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Northern Rock

Volume 474: debated on Thursday 24 April 2008

During the period of temporary public ownership, Northern Rock will be managed on an arm’s length commercial basis. On 31 March, its board published a detailed business plan that meets the Government’s objectives.

In his recent ministerial statement the Chancellor said that the Government would hold the board accountable for performance against the business plan, but one of the commitments in the plan is that the bank will treat all customers fairly. In the light of today’s expected test-case judgment, can the Chancellor explain how the Government intend to hold the board to account over the bank’s fair treatment of its customers in respect of its charges?

As the hon. Gentleman says, we are expecting the result of that case today, and until we see the findings it would be premature to comment on how we will respond to them.

If the Chancellor cannot make his own bank cut its mortgage rate, what hope is there of anyone else doing so?

As I told the House on Monday, the measures announced by the Bank of England will take a great deal of pressure off banks. As I said then, they are a further step towards stabilising the financial markets. The benefits of the reductions in the Bank of England’s rate, and the other support that it has introduced, can be passed on.

As for mortgage rates, it is important for two things to happen. It is important for institutions to rebuild their capital position, and we want banks and building societies to be robust enough to be able to continue to do that. As I said, I should like the benefits to be passed on, but as the hon. Gentleman will realise when he has had an opportunity to sit down and think about it, it is important for institutions to examine their own capital positions so that they can strengthen them, especially at a time when we are undergoing so much turbulence and uncertainty. The measures that we announced on Monday, together with the other steps taken by the Bank of England, will help to reduce the pressure that we face, and help those benefits to be passed on to consumers.

During the recess, the Chief Secretary wrote to me admitting that the independent valuer should treat Northern Rock as though it were in administration. Has the Chancellor appointed a valuer? Does he expect ordinary shareholders to receive any value, given that they rank below £400 million-worth of preference shareholders? And does he now recognise that Northern Rock is effectively in administration?

It is not, and—as the hon. Gentleman knows, because he follows these matters—the compensation regime was set down in the Banking (Special Provisions) Act 2008, which Parliament passed in February. However, it is right for the valuation of the bank to be based on the fact that it owes rather a lot of money to the Bank of England. That was the reason for our proposals, which were accepted by the House. I believe that Members in all parts of the House accept that this is a bank that got into huge difficulties, and that if the Bank of England had not intervened it would have gone under. We must be fair not just to people who are involved with the bank, but to taxpayers as a whole.

May I take the Chancellor back to his answer to my hon. Friend the Member for Hammersmith and Fulham (Mr. Hands)? Why has a bank that he nationalised refused to heed his calls to reduce its mortgage rate and pass on the reductions in the Bank of England base rate? Why has a bank that the Government put into public ownership not listened to his advice?

At our last Question Time, the Conservatives complained that Northern Rock was offering rates that were more competitive than those in the rest of the banking sector. Today they are complaining that it is not. Right from the start, the Conservatives’ position on Northern Rock has been all over the place. They have had different positions for every week of the year, most of them contradictory.

As I told the House earlier this week, I believe that the Government have put in place, through the Bank of England, measures that will help to stabilise the financial markets. We are already seeing some evidence of that, but the financial markets are going through a period of unprecedented uncertainty and turbulence, and it is important that the banks—Northern Rock or any other—make sure that they have a secure base on which to proceed. As I have said, I hope that the benefits of both the reduction in interest rates and the additional money and support that the Bank of England has been able to give will be passed on, particularly to mortgage payers.