurched from one problem to another because they could not keep inflation down, they could not get interest rates down and they had unemployment of almost 3 million. No wonder they got into the difficulties that they faced then.