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Northern Rock

Volume 699: debated on Monday 18 February 2008

My Lords, with the leave of the House, I shall repeat a Statement made in the other place by my right honourable friend the Chancellor of the Exchequer on Northern Rock. The Statement is as follows:

“I hope the House will understand that it was necessary for me to issue a statement yesterday ahead of the markets opening so that trading in Northern Rock shares could be suspended this morning. It was also essential to allow the management of Northern Rock time to tell its employees what was happening so that the bank could open as normal this morning.

“As I said yesterday, the Government have decided to introduce legislation to take Northern Rock into a period of temporary public ownership. I took this decision after full consultation with the Bank of England and the Financial Services Authority.

“I made the draft Bill available in the Vote Office and in the House of Lords since this morning. I did so to provide as much time as possible for right honourable and honourable Members, as well as the other place, to examine the provisions of the Bill. If the House agrees, the Bill will begin its parliamentary passage tomorrow. I have also arranged for the principal opposition spokesmen to be briefed by Treasury officials today.

“It is important for savers and depositors to be reassured that their money remains safe and secure. Northern Rock will continue to operate as a bank on a commercial basis. It has been open for business as usual today. The Government guarantee that arrangements which I announced last year will remain in place and will continue to do so. Borrowers will continue to make their payments in the normal way. I have appointed Ron Sandler as the executive chair. He is in Newcastle today and has had meetings with the company and its employees.

“The new board and the bank will operate at arm’s length from the Government, with commercial autonomy for their decisions. I will publish shortly the framework agreement, which will outline how the relationship between the Government and Northern Rock will work.

“As I said yesterday, the board’s proposals will also cover the Northern Rock Foundation, which is very important to the north-east. The board will commit to guaranteeing a minimum income of £15 million per year in 2008, 2009 and 2010. This will be paid directly by Northern Rock, as now, and would be a condition of any sale if it were sold in this time. The new board will be asked to identify a long-term future for the foundation.

“I shall set out the reasons for the decisions that I made and outline what the new legislation will do. Before that, let me remind the House that last September there was almost universal agreement that the Government were right to intervene to save this bank, to stop its problems spreading into the wider banking system. There was also agreement that ultimately the long-term future of this bank must lie in the private sector. Even those who advocated nationalisation in the autumn did so on the basis that it could only be a temporary step—a stepping stone—to return it to the private sector when market conditions made that possible.

“Throughout last autumn and from the start of this year, the Government wanted to test all the options and to give the shareholders and the management time to find a solution which was acceptable and which met the three principles that I set out last year. These were: to support financial stability; to protect depositors’ money; and to protect the interests of the taxpayer. I have said throughout that all options, including a temporary period of public ownership, remained on the table.

“As the House will know, the Government had two private sector bids to consider. Each of them was tested against the option of a temporary period of public ownership to see which met our objectives and decision principles, including the best value for the taxpayer. Both proposals involved a degree of risk for taxpayers and very significant implicit subsidy from the Treasury, involving a payment below the market rate to the Government for continuation of the guarantee arrangements and for the financing we would be putting in place.

“Each proposal had its pros and cons. The Virgin proposal, for instance, would have brought a new brand and management. However, the taxpayer would only have seen any share of the private sector's return if the value of the business to its investors had reached at least £2.7 billion. The board's proposal would have involved a similar level of subsidy, but it had other disadvantages compared with Virgin—it would bring in less new capital and the business would be dependent for longer on government guarantees for new retail deposits. A subsidy on the scale required would not provide best value for the taxpayer; the private sector rather than the taxpayer would secure the vast majority of the value created over the period ahead. This would be a poor reflection of the balance of risk borne by the two sides.

“By contrast, under public ownership the taxpayer will secure the entire proceeds from the future sale of the business in return for bearing the risks in this period of market uncertainty. That is why we made the decision that we did. Therefore, we have made the decision we have to protect taxpayers, after weighing up all the various competing considerations. In deciding which was the best option for the taxpayer, it was clear that a temporary period of public ownership was the better option.

“I shall go through the contents of the Bill in more detail at Second Reading tomorrow. We have deliberately drafted the Bill to ensure that a bank can be acquired only in certain tightly defined circumstances, and that power will last for only 12 months. I have already announced a consultation which will lead to permanent legislation to deal with situations such as this in future. The Bill potentially applies to a range of financial institutions. I want to make it clear that the Government have no intention at present to use the Bill to bring any institution other than Northern Rock into temporary public ownership. The Bill also provides for appropriate compensation for shareholders. As I explained on 21 January, that is on the basis that all financial assistance provided by the Bank or the Treasury, including the guarantee arrangements for depositors, was withdrawn and that no further public financial assistance, apart from ordinary market assistance from the Bank, would be provided to the deposit-taker. I believe that this is fair to both shareholders and to the taxpayer.

“The Bill also makes provision for transfer of the bank, or parts of it, into the private sector.

“Let me remind the House that, following the problems that started in the United States last summer, Northern Rock was unable to raise the billions of pounds it needed to stay in business. We were right to save the bank. We were right to do everything that we possibly could to find a private- sector buyer on terms that were acceptable to the taxpayer. Because of current market conditions, we are right, now, to take over this bank on a temporary basis because that is what is in the interest of the taxpayer.

“There were choices to be made. We could have let the bank go under. But the risks to the wider financial system, for savers and the general public, were not acceptable. Having made the decision to save the bank and maintain financial stability and protect savers, we are now taking this decision to protect the taxpayer”.

I commend the Statement to the House.

My Lords, I thank the Minister for repeating this Statement on Northern Rock. I wish that I could say that I welcomed it, but I do not. I am sorry for the Minister for having to read it, as, indeed, I am sorry for the Chancellor, who is out of his depth and a puppet for a failed Prime Minister—a Prime Minister who created the conditions for the failure of Northern Rock in the first place.

This Statement is the third that we have had from the Government since the crisis began attempting to justify the Government’s handling of the Northern Rock fiasco and the wider effects that their policy has had on the United Kingdom’s financial services industry. We have gone from bad to worse. This Statement marks the final nail in the coffin for the Government’s reputation for economic competence. Government dithering and delay over the past five months have led to a complete failure of their policy. We now face the first nationalisation of a bank in modern times.

We on these Benches are opposed to the nationalisation of Northern Rock. In particular, we are opposed to the methods by which the Government wish to achieve that. Noble Lords will have seen the 17-clause Bill, published today, to allow the nationalisation of any bank or building society in the United Kingdom. The Government intend to allow just 20 hours of scrutiny on this Bill across both Houses of Parliament. With £100,000 million of taxpayers’ money committed to Northern Rock, that comes out at £83 million a minute.

What possible justification is there for such a flagrant disregard of parliamentary scrutiny? In the past, this House has, with reluctance, agreed to hasten legislation dealing with Northern Ireland or terrorism, but where is the terrorism angle here?

Given that this policy has been five months in the making and that a large Bill is ready, what is the conceivable case for acting in this way? There is no problem about managing Northern Rock; Mr Sandler is already in there. There is no market sensitivity; the facts are out there. Indeed, the only thing that is likely to trouble the markets internationally are the immense bank-grabbing powers in the Bill. What the Government are proposing will double the taxpayers’ liability to Northern Rock from £55 billion to £110 billion, and will place responsibility for the eventual repayment of this liability, as well as the ongoing running of Northern Rock’s mortgage book, in politicians’ hands. How can they possibly justify such an expansion of the taxpayers’ liability and such a blow to the United Kingdom’s reputation abroad?

Can the Minister confirm that the Bill gives the Government power to alter any Act of Parliament applying to banks in the United Kingdom by order? Can he confirm that it gives the power to backdate regulations applying to banks and building societies? Why has the Treasury flung so much money at this company when with, say, Equitable Life, it slunk past on the other side of the road? What is the difference between one financial institution with an over-ambitious business plan and another?

The Government have failed to explain how they intend this nationalisation to proceed. They claim that it will be temporary but give no timeframe for how long they expect the bank to be in public ownership. With such a huge public liability the Government must undertake to publish full accounts to Parliament every quarter. We should see immediately an audit of the assets and liabilities and the advice provided by Goldman Sachs. After all, we taxpayers will own all the assets, we will bear all the liabilities and we are paying for the advice.

There is no credible explanation of how nationalisation will affect the running of Northern Rock. The Chancellor has made great claims of arm’s length government and business as usual but has glossed over the inevitable distortion that a nationalised bank will have in a competitive banking system. It is even unclear whether to continue in this way will be legal under EU law. Indeed, is this proposal compatible with EU rules on state aid? Why do the Government expect the European Commission to allow these proposals without providing for a run-down of Northern Rock’s lending and deposit-taking operations? How will the Prime Minister respond to criticism from the EU of protectionism and state subsidisation—the very crimes he has accused it of? If the Government tell the EU Commission that Northern Rock was fundamentally viable, why should that argument not be used against them in litigation by shareholders?

How can Ron Sandler continue business as usual when the business model has been shown to have failed? Will Northern Rock continue, with government assistance, to offer 125 per cent mortgages, 0.5 per cent bonuses for existing savers and 6.49 per cent savings rates? If so, will it not be arguable that it has an unfair advantage over its competitors, and what will the consequences be? Will the Government really manage to keep at arm’s length if Northern Rock starts to foreclose on mortgages? How will they respond when their direct appointee sends in the bailiffs, forecloses on mortgages and sacks staff?

There is nothing in the Bill to stop the Government from directing every aspect of Northern Rock’s business and they have said nothing in this Statement or elsewhere about the details of how Northern Rock strategy is to be decided. The Government must allow proper parliamentary scrutiny of the running of Northern Rock to ensure that public assets are handled responsibly.

The Minister stated that the framework agreement would be published shortly. Does this mean before the Bill is debated here or will the details of this nationalisation be decided at the Government’s convenience after the Bill has been rammed through? Does anyone believe there will not be a hotline burning between the Prime Minister and Mr Sandler?

There are two other small issues. Northern Rock currently sponsors Newcastle United—hardly a winner either, right now. Will “UK taxpayer” be put on the lads’ shirts next week? Will the Minister assure us that taxpayers will not be sucked into sponsoring football? In view of the public concern over expenses in another place, will the Government now require all Ministers to register any loans or savings accounts they have with Northern Rock?

I again put forward our preferred solution for Northern Rock. As my honourable friends in another place have repeatedly stated, instead of reverting to Labour practices of the 1970s, the Government should set up a Bank of England-led reconstruction. Such an administration would not extend the taxpayer’s liability and certainly would not make the taxpayer responsible for paying back the wholesale depositors who enjoyed a premium to take the risk of investing in Northern Rock. Instead, the Bank of England, as a court-appointed special protective administrator, would be responsible for running down Northern Rock in an orderly way, protecting both depositors and the taxpayer. As under a normal administration, shareholders’ rights would be suspended until these creditors were repaid, and would eventually own whatever value was left if Northern Rock were to exit the administration. Administration would keep politicians away from the management and protect the United Kingdom’s reputation abroad. Indeed, it is mystifying why the Government are not taking this route. The Government intend to implement administrative provisions for future crises. Why are they not pursuing this route for the current one?

Do the Government expect further bank failures to justify the immense powers that they are taking? What is this Bill but Mr Tony Benn’s dream Bill of the nationalisation of banks, which went into old Labour’s infamous programmes of 1976 and 1983? What place does nationalisation have in a modern Britain?

My Lords, smugness is a particularly irritating character trait, and therefore I will avoid the temptation to say too loudly, “We told you so”, about the need to nationalise Northern Rock. It has taken the Government more than three months to get where they ought to have got to in the autumn, but they have now taken the right decision. Public ownership must be preferable to a bad private sale that left the risks and liabilities with the Government and the profits with the private bidder.

I fear that the Conservatives appear to have a very poor grasp of history when it comes to banking sector nationalisation. Can the Minister confirm that the last nationalisation of a privately-owned bank occurred in 1994, when the National Mortgage Bank was nationalised by the then Conservative Government, who paid the private owners the princely sum of £1 in compensation? Does the Minister agree that in reality there is no third way between private and public ownership? Does he agree that the Conservative proposal that the bank be run down by the nationalised Bank of England is simply nationalisation by another name?

If the Tories find themselves fulminating angrily to cover their lack of a realistic policy for Northern Rock, the Government still have plenty of difficult issues to answer themselves. First, what steps are they proposing to take to establish the quality of the underlying assets to be taken over? Will the Government insist on a full independent audit of the Northern Rock loan book? Will they accept that we can have no faith in the FSA to be the sole arbiters of the strength of that loan book? What instructions have the Government given Mr Sandler about the commercial policies that Northern Rock must now adopt? Can we have an assurance that the imprudent lending policies that played such a part in Northern Rock’s demise will stop and that in future the bank will adopt a more prudent lending policy? Will he ensure that such a principle is embodied in either the primary or secondary legislation that will come forward in the next few days?

When, as they must, the Government submit Northern Rock’s business plan to Brussels, can the Minister give an assurance that Parliament will be given sight of it so that we can be reassured that taxpayers’ money is being adequately safeguarded? Have the Government yet made any estimate of the contractions in Northern Rock’s operations that are likely to be required and the number of jobs involved? We recognise that this decision by the Government will bring considerable pain to shareholders. When the Government talk about “appropriate compensation” do not the tests of appropriateness in fact mean that no compensation will be paid at all?

We were pleased to hear that some measures were being taken to safeguard the situation of the Northern Rock Foundation. How have the Government arrived at the figure of £15 million rather than any other figure? How in reality do they intend to safeguard the position of the Northern Rock Foundation when the bank returns to private ownership?

Many Northern Rock stakeholders have been alarmed in recent days by indecision on the one hand and on the other hand being unsure of the consequences of the decision that has been taken. Can the Government give an assurance that adequate effort and energy are being used to ensure that staff, depositors and mortgage holders in Northern Rock are adequately informed about the situation and are reassured that their personal circumstances will not be adversely affected in the very near term?

In our view belatedly, the Government now have the opportunity to repay the taxpayers’ loan, to recoup any costs through a profitable sale in better market conditions in due course and to provide a positive future for the bank. We on these Benches will support the legislation when it comes to your Lordships’ House later this week, but equally we want to ensure that the Government’s stewardship of Northern Rock is more effectively exercised in the future than it has been over the past six months.

My Lords, I am grateful to both noble Lords, although I am slightly more grateful to the noble Lord, Lord Newby, than to the noble Lord, Lord De Mauley, who I understand of course is substituting for the noble Baroness, Lady Noakes, who we all regret cannot be with us today, due to injury.

The noble Lord, Lord De Mauley, substituted for detailed analysis a huge amount of rhetoric, which ill befits the situation. After all, some of the rhetoric could have been devoted to identifying just what the Conservative Party thinks its policy should be on Northern Rock, rather than taking every opportunity to be critical without at any stage advancing a position other than what seems to be the very worst of all—that the Government should allow Northern Rock to go into administration. That result would mean that the shareholders had absolutely nothing in return and, for taxpayers, would mean much less security with regard to the contributions made and undertakings given to Northern Rock that need to be safeguarded. That is the burden of the Government’s position.

Let me be absolutely clear about this legislation. I understand that the noble Lord has had only a limited time to consider the legislation and that this is a problem in terms of analysis. I assure the House that the legislation extends beyond Northern Rock because otherwise it would involve a private Bill procedure; it would be a hybrid Bill and we all know the length of time required in parliamentary procedure to deal with that. It would be totally ill-suited to this situation. So the Government have produced a Bill that covers the whole banking sector, while making absolutely clear in the Bill principles that activate provisions obtaining to Northern Rock and are unlikely to—and will not—apply to any other financial institution during the 12 months of the operation of those provisions. The Government also have a sunset clause in that part of the Bill to close these extensive powers down after 12 months.

We think—and there have been calls from many sides on this—that the Government need to look at the question of the security that they give to banking institutions and the necessity for adequate legislation to safeguard the public interest against the dangers of runs on banks. Within that framework, we intend to produce legislation that will be considered during this coming year and laid before both Houses in due course. However, this legislation is directed towards the particular circumstances of Northern Rock, while necessarily having a more general application than that.

The noble Lord asked whether we have taken into account the European Community’s position. We have taken into account not only the requirements of the European Union, but our own laws on competition that will clearly circumscribe the actions with regard to the Northern Rock bank in the coming months. There will be a guarantee that there will be no unfair advantage for this bank. It will operate under commercial principles at arm’s length from government and under reputable leadership which the House will recognise can give proper securities on those terms. Of course we were working within the framework that by 17 March it would be necessary to submit to the European Community the provisions under which we would continue to support the bank. That is necessary under the state aid rules of the Community. We are meeting those requirements. That has been an enormously significant constraint in considering the bids.

I also emphasise the obvious fact that the delay was because the Government hoped that the bank could remain within the private sector. That is why bids were solicited and hoped for and why work was done to provide the necessary analysis of those bids. The problem is straightforward: neither of the bids that eventually materialised gave the essential security to taxpayers which temporary public ownership guarantees.

The noble Lord, Lord De Mauley, asked about the shareholders. There will be an independent evaluation, which will be carried out against the background of the bank operating without the public guarantees because the true valuation of the bank is the bank operating in the private sector. That is what the shareholders are entitled to.

The noble Lord, Lord Newby, asked about contraction. Both bids looked at a contraction of Northern Rock's business. The executive chairman has gone to Newcastle to discuss the bank's future with the staff and the trade unions. There are problems with regard to the extent of the bank's business which will have to be discussed and there will, no doubt, be an element of limited contraction. Nevertheless, from the bids that came in, it was clear that that contraction could have been very significant indeed.

The noble Lord, Lord Newby, asked about the Northern Rock Foundation. The Government have guaranteed that for the next three years the Northern Rock Foundation—the charity—will receive a significant sum of money. It will be a figure that it received from the bank at times in the past—not in the best years of the bank because it is a percentage of profits, but a figure that the bank was prepared to pay in the past.

My Lords, I repeat the declaration of interest which I made when this issue was considered before. I owe Northern Rock quite a lot of money. If the bank owed me money I would not consider it proper to intervene in this debate.

Will the Minister accept that many of us believe that this is not only the right decision for the right reason, but also at the right time? I disagree with the noble Lord, Lord Newby. We had to give the chancers in the City, and the chancers who bought into Northern Rock in the expectation of making a windfall profit at the expense of taxpayers, the chance to expose themselves and they have. Now we need an assurance from the Minister that when Northern Rock goes back into the private sector, there will be no element of compensation, consideration or guarantees from taxpayers, but that it will be purely a private sector business.

My Lords, I am grateful to my noble friend who is well versed in such issues. I can of course give him that assurance that the return of the bank to the private sector will mean that all guarantees will end at that point. Before that occurs, the Government will seek to ensure that the returns to taxpayers are guaranteed so that taxpayers will not make a loss, and that there will be a return on the loan that was made by the Bank of England to Northern Rock.

I would not have put matters in quite the way my noble friend did. He is noted for his challenging approach at times to such issues. It was necessary that the Government explored every possibility of solving this issue within the private sector. It did not prove possible to get the necessary guarantees on the public money that has been underwriting the bank and, therefore, within that framework it is now necessary for us to continue limited public ownership.

My Lords, the Minister is rightly held in high affection by this House. However, even he cannot disguise the fact that this has been the biggest saga of incompetence in any bank failure in our history—there have been a few. Speed is of the essence in this matter. Is the Minister not aware that in 1984, when I was Chancellor and Johnson Matthey Bankers got into serious difficulties, after a few unsuccessful days of talks to try to get a private sector solution I authorised the Bank of England forthwith to acquire the bank, which it did? Is the Minister also not aware that, having taken all this time—at great cost and great cost to the reputation of the City of London—to grasp this nettle, the Chancellor has done the wrong thing? Is he not aware that there is no public interest whatever in perpetuating the life of this failed institution? Indeed, there is a considerable public interest in not doing so.

Is the Minister not aware that the bank should be closed for business forthwith and the loan book—much of which, I fear, is not nearly of such good quality as either the Financial Services Authority or the Government make out—should be sold off in an orderly way to maximise value? Finally, will he give the House an undertaking that there will be no question of any compensation whatever for the shareholders, whoever they may be, until the taxpayer has received back in full the massive loan that has been made to this bank?

My Lords, on the noble Lord’s final point, I certainly assure him that that is to be the case. However, when he says that there ought to be an orderly sell-off, he means a fire sale of the assets at the worst possible time, and therefore very significant losses indeed.

I hear what the noble Lord says about the ease and facility with which Johnson Matthey was tackled some 20 years ago. That was rather a different situation from a bank occupying this position, particularly as the issue confronting the Chancellor and the Government in the middle of last year was the anxiety of depositors about their deposits, to the extent that there was a developing run on the bank with a capacity for the contagion to spread more widely than that. Immediate government action was necessary and taken at that time. If the noble Lord suggests that a fire sale of the assets at that time, the sacking of 6,500 workers and the destruction of a great deal of the economy of the north-east of England would have had no consequences in the difficult times of last year, he is living in a different economic circumstance from the rest of us.

The simple fact of the matter is that what was happening in the United States at that time was subsequently to affect France, Germany and elsewhere. There were real threats to the banking system, in which there were major catastrophes and casualties. The Government had a bounden duty to limit that contagion to one institution. That is what we set out to do, and we are setting out to guarantee that the sums which the Government have put into the bank are returned to the taxpayer in due course.

My Lords, I am sure that when he reads Hansard, the Minister will want to revisit the answer he has just given to the noble Lord, Lord Lawson, on the question of compensation. It appeared to be at odds with the Statement. I am happy to give the Minister a chance to think about that now, if he wants.

I was much taken with the suggestion of the noble Lord, Lord McIntosh, that the chancers should have had a chance to expose themselves in the City. In that context, I ask the Minister what fee the taxpayer is paying to Sir Richard Branson for his efforts.

The most important issue now is clearly that the nationalised bank should be run on proper prudent and commercial lines. I ask the Minister to accept that we on these Benches will not support wrecking amendments from the Conservatives. It is clearly important that the Bill goes through as soon as possible, but we need proper assurances about how the bank will be run, preferably in the Bill or in the order that will immediately follow it. Only today, my noble friends and I met the Chancellor and challenged him about why pernicious 125 per cent together mortgages are still being offered by the bank. We have raised the issue in this House and in the other place. Now that it is taxpayers’ money, can that nonsense stop?

My Lords, I am grateful to the noble Lord for offering to let me reconsider what I said to the noble Lord, Lord Lawson. As I indicated in the Statement, there will be an independent evaluation of the bank’s value and, therefore, of what is owed to shareholders. As the Statement also makes clear, the valuation will be stripped of the essential public moneys that have gone in to support the bank. It will be a valuation of the bank as it stood as an asset at that time. That money will be paid as and when it falls due. That is a separate issue from the long-running position of the bank.

I heard what the noble Lord has said again about irresponsible lending by Northern Rock, but the bank’s current operation is consistent with that of other banks. He quoted some exceedingly limited figures. As I indicated in a previous answer on this question, some borrowers are inevitably better risks than others, and will therefore get more favourable treatment. However, the bank is currently operating pretty consistently with any other bank in the market and I do not accept his point that the bank is stretching its position beyond that.

I do recognise that the noble Lord and the House have the right to understand fully how the bank will be managed in future, and we will have time to extensively discuss those issues during the Bill’s passage. If the Bill is cleared by the Commons tomorrow, we hope to introduce it in this House on Wednesday. We will have time to go through these issues in more detail then.

My Lords, does the noble Lord not understand that he has just heard the first but not the last request for political interference by the Government in the management of this soon-to-be-nationalised business? Does he not understand—all of us who have experience in these matters do understand—that whatever the legislation states, Ministers can interfere with the running of a nationalised industry? The lunchtime directive is about to be reinvented, it seems to me. Does he not agree that the £15 million a year that is to be paid by the Northern Rock nationalised bank will be paid not out of the bank’s profits but out of taxpayers’ money, predominantly taxpayers in the south of the country who pay most taxes, to special interests in the north of the country where the Government have a political interest in maintaining them? Can he say why the Government need powers to amend all banking legislation without primary legislation? What is the reason for that, which I understand is in the Bill?

My Lords, I had hoped, on the latter point, that I had assured the House that the legislation extends beyond Northern Rock to the whole of the banking sector because—

My Lords, the Government’s clear intent—this is why there is the 12-month clause—is to limit the activity beyond anything other than Northern Rock. The noble Lord said that we have heard from the Liberal Benches the first siren call for intervention in and political direction of the bank. He must recognise that I did my inadequate best to resist that siren call and said that I did not accept the contention from the Liberal Benches. The bank must be managed at arm's length from Ministers to meet the requirements. If the noble Lord is saying, “Yes, but we already have in the proposals an indication of concern about the Northern Rock Foundation”, all I can say is that of course the Government and the public are concerned about the foundation. After all, it is a charity that the bank has supported for many years. It has an important role to play in the north-east. I resist the noble Lord’s contention that no one in the country is prepared to see that foundation supported apart from direct beneficiaries from it who live in the north-east. It ill becomes him to suggest that. In that one area, the Government have been concerned to safeguard what is widely regarded as an asset that the public value.

On the more general issues raised by the noble Lord, we will have the opportunity to discuss the question of how the bank is to be managed. We will therefore be able to demonstrate the extent to which we will keep Ministers at arm's length and ensure that the business is conducted by reputable individuals who know the banking business and would not accept the degree of interference that the noble Lord suggests.

My Lords, did not the former Chancellor, the noble Lord, Lord Lawson, illustrate perfectly well why the previous, Tory Government failed? Would not the Conservatives have been the first to complain if the Government had not explored every possibility before coming down in favour of public ownership? Have not the Conservative Opposition forfeited any constructive ideas about the issue; rather, they have opted to put them on the shelf?

My Lords, how can it possibly be business as usual if the Government are subsidising the marketing and the whole business plan of Northern Rock? As we know that Ron Sandler actually believes in reducing overheads and producing cut-price products, what is to prevent Northern Rock undercutting every other bank and building society in the United Kingdom with taxpayers' money?

Secondly, Ron Sandler is being paid a pretty good wage for what I understand to be 12 months’ work. Will the Minister confirm that there is no bonus, no other perks associated with payment to Ron Sandler over and above his monthly salary?

My Lords, I have not gone into the detail of Ron Sandler's travelling expenses or anything such as that, but I can assure noble Lords that the remuneration that has been cited is intended to be the remuneration for the job that he is being asked to do. On the noble Lord’s more general question, we have to present a position to the European Community; we have also to follow and work within the framework of the competition laws of this country. Both put very effective constraints on what the noble Lord is suggesting: that a bank in temporary public ownership will be able to take advantage of that to have preferred business over its competitors.

My Lords, the noble Lord, Lord De Mauley, condemns public ownership in all its forms and in all its works. Given that, and particularly given the references made to the practices of Labour Governments in the 1970s, will the Minister confirm that the development of industries Act of 1971 gave the Government sweeping powers to take over any industrial or commercial concern? This happened during a sudden downturn in the economy. Nevertheless, the Government put those powers into legislation. Whether they did so as an act of premeditated apostasy or indeed out of panic matters not—they were the most sweeping general powers over public ownership that have ever appeared on the statute books of this country. In the circumstances, does it not ill behove the noble Lord to dress himself in the white sheet of purity in these matters?

My Lords, the noble Lord has cited the Industry Act 1971. He may also recall that Rolls-Royce was nationalised in a day and at a time when the then Conservative Government had a totally unquestioning and compliant upper House to ensure that there was no problem for the lower House in that respect.

My Lords, is the Minister aware that he is embarking on a tortuous and difficult road as he seeks to steer this legislation between the rules affecting hybridity in this noble House and the rules affecting state aid in the European Union? After all these months of dithering and delay, do he and his colleagues have any plan at all for the future of Northern Rock beyond the immediate rescue announcement? The Government have told the European Union that a detailed business plan will be in the hands of the European Union in a few weeks. Has it even been drafted? If it has, when will we see it?

My Lords, I thought that Ministers were paid to deal with difficult legislation. The noble Lord had enough experience of that, and I have no doubt that I will enjoy it as much as he did.

On the more obvious point about the European Commission, the chairman and chief executive are now charged with developing the business plan. The European Commission will want to be reassured about the nature of this plan to ensure that it meets all necessary competitive requirements and does not infringe the limitations on state aid. No one is pretending that this is easy, but it might help if for a moment the other side indicated that the difficulties with Northern Rock did not occur because the Government acted. It was not particular legislation that produced problems for Northern Rock but an aggressive banking system. I am talking not only about Northern Rock but about a number of other banks that lent unwisely and not well. The consequences, as ever, are borne by the wider society.