Postponed proceedings resumed.
Bill immediately considered in Committee, pursuant to Order [this day].
[Sir Michael Lord in the Chair]
I must inform the Committee that an informal list of proposed amendments is available from the Vote Office and a provisional revised selection has been circulated. The amendments are technically manuscript amendments. I will refer to them by the numbers given on the informal paper.
Clause 1 ordered to stand part of the Bill.
Cases where Treasury’s powers are exercisable
With this it will be convenient to discuss amendment No. 14, line 16, at end insert ‘and
(ii) the Treasury has laid before both Houses of Parliament a Minute setting out a scheme for the management of the authorised UK deposit-taker following the exercise of this power, including provisions setting out the strategic objectives for the business as determined by the Treasury and further provisions to ensure the independent day-to-day management of the business of the authorised UK deposit-taker to achieve these objectives.’.
The hon. Member for South Derbyshire (Mr. Todd) highlighted in his Second Reading speech the problem that the Government face. He was concerned that the clarity of the objectives of nationalisation would be clouded by political pressures brought to bear on the Chancellor by others. The amendments, particularly amendment No. 14, try to create a proper framework in which Northern Rock and any other bank or building society nationalised under the Bill would be able to operate at arm’s length from the Treasury.
The past five months have been characterised by the Government’s focusing on the politics of Northern Rock and not on its resolution. During that time, not only has the taxpayers’ exposure risen from £25 billion to £55 billion and now to £110 billion, but the Chancellor and Prime Minister have cast around for a solution to avoid the political embarrassment of nationalising Northern Rock. A lack of clarity has been displayed about who was to make decisions about Northern Rock’s future. Was it the shareholders? Was it the Government, as the largest creditor? Was it the tripartite authorities acting collectively? That lack of clarity has made it very difficult for people to understand the extent of the Government’s involvement in the day-to-day running of Northern Rock.
Unless there is clarity in the division of responsibilities between Treasury and the management, I fear that we will see a continuation of micro-management. Such micro-management is a habit ingrained deep in the heart of this Government, and each difficult decision that is made may be taken with an eye on the politics of the situation, rather than on the taxpayers’ interest. The hon. Member for South Derbyshire made that very point in his speech. If he had had a chance to read the amendments, perhaps he would have added his name to them, because they encapsulate his concern.
Today we have seen pressure put on the Government by their own Back Benchers about the future direction of Northern Rock; we have seen a sense of relief that nationalisation creates certainty about the future job prospects of its employees; and we have seen Unite, the biggest donor to the Labour party, ask for a Government guarantee that there will be no compulsory redundancies. Those are signs of the pressure that the Government will come under unless there is a clear distinction between a proper role of the Treasury in managing the relationship with Northern Rock and what Northern Rock has to offer.
We heard more words from the Chancellor of the Exchequer in his statement yesterday and during his Second Reading speech, but we have yet to see a framework agreement to set out the division of responsibilities between the Treasury and the management. Such an agreement is fundamental to ensuring a proper division of labour. It should not be an afterthought or something that is left until the politically difficult decisions have been taken. It should be on the table now for this Committee to see, so that this Committee can understand what the Government have set as priorities for the new management of Northern Rock and so that we can ensure that it is clearly left up to that management to take the day-to-day decisions that it needs to take.
We believe, as amendment No. 14 in particular sets out, that the scheme of management and the division of responsibilities between the strategic direction that the Treasury as guarantor of the taxpayers’ interests should take and the decisions that management should make should be set out at the same time that the order is made. Such matters should not be left. It is right that the Treasury is able to set the strategic objectives; it is responsible for securing the full recovery of the money that has been lent to Northern Rock, so that there is no liability to the taxpayer. Once the Treasury has set the framework, it is right that management will be free to manage the business to deliver the outcomes.
Does my hon. Friend agree that before the framework is laid out the Government should give an absolute and direct answer to the pressures placed on them and say to Unite that there is no question of special arrangements for jobs in the bank? Unless the Government say that, it must be assumed that there is such special protection.
My right hon. Friend makes an important point. There is a lack of clarity in the way in which the Government have chosen to manage their relationship with Northern Rock. As long as that clarity is lacking, the Government will be seen by some as potentially offering a special relationship or a special deal, or being open to pressure from and influence by sectional interests. It is in the interests of taxpayers that such an agreement is in place and we have that clarity. It may also be an insurance policy for the Chancellor, who is under some political pressure. He may want to feel insulated from those pressures by an agreement that means that he cannot bow to those demands. That is an important part of the provision.
Does the hon. Gentleman think that the Chancellor was not telling the House the truth yesterday? He said:
“The new board and the bank will operate at arm’s length from the Government with commercial autonomy for their decisions.”—[Official Report, 18 February 2008; Vol. 472, c. 21.]
Does that not satisfy the hon. Gentleman?
The hon. Lady should remember that not long after the Chancellor made that statement to the House he appointed Tom Scholar to the board of Northern Rock—someone who was chief of staff to the Prime Minister. We need some clear and robust arrangements for the arm’s length agreement. We cannot rely on warm words. Businesses do not rely on warm words when it comes to agreements: they need legally watertight agreements, such as a memorandum of understanding or a shareholder agreement to set out the relationships clearly and precisely. The amendment would provide that clarity by requiring in law that the relationship be clearly set out.
I am grateful, as I was disappointed not to be able to speak on Second Reading. I was in and out of the Chamber because of the demands of my diary.
The hon. Gentleman is right to say that we want clarity, but the Chancellor’s words yesterday provide it. The memorandum of understanding says that all operational decisions will be made by the board with no interference from the Government. The commitment that the hon. Gentleman seeks is already there.
We want on paper, in black and white, a clear division of responsibility, not just warm words spoken in the Chamber. I would have thought that, given that the Government have apparently been working on nationalisation for some time, they would have had the memorandum of understanding in place, with a scheme of management. It should not have to be cobbled together in the hours after the Government made the announcement. I expected far better of the Government. They should have had those arrangements in place and been prepared to publish them. That is important in order to give confidence to the House and the business community, which is concerned about how Northern Rock will operate in future. The agreements should be public, not take the form of cosy side deals or warm words between the Chancellor and Ron Sandler. We need clarity, instead of leaving it to the interpretation of words in a statement to the House.
The hon. Lady and I perhaps agree that we need some clarity on this issue and to go further than the Chancellor went in his statement yesterday, to demonstrate to the wider world that there is a clear division of labour between the Treasury’s role of setting the strategic objectives for Northern Rock and the day-to-day responsibilities of management, so that taxpayers and the wider community know that decisions will be taken in the interests of recovering the money that has been lent to Northern Rock and not for other purposes, such as shielding the bank from the pressures that may be placed on it by politicians, trade unionists and others. This is a simple amendment, but it would provide much more certainty and clarity. It would reassure us that decisions will be made for the right reasons, not for political reasons. The longer it takes the Government to produce such a framework, the more people will question whether decisions are being made in the long-term interests of the taxpayer or in a narrow, short-term, political interest.
It is an important amendment because it would set out clearly the respective responsibilities of the Treasury and management. It is also important that if other circumstances arise to which the Bill applies—and its powers continue for a year—such arrangements could be put in place sooner rather than later. If the Government decide to act under the powers in part 2, the agreement could be put on the table so that people could see exactly the terms under which the Government would work with the authorised deposit-taker.
Amendment No. 14 has two limbs. The first is in the fourth line, where it mentions
“provisions setting out the strategic objectives for the business”.
The second limb is in the sixth line, which mentions
“the independent day-to-day management of the business”.
On the first limb, the amendment is based on a misunderstanding of what the Bill will do, especially in clause 2(2)(a) and (b), which are the shorthand financial stability tests. That is the threshold beyond which Government action would be prompted. As the Chancellor said on Second Reading, that is a high threshold. There has to be a “serious threat” to the UK financial system and it is clear that any nationalisation under the Bill would be against that background. The strategic objective would be implicit, if not perhaps explicit—to avert any further instability.
That is precisely what the Government intervention in Northern Rock in September 2007 did: it stopped the spread of instability, and banks are carrying on business much as usual in the UK, although there are some liquidity problems. Record profits for banks were announced today and yesterday the FTSE was up, following the announcement about nationalisation. The strategic objective of stability has been met thus far by the Government’s prompt action on Northern Rock. The strategic objective called for in amendment No. 14 is at least implicit—to my mind, it is pretty explicit—in paragraphs (a) and (b) of clause 2(2), which are the thresholds for prompting Government action.
I quite understand the second limb of amendment No. 14, which concerns the independent day-to-day management of the business, but it does not match my understanding of how business very often works. Others in this Chamber have more experience of business than I do, but I have some. My experience is that any major shareholder will, in most cases, wish to have a say in the running of the business. Whether that is a say in the day-to-day management of the business, to use the words of the amendment, is to some extent in the eye of the beholder.
I am sure that some major shareholders in private business in this country and other capitalist countries simply put in the money and have no views and no take on how the business is run. I suspect—although I cannot produce evidence to prove it—that such shareholders, who might almost be described as altruistic, are the minority. Amendment No. 14 suggests that the Government, as a major shareholder in a nationalised financial institution, whether Northern Rock or anything else, would not be involved in the running of that business. I understand the motivation for that, and have some sympathy with it. Realistically, however, I do not want the Government—on behalf of the taxpayer and our electors—to have no say whatever in the running of Northern Rock, whether on a day-to-day basis or otherwise. The Government, as a major shareholder, ought to have an eye on that. The Chancellor said in his statement yesterday:
“The new board and the bank will operate at arm’s length from the Government with commercial autonomy for their decisions.”—[Official Report, 18 February 2008; Vol. 472, c. 21.]
I stress the word “commercial” because in an era of corporate social responsibility a shareholder—whether they are the Government or any other shareholder—ought to be aware of what that business is doing in his, her or their name.
The first limb of the amendment, which concerns the strategic objective, is not needed because of a misunderstanding of the Bill. I would not support the second limb, overall, and particularly not in the way that it is worded.
I am normally sympathetic to the interventions of the hon. Member for Wolverhampton, South-West (Rob Marris), but I do not think that he has understood the purpose of the amendments. Simply, they are a rather modest means of strengthening parliamentary accountability and oversight. I was happy to support them. They are not suggesting anything very radical, such as that the Minister should come forward with statements and debates. We are just asking for a reporting mechanism, not on exactly how the Government intervene in the company but describing the process.
As the hon. Gentleman correctly pointed out, there are two distinct thoughts. The first relates to the business plan—the strategy that will drive the company. As emerged from our debate on Second Reading, that is the issue that most concerns hon. Members: whether the business is run down, built up or dealt with by any of the permutations between those two options. For quite proper political reasons, it is important that it is reported to us what course of action is pursued by this nationalised company, whatever it happens to be. There is no requirement, as I understand it, for the Chancellor to tell us anything that is going on, and experience while the Government have effectively been acting as a shadow director shows that they prefer to say nothing. The requirement that they simply tell us what the strategic business plan is seems to be a modest but necessary improvement on what would happen otherwise.
All we know at the moment is that Ron Sandler is going to have a look at the company. He has to prepare a business plan, before, I think, the European Union competition policy determination. After that, the Government will adopt it. However, there is no obligation at the moment to tell us anything about it. The amendment would require the Government to report to Parliament on what that plan is.
A similar situation applies to the arm’s length relationship between Ministers and the company. I rather sympathise, because of course the Government cannot simply ignore what is happening entirely. We have had a problem over the past six months as the Government have stepped back from decisions that ought to have been made, the first of which was the decision to sack the old management. The Chancellor quite properly stood up and said, “There is nothing I can do about it.” Under the new arrangements, however, he will have that power of intervention. How it will be exercised is important.
It is not in the Chancellor’s interest to be involved in micro-management, regardless of whether he would want to be, because he would be blamed for all the repossessions, redundancies and so on. There is clearly a balance to be struck between the need to intervene on important issues and the need to avoid micro-management. I do not know how the Government will strike that balance, but we should know about the basic outlines and parameters. The amendment would merely establish a report-back mechanism that would explain how the arm’s length relationship will work.
For all those reasons, the amendment is very reasonable. It does not ask a great deal of the Government, and it is reasonably precise. I would have hoped that, in the spirit of reasonableness, the Government could have accepted it.
I strongly support amendment No. 14, and the arguments put forward by my hon. Friend the Member for Fareham (Mr. Hoban) and the hon. Member for Twickenham (Dr. Cable).
As has just been noted, it is very important that we have parliamentary accountability for the strategic objectives that the Government propose to give to the bank, which they now wholly own. However, I need to be persuaded that the Government know what those strategic objectives are. I took part in the exchanges with the Chancellor yesterday, and it seemed to me that he was not capable of answering the question in any but the most general terms.
I regret that I was not able to attend this afternoon’s Second Reading debate but, as sometimes happens, I was giving evidence before a Select Committee. I did hear the wind-up, however, and I was left none the wiser, even though it was obvious that the Minister was addressing the point that several hon. Members had raised about what objectives the Government are setting the new management of the bank that they have acquired.
It seems to me that the bank is potentially in a very powerful position. The question is not how it is controlled day by day—we all accept that there must be a considerable amount of independence in its day-to-day management—but what objectives the Government are expecting it to pursue. We are virtually in the situation that, once again, every citizen could bank with the Bank of England, at least indirectly—something that has not been possible for many years.
I said yesterday that if the nationalised bank was going to be competitive and aggressive, the fact that it will be totally secured by the Bank of England means that it would be a very attractive option for any sensible saver with cash in savings deposits. At the moment, it is able to offer very attractive rates of interest, but much will depend on the strategic objectives that the Chancellor and his colleagues set for the people whom they have appointed to manage a bank that is in crisis but of which the Government are the 100 per cent. owners.
The owner of a business does not appoint a management team and say, “Now run it in a commercial way, as seems best to you.” That would be an almost meaningless instruction. While I was doing other things this afternoon, I gather that the following question was pursued: “Is the Chancellor meant to be building up the business, so that it can be sold to the private sector, or running it down to prepare for the disposal of its assets?” There is a great deal of variation between those options.
If the idea is to build the bank up and prepare it for sale on the best possible terms, it is in a very powerful position. It probably has a greater ability to access the money markets than any other banking institution in the country, because it has behind it the full security of the Government and the Bank of England. It is able to underwrite its business in every conceivable way, so is it the strategic intention that it should go out into the market—at a time when its competitors are in difficulty—and offer the most attractive terms for mortgages that it can so as to increase its market share? Should it make sure that it finances itself as much as possible by enticing depositors in these nervous times with extremely attractive rates of interest?
The bank could be a glorious success. If we were investors from Kuwait or Qatar—if we were a sovereign fund—we would probably encourage the new management to use what amounts to guaranteed funding and head for a 70 per cent. share of this country’s mortgage market.
Of course, the Chancellor realises that the prospect that the bank could do that is causing considerable concern, so I did not ignore his answers yesterday. He said that the European competition laws offer the best protection, but that was all that he said in that regard, and it is something about which I should like to press the Minister. Will she give the House some idea of how she thinks that the European competition laws will affect the bank’s objectives? The current Competition Commissioner, Neelie Kroes, is very powerful and a formidable person, and she is quite rightly trying to strengthen European competition policy, but the policy takes a long time to enforce.
My suspicion is that the Government do not have the first idea how far European competition law will bear down on what the bank will do. I suspect that it will require quite a long process, with propositions going to the European Commission to determine the basis on which it will accept that the bank is not guilty of unfair competition. However, I do not think that the Government have thought through the constraints that they would expect the new management to place on itself to avoid the charge that it is competing very unfairly with other banks and savings institutions. That is a very great danger, as those other organisations are going through very difficult times in the current market.
Has it occurred to the right hon. and learned Gentleman that the pressures from the European Commission and the Commissioner might be considerably greater if amendment No. 14 was carried, with its wording:
“setting out the strategic objectives for the business as determined by the Treasury”?
Does he not think that those words in themselves would bring the European Commission down on the Government?
I doubt it. It is the Treasury’s duty to all of us to have some strategic objectives and to tell Parliament what they are. The Treasury is effectively now acting on behalf of the owners, who are the citizens of this country, and we need to know what its strategy is. Then, presumably, the Minister can explain how the Government intend to sort out the European competition angle. Presumably, they will try out the strategic objectives on the Commission to see whether they are acceptable as a fair base for competition. I do not know, and yesterday I got the impression that the Chancellor did not know quite what the impact was going to be.
I will in a second, but I do not want to go on too long. Let me just put the other side of the equation. Is the objective to run the bank down? I make it clear that I support nationalisation of whatever form the Government or Opposition put forward. It is defensible if one is going for an orderly run-down of the business. That means no fire sale now, in awful market conditions. It means holding the assets, particularly the loan book, for as long as is necessary to get the best reasonable return when market conditions return to normal.
If one is sailing on, trading, is the objective to run the bank down? I gather that the new management were giving guidance to the press that the bank would be smaller, preparing people for the fact that there might be redundancies and the bank might be scaled down. How is it supposed to do that? I do not understand how a publicly owned business sets out to run itself down. Does it decide to offer rather less attractive terms for mortgages? Does it tell its customers when they come back to renew their mortgages that it will refinance them only at a higher rate than the competition in order to drive them away? Does it reduce its savings rate after looking at what other people are advertising to make sure that it does not get too many people coming along to save?
If the idea is to slim the business down a bit, what is the Treasury guidance? How much should it be slimmed down? Will the Treasury tell the management, “Slim it down a lot. We are really trying to get rid of it, just like the Tories, but we don’t want to admit to all those north-east MPs that that is what we are doing?” Or will the Treasury say, “Just slim it down a little bit. Make it look respectable. Just reduce the size of the business; get it trimmed down a little”? Of course the strategic plan will have to be on more formal terms than that, but there must be guidance from the Government. Anyone running the bank now must ask the Government, “Do you want us to build the business up as aggressively as possible or to run it down? If so, could you give a bit of an indication of how much either way?” My feeling—I trust that the Minister will correct it—is that neither the Chancellor nor the Minister has the faintest idea at the moment which of those directions they are going to give.
Did my right hon. Friend hear Professor Alan Riley, one of Britain’s foremost experts on state aid, express the opinion that the European Union would certainly require the downsizing of the business as a precondition for clearing the state aid approval in this case? Does he think that Ministers are being just a little disingenuous, as we expect that they have access to equally clear and expert opinion and information?
I am sure that they have, but they are not sharing it with us at the moment. I need to be reminded what the European process is and of how far a process of negotiation can be opened with Miss Kroes. Can the Government try out on her a strategic plan involving a bit of running down and see what she says? Will she expect the strategic plan to be published and some indication to be given of how the bank will operate in the market and then rule on it? Yesterday, I did not think that the Chancellor knew, which was why he kept giving answers that were all about the Conservative party and not about what he proposed to do.
My right hon. and learned Friend is making a strong point about the need for the strategic objectives. Does he agree that one of the essential functions of the bank in public sector ownership would be properly to sort out the risk management of the bank? It is difficult to have proper risk management without the strategic objectives. Some of the worst banking scandals of the past 15 years have involved public sector banks. Credit Lyonnais ended up financing a large part of Hollywood in the early 1990s and most recently Bankgesellschaft Berlin in Germany was essentially making politically motivated loans.
I heard the speeches on that on Second Reading. I quite agree; risk management seems to me to be what banking is all about. That is the commodity in which banks trade, and throughout the history of banking, the most appalling errors have been made in risk management, as they were in the case of Northern Rock. If one looks back far enough, one begins to feel that there will always be extraordinary examples of risk management being suspended or not operating properly in banks’ pursuit of higher than average returns. That is how banks get into such trouble. Presumably, the business plan presented and agreed by the Government will include details of how the nationalised bank proposes to have its risk management under control.
The day-to-day running of the business is also quite important. The Government have been saying all the right things, such as that they will not be involved in the day-to-day management but will use commercial management, to which they have given guidance. Can we rely on that? I am afraid that the history of nationalised industries reveals that the moment an industry is nationalised, most people think that it has been politicised, and one rapidly finds that it is under great pressure. How many employees should there be? How will redundancies be handled? How will the business operate?
The amendment would require Ministers not only to say now that the business will be free of political pressures but to maintain that position. Yesterday I saw delight among Members below the Gangway on the Labour Benches that the people’s bank was being set up. It will not be too long before those who expressed that delight indicate clearly how they expect the bank’s business to be conducted, in the interests of their constituents and their region, so we will have to hold to what the Government have said. I would prefer to see that objective set out in the Bill, as the amendment recommends, and I hope that the Chief Secretary to the Treasury will be able to accept it. If she does not, she must give us more clarity about what she expects the bank to do now that it is in public hands.
It is not unreasonable that more information should be available about the Government’s strategic objectives in relation to Northern Rock. I say that particularly in the light of the debate earlier today. I sat through most of it, and two things are not clear to me. First, people are accustomed to talk about Northern Rock as though it were the hapless victim of international credit crunch storms. Actually, it was the victim of a flawed business model, and I have yet to hear Ministers from my own Front Bench take a view on that business model.
Secondly, colleagues representing seats from Newcastle and the north-east strongly stated the point of view that, in public ownership, the bank should both stick to the same business model and get bigger and better—to paraphrase a colleague, it should be a northern bank to vie with other great international financial institutions—yet many newspapers and commentators talk of an orderly run-down over time. Until we have some clarity about where the bank is going, the kind of robust accountability that we need from a nationalised bank will not be possible.
I understand the spirit of the amendment. I shall first address what it would do and why I think that it would be a problem, and then address some of the wider points raised that underlie it.
The amendment would require the Treasury to lay a minute setting out the company’s strategic objectives and, effectively, a business plan for delivering those objectives before a transfer could be executed. That would cause problems given the Bill’s purposes and overall aims, which are to deal with potential risks to financial stability and the kind of circumstances in which it might be appropriate for Government to act swiftly—perhaps in a matter of days. The different powers in clauses 3 and 6 will allow the Government to respond quickly to a difficult situation. Setting out the strategic objectives of the company and the business plan may take longer. The new board is coming into place and Ron Sandler is taking up his post. It is right that they should have at least a few weeks to consider their options, develop a business plan, look in some detail at the bank’s overall position and set out the appropriate arrangements.
We know that for the past five months the Government’s preference has been to sell the business as a going concern to a private sector buyer, but is the right hon. Lady telling the House that during those five months the Government have not done any preparatory work on establishing a business plan for the eventuality of a nationalisation, which the Chancellor noted was on the table as long ago as October?
As we have said many times, the Government carried out appropriate contingency planning, and it was right that we should do so. That goes to the heart of the concern about the amendment. First, there is the question of timing. Secondly, there is the question of who should do the work. The wording of the amendment would be counterproductive. Opposition Members have said that they want to reduce the level of intervention by Government Departments and Treasury officials. If they are asking for a plan that was drawn up in advance of any transfer order being put in place, they should recognise that such a plan could only have been drawn up by the civil servants and the Department.
It is right that a great deal of work should be done by the board—by Ron Sandler and his team in the case of Northern Rock, but bearing in mind that the Bill applies more widely, the provision should be applicable in other circumstances as well. We need to provide for the circumstances in which a new team might need to come in and look at the books in some detail before making more specific proposals.
I entirely agree that the new management should be given time to look at the books and that they must draw up the business plan, but does the right hon. Lady agree that they will need some strategic direction from the Government before they do so, including—to reduce the question to its most elementary, as several of us have been asking for the past two days—whether the team are supposed to grow the business, to make it as powerful a business as they can in the marketplace, or whether they are supposed to shrink it, a bit or a lot? I am sure the Minister accepts that as the new management are effectively being sat on the Consolidated Fund when they are put in their new position, they are in an extremely powerful position.
I appreciate the point that the right hon. and learned Gentleman is making, but he is asking questions that will depend in part on the business plan. The Government have already set out some key objectives about securing the ongoing stability of the financial system—which is why we have said that at this stage we believe that the Government guarantees need to continue—and about securing value for money and the best possible return for the taxpayer. As part of that we have already said in the Chancellor’s remarks and in my earlier remarks that that includes being able to return the business to the private sector at the earliest opportunity, getting the loans paid back with interest to the Bank of England, and moving the business at the earliest opportunity to a point where the Government guarantees are no longer needed. Those objectives must all be kept in place, but we also have to make sure that we comply with the EU state aid rules and that we do not create unfair competition.
My hon. Friend the Member for Hackney, North and Stoke Newington (Ms Abbott) asked what views Ministers had taken of Northern Rock’s business model. The Chancellor has made it clear that part of the problem that we have is due to the Northern Rock business model. When the global credit crunch occurred, which was triggered for all sorts of reasons including events in the US sub-prime market, because of Northern Rock’s business model, which was unsustainable, it got into particular trouble. That is why action was needed and the Government had to step in. Earlier in the debate, it was said that no one would expect Northern Rock to operate the kind of strategy that it was operating last summer; that was clearly unsustainable. The new strategy should be drawn up by Ron Sandler, and it will then need to be approved by the Government.
In the arm’s length arrangements that we are trying to establish, it is important that the detailed work should be done by Ron Sandler and his team. They have the expertise to do it and will put forward proposals that will need to be agreed by the Government and to comply with EU state aid requirements and other provisions to ensure that there is no unfair competition.
The problem with the Chief Secretary’s argument is that the two objectives—financial stability on the one hand, and securing the Government’s position on the other—might conflict. A profit-maximising strategy on the part of the bank, of the sort described by the right hon. and learned Member for Rushcliffe (Mr. Clarke), might further destabilise the market by undermining competition. On the other hand, that exact strategy might well secure the Government’s position in the short term. Surely the strategic direction needed is the balance between the two objectives.
The action that we have taken so far has made clear the priority that we give to the financial stability of the banking system as a whole; that has been evidenced. Any suggestion that as part of the process the Government will put maximising their income above the financial stability of the banking system would clearly be nonsense.
We have made it clear throughout that our key objectives are financial stability and returns for the taxpayer. We will publish two documents. The first is the business plan for Northern Rock, based on the work being done by Ron Sandler. The other is a framework document, which will set out the operating relationship between Northern Rock and the Government. The framework document will be published shortly.
Those two documents will provide hon. Members with the information that they understandably and rightly ask for. However, in respect of the amendment, it is inappropriate in principle to ask for those documents to be published before any transfer can be taken. In practice, the kind of financial stability issues with which we might have to deal may involve issues of timing and of who should take the decisions, who should do the work and who should put forward the proposals. The amendment would not allow those to be dealt with.
I cannot confirm the precise timing; I also do not know the precise timing of the debate on the order. However, I certainly assure the hon. Gentleman that we intend to publish the framework document shortly. A lot of work has been done on it, and we intend to publish it as soon as we can.
Earlier, my right hon. Friend said that until Ministers had a business plan, they would be unable to say whether their strategic intention was to grow Northern Rock or run it down. Is not the contrary the truth? Until we know whether the intention is to grow Northern Rock or run it down, we cannot draw up a proper business plan.
With respect, Ron Sandler and his team are considering the nature of the assets and liabilities and the detailed provisions that support Northern Rock at the moment. They will have questions about what a sustainable future for the bank will be. As I have made clear, no one expects Northern Rock to be able to operate the kind of strategy that it operated last summer. Equally, the bank’s market share has already contracted significantly. However, rather than Ministers making precise judgments about strategy on individual products and other such things, it is right that we should have the further assessment on the strategic plan from Ron Sandler and his team before we confirm it and take the decisions on the right way forward.
The Minister keeps saying that of course there can be no question of going back to the business model that there was last summer, when Northern Rock failed because it could not access the money markets any more. However, the new management may say, “But we can access the money markets—we are about the only bank that can at the moment. Our spreads are considerably lower than the competition. Look at the state of the others given what we can offer with our access to markets. We can slay the Halifax, get rid of Alliance and Leicester, do a hell of a lot of harm to Bradford and Bingley, and give you a lot of market share.” That would be a very attractive financial business plan. If the Kuwaitis had bought it, they would probably find it attractive. What will the Minister do if she gives the management no strategic guidance and leaves them to go away and do their best, and they come back with an aggressive plan showing that in the current market conditions, with the Bank of England behind them, they can move in and make this a very healthy business?
Once again, I point out that the approach in the business plan will need to be compliant with the new state aid rules. The European Commission is likely to propose particular conditions on the operating of the bank to ensure that it complies with state aid rules. We will need to have further discussions with it about what those conditions should be and what the appropriate arrangements will be. It would not be in the interests of the Government, the consumer or long-term financial stability to have a bank that abused its position in the public sector. That would not allow it to withdraw from the kind of public support that is currently there for it, and we would like to withdraw as rapidly as possible. A series of frameworks is in place.
Hon. Members are asking perfectly legitimate questions that will need to be answered. The difference between us is that I am setting out very clearly the fact that it is important for Ron Sandler and his team to do a programme of work before we fully answer all these questions. The amendment asks for them to be answered even before any transfer can be executed. Given the risks to financial stability that the Bill is designed to address, it would be irresponsible to tie Government’s hands in terms of dealing with financial stability and potential risks to the banking system as a whole by requiring a programme of work to be done that cannot properly and effectively be done until after the transfer has taken place. On that basis, I ask the hon. Member for Fareham (Mr. Hoban) to withdraw the amendment.
It almost beggars belief that the Minister made those comments about what is going to happen to Northern Rock. In most businesses that I know—I have been involved with businesses throughout my professional career—the starting point for a business plan is the business’s objectives. What plans do the Government have for how Northern Rock should behave in future? Are they expecting it to get bigger or smaller? Those are important issues for the Treasury, as a guardian of taxpayers’ money, in giving guidance to Northern Rock’s new management. The Minister says that the business should be transferred back to the private sector at the earliest point. It would be easier for Ron Sandler to come up with his plans if the Minister were able to say that the Government would prefer it to happen in one year, three years or five years. That will affect how he runs the business—whether he shrinks it or grows it. That lack of strategic direction comes across in yesterday’s statement, today’s Second Reading debate and the Minister’s response to the amendment.
As taxpayers, we need some clarity about the Government’s objectives for Northern Rock—when they think that it should emerge from nationalisation and what shape of business they are expecting. It is ludicrous for them to have turned down two private sector offers and not to know what the outcome will be. The Minister should get a grip and demonstrate that the Government know what they expect Northern Rock to be like when it emerges from nationalisation, whether in one year, three years or five years. It is time for them to give much greater clarity about how they expect Northern Rock to develop over the next few years. That is why we tabled the amendment and, given that the Minister has not given a satisfactory response to the issues that affect not only this House but the business community and taxpayers, why we will press it to the vote.
Question put, That the amendment be made:—
I beg to move amendment No. 1, in page 2, line 2, leave out “Treasury consider” and insert “Bank of England considers”.
This amendment is simple and does not require a lengthy explanation, but it is important and I alluded to it on Second Reading. The amendment proposes that the Bank of England rather than the Treasury should advise on whether there is a serious threat to the stability of the UK financial system. The Bank has a detailed knowledge of that system and can better judge it from inside than some civil servants at one end of Whitehall.
By replacing the Treasury with the Bank of England in that key role, we would also remove the Chancellor and his Ministers from any perception that they were making a political judgment when they decided to intervene. There have been scurrilous accusations that Ministers’ intervention last September was perhaps designed to assist their friends in the north, or, indeed, to prepare the ground for a general election, which appeared imminent. It is essential to remove, as far as possible, any perception that the decision on whether systemic risk is present and how it is defined is being taken by Ministers.
The Treasury Committee gave this matter a lot of thought while looking into a special resolution procedure, and we recommended that the Bank’s deputy governor for financial stability should become the Chancellor’s principal adviser. Of course, the Chancellor has to take the final decision. He is the guardian of the taxpayer’s interests, and the amendment is not attempting to evade that fact, but we need to put that position at one remove from any suspicion of political judgment. The best people to advise on whether there is a serious, systemic threat to the stability of the UK financial system are those in the Bank of England.
The powers in the Bill to transfer the shares or business of a deposit-taker are exercisable only for the purposes set out in the clause. The first of these purposes is to maintain the stability of the UK financial system in circumstances in which the Treasury considers that there would be a serious threat to its stability if the order were not made. It is right that the decision should be taken by Treasury Ministers, just as the decision to authorise exceptional financial support is a decision for the Chancellor, under the memorandum of understanding. Ministers are accountable for the exercise of these powers, so it is right that such a decision should be based on their assessment of the threat. They are accountable to the House for that decision. It would, of course, be based on the advice of the Bank of England and the FSA, as required by the memorandum of understanding. The memorandum of understanding is clear about that. That is what has happened for Northern Rock and it is what would happen in the future, should the powers in the Bill ever need to be exercised again. Given that, the amendment is unnecessary and inappropriate.
The Government are consulting on providing the Bank of England with a statutory basis for its role in financial stability under the banking reform Bill, which will be introduced later in the Session. That would be the appropriate vehicle for formalising the Bank of England’s role. We have made it clear that we think that there is a stronger role for the Bank of England to play, but it would be more appropriate to provide for that in the banking reform Bill, rather than in the Banking (Special Provisions) Bill, as the hon. Member for Sevenoaks (Mr. Fallon) has suggested. His amendment would result in our not being clear about the accountability for decision making and assessment, or about accountability to the House. On that basis, I ask the hon. Gentleman to withdraw his amendment.
I am grateful to the Minister for the consideration that she has given to the amendment. I accept her point about accountability. Of course it is the Chancellor who is in charge and he must account to the House for his decisions to put taxpayers’ money at risk—or not, as the case may be. I am not quite clear about the Minister’s answer. First, she said that the amendment was unnecessary, then she said that under the new banking reform Bill she proposes to put the Bank of England’s role as the Chancellor’s principal adviser on a more statutory basis, so there might not be as much between us as I originally thought. I will certainly reflect on what she has said and, in the meantime, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
I beg to move amendment No. 10, in page 2, line 40, leave out ‘year’ and insert ‘month’.
The amendment seeks to replace the provision in clause 2(8), which gives a limited period of one year for making an order under sections 3 and 6 of the legislation, with a provision for a limit of one month. I should say at the outset that this is not intended to be a wrecking amendment—far from it. We have already debated the overall principle of the Bill and we are now looking at its working realities.
The Bill was presented to the House as emergency legislation, designed specifically to deal with the problems of Northern Rock, and on that basis we are asked to expedite its passage. Whatever else we do, Sir Michael, I suggest that we cannot concede to this Government or to any Government—the hon. Member for Crewe and Nantwich (Mrs. Dunwoody) made this point earlier—a standing power to nationalise banks and building societies. There are huge issues pertaining to our international reputation and about the propriety of a Bill going through the House according to a time scale that might be appropriate for dealing with an immediate—or what the Americans would call a “clear and present”—danger that needs to be addressed, but is certainly not appropriate for Bills with a longer period of application that might be used to deal with circumstances unforeseen and, perhaps at the present time, even unforeseeable.
Conservative Members feel strongly that if the Government find they have a need for such a Bill, as they have for Northern Rock, to deal with a specific problem in the immediate future, they should justify their need for further expedited legislation. In the fullness of time, we will have a properly debated, properly scrutinised and properly considered series of measures to reform the banking regulatory regime that the Prime Minister introduced in 1997, the failure of which is at the root of current problems that have given rise to the Bill that we are debating today.
The purpose of the amendment, however, is to focus on the fact that this measure is intended to deal with Northern Rock and Northern Rock alone. The Chancellor has said in terms that he has no plans to use the Bill for any other nationalisation and he has explained that it was drafted widely and with enduring application in order to avoid issues of hybridity and thus to facilitate the Bill’s passage under an expedited procedure. The amendment is designed to narrow the scope of the Bill without creating any risk of hybridity. We believe that one month is long enough for the Government to lay and pass the required orders—or at least the transfer order under clause 3. Having laid that order, and assuming that it is approved, it will endure. It is designed to be enduring and to outlive the primary legislation powers. In any case, the order for compensation provisions is intended to be and can be introduced later.
In tandem with subsequent amendments designed to limit the Bill’s scope to banks only—Northern Rock is not a building society, so an emergency measure targeted on Northern Rock does not need to deal with building societies—the amendment is designed to emphasise the focus on the specific problem of Northern Rock, sending out a signal that whatever the parliamentary manoeuvring necessary to avoid hybridity, this Bill has a narrow, specific focus on nationalising the Northern Rock bank.
As the Chief Secretary will know, there is considerable concern in the City about the potential damage to Britain’s reputation that might result from a standing power to nationalise being on the statute book. Reputations are fragile things: they are easily destroyed, and much more difficult to rebuild. The Chief Secretary can give all the assurances she likes at the Dispatch Box that she has no intention of using the power, but—although she may consider this irrational—I assure her that narrowing the time scale one month to make clear the specific nature of the Government’s intention will send the appropriate signal to those in the City and the international financial community who are concerned about the latest development.
We made plain our opposition to the principles of the Bill on Second Reading. What we are trying to do now is improve its workability. The Government do not need a year in which to carry out a Northern Rock nationalisation. They should not have a standing power without proper scrutiny for other nationalisations. I therefore hope that, in an attempt to make what is by definition a rather poorly scrutinised piece of legislation a little narrower and more focused, the Chief Secretary will either accept the amendment or give us an assurance that a similar period—perhaps two months, or three months—would be acceptable to the Government, and that they will introduce an amendment to that effect in the other place.
I did not subscribe to the amendment originally, as its objective was not clear. I suspected initially that it might be a wrecking amendment, which I would not have supported. Having heard the arguments, however, I feel that some perfectly sensible points have been made. For practical reasons, the Government are not able to limit the scope of the Bill, but at least they can limit the time scale for its implementation to an appropriate period. I understand that Royal Assent will have been sought and hopefully given by the end of the week, and that there is then a relatively short period in which statutory instruments can be implemented. There is no particular reason for the power to continue beyond that point, and it seems rather indulgent to let it go on for a year.
The hon. Member for Runnymede and Weybridge (Mr. Hammond) is right: we shall have to return with more extensive and far-reaching legislation covering the conditions in which Governments should intervene. Such issues should be properly considered, and not under emergency legislation of this kind.
I did not, however, agree with everything the hon. Gentleman said. I have not yet heard all the arguments, but I am not entirely persuaded in regard to the concern about building societies. I think there is a genuine issue—I am not sure why banks should have a lender of last resort and building societies should not—but it is an issue to be dealt with separately when we reach the intervention powers. I also think we should be a little sceptical about the rather precious sensitivities of the City. After all, the problems in the financial markets were caused by a breakdown of trust between financial institutions themselves, rather than by a fear of nationalisation. That apart, I think the hon. Gentleman made a sensible, practical case for limiting the Government’s action to a one-off emergency intervention.
The Bill was deliberately designed to impose constraints. Clause 2(2) specifies some high-level tests in relation to the purposes of the power:
“maintaining the stability of the UK financial system in circumstances where… there would be a serious threat to its stability if the order were not made”,
“protecting the public interest in circumstances where financial assistance has been provided by the Treasury… for the purpose of maintaining the stability of the UK financial system.”
As a later part of the clause makes clear, that does not apply to circumstances in which the Bank of England is simply providing financial assistance or playing its ordinary lender of last resort role. We have also made it clear that Northern Rock is the only institution that currently meets those high-level tests, and that we need to be able to deal with the specific problems that it has created. As Members have recognised, however, the Bill is drawn more widely. Therefore, it could in theory be used for other organisations in similar unusual circumstances to those of Northern Rock, but, as I have said, we have set the test high and put in place a sunset clause of one year. We intend to introduce a full Bill—which would, of course, go through the normal procedures—following on from the detailed consultation that we have conducted. It would look more widely at what further reforms are needed to the way in which problems in the financial system, particularly to do with banking, are dealt with. Those reforms would be made in a considered fashion, and in the normal way through this House, after full consultation and debate in this House. However, we need in the interim to be able to deal with the position of Northern Rock.
Under the Bill, there are other powers that can be used in the interim in the sunset period, until the full measures are put in place.
I am not sure that the right hon. Lady gives us a lot of confidence when she says that the Bill could be used for other organisations in similar circumstances. That is potentially market-sensitive information. Will she outline to the Committee why, if she does not believe that one month is appropriate, she believes that one year is?
It is hardly market sensitive: we have said this repeatedly, and I am merely describing what the scope of the Bill is and how it could apply. Under clause 6, as well as clause 3, it could be applied to circumstances that some people called for back in the autumn. People called for powers to be in place that would have enabled Northern Rock to be transferred directly to another bank or institution prepared to take it on. In fact, that opportunity was not available for Northern Rock at that time, but people did call for that power. That is contained in this Bill, again as a temporary measure for one year.
Will my right hon. Friend deal with the point of the hon. Member for Twickenham (Dr. Cable)? To turn his point against the argument he was making, there is some value in the provisions in clause 11; for the first time, a lender of last resort facility will be created for building societies, and a building society that gets into difficulties will not be imprisoned and made captive by the restrictive terms of the existing building societies legislation. I accept that that is only a temporary situation until matters can be looked at in more detail, but does she not think that it is an attractive feature?
My hon. Friend is right that clause 11 allows for the Bank of England to be able to provide greater assistance to building societies, should they need it given the circumstances of the current global credit crunch. The Bill provides for interim arrangements in advance of the full debate on banking reforms that we need to introduce.
For the sake of clarity, the hon. Member for Newcastle upon Tyne, Central (Jim Cousins) said he recognised that that was only a temporary provision ahead of new arrangements coming in, but the sunset clause applies to clauses 3 and 6, and our concern about clause 11 is that it introduces wide and far-reaching new powers but is not subject to the sunset clause. Will the right hon. Lady confirm that?
I think that that is right as things stand, but we would expect this issue to be dealt with more widely as part of the banking reform provisions that we are consulting on. The current measures are about having interim arrangements in place in circumstances of unprecedented turbulence in world financial markets and a global credit crunch as a result of—or triggered by—events in the US sub-prime market, as a result of which banks are not lending to each other in the normal way. These are highly unusual circumstances, and they lie behind the introduction of the Bill. We have repeatedly made it clear that Northern Rock is the only institution that currently meets these high tests, and we are introducing this Bill at this time so that we can deal with the problems that Northern Rock has created.
The amendment would greatly shorten the period for completing the orders transferring the securities or business of an authorised UK deposit-taker. On that basis, we think that the tests and safeguards being introduced are significant, and having a sunset clause in place for a year should provide the House and the wider community with the reassurance that they need.
The Chief Secretary has just made the extraordinary assertion that reducing the period to a month would place the Government under an unreasonable constraint in terms of laying these orders. We were led to believe that this was a matter of great emergency that had to be dealt with today and that legislation had to be completed by the end of the week. If I have misunderstood, perhaps she will correct me. I was expecting that the order, a draft of which we have seen, would be laid within a matter of days, at the most, of the Bill completing its parliamentary passage. If that is wrong, hon. Members ought to be made aware of the fact. She has not made any case for providing for a period of longer than one month. She has certainly not made a case for providing for a year. Had she made a convincing case for providing for a three-month or two-month period, Conservative Members would have been prepared to listen to that and to any assurances that she wanted to offer us about introducing such proposals at a later stage.
Simply to clarify, may I say that we expect to introduce the order—we have done so in draft—dealing with Northern Rock? The hon. Gentleman will recognise the unusual circumstances that we face in dealing with Northern Rock. Further work will obviously need to be done after we have put in place the main transfer to ensure that any subsequent issues that might require powers to be provided under clauses 3 or 6 are dealt with to ensure that the business of Northern Rock is taken properly into temporary public ownership on the appropriate basis.
I am grateful to the Chief Secretary, but I think she will find—I am sure that she will receive a note telling her this in a minute—that once the initial order is made, the Government will be safe. They will be able to make subsequent orders without complying with the various conditions—that is how the legislation is drafted. She is now telling us that she does not need more than a month to get the order made. Once the first order is made, the Government will be safely home. I have not heard a convincing argument about why we should not agree this amendment, which would provide the Bill with much greater clarity and focus. Therefore, I must ask my right hon. and hon. Friends to vote in favour of the amendment, and I seek to press it to a Division.
Question put, That the amendment be made:—
Clause 2 ordered to stand part of the Bill.
Clauses 3 to 5 ordered to stand part of the Bill.
Transfer of property, rights and liabilities
I beg to move amendment No. 12A, in page 5, line 36, at end insert—
‘(1A) No order under subsection (1) shall be made in respect of the property, rights and liabilities of a building society.’.
The amendment continues the theme of the previous amendment to which I spoke. The Bill has been presented to the House as an emergency measure to deal with a special situation—the nationalisation of the Northern Rock bank. For clarity, Mrs. Heal, I advise the House that later we will also vote against the proposition that clause 11 should stand part of the Bill, but with amendment No. 12A our aim is to remove references to building societies from the legislation.
It may be that there is a very good case for making some changes to the regime governing building societies. We have already had a discussion about that this evening. There may be a case for applying a regime along the lines of clause 6 in future to building societies, but there is no case to be made for including provisions relating to building societies in a Bill whose purpose is to nationalise a bank, which, by definition, is not a building society. Therefore, we seek in the amendment to leave intact all the provisions of clause 6 as they relate to banks, such as the possibility of transferring assets, liabilities, properties and rights from a bank to a company owned or controlled by the Bank of England or the Treasury in order to facilitate the partial nationalisation of a bank, which is a power that the Government say that they need. We seek to introduce into subsection (1)(a) the additional words in amendment 12A to ensure that the powers in clause 6 cannot be applied to a building society.
If the Bill is emergency legislation, it does not need to apply to a building society. There is no immediate and pressing need to have such a provision applying to a building society. We cannot allow the Government to include in a sort of omnibus, portfolio approach any power that they think they might need in a supposedly emergency Bill to deal with a specific situation.
We have reached clause 6 in the space of an hour. It is already apparent to the House that no proper scrutiny of the provisions in the Bill is possible. The timetable means that it has not been possible for Ministers properly to consider the amendments tabled by the Opposition—to sleep on them, to consult widely on them and perhaps to decide that some of them have merit. So we get a blanket, defensive blocking mechanism, quite understandably, to amendments that Ministers have seen only a couple of hours ago. This is not the way we can agree to proceed to deal with provisions that are not explicitly needed for the immediate purpose in hand—the nationalisation of Northern Rock.
If the Minister wants the provisions relating to building societies, she should put them in a Bill that will go through the House in the normal way, with proper scrutiny, so that we can debate with her their purpose and she can explain what she needs them for, and so that we can bring to bear the views and opinions of experts and interested parties outside the House and consider them properly. The provisions are not needed in this Bill tonight, so I urge her to agree that building societies should be excluded from the scope of clause 6.
I have agreed with all the amendments tabled so far by the Conservatives as ways of strengthening the legislation, but I disagree with this amendment. There are perfectly good reasons why building societies should be put in a position comparable to that of banks. I was not aware until this Bill came along that building societies were not in the same position as banks and could not access lender of last resort facilities in the same way as banks. That has just come to light, but if it is the situation, it seems entirely reasonable to address it.
The argument that the hon. Member for Runnymede and Weybridge (Mr. Hammond) made was, “Why don’t we think about all this in the bigger scheme of things with the intervention powers?” However, we are not talking about omnibus powers of nationalisation. We are talking about situations that could well arise in the next few weeks or months in which a building society, as one understood that Barclays did in the autumn, could go to the Bank of England for liquidity support. We are in difficult circumstances, and it seems right that those powers should be available now both to protect the interests of the building society sector and to maintain a level playing field between banks and building societies, which surely we want to do.
I may have confused the hon. Gentleman by speaking about clause 11, which introduces lender of last resort powers for building societies. Clause 6 deals with the nationalisation of the assets and rights, but not shares, of banks and building societies. Amendment No. 12A was tabled to avoid the possibility of the nationalisation of building societies’ assets, property rights and liabilities.
Clause 6 gives the Treasury power to transfer property rights and liabilities of deposit takers when one of the conditions in clause 2 is satisfied. Amendment No. 12A would remove building societies from the ambit of the clause. There are two issues to re-emphasise. First, as Opposition Members will know, clauses 3 and 6 are subject to a sunset clause. Secondly, on the proportionality of the powers, I had hoped that Opposition Members would bear in mind the high hurdles that will have to be jumped before there can be any kind of intervention under clause 2. The issue should be considered in that context.
Clause 6 is the only power in the Bill that would allow the Treasury to take a building society into public ownership or transfer it to another private body. The power in clause 3 to transfer shares and securities would not work for building societies, because building society shares are essentially deposits held by their saving members. Acquiring them would therefore not transfer ownership of the society in the same way that the transfer of a bank’s shares would. However, the Government believe that the power in clause 6 should be exercisable in respect of building societies.
The Bill provides the powers on an interim basis, so that we can deal with any further problems that may emerge in the next 12 months. In the current climate, it is not inconceivable that a building society may run into difficulties, although I should make it clear that none has; it is important to emphasise that we do not have a particular building society in mind. That is partly why we are introducing the powers in clause 11, to which hon. Members have already referred, to allow the Bank of England to give certain financial assistance to building societies if they get into trouble. Extending clause 6 to building societies ensures that all interim measures available for banks are available for building societies. We think that that is prudent in the interim period. I emphasise that it is a precautionary step, but as hon. Members have suggested, we are consulting on longer-term proposals for banking reform. We will come back to the issue in the fullness of time, as part of that consultation.
Does the Minister think that there is a danger that including building societies will send markets the signal that there might be risks for building societies? If there is no risk, why include building societies in the first place?
I did not say that there is no risk; there is risk all around at the moment, given what is happening in the global credit crunch. There are risks that that could affect institutions other than banks. What I did say is that we do not have in mind any particular building society that is in difficulty at the moment. I wanted to emphasise that point, so as not to set alarm bells ringing. However, in the interim period, while we are considering banking reform more generally, we think that it is prudent to introduce the precautionary powers in clause 6 and clause 11, which we shall come to later.
Will the Minister tell us what the lender of last resort arrangements are for building societies, and what it is about those arrangements that makes it so essential that building societies be included in clause 6?
That is a debate that would be more accurately held under clause 11 when we come to those specific powers. I am happy to deal with the issues then. I expect that I would be called to order if I extended the debate to clause 11.
With those clarifications of the Government’s position, I hope the hon. Member for Runnymede and Weybridge (Mr. Hammond) will withdraw his amendment.
No, I am afraid I shall have to disappoint the hon. Lady. Her explanation is not good enough. The legislation was billed as emergency legislation to deal with a specific and pressing problem—pressing enough that the Chancellor had to make an announcement about it on a Sunday afternoon. It is a huge relief to hon. Members that the Minister does not have any particular building society in mind. I expect that it is a huge relief to the Clerks as well, as we may have had to decide that this was a hybrid Bill after all if she had a particular building society in mind.
The point that the hon. Lady has failed to address is this: the House is being asked to set aside its normal procedures for scrutiny of legislation. The Opposition parties and outside experts and interests are being asked to forgo the usual opportunity to make their representations and present their case during a proper Committee stage of a Bill. It is not good enough for the Government to sweep up all sorts of powers that they think they might possibly need one day, although they do not have in mind a specific example of that need, and put them into a Bill which they then ask the House to pass in a single day without the opportunity for proper scrutiny.
We would be very happy to look at the case for introducing the kind of powers that the Minister describes in relation to building societies in general, but what the House, the media and the great British public expected when they heard the announcement on Sunday of emergency legislation to nationalise Northern Rock was a narrowly focused Bill for the announced purpose of nationalising Northern Rock. Patently, such a Bill does not need a provision that deals with building societies.
I do not want the hon. Gentleman to caricature my position too much. This is not a wide-ranging provision that will remain on the statute book for ever. He will admit that clause 6 is one of the sunset clauses and that these are focused powers in very specific and unusual circumstances, so it does not go quite as wide as he is trying to make out. I hope he will recognise that. I tried to put my remarks in that context when I spoke about including building societies.
At least the hon. Gentleman ought to recognise that the circumstances are unusual, that there are high hurdles to get over in clause 2, and the provisions are quite focused. I made a point of saying that this was an interim solution while we were examining the longer-term issues of banking reform, which he and the House know we will return to later in the Session, after due consideration and consultation with all the outside forces that he mentioned.
The hon. Lady is right that the powers are time-limited, with a year’s life. They are quite specific powers, but they are not specific to dealing with the Northern Rock situation, which is what all of us thought we were coming to the House today to do. We have been surprised and the commentators will be surprised by the breadth of the Bill, which was widely expected to be a specific, tailored measure to deal with Northern Rock. We do not think it reasonable to ask the House to approve anything that is not absolutely necessary today in this compressed one-day consideration of the Bill, which clearly will not allow full scrutiny line by line.
As I said in my initial remarks earlier this afternoon, that is bound to lead to a situation where the other place or, as is perhaps more likely in the end, the courts will have to resolve many issues that we have been unable to pick up and deal with during this afternoon’s deliberations. Goodness knows, even in a Bill that receives proper scrutiny in Committee, we invariably find—this is particularly the case with complicated Finance Bills—that the Government have to come back the following year in order to deal with problems, omissions and technical drafting failures that have occurred, or with loopholes that have been uncovered in the courts. What we are discussing tonight is not the type of measure that we should address under this emergency procedure, unless it were explicitly needed for the purpose of the principal business in hand today—the nationalisation of Northern Rock. That nationalisation does not require any powers in relation to building societies. I will therefore press the matter to a Division. I ask my right hon. and hon. Friends to support the amendment.
Question put, That the amendment be made:—
The Committee proceeded to a Division.
I ask the Serjeant at Arms to investigate the delay in the No Lobby.
It being after half-past Ten o’clock, The First Deputy Chairman of Ways and Means proceeded to put the Question necessary to dispose of proceedings in Committee, pursuant to Order [this day].
Clauses 6 to 17 ordered to stand part of the Bill.
Schedules 1 and 2 agreed to.
Not amended in the Committee, considered.
On a point of order, Madam Deputy Speaker. We have just heard the formal words of the Government Whip. Would it be possible for the Modernisation Committee to consider the matter? The Committee of the whole House has not gone through the Bill—the guillotine has come down and the House has been prevented from debating it. The Committee has not gone through the whole Bill, so should not the matter go to the Modernisation Committee so that we get a more accurate record of what has actually happened?
I thank the hon. Gentleman for his point of order. It is not a matter for the Chair, but it will be brought to the notice of the Chairman of the Modernisation Committee.
I ask hon. Members who are not staying for Third Reading to leave the Chamber as quickly and quietly as possible.
Order for Third Reading read.
I beg to move, That the Bill be now read the Third time.
I thank hon. Members for the speedy consideration of the Bill, which was introduced under unusual circumstances.
Last summer, triggered by events in the US sub-prime mortgage market, a global credit crunch began. Banks stopped lending to each other in the normal way and Northern Rock, owing to its business model, could not get the money that it needed to keep going. The action that we took last autumn was widely supported at the time. The Government stepped in and effectively saved Northern Rock. As a result of the decisions that the Chancellor took at that time, not only is Northern Rock still operating, but its customers’ deposits are secure and we have prevented the problems affecting it from spreading elsewhere in the banking system. That has been one of our main concerns from the beginning—to safeguard the stability of the banking system.
Will the Chief Secretary confirm that throughout the period since Northern Rock fell into problems there have been no branch closures, that it has been receiving deposits and repayments on its mortgages, and that it has operated perfectly satisfactorily every day, including today? Can she explain why there has been such a rush to introduce the Bill when Northern Rock has been operating perfectly satisfactorily over those months?
If the hon. Gentleman had been here earlier, he would know that we have discussed the reasons for bringing the Bill through rapidly. We took action in the autumn to ensure that Northern Rock could continue. As well as the Bank of England loans, we provided Government guarantees. Those have proved necessary in order for Northern Rock to continue and to support financial stability at the time.
We took the decision on Sunday after detailed consideration of the two bids—two serious bids, I should point out—which we could have gone with. We took the decision, however, that temporary public ownership was in the interests of the taxpayer. We took the decision and announced it very soon after on Sunday, and shares of Northern Rock were suspended on Monday morning. Those shares are still suspended. They have not yet been transferred to the public sector and the Treasury solicitor.
It is important for Northern Rock that it should have some certainty about its future operations, and that it should know who its shareholders are and who is in charge. It is important for Ron Sandler to be able to get on with his work in an environment of stability and security. Therefore, it is not in the interests of Northern Rock, the wider stability of the banking system or the House to extend unnecessarily our consideration of the Bill, when we can get it in place rapidly, in order to be able to effect the order and provide certainty for Northern Rock for the future.
The Chief Secretary has said that it is important for Northern Rock and its employees and shareholders to have certainty. Does she accept the recurrent theme of our debates today: in order for them to have that certainty, they need to know whether the Government’s strategic objective is to grow the business or shrink it? That is the key issue.
We have made clear our objectives throughout the process: to ensure the financial stability of the banking system. We have also been keen to secure the interests of depositors and, in particular, to ensure that the taxpayers’ interests are protected. That is why we have taken the decision, and we have made detailed assessments of all the options for that purpose. We have said that we will shortly publish a framework document, which will deal with the arrangements that need to operate between Northern Rock and the Treasury and the Government. Ron Sandler will publish a business plan in due course which will need to be agreed with the Government and compliant with EU state aid rules.
It is important also that we should operate within a framework that is fair, and in which there is no inappropriate unfair competition. It is right that that should happen, but it is equally right that the new board of Northern Rock should have a chance to go through the books, assess the business in detail and draw up its proposals on how the interests that the Government have set out can best be secured. Those will then need to be approved and considered by the Government, and obviously they will be published at that time.
Ron Sandler is assessing what the options and future course of the business should be. Hon. Members want us to answer all their detailed questions about what the business plan should be, yet they also want Ministers not to take those decisions. They want this to be an arm’s length operation—which is what we think it ought to be—that is properly run on a commercial basis and in which the decisions are taken by the board and by the people with the expertise to do so, but they want us simultaneously to prescribe to the board the exact details of its business plan. We are clear that Ron Sandler and his team should have time properly to draw up a business plan. It will need to be agreed with the Government and to be compliant with EU state aid rules. That is a sensible way for us to go forward.
The Minister has just said that it will be necessary to comply with a range of provisions, including European legislation with respect to competition policy. Will she explain why clause 12 specifically states that an order may
“disapply…any specified statutory provision or rule of law”?
In that context, is she saying that we will disapply any Westminster-based legislation, but that we will not be able to disapply any European-based legislation?
The hon. Gentleman must be quite mortified that we are saying that the clear safeguards that will be in place to ensure that we do not have unfair competition lie with the European Commission. I realise how difficult that is for him. I also realise that he had been hoping to have a debate on Europe today, and he has obviously come in specially for that. It must have been quite frustrating for him to have to discuss the details of a bank instead. As a result, he is now desperately trying to find some way of getting in a question on Europe—
Northern Rock got into difficulty because it had a rubbish business model. Sticking with clause 12, subsection (3)(d) will enable powers to deal with
“exempting directors of any relevant deposit-taker, or of any group undertaking of any relevant deposit-taker, from liability in connection with acts or omissions in relation to the deposit-taker or undertaking”.
Will my right hon. Friend assure me that those powers will not be invoked to let the directors of Northern Rock who got it into difficulty off the hook should there be any legal liability for the incompetence of those directors?
I have now had questions from both my hon. Friend and the hon. Member for Stone (Mr. Cash) about that. Let us be clear that the purpose of clause 12 is to ensure that the Treasury has the power to make consequential and supplementary provisions, given the complexities of the financial system and of the way in which the banking system works. We need to be able to ensure, if particular consequences follow through later when more detailed considerations are looked into, that they can be dealt with. It is clearly not the intention that people who should rightly take responsibility for their decisions should be exempt from doing so. Nor is it the intention to disapply any appropriate laws—be they European or UK laws—that should apply in these circumstances. This is simply about ensuring that we have the consequential powers that we need to implement the intention of the Bill, which is exactly what we have been discussing throughout the debate today.
As hon. Members will know, the global credit crunch is continuing. That means that banks are still not lending to each other in the normal way, and that is why the Government guarantees are still in place. Given that they are in place, it is right that we should expect an appropriate return for them, and that is why we have done the detailed assessment and chosen temporary public sector ownership as the appropriate way forward.
Interestingly, one thing that has come out of today’s debate is the fact that hon. Members who at the time of the intervention in the autumn supported both the introduction of Government guarantees and the intervention to prevent Northern Rock from going under are now arguing that those guarantees should be removed and that the bank should be put into administration. Throughout the different stages of today’s debate, a number of Conservative Members have said that they cannot accept the very principle of a bank continuing to have Government support, yet operating in the marketplace, despite the particular, unusual and difficult conditions that apply and despite the fact that the Financial Services Authority has emphasised the good loan book and the solvency of the bank.
Detailed discussions with the European Commissioner will need to take place and they are likely to consider, for example, the conditions that need to be in place for the business plan to proceed. That would be the usual approach of the Commission in these circumstances. Clearly, that sort of discussion will need to happen and it will consider the detail of the business plan and the particular conditions with which it needs to comply.
Conservative Members need to understand that they are effectively arguing for Northern Rock to go under—either very rapidly because of the withdrawal of Government guarantees or because it was put into administration. On the Government side, we have made very clear the consequences of putting Northern Rock into administration at this stage. It would mean that creditors would have claims on collateral and they would be exercised. In practice, it would mean a significant risk both to the Bank of England’s contributions and loans and to the taxpayer as a result of the guarantees that are being put in place. Given the current market conditions, it is important that we do not promote a fire sale of assets or effectively a sell-off at the bottom of the market. That is not in the interests of the taxpayer. It is important to promote the interests of taxpayers rather than the ideological approach of Conservative Members.
My right hon. Friend is absolutely right and I would like to remind her of what happened to BCCI 17 years ago when the then Conservative Government refused to support its creditors and depositors. It has been in liquidation for 17 years, but all the money has been found all of a sudden.
I want to follow on from a point raised by my hon. Friend the Member for Wolverhampton, South-West (Rob Marris) about the liabilities and responsibilities for Northern Rock’s actions. If I recall correctly, when my right hon. Friend the Chief Secretary summed up on Second Reading, she said that the Granite exercise was excluded from the legislation. I understand that the Granite exercise was an offshoring of securitisation that offered 50 per cent. of the funding for Northern Rock—as far as I can see, it was used as a tax-avoidance measure—yet it is to be excluded from the scope of the Bill. If there are responsibilities and liabilities, surely those who participated in that exercise for their own advantage should be brought into the scope of the legislation. Should not responsibility and liability fall on them as well?
Perhaps I should clarify that there are two different points. Granite is part of the funding mechanism for Northern Rock and it is on the bank’s balance sheet; however, it is a separate trust and has never been covered by the Government guarantees. It is not being taken into public ownership and it is not, in fact, owned by Northern Rock, so it is not part of the taxpayer’s exposure and has never been so. On the matter of how clause 12 relates to the directors, it does not apply to old or former directors; it is about the potential to make provision for directors who are in place while Northern Rock is temporarily in the public sector. It is an enabling provision—[Interruption.]
I understand that Granite was set up on a trust basis. I shall be happy to give the hon. Gentleman further details, because I think they are in the public domain. Granite is not owned by Northern Rock; nor will it pass into the hands of the public sector.
I am sorry to press the Chief Secretary on this point, but it is important. The Granite entities are consolidated on the Northern Rock balance sheet. When Members look at the totality of Northern Rock’s assets and liabilities, they see Northern Rock plus Granite. Is the Chief Secretary now telling the House that the public sector will acquire ownership of Northern Rock, but not of the Granite entities?
Can it be made clear for the record that although Granite is a creature of Northern Rock, was established by Northern Rock and was undertaken as an exercise for profit and tax avoidance, liabilities resulting from the overall exercise of Northern Rock will fall on the taxpayer, while those who participated in Granite to make profits will have no liabilities whatever? Is that statement accurate?
May I return the Chief Secretary to something else that she said earlier? She said that she opposed a fire sale—as, I think, does everyone—but that her reason for opposing it was that that would take place at the bottom of the market. Will she tell us why she is so sure that this is the bottom of the market?
Opposition Members may say that they are not in favour of a fire sale of the assets, but that would be exactly the consequence of putting Northern Rock into administration. Creditors would have claims on collateral that would be triggered by insolvency; assets would need to be sold, and the bank would be rapidly wound down. That would not be in the interest of taxpayers. Members in all parts of the House should recognise that the purpose of the Bill is to protect the interests of taxpayers. I think that that is responsible, and it is something that the Government consider important.
Members in all parts of the House should recognise the importance of protecting the taxpayers’ interests. That is why we have made detailed assessments of the different options throughout this process. We must continue to safeguard financial stability, but we must also secure the interests of the taxpayer.
Let me tell Opposition Members that presenting different options which do not stack up and which unravel in the end, resulting either in administration and a sell-off that is against the interests of the taxpayer or in nationalisation by another name, is simply disingenuous. We have had a serious debate about Northern Rock’s difficulties, but we have also debated the need to secure the financial stability of the wider banking system. I wish Opposition Members would acknowledge that that is the overall purpose of the Bill.
The financial stability of the banking system is not something that we should ever take for granted: it is something about which we should always be vigilant. The consequences of losing it would be devastating for people throughout the country. That is why it is important to protect it, and important for us to present the Bill now. I hope that Members will stop playing politics with the banking system and its stability, and will recognise the advantage to us all of achieving a secure deal and a secure future for Northern Rock.
The Chief Secretary has given her version of the events leading up to the introduction of the Bill, so let me remind the House of mine. In the summer of 2007, the credit crunch arrived—from the United States, as she said—and placed Northern Rock in difficulties. The Government had an opportunity then to pursue an expression of private sector interest in acquiring Northern Rock, but they were not interested; they dithered and passed up the opportunity. On 13 September, when it became clear that Northern Rock was in serious trouble, they dithered, delayed and prevaricated over the weekend, leading to the events of Monday 17 September, when eventually they stopped the run on the bank by introducing a general guarantee on deposits. They then ignored—very expensively, as it has turned out—the advice they received that they needed to act quickly and decisively in order to protect the taxpayers’ position and resolve the issue of Northern Rock. We have had more dither and delay since 17 September, leading on Sunday to the announcement that the Government were going to go down the route that they had desperately sought to avoid for the past five months and nationalise Northern Rock.
One thing that we have clearly understood from today’s debate is that the nationalisation of Northern Rock is but a mechanism. The Opposition submit that there is nothing substantive that the Government will now be able to do with Northern Rock in nationalisation that could not have been done without taking the bank into public ownership and with only slight modifications to powers that already exist in the Enterprise Act 2002 and insolvency legislation. However, proposed legislation was rushed out yesterday and rushed through this House today under an emergency procedure, and we and the public were clearly told that it was legislation for the purpose of nationalising Northern Rock. What we have before us today is a Bill—now on Third Reading—that includes many provisions that are not relevant to the nationalisation of Northern Rock, but which deal with other situations that we are not facing today. They might be sensible provisions with which we could agree, but we will never know because we have not had the opportunity to scrutinise the Bill properly and to consider those measures. It is our submission that when a Government come to the House and ask it to set aside its procedures and its standard practices for scrutiny and to rush through legislation in a day, that legislation must be for an immediate and pressing purpose; it must not be a portfolio of powers that the Government would quite like to have in case they come in handy at some point in the future.
We have seen the weakness of this compressed procedure this afternoon and this evening. Our amendments were tabled without the benefit of consultation with outside bodies; they were our amendments and they did not reflect, as is the usual practice in this House, the real and detailed concerns of experts in the relevant field and from across the relevant industry. Ministers saw the amendments just a couple of hours at most before having to respond to them. In those circumstances, I do not blame them for adopting a defensive strategy and approach; what else could they do? They have not had a chance to consider, or consult on, the amendments; they have not even had a chance to sit with their officials and think about them. [Interruption.] Yes, they might have another chance when the other place gives them an opportunity to consider some of them again. All of this is a genuine shame, because it means that the legislation that is leaving this House today is weaker for lack of scrutiny, and that we, as the superior House, are once again in the humiliating position of relying on the other place to look in detail at the provisions that have been put before us. As it, too, has been prevailed upon to limit its consideration of the Bill, it is likely that unelected judges in the courts will have the final say on a matter that we know will be the subject of substantial litigation.
Does my hon. Friend agree that in respect of the other House a number of important provisions are privileged? I am thinking of tax consequences, which are dealt with under clause 10, and a number of other matters relating to guarantees and indemnities, which are at the heart of the financial liabilities that arise. The other House will be unable to consider such provisions, and that compounds the disgraceful way in which the Government have truncated consideration of the Bill.
My hon. Friend makes a good point, because at least one clause will be privileged and thus will not be considered by the other place. I must say that he slightly surprised me, because I thought that he was again going to raise the issue of the exclusion of the courts. I am somewhat disappointed that he did not do so.
The debate has made it clear that whatever their view about the principle of nationalisation—the hon. Member for Newcastle upon Tyne, Central (Jim Cousins) understandably has his constituents’ interests at heart, while other hon. Members have given greater primacy to the taxpayer’s interest—hon. Members on both sides are deeply uncomfortable about the lack of clarity about the Government’s intentions. Perhaps it is a lack of honesty about their intentions.
I do not know whether I am alone in this House in finding it slightly extraordinary to be presented with the proposition that over the past five months, when one of the most politically explosive situations has been sitting on his desk, the Chancellor of the Exchequer has not established a plan B and he has not considered what he would want to do in the event that his preferred private sector sale of Northern Rock failed. He also does not have a strategic business plan setting out the objectives for its new management team and he has not given Ron Sandler a brief that sets out those strategic objectives. That is all extraordinary. Perhaps that is why the Government have included a provision in their draft order that the publicly owned Northern Rock will be exempt from freedom of information requests—so that we may never know.
The risks of nationalisation are clear. The first is the politicisation of the decisions. I do not blame the hon. Member for Newcastle upon Tyne, Central for one moment for putting the interests of his constituents first, as we would all have done in his position, but this evening we have seen the kind of pressure that the Government will come under from hon. Members and from outside interests. Other risks include the transfer to the taxpayer of a huge additional tranche of liabilities at a stroke and the risk to Britain’s reputation as a financial centre.
We know that the risks are clear, but we do not know much about the business that the Government are acquiring on our behalf. We do not know how much we will pay for it, how much it is worth, what its assets and liabilities are, how long we are acquiring it for and what the purpose of our acquisition is. The truth is that nationalisation is not a solution; it is simply a mechanism.
The solution has to be based on a plan, and the strategic direction of that plan must come from the top down. The Minister chose not to recognise a clear distinction a few moments ago. Nobody in this House, except perhaps for a few people below the Gangway on the Government side, wants the Government to micro-manage a state-owned Northern Rock, but we all recognise that the Government, as shareholder, must set out the strategic objectives that they want the management of Northern Rock to follow. The Government must give a clear picture of where they want Northern Rock to be in six months or a year or two years’ time, of how quickly they want to shrink the business and of what priority and level of importance they place on returning it to the private sector with all taxpayer loans repaid. That is how the Conservatives would like the NHS or the education system to be managed—with a clear, strategic direction from Government and a hands-off approach that lets the professionals get on with delivering those strategic objectives.
What we have is a wide-ranging Bill that has received little scrutiny. Many issues are unresolved and will have to be dealt with in the other place. I set out earlier our alternative proposals, not for a fire sale—as Ministers like to characterise them—but for an orderly resolution of Northern Rock in a Bank of England-led reconstruction. The Government have a consultation paper out on future legislation to reform the banking sector, and I predict that when we finally get round to putting in place a regime to deal with—God forbid—any future Northern Rocks, it will reflect much more of our proposal and much less of the Bill that we are being asked to pass today.
At the end of this debate, we are no clearer about many of the key questions. The Government have rejected all of our amendments. They will brook no criticism. The Chief Secretary has probably taken her cue from the Prime Minister, who said yesterday in his press conference on Northern Rock, with typical modesty, that
“we have made at all times the right decisions”.
The taxpayer is now much deeper in. There is no sense of the direction in which the Government intend to take us and no business plan is on the table. I must therefore ask my right hon. and hon. Friends to vote against Third Reading.
I first wish to make it clear that I welcome the Bill. In fact, with the greatest respect to the hon. Member for Twickenham (Dr. Cable), I think that I was the first MP to call for nationalisation, although that is hardly surprising because I have been calling for the nationalisation of the financial sector for 30 years or more. However, I was astounded when my right hon. Friend the Chancellor said on Second Reading that the Granite operation was not included in the legislation.
From my reading of the Treasury Committee’s brief reference to Granite and the advice received from accountants in the tax justice campaign, my understanding of the scheme—even its name suggests that it was a great wheeze—is that several of the directors at Northern Rock established an offshore vehicle to avoid tax. It was still on the balance sheet of Northern Rock and they securitised a large percentage of their assets in it and received about 50 per cent. of their funding from it. As a result and as far as I am concerned, Granite is a creature of Northern Rock and therefore is part of the asset base of the bank and its operations.
I understand the issue that the right hon. Gentleman raises, and I have seen reports about it. It is an issue that needs to be exposed and examined, but my concern is the greater issue. Those who took that decision will be exempted from their responsibilities as a result of this legislation. They deliberately undertook an exercise of tax avoidance and tried to maximise the profits for their company. As a result, they enhanced their own benefits in salaries and bonuses through a scheme that is completely exempt from the Bill. The taxpayer and the community will pick up some of the liabilities from that exercise and those who have profiteered through Granite will be completely exempt of liabilities. They will walk away with their profits secure, while others suffer. Some of the constituents of my hon. Friend the Member for Newcastle upon Tyne, Central (Jim Cousins) may lose their jobs and some people may have their homes repossessed. Yet the Granite scheme has enabled those people to walk away scot-free.
I tell my right hon. Friend the Chief Secretary that when there are discussions in the future about further legislation and regulation, we will need to take into account what happened with regard to Granite. We will need to consider how to prevent tax exemption and tax avoidance regimes being used in such a way at the cost of the long-term interest of the workers involved and of those people who are dependent on mortgages from a company such as Northern Rock. If there is any way in which Granite can be brought within the ambit of future legislation, the Government should examine that matter.
Does my hon. Friend agree that when the Government are considering future legislation they should also consider the long-standing and vexed issue of conflict of interest when it comes to audit? A firm such as PricewaterhouseCoopers will make a lot more money out of its consultancy on securitisation than out of the audit. In banking collapse after banking collapse, we see auditors who see no problem in continuing to trouser their consultancy fees.
I hope that that is one issue that the Treasury Committee will come back to at some future stage when it further examines transparency within the financial arrangements of such companies and the City itself.
I support the legislation, but I believe that we have missed an opportunity to nail down one of the devices that has been used by Northern Rock and its directors to avoid their long-term responsibilities to its work force, to those who have borrowed from the company and to this country and its taxpayers. I regret that such a measure was not contained actively in the Bill.
I had not intended to speak at length at all, having made my points, but I am prompted to by the important speech that we have just heard from the hon. Member for Hayes and Harlington (John McDonnell). Alarm bells rang slightly for me when I heard the mention of Granite on Second Reading, but its full significance did not dawn on me at the time. I do not think that the problem is quite that identified in the hon. Gentleman’s point about tax status. The problem is that Granite is a separate institution that, as I understand it, securitises the best assets of the bank. The best mortgages of the bank are wrapped up in the Granite vehicle. We are being told that in some way that is being hived off to the benefit of person or persons unknown, apparently, to the Minister.
What is going on here appears to be not the public ownership of Northern Rock but an asset-stripping operation designed to benefit someone—we do not know who. That is a serious development, and unless we get a proper explanation by tomorrow morning of what exactly is going on—
If I may, I want to see if I can help the hon. Gentleman to understand the true implications of Granite’s not being included in the nationalisation. My understanding is that Northern Rock retains a seller’s share in the packages of mortgages provided to Granite to provide security for the debt obligations that Granite issues, and that that package of mortgages will have to be refreshed continually by Northern Rock as mortgages are redeemed or repaid or come to the end of their natural lives. If Northern Rock fails to supply continuing fresh mortgages into Granite, the liabilities will crystallise, there will be a default in Granite and the entire securitised debt obligations will implode and will have to be sold off on a fire sale basis, with proceeds going to the bondholders. At that point, the seller’s share held by Northern Rock will also be part of the fire sale and will become of much lesser value than its stated asset value in the books. Guess who will pay the bill, if Granite is not included in the nationalisation? The taxpayer.
I am trying to absorb the hon. Gentleman’s analysis, and I hope that he will repeat it at greater length. My understanding is that the remainder of the assets of Northern Rock, outside Granite, consist of unsecured mortgages and the so-called Together mortgages—those at 125 per cent. of value—or, in other words, the rubbish. That is what the Government have acquired. We now need a rapid and thorough explanation of exactly what has gone on, as otherwise the Bill can be stopped in the other place.
The problem is actually worse than the hon. Gentleman has described, as Granite’s loan-to-value ratio is more than 100 per cent. Mortgages are placed in Granite to securitise a loan that is for a smaller amount so, if the security had to be exercised, the mortgages could be sold at a discount. I think that what is left is actually worse than the hon. Gentleman is making out.
I may not have explained the point that I was trying to make well enough. My view is that the motivation was a tax avoidance dodge, but the problem is that the liability, which is on a significant scale, now rests with the public purse. As a result, the people who will gain are the participants in Granite. The ones who will lose, and who are in jeopardy, are those who retain an interest in Northern Rock—that is, the taxpayer, and the workers who may lose their jobs.
These are big questions, and we are not getting any answers. I see that the Minister has fled the Chamber to get an urgent briefing from the Treasury. Unless the Paymaster General can give us a proper explanation, it is clear that an Exocet has landed somewhere in the middle of the Government’s proposals. The Government need to come up with some proper explanations overnight, as otherwise they will be in serious difficulty in the other place tomorrow.
I could make many other points but I shall restrict myself to two, as I think that we have highlighted a critical issue that we need to focus on.
On a point of order, Mr. Deputy Speaker. It is perfectly apparent that a key part of this nationalisation is wholly uncertain. Something has come to light that means that the House cannot reach a serious decision on this matter. The Minister has fled the Chamber, presumably to go and get advice. Would it not be sensible to suspend proceedings until she is able to inform the House on this very important consideration? [Interruption.]
Order. It would be unfortunate if the debate were to become ragged at this hour, bearing in mind the seriousness of the issues under discussion, both in the course of the day and at this moment. I think that the hon. Member for Twickenham (Dr. Cable) put his finger on it when he said that there will be further debate before the legislation is finally approved by Parliament. [Interruption.] Order. If matters are still being raised at this stage, there will be further opportunities to discuss them. This is a matter of debate.
I apologise if I have contributed to the raggedness of the discussion, but important issues have been raised. However, perhaps I should reduce the temperature by moving on to other points.
Some very important amendments were tabled that, unfortunately, were not discussed today. I hope that they will be debated tomorrow and when we come back on Thursday. One of the more important amendments related to the Bill’s implications for competition policy, and I think that hon. Members of all parties acknowledge that potentially serious difficulties could arise as a result of the nature of Northern Rock’s ability to compete for deposits and mortgages, and in wholesale markets.
Although some mechanism must be established to manage that, it is equally clear that the regulatory body, the FSA, does not have the necessary powers. It is also clear that the Office of Fair Trading—the body that deals with competition policy—should be referred to explicitly in the Bill in order to resolve those specific questions.
The other important matter that we did not get around to discussing was new clause 2, which deals with freedom of information. One of the most appalling problems so far is that we have been unable to get access to basic information about how the Government and the Bank of England have operated hitherto. Information will be even more difficult to access now, because I understand that the new public company will be excluded from the freedom of information provisions.
Along with other hon. Members from all parties, I have been trying to find out how much the Government, via the Bank of England, have lent to Northern Rock. We have had to study the Bank of England’s weekly accounts, which are not entirely clear. I once asked for a meeting with the Governor to try and find out what was going on, and I was treated rather like an armed robber who wanted to inspect the gold in the vaults. It was impossible to get anywhere near asking the questions that I wanted to ask, but the problem is that information has become even more controlled and even less accessible. That is something that must be dealt with properly.
Those of us who have been trying to follow the saga properly know that information has not been coming from the Government but from the BBC business correspondent and from leaks from the various bidders against each other. That is how we have kept abreast of developments. The Government have been a closed book. There has been no access to information. That is why we need to build into the Bill provisions to create much more transparency than has existed so far.
I support the Bill. I have to say that some right hon. and hon. Members have rather overlooked the fact that it does not deal just with Northern Rock. It has been prompted by Northern Rock, but it deals with the continuity and continuation of financial stability in the United Kingdom.
The aim of the Bill is to foster and maintain confidence in the economy and the financial services sector in the United Kingdom. Other countries—Germany, the United States, France and so on—are, of course, going through banking difficulties as well. In September, the Government were faced with a difficult decision against the backdrop of financial turmoil around the world stemming primarily but not only from the sub-prime market in America.
The Government took a bold decision about Northern Rock aimed at maintaining economic stability. By and large, I think that we can say ex post facto, five months later, that that decision was not only the right one but that we have maintained economic and financial stability. The FTSE went up this week, just after nationalisation of Northern Rock was announced. We have record bank profits. We have a thriving financial services sector, which of course is under pressure; not everything in that garden is rosy. It is under some pressure, but as the premier financial services sector in the world now, thanks to this Government, it is under less pressure. Part of the reason for that is what the Government did in respect of Northern Rock.
At every opportunity the Conservative party accuses any and every Minister of dithering and, boringly, it levelled that charge again tonight. Over the past five months, the Government have explored the options. They tried to see whether Northern Rock could be sold to some management buy-out, Virgin or whoever. They found that, in terms of protecting the taxpayer, that was a non-starter. But the Government were absolutely right to explore those options.
Had the Government not done so and announced in the middle to end of September that they were nationalising Northern Rock, I can only imagine the outcry from the official Opposition. They would have said, quite properly, “You are being hasty. You have not explored the options. You have not looked at whether it can be sold to another private banking institution.” So the Opposition are trying to have it, as ever, both ways. If we explore the options, they say that we are dithering. If we do not explore the options, they say, “You are being hasty and not exploring the options.”
My recollection of the Lloyds bank indication of interest was that it asked for a considerable amount of money from the Government, and that it kept going up. That showed that it would be difficult to sell Northern Rock, and it proved to be impossible.
Most hon. Members would agree that we cannot continue with Northern Rock as it is. It clearly could not continue with the business model that it had because it was a bankrupt model both metaphorically and almost literally.
The third option that the Government explored was that of trying to sell the bank. They found that they could not sell it, other than at a ridiculously low price. The option before us, which is enabled but not carried out by the Bill, is to nationalise Northern Rock. That seems the sensible option, because the only other one that is talked about—it is discussed in rather woolly, vague terms by the official Opposition—is putting Northern Rock into administration and winding it up.
In administration, the administrator tries to sell the business as a going concern, either wholly or in part. We know that the business cannot realistically be sold as a whole as a going concern, because the Government tried to do that for five months and could not. The alternative way of proceeding in administration, which the official Opposition are suggesting, is to wind down the business to shut it down. When they talk glibly about administration, they are not open about the fact that that, realistically, is the route that they would take. They say, “The administrator will carry on and do what he or she can.” He or she cannot sell it, ergo they will wind it down and eventually close it. Nationalisation, which is foreshadowed in the Bill, is a much better option.
I should like to challenge the hon. Gentleman’s logic. He says that, in administration, the administrator would not be able to sell the business, ergo he would have to wind it down. In nationalisation, when the Government cannot sell it, the Government will have to wind it down. Is that not the case?
No, of course it is not the case. As ever, the hon. Gentleman is trying to have it both ways. People say that the process might take one, two or three years, but as the hon. Gentleman knows well, an administrator cannot take that length of time. Under nationalisation, there is more time.
On freedom of information, again the Opposition try to have it both ways. On the one hand, they propose amendment No. 14 on arm’s length management. On the other hand, when it comes to the arm’s length management provisions in the draft order that relate to the freedom of information powers, which of course do not apply to the private sector, they say, “Well, the bank is nationalised; it’s public sector, so the freedom of information powers should apply.” That contradicts what they have argued for in terms of arm’s length management; they are trying to have it both ways.
I understand the criticisms that have been made on the subject of the cost, but my understanding of the Bill as enabling legislation, and Northern Rock’s concrete situation, is that one cannot value Northern Rock until a valuation tribunal procedure is completed, pursuant to the powers in the Bill. Even the shadow Chancellor, the hon. Member for Tatton (Mr. Osborne), more or less conceded on Second Reading that the likely valuation of Northern Rock is nil. Of course taxpayers should know what the cost is, but it flies in the face of reality to demand that the Government today reveal the cost of the procedure and of buying out Northern Rock, as though they were sitting on a figure. The reality is that it is likely that the valuation will be close to nil, as the hon. Member for Tatton said, but we cannot tell until the valuation tribunal decides.
I say to my right hon. and hon. Friends on the Front Bench that the business framework agreement should be drawn up and revealed as soon as possible, not only because that is right for taxpayers, but to reassure staff and depositors—and, potentially, pensioners, who are the subject of an amendment of mine that was selected but that we did not discuss. Paragraph 6(3) of schedule 1 says:
“Provision made in pursuance of this paragraph may be made by means of modifications of a relevant occupational pension scheme”.
I would like reassurance from the Government that there is no intention to modify the Northern Rock pension scheme in a way that adversely affects Northern Rock pensioners and prospective pensioners.
I conclude by urging the Government to hurry up with the consultation on tightening the regulation of banking in the United Kingdom, so far as they can. However, I do not want them to make haste, as some seem to want them to do, for the reasons that I gave. Those reasons relate to the Government taking time to explore what could be done with Northern Rock, after that decision was made to support it in September. The uncertainty about UK banking regulation changes, which is recognised by Members on both sides of the House, should not continue longer than is absolutely necessary. The need for changes to banking regulation was revealed by what happened with Northern Rock. I hope that proposals for such changes can be brought before Parliament, if not in the form of primary legislation, then in the form of an indication that the next Queen’s Speech will provide for legislation that will change the regulation of banking in the UK to make it even tighter and even more stable, and to prevent another Northern Rock.
On a point of order, Mr. Deputy Speaker. It is clear from the debate that has taken place over the past 10 or 15 minutes that there are some important questions outstanding that have been put to the Chief Secretary. Can you confirm that it would be possible, with the leave of the House, for the Chief Secretary to speak again in the debate in order to clarify those points? If you so rule, I hope that those on the Treasury Bench will make that known to the Chief Secretary so that she can return to the Chamber.
I have no power to compel the appearance of a Minister at the Dispatch Box, but it is always possible in the course of debate for a Front Bencher or a Back Bencher to seek to intervene in the proceedings. That opportunity is available and it may or may not arise, but I cannot predict whether it will.
I am grateful for the opportunity to contribute to the Third Reading debate. I had hoped to say something on Second Reading, but Pensions Bill Standing Committee duties took precedence.
It is clear from much of the debate that I have heard that the Government’s case for the nationalisation of Northern Rock and for the Bill lies in tatters. It has been cruelly exposed, not least by the exchange about the assets in Granite. We can win debates and arguments in the House and lose votes. I shall concentrate on the prospect that despite the shortcomings of the Government’s position, by Friday Northern Rock will be in public ownership. What does that mean?
There are differences of principle across the Chamber among the region’s MPs, who include some of my best friends in this place. We have a difference of principle, but an agreement that Northern Rock is an extremely important financial institution in our region. We are all concerned about the jobs of the people who work for Northern Rock, particularly in the north-east. The fact that the Government have been unable to produce any kind of business plan at this point in the proceedings, after all this time, suggests that there may be some false hope about how many jobs may in the end be protected.
In her Second Reading speech, the Chief Secretary said that Northern Rock would grant mortgages in future under public ownership with less virility than it did under the previous board. One hopes that that is true, but it suggests that Northern Rock will be open for business for mortgages. The majority of jobs in Newcastle and Sunderland are in the processing of mortgage applications, so unless Northern Rock is open for business for new mortgages, there will be massive redundancies. That is a fact of life.
In addition, we are not clear where the money will come from to lend to new borrowers. Will it come from new deposits? If it does, what impact will that have on the deposit-taking market which, as I pointed out to the Chancellor in an intervention earlier, includes the sale of Government gilts? If that went on for any length of time, it could undermine the deposit-taking market as we know it in this country. I do not know whether that will be the case or not.
Without a business plan or any strategic idea about the direction in which Ron Sandler will take a publicly owned Northern Rock, we can have no view on the prospects for jobs of Northern Rock employees or the likely impact of the new publicly owned bank on competition in the banking sector, both in deposit-taking and in lending. The House ought to have been given a much clearer indication about those matters before we were asked to give the Bill a Third Reading tonight. It is disgraceful that that was not done. The lack of preparation has become clear even in the exchanges across the Chamber in this Third Reading debate. One suspects that in the two days during which the Bill will be debated in the other place, those positions will become even more cruelly exposed.
The one ray of hope concerns the people whom the Government have appointed to run the business. I know Mr. Ron Sandler very well; he headed up the Lloyd’s reconstruction and renewal project, which was supported by the all-party group on insurance and financial services. I chair that group, and the hon. Member for Newcastle upon Tyne, Central (Jim Cousins) is one of my officers. We supported the project in the teeth of opposition from some of my hon. Friends, who had lost money at Lloyd’s. Lloyd’s was a basket case at that time; the proceedings that Mr. Sandler instituted not only saved it, but recreated it as one of the greatest insurance institutions in the world. It remains so today.
I should like to endorse what my hon. Friend has said about Ron Sandler, whom I also know of old. As my hon. Friend has just outlined, Mr. Sandler’s experience is in wholesale money markets—not retail financial markets, which are precisely the business of Northern Rock.
That is true, but one of the reasons why Mr. Sandler was successful in the Lloyd’s reconstruction and renewal project was that he had good people around him; I hope that he will have them in this case, too.
We can have an argument on a difference of principle, but whatever happens at the end of this week has to be a success. If it is not, taxpayers will lose and jobs will be lost. We can have our different views, but in the end we have to come together, in a sense, to ensure that the banking institutions and banking market remain stable, jobs are protected and there is no adverse effect on competition.
I end with one other point. Mrs. Ann Godbehere, the lady whom Mr. Sandler has appointed his chief executive, comes from Swiss Re, another insurance institution. I understand that her name is Dutch and means “God protect you”. I hope that that is true as far as the employees of Northern Rock are concerned, but it is the last thing that the Government and Ministers deserve, given the shambles that they have created and the shambles of the Bill that we are being asked to approve tonight.
My problem with the Bill is simple: it is a disgraceful, shambolic exercise that has been brought through all its stages in one afternoon and runs completely counter to a whole raft of principles by which we normally legislate in the House. I am thinking not only of the truncation of time, but of the principles that underpin any proper legislation.
In the first place, it is perfectly clear that the real reason for this so-called emergency legislation is, in part, to avoid the possibility of the Bill being declared hybrid. We will discover that in due course when the draft orders are examined. If any of them turn out to affect particular private interests in a way that designates classes and treats people within those classes differently, the Bill will be declared a hybrid instrument. We will then know that the Bill is nothing more or less than a con trick pushed through the House at short notice for the purpose of avoiding the difficulty that the Government would have in giving a fair hearing to the shareholders, who, under the hybrid procedure, would have the opportunity to have their case heard before a Committee of the House.
Connected with that first principle is the fact that, as part of the avoidance of the hybrid procedure, the one thing not mentioned in the Bill is Northern Rock, which has been mentioned only in the debates. The Bill itself does not mention Northern Rock at all, yet that is what we have spent the entire afternoon discussing. That is part of the con trick that is being perpetrated on the House by this deceitful legislation.
The second question relates to retrospective legislation. We do not legislate retrospectively in this House, but the Bill provides for retrospective legislation by order. In other words, it is another misuse of the conventions of this House to provide for retrospective legislation. If that were to be justified in any circumstances, it should be done only by primary legislation, not by order.
Thirdly, as regards the tax consequences—this will not be debated in the House of Lords, because it is subject to privilege—examination of clause 10 shows that it would be possible, although in fact I believe that it is intended, to rearrange the tax arrangements, some of which may affect Granite, in such a way as to avoid tax altogether. The clause provides that no tax whatsoever should be paid in respect of the matters contained in the Bill. We do not know how far that will go, because the words used in terms of the order-making power are so wide; they appear in phrases such as “in connection with” and “in relation to”. Connected with that is the fact that the tax consequences are specifically stated as including—[Hon. Members: “Ah!”] I am deeply honoured that the Chief Secretary has come back. I dare say that it is possible that she has discovered answers to some of the points that were raised about 15 minutes ago by a series of hon. Members. I hope that she may take this opportunity to try to reply in the terms that were just suggested.
Not only does the Bill contain very serious and dangerous provisions that could exclude the payment of tax in a whole range of permutations—[Hon. Members: “Ah!”] Here is another one—members of the Cabinet are streaming in. The Bill also includes provision for the disapplication of statutory provisions of any kind and of the rule of law. It may seem astonishing to you, Mr. Deputy Speaker, as it does to me, that any statute should specifically provide that, by order—not by primary legislation—any statute or rule of law can be disapplied in order to achieve the scurrilous activities that lie at the heart of these arrangements. That is an astonishing state of affairs. Under the draft order, a copy of which I have, there is provision for directors of Northern Rock to be exempted from all liabilities under company law. It says explicitly that no director of Northern Rock shall be liable for any proceedings that may be taken against them in relation to their conduct of the affairs of Northern Rock. That includes not only the chairman, who is paid £1.2 million, but other directors.
That is about as shocking and extraordinary a situation as one could possibly imagine. If the Government had gone down the route of selling off Northern Rock as a commercial concern to another commercial concern, would the same provisions have applied? Would the directors of Virgin, having acquired it, have been exempted in the conduct of its running from all liability of proceedings under the Companies Acts through a disapplication of law and statute? That is inconceivable, yet it is what is being done under these arrangements.
Furthermore, under clause 2, it appears that there is a severe probability that the courts would be excluded from challenge. In other words, it would not be possible for any challenge to the arrangements to be made by order in the administrative court, enabling a person such as a shareholder to take action in the courts to rectify problems that they face.
The final question is that of the carte blanche provisions in the Bill. In every conceivable respect this Bill, described as the Banking (Special Provisions) Bill, is a carte blanche one. Never, in my 23 years in the House, have I seen a Bill that was so incredibly invasive of the procedures, conventions and principles upon which legislation should be devised. I have given a number of examples that are all in this Bill; the Chief Whip, who is looking over here, knows perfectly well what I mean. The Bill is a total disgrace to the House. It gives by order—not even in primary legislation—a carte blanche to the Government to give indemnities, and to guarantee that those indemnities will be paid for by the Treasury.
This Bill is a total and unutterable disgrace, and the Government stand condemned for the manner in which they have brought it in, in terms of time, content and the total, flagrant breach of the conventions by which legislation in this House is passed.
I shall be very brief; I have only a few points to make.
First, I would like to reinforce what many of my colleagues have been saying about the strategic overview that this new institution should be given. It is absolutely vital, if we as taxpayers are taking on this £110 billion portfolio, that some kind of strategic overview should be given to the business on behalf of the taxpayer. The basic questions of whether the business should expand or be able to contract, whether it should continue to be a mortgage bank or something else, and whether securitisation should continue or not are vital ones that should be debated and decided here tonight. Taxpayers cannot really comfortably say that they know what they are getting into. We know virtually nothing about the assets of this bank that we are taking on. We know virtually nothing about its personnel or its procedures, especially those relating to risk management, which is a vital part of any financial institution these days.
The Chief Secretary mentioned the importance of protecting taxpayers’ interests, and we are talking about an enormous amount of money. The amount of money we are talking about is 12 times the Olympic budget, and three or four times the budget for the Ministry of Defence. The Chief Secretary said something extraordinary when she said that it would be a mistake to have a fire sale. I happen to agree with her about that, but she said that it would be a mistake because we are currently at the bottom of the market. That could be a huge gamble to take on the position of the housing market in this country. Effectively, we are going to take on a huge mortgage bank, and pretend that it is the bottom of the market and that things can only improve. I am not an expert on the housing market, but I very much doubt if we are at the bottom of the market, and she may well come to regret having made that call on the market’s direction, especially given the amount of risk to the taxpayer she is willing to take on board.
I mentioned risk management, which is absolutely vital. In the 10 years since I left the banking industry, risk management has become enormous. It has become the largest part of most banks’ activities. We know virtually nothing about the risk management of Northern Rock, the current procedures or the procedures that will be in place following nationalisation.
The Chief Secretary talked about a flawed business model in relation to Northern Rock. There is nothing terribly unusual about the Northern Rock business model. The problem has been its operation and the huge amount of risk and leverage that was taken on. However, the basic concept of borrowing money at indexed or variable rates and lending it in the form of a mortgage at a variable or fixed rate, possibly with securitisation, which has been with us for around 25 or 30 years, is a tried and tested business model.
Two things went wrong at Northern Rock. The first is known nowadays as event risk—that is how risk managers perceive it. There was no assessment of the likely event risk of the market simply seizing up for a time. The second was the mismanagement of the interest rate risk and the credit spreads involved. The Bill gives no idea of the way in which the risk management of the current institution is carried out and how it could change under new management—public sector management in the case that we are considering.
In my time in banking, I have witnessed some major financial scandals, including those concerning the bankruptcy of Orange county in California; the Ministry of Finance of the Kingdom of Belgium; Credit Lyonnais; the London borough of Hammersmith and Fulham with its swaps scandal; and the US army facilities management fund. They all have one thing in common: they are in the public sector. It is not only the private sector that has rogue traders, unauthorised transactions and breaking of credit limits and so on. Oversight and financial management of the new institution are therefore crucial.
The Bill has been drafted far too widely. Although it is not the stated intention, the measure allows almost the arbitrary nationalisation of banks or building societies. [Interruption.] I hear cheers from the Labour Back Benches at the prospect. That gives the game away. We must fundamentally oppose arbitrary nationalisation, and I hope that the Bill does not get a Third Reading.
I am pleased that the Chief Secretary is back in her place to hear the final observations. I should like to repeat the point about the impact on Granite that she missed when she stepped out of the Chamber. Earlier, she said that Granite would be excluded from the Bill and thereby from the nationalisation. As the hon. Member for Twickenham (Dr. Cable) and other hon. Members remarked, that leaves a gaping hole in the nationalisation programme.
The Chief Secretary shakes her head, so I hope that she will take the opportunity to clarify the matter.
Northern Rock owns a seller’s share of the mortgages that are supplied to Granite to underlie the securitisation package to provide funding back to Northern Rock. If the security package is not continually replenished with fresh mortgages for Granite, Granite’s structure will implode. That is the contractual basis of the securitisation documentation. If default occurs, the seller’s share in Northern Rock will also have to be sold at a fire sale price to fulfil obligations. If there is insufficient confidence that new mortgages will be put into Granite through the mechanism under national ownership, which requires continuing business flows, the Government and the taxpayer are at significant risk of sustaining a much larger loss than the Government have let the House believe. It is important that the Chief Secretary tackles that point.
We have made the position on Granite clear. We said throughout Second Reading that it is a separate legal entity, which will not be covered by the order, and was equally not covered by Government guarantees. We made that clear from the beginning. The assessment of what was in the interests of the public sector and the taxpayer took all that into account. The private sector proposals and temporary public sector ownership were fully assessed. On that basis, we are clear that it is right to take Northern Rock into temporary public sector ownership to protect the financial stability of the system and the taxpayer’s interests.
Indeed. The quality of the assets in Granite is higher than the quality of the assets remaining in Northern Rock, and it will have the ability to take what other good assets remain in Northern Rock.
As the Chief Secretary is here, I would like to ask her another question—again, she may not be prepared to answer it: why is there such urgency over the suspension of shares? One of the main planks in her argument for the haste with which we are having to consider this nationalisation Bill—we are doing so in one day: today—is that it is vital for shareholders to have some clarity about their future. The shareholders know that Northern Rock is going to be nationalised; the shares are suspended. It is perfectly normal corporate practice when shares are suspended these days for resumption to take weeks, and in some cases months. It is not a legitimate argument to pin the speed of nationalisation on the issue of suspension.
Finally, I would like to point out another commercial practice, in relation to administration. This point was missed by the hon. Member for Wolverhampton, South-West (Rob Marris), which is surprising given his legal background and his understanding of corporate law. The administration arrangements were set up to mirror in the UK legal context what happens in the US under chapter 11, under which businesses can be taken into administration to protect them from their creditors, not to wind them up or declare them insolvent. The purpose of an administration is to provide a protective umbrella, under which the administrator takes steps to restore the company to health. That is precisely what my hon. Friends on the Front Bench have proposed, but Government Members have consistently obfuscated the issue or misunderstood it.
Time will not permit me to repeat the points that I made earlier, but they remain valid.
The more this debate has gone on, the more it has seemed extraordinary that this legislation has been passed so quickly—at least in this stage, through the House of Commons—only two days after the Prime Minister finally made his mind up on Sunday that, after all, he could be persuaded to nationalise the business. I strongly believe that for most of the past six months he has been the person resisting nationalisation in any circumstances, for a variety of political motives. We shall never know which Treasury Ministers were allowed even to be involved in the tortuous process of decision making, but at last common sense has prevailed and the Government have taken control of events in that way.
We have discussed the best use that the Government could make of taking the bank into public ownership. I repeat, briefly, what I said before. The financial stability of the banking system was the main objective of intervention from the word go. The financial stability of the banking system now depends in part on having some understanding of what the Government’s strategic policy is and what strategic direction they have given the bank’s new management. The question throughout this debate has been: do they intend the bank to be grown, in order to maximise the proceeds when it is sold, or do they intend to wind it down and have an orderly sale of the assets?
The frank truth is that we have had no answer. Depending on whether north-east Labour MPs or people looking at the issue from the point of the view of the City are being addressed, slightly different answers come forward, but the matter will apparently be determined by the Commissioner for Competition in Brussels. I assume that that means that the negotiations will be conducted on the basis that the bank will be expanded as rapidly as possible, up to the limits that Miss Kroes will permit and which are still compatible with state aid rules.
The most extraordinary thing that has emerged—it did so clearly only really on Third Reading, although it was referred to yesterday—is that the Prime Minister is perhaps now as bemused as we all are about precisely what assets we are nationalising. It has become clear that we are not acquiring the assets in Granite. I think that my hon. Friend the Member for Ludlow (Mr. Dunne) is the only Member in the Chamber with a comprehensive knowledge of the arrangements, but the Minister could neither add nor subtract anything from what he said.
The best assets are in Granite—it looks as though there is a contract enabling more assets to be drawn in—and it is the rubbish in the assets that we are now nationalising. Where is all the constant assurance that we have had on the authority of the Financial Services Authority that this is a quality loan book? We have been reassured that it is an asset that is to be taken into public ownership and well managed, under the Government’s wise direction, by the new managers that they have put in place. I would advise the Minister—
It being Midnight, Mr. Deputy Speaker put forthwith the Question already proposed from the Chair, pursuant to order [this day].