My Lords, I beg to move that the House do now resolve itself into Committee on this Bill.
Moved accordingly, and, on Question, Motion agreed to.
House in Committee accordingly.
[The LORD SPEAKER in the Chair.]
Clause 1 agreed to.
Clause 2 [Cases where Treasury's powers are exercisable]:
moved Amendment No. 1:
1: Clause 2, page 2, line 40, leave out “year” and insert “month”
The noble Lord said: This amendment sums up many of my concerns with this Bill and at the approach that the Government have taken to the nationalisation of Northern Rock. The Government have indicated that it is their intention to nationalise Northern Rock as soon as may be possible. To that end, they have limited debate on this Bill to three days across both Houses of Parliament and have already drafted the order under Clause 3 that will kick-start the proceedings. It is, therefore, inconceivable that anything the expiry of the sunset clause would prevent occurring could not be completed in a matter of days after this Bill receives Royal Assent.
I have tabled this amendment to reduce the limit of the sunset clause from one year to one month. With the best will in the world, I can imagine no possible scenario where the order to nationalise Northern Rock, made under Clause 3 would take more than a month to be made. There is also no possibility that my amendment would make it possible for the Bill to trigger hybrid procedures, and so slow the proceedings down unacceptably. My amendment would prevent the future nationalisation of any other bank or building society under this legislation. This should not be a difficult limitation for the Government to accept, as they have repeatedly stated that they have no intention of nationalising any other financial institution, and have deliberately drafted the requirements in Clause 2(2) to be so high that it is apparently inconceivable that another financial institution will trigger them.
If that is the case, there is no benefit to be gained by keeping these extra 11 months. There are, however, clear costs. As your Lordships made it so clear yesterday, this Bill does great harm to the reputation abroad of the United Kingdom’s financial systems. For the Government to maintain a long-standing power to step in and nationalise any financial institution is an enormously destabilising situation. What sort of confidence does it show in the robustness of our financial systems if the Government cannot restrain themselves from holding these enormous powers over the heads of banks and building societies for a whole year? Added to that, we have identified a very real threat from hedge funds and large global speculative investors who will be able to sell a bank or building society short, deliberately take action to destabilise it sufficiently to worry the Treasury and then sit back and watch their profits come rolling in as the Government move in to nationalise.
The Bill would cause exactly the sort of instability that the Government seek to avoid. I urge the Minister to resist the temptation to keep these powers for such a dangerously long time, as the Government propose. Even in the worst possible scenario imaginable—that of another financial institution needing to be nationalised—the proceedings for this Bill have shown just how necessary the role of Parliament is and how speedily such a role can be played. It is not only possible, it is desirable, that Parliament be given its chance to assess the need for every single nationalisation that the Government might wish to carry out.
I am following the noble Lord with interest. Could he explain why the nationalisation of Johnson Matthey bank in 1984 by his noble friend Lord Lawson did not lead to the calamitous circumstances subsequently that he is describing in this case?
That is a different situation. It was not a nationalisation in the same way that this is.
As with Amendment No. 1, Amendment No. 2 seeks better answers than we have had so far on why the Government have drawn this Bill so widely. I understand that this Bill cannot be targeted solely at Northern Rock in order to avoid a hybrid procedure but surely the scope does not need to be extended this widely.
In the debates in another place on this amendment, the Liberal Democrats took the view that building societies should be included on the grounds that they should be on an equal footing with banks. I remind them that this Bill is not the banking reform Bill we expect to receive following the conclusion of the Government’s current consultation. This is an emergency Bill to address the crisis surrounding Northern Rock. The merits of putting banks and building societies on an equal footing should be given a proper time for consultation and parliamentary scrutiny, and changes should be made via normal legislation. Proposals such as these should not be rushed through on the back of exceptional circumstances.
The debate in another place was also unusual for the Exchequer Secretary to the Treasury’s response She, unusually among her colleagues—although the Minister made moves to join her in his winding-up speech last night—made it clear that these provisions were a precautionary measure; that they were not included to avoid hybridity; that they were instead powers that she could contemplate using. To that I can respond only with what I said to my previous amendment: I find it deeply disturbing that the Government can conceive of another crisis occurring within the financial system of a sufficient magnitude to trigger the provisions that allow another nationalisation, without considering it desirable for Parliament’s approval to be sought for that step to be taken. I most sincerely hope that the Minister will think again about the wisdom of awarding the Government such extensive powers. I beg to move.
I very much support my noble friend in this amendment. I was extremely disappointed by the Minister’s response at Second Reading yesterday. Before he sat down, I was almost tempted to ask him if he would answer all the questions raised in the debate. Not a single question put in the debate by Members of this House was answered. A key question was asked repeatedly by a number of noble Lords: what was the reason for the urgency for rushing this legislation through the House? We have had no explanation, and it stands in stark contrast: if the powers are needed urgently, and if we can have only three days to debate this very comprehensive and extensive Bill, why do the Government need a year to use the powers being granted in such haste?
We need some clarity. A certain unsettling is occurring because of the lack of clarity on the part of Ministers. Do they expect another crisis somewhere else in the banking system? Do they know something that we do not? Some people might imply that that is behind the answers that we received from the Minister yesterday, when he implied that there might be some requirement to do it for another institution. That is deeply destabilising. I see nothing on the horizon to that effect. If Ministers think that they should come clean with the House and tell us so, or do the Government need 12 months because the Prime Minister cannot make up his mind about anything and it might take him another five months to work out how the provisions should be implemented?
These are extensive powers. They give the Government the ability to set aside the tax law and the rule of law in respect of particular institutions that they may or may not wish to take into public ownership. My noble friend is right: if we are to have such draconian powers whisked through without any proper and detailed scrutiny and without the Executive having the decency to respond to the legitimate questions that are raised in this House, it is essential that they are contained within a short window of time.
I note from the charade that we saw yesterday over the position of Granite and the coverage in the press this morning that both the Minister in this Chamber and the Minister in the other place clearly did not know what were the circumstances surrounding these special-purpose vehicles. I have the gravest concern that we may be embarking on the process and that the Government may want 12 months because, despite having had five months and spending more than £100 million on advice, they have not carried out the necessary due diligence. I find it scandalous. Anyone buying any organisation or company would know the price, would have carried out the due diligence, would have a business plan and a plan for the future. I hope that a year is not required for the Government to do their homework which they should have done before they embarked on the process.
If the Government are organised, if they have done their homework, if they know what they are doing, if they are ready to act and if they require urgent legislation and an immediate response, there is no case whatever—other than believing that some other institution is at risk—for having those powers beyond the month that my noble friend suggested in his excellent amendment.
Among many other things, the Northern Rock debacle has demonstrated that there are gaps in the regulatory framework. That is why we have this Bill, but also why we are expecting a permanent Bill from the Government to amend the way in which the tripartite arrangement works and new powers to deal with situations such as we have seen with Northern Rock. We understand that that Bill will be introduced in May, which means that it will be through Parliament and on the statute book by the middle of the autumn, probably in October.
The noble Lord, Lord Forsyth, asked the Government to say which institutions they feared might require to be brought under public ownership for the same reasons as Northern Rock in the interim period between today and the new Bill being on the statute book. That question does not need a specific answer. However, this is a time of financial instability when some serious commentators have clear worries about stability here and elsewhere. The Government have been forced to bring in a piece of legislation and to say that they did so to deal with Northern Rock alone. The legislation goes off the statute book in a month and if in six months another bank or building society finds itself in difficulties, we will have to start all over again, possibly in the middle of a Recess, trying to deal with the issue in the absence of any legislative cover. That is not a responsible attitude. It is not to say that we think a bank or building society will go bust, but that there is a reserve power if a problem arises.
Noble Lords have talked about destabilising the situation if this amendment is not carried. I would have thought that there was a higher risk of an unstable situation developing if there was no legislative cover against the possibility of a bank or building society getting itself into difficulties six months down the road. In view of that, we do not support this amendment.
I oppose these amendments, particularly Amendment No. 2. I declare my interest as chair of the National Consumer Council. As the noble Lord, Lord Newby, says, we are in a period of uncertainty. None of us wanted to be here and no one on any side of the House welcomes the situation we are in, but in a time of uncertainty, what possible justification is there on the grounds of equity, morality or economic management for depositors with building societies to receive significantly less protection than those with banks?
One great advantage of the amendment—indeed it is more than an advantage, it is a necessity—is that it will give another place the opportunity to see where we are and where we have got to so that it can rethink its approach. That is of crucial consequence because Parliament has not yet had all the relevant information put before it. It is therefore vital that, in the novel situation of Parliament passing a totally unprecedented Bill that takes control of the whole of the financial aspect of a bank for a year without a thought, as I mentioned yesterday, for what the Commission will say about state aid being given to a sector of financial activity and services, which itself has become totally disorientated by the threat of state-aided intervention—and I do not know what the European Court of Justice is going to say about it—we should help the other place to take the opportunity to think again about where it stands.
Anyone who listened to the debate yesterday could not have failed to realise that many noble Lords are concerned about the prospect of nationalising a bank, something that has never been done before. We understand the reasons for it, even if we do not agree with them. But the Minister has brought forward a Bill which he says just provides for Northern Rock to be nationalised. If that is so, the Bill ought to refer to Northern Rock, and had that been the case, it would have been a hybrid Bill. The purpose of such a Bill, as my noble and learned friend Lord Lyell said yesterday, is for people to put their point of view—in this case, not only those being nationalised, but also those not being nationalised—in a committee with legal representation, because one party may be advantaged or disadvantaged in relation to the others. However, to avoid what is of course a lengthy process, the Government have produced this arrangement, which provides that for the next 12 months they can nationalise anything.
This Bill is not for the nationalisation of Northern Rock, it is a Bill for the nationalisation of any bank or building society within the next 12 months, as the Government think fit. I agree with my noble friend Lord De Mauley that if this is just for Northern Rock, there is no reason why it should not be curtailed to a month because as we all know, there is a rush to get this through Parliament. But if it is required for longer than a month, of course my noble friend Lord Forsyth is right to ask why, and to ask what the Government have in mind. I do not believe that the Government have anything else in mind, but if that is the case, then I do not see why they cannot approve of it lasting for a month.
With the greatest respect, I am horrified that the noble Lord, Lord Newby, thinks that it is a very good idea to keep this legislation for 12 months because the Government can nationalise anything that happens to go wrong. I do not think we are in that business.
I want to make a point which has been overlooked time and again: the fact that a Government have injected £25 billion to rescue any organisation is almost unprecedented in the world. The magnitude is staggering. It has never been done for any other bank, let alone for any other industry. Leaving aside the £100 billion for which, theoretically, the Government and the public are at risk, let me start with the £25 billion. This was a unique situation which required action. We realised yesterday that we are in a Hobson’s choice position and are being forced into nationalisation—which people reluctantly have to accept at this stage—but why have an open door to be able to nationalise from now onwards?
If a similar situation were to occur again tomorrow, serious alarm bells should ring that would require far more than the legislation that is being rushed through right now. I said yesterday that what is required—and I believe the Minister and the Government agree—is a complete revamp of banking regulation, supervision and governance. Whether that is to bring back what the noble Lord, Lord Lawson, referred to yesterday—the board of governance, the board of directors of the banks or whatever—we need the best for this country to ensure that we keep our openness and our standing as one of the leading global financial centres in the world. That is the important part. If it is going to take a month for such legislation to go through—I do not think we should rush it—we should not leave the door open for another Northern Rock situation to take place and have this Bill.
I agree that there is no reason to discriminate between building societies and banks, but building societies require matters to be looked at slightly differently and it would be unwise to lump them in with the banks.
When this matter was debated in the other place, the Minister, Yvette Cooper, fell back, rather half-heartedly, on the argument that the 12-month period was required because she was undertaking a consultation exercise on the potential reform of the supervision of the banking system. Why is it that she requires 12 months for consultation? She could undertake one month’s consultation and if, at the end of that consultation process, it was concluded that 12 months was preferable, it could be reinserted.
I will send the noble Earl, Lord Ferrers, a note containing a list of all the banks that have been nationalised in this country, at the top of which will be the Bank of England in 1946.
The amendment is irresponsible for the reasons outlined by the noble Lord, Lord Bilimoria. This is an unprecedented situation because of the growth of the credit markets, their role in banking and the way they have developed over the past 10 years. Because of that, the wholesale financing of banking is today quite different from what it was when, for example, the noble Lord, Lord Lawson, was Chancellor of the Exchequer. The situation has fundamentally changed. That qualitative change has led to a massive quantitative change of the exposure in credit markets which can occur if a financial institution fails. That is why, for example, the Bank of England cannot use its own resources, as it traditionally has in the past, to take institutions into public ownership; the scale is so great. That is why this measure is necessary.
The noble Lord, Lord Forsyth, asked whether there was any other institution the Government expected to be in crisis—a very irresponsible question, I suggest. The main point is that financial crises appear out of clear blue skies; they are always unprecedented and they always have characteristics which have not been anticipated. That is why it is important that, until the legislation anticipated by the noble Lord, Lord Newby—which has been discussed by the Front Bench and is now under consultation—is available, we have these powers on the statute book to ensure that rapid action can be taken should, God forbid, there be a similar circumstance.
I apologise if the noble Lord thought my question irresponsible. I am simply puzzled by the Government’s position. The Minister told us at an earlier stage that the Bill would be wider in order to avoid hybridity—that was the explanation he gave us. The Minister in the other place told us the Bill needed 12 months because they were consulting on wider measures. In the debate in this House last night, the Minister implied that the Bill might be required in order to exercise the power in respect of other institutions. One part of the Government is indicating that there is no requirement to use these powers and that it is not aware of any need to do so. I am simply bewildered as to what the explanation is for the 12 months.
One of the points made by my noble friend Lord Forsyth was that the Minister answered virtually none of the questions that were raised at Second Reading yesterday. It is unsatisfactory in any case to be considering legislation at this pace; it is effectively an abrogation of the entire parliamentary system of legislation. To produce a Bill like this with lots of complicated issues in it and to have points raised that are then not answered is wholly unacceptable. The argument for haste has certainly not been made to overcome that point.
I wish to make a point that I made yesterday. As regards Granite, it was necessary for the Treasury to produce a quite complicated technical note explaining what it was. Granite is an important part of the structure of Northern Rock because it is the vehicle into which the mortgages are passed by the bank. It therefore contains many billions of pounds’ worth of mortgages. The Government have repeatedly made it clear that they are not nationalising Granite and say that it is all quite separate. However, the technical note says that it is a commercial decision for Northern Rock whether to provide new mortgage assets to the Granite financing vehicle or whether to allow the vehicle to run off in an orderly way. That implies to me that the future of Granite is entirely in the hands of Northern Rock, and therefore in the hands of the Government.
I asked the Minister a question during his speech because I understood that there was another special investment vehicle called Dolerite, which holds the mortgage assets for the commercial properties of Northern Rock. When I raised that issue, he said he did not have an answer but he would find out, and he hoped to have an answer by the end of his speech. Not only had he not told me about Dolerite by the end of his speech, but he did not even mention it in his wind-up. These are perfectly legitimate questions to which we are totally entitled to have replies. The idea that the Bill should go back down the Corridor with none of the points that have been raised having even been replied to is unacceptable.
In answer to the noble Lord, Lord Forsyth, it is possible that all three reasons are required to explain why the Bill is the way it is. I do not believe in monocausal explanations for all phenomena. First, the Bill has to be like this to avoid hybridity. We do not want it to apply just to Northern Rock because that would be a time-consuming process and this is a better way to do it. Secondly, as my noble friend Lord Eatwell and I said yesterday and previously, this is an unprecedented financial crisis. Only yesterday, Credit Suisse declared that it had lost more money than anyone had expected—especially the Qatar Sovereign Wealth Fund, which had just bought into it, thinking that the market had bottomed out. The market has not bottomed out. As my noble friend Lord Eatwell also said, the whole essence of a financial crisis is the completely unexpected nature of what will happen next. I think it is prudent to insure yourself against this sort of problem. If you have had one crash, please change your probabilities and think, “Another may happen any time soon, so let me be insured against that”.
Secondly, within the next 12 months we will have the result of the consultation and the new banking reform legislation. One thing we have learnt is that it will be an extremely complex piece of legislation, because we are just learning about all the new problems created by securitisation and so forth. I do not know how long the consultation will take. Even if that takes a short time, I do not know how long the drafting will take. Therefore, it is entirely prudent to have 12 months on the face of this Bill. It is not going to cause a revolution. It is just a precautionary measure.
Secondly, as my noble friend Lord Whitty said, if you are going to give banks this kind of assurance that, in case anything happens, the Government are prepared with sufficient powers to do something about it, why leave the building societies out? The Opposition argue as though the fact that the Bank of England has lender-of-last-resort powers immediately implies that the Bank of England thinks that all the financial markets are going to collapse tomorrow. Of course not. Lender-of-last-resort power is an insurance, and we need that kind of insurance in these very uncertain times.
There may be one, two or three good reasons why there should be the 12-month period, with the power of public acquisition during that period. Fundamentally, what is important is the question of hybridity. I assume in relation to the period of 12 months that the Government have received advice from their legal advisers that it is safe and copper-bottomed. What shorter period would be safe and copper-bottomed? That is where we go into the area of doubt. I do not know whether it is possible to have a definitive decision on this matter. Am I right in thinking that, in fact, the Speaker of the House of Commons certifies hybridity, in the same way as he certifies a money Bill? Has he given any indication of his attitude to a month? If a month is either impossible or dangerous, then most certainly this House should not contemplate any amendment along those lines.
The noble Lord, Lord Desai, frightens me even more than the noble Lord, Lord Newby, because the noble Lord, Lord Desai, said that during the next few months there will be a new banking Bill. He said that we did not know what it would contain, but that it would be very complicated, and so we should keep the provisions of this Bill open for longer than a month because the new Bill might mean that something should be put in its place. I think that is an alarming prospect. I do not see any reason why it should be longer than a month.
One of the pleasures of debate in Committee is that, having looked at an amendment and having thought of a point that you wish to make, you listen to the discussion and further points arise. Listening to the discussion, a further point occurred to me. It is in response to the comments of my noble friend Lord Marlesford who referred to the special investment vehicle, Granite, on which some comments were made yesterday—indeed I made some comments myself—and in respect of which we received no reply. I appreciate the limited time that was available yesterday and the limited time we have to look into these matters. However, will the Minister, in the course of the discussion today, find a way of giving us more precise information about Granite and the other SIV which my noble friend has referred to? If there is another SIV similar to Granite, which has handled the commercial property—we saw from yesterday’s technical note that Granite has half of the notional assets; or at least half of what were Northern Rock’s assets have gone to Granite—and if another portion of those assets have gone off to Dolerite, I think this is a hugely important point with regard to the nature of the business. If he could find a way to say more about the nature of the SIVs—that may not be entirely relevant to the amendment—during the course of the day, we should all appreciate it.
The basic point that I want to make in support of the amendment moved by my noble friend is simple. With regard to it, I invite the Minister—and Members of the Committee—to leave to one side all of the technical matters that we know about and to try to put himself in the mind of the man on the street looking at this. There was a crisis five months ago. The Government stepped in, guaranteed the deposits, made an unprecedented amount of money available and said that they were going to proceed to try to find a private buyer. That would have reassured the public, who will have taken what the Government said at face value: that we now had a plan in position to try to find a private buyer. They would have heard a little about Branson and others, and various bids which the Government were considering. However, the process of considering those bids was suddenly brought to an end. We had been expecting that the consideration of those bids would take a few weeks more, but the process was suddenly brought to an end and legislation was introduced to be handled as if it were emergency legislation. If the Government had been proceeding according to the plan of considering the bids; if they had come to the view that the bids were not terribly good and that the only thing left was to proceed to nationalisation; and if everything was in order—if the deposits had been guaranteed and the money made available—and stable, there would be no need suddenly to abbreviate the bid procedure or to rush in emergency legislation.
The way in which the Government have acted in the past few days is bound to make people who are not fully informed and who do not have the background information that the Minister has concerned about whether there is some other problem. Ministers have also dropped hints that we need this legislation to deal with other problems that might arise. The noble Lord, Lord Desai, said that this is a matter of prudence and the noble Lord, Lord Eatwell, said that the whole structure of the industry has changed with regard to financing—I will not try to repeat the technical terms that he is familiar with and I am not; I quite accept what he said on this matter. All those comments will reinforce the feeling that people outside have—that there is something else involved; that there are other problems that the Government are concerned about.
There are obviously limits on what the Minister can say, but the Government need to address this issue and explain why we needed to proceed by an emergency procedure and why this has to be rushed through the House in a way that does not give Parliament the opportunity to consider it. The Prime Minister has famously said that he wishes to restore trust in politics and the effectiveness of Parliament, yet his actions point completely in the other direction. Something needs to be said. The man on the street may not be considering this in detail, but the way in which it has been handled is bound to increase the sense of unease and the sense that there are other crises waiting to happen and other matters about which the Government are seriously concerned. The Government need to address this.
The amendment gives the Government the opportunity to make it clear whether they are dealing simply with Northern Rock or with Northern Rock plus other matters about which they have concerns. I know that there is a delicacy involved, but the Minister needs to find ways to make clear precisely what this is about. The amendment focuses the legislation on Northern Rock, which the Government say is the objective of the legislation. If that is the objective of the legislation, let us have that made clear.
I support my noble friend Lord Trimble. I say at this early stage in our proceedings that it is important to get the information that is required about Granite. I want to make two points on that. First, we have not yet had a reply from the Minister giving the assurance that I asked him for yesterday that no further assets would be transferred from Northern Rock to Granite. We need that assurance. The second point involves the nature of Granite. It is all very well to say that it is much bigger in relation to Northern Rock as a whole than are the similar vehicles for other lending institutions. However, that is not the only point. The Minister is to be taken to say, and government Ministers generally say, that these offshore structured investment vehicles happen all the time, but the precise contractual relations between the offshore vehicle and the lending institution vary in each case and they have a considerable bearing on the matter. We need to know, before we agree this Bill, precisely what the contractual relationship is in this case between Northern Rock and Granite.
On the question of the month and the year, which ostensibly we are debating now, the noble Lord, Lord Eatwell, is quite right to say that the financial markets have changed both in character and in quantum but he is profoundly in error in saying that the problem now is that the scale is so large that the Bank of England does not have the resources. The Bank of England did not have the resources in my time. When an operation required greater funds than its resources permitted, it asked for a Treasury indemnity. So that argument does not hold water.
As for the question about a year, I say to the noble Lord, Lord Desai, that we certainly want to put better arrangements in place because the present arrangements have failed, but even when better arrangements are in place there will still be the possibility of a bank collapse. You can try to make it less likely to occur by having better banking supervision. You can have a better deposit protection system in place—to some extent that need has been achieved—but there will always be the possibility of a bank collapse. That suggests that this Bill would have to be in perpetuity, not just for a year, so it really has no bearing on the year/month argument at all. I suspect that the real argument is that there is a fear that, if the period of time were too short, it would be so clear that the Bill was dealing only with Northern Rock that it would be hybrid—some people consider that this Bill is hybrid anyway. We need the Minister to give us a precise account of what advice the Government have received on the hybridity question.
I am sorry to come in again, but the noble Lord, Lord Eatwell, mentioned the way in which things have moved so fast and changed. We were brought up with mortgages being for 25 or 30 years; I do not know how many people are aware that the average life of a mortgage today is three years. I see that the noble Lord agrees with me. Things are moving quickly, yet I cannot but reinforce what the noble Lord, Lord Lawson, has said: we do not understand what is going on with Granite. Just today we have read in the press that another major bank is walking away from its SIV and losing several billion pounds. Northern Rock has money invested in Granite; Northern Rock in effect controls Granite, because it consolidates it in its group accounts. How can one say that no money has been transferred to Granite when mortgages have been sold to Granite that have to be serviced? The money has to be passed through; otherwise, Granite collapses. I do not think that we have a full understanding of this at all. Without a full understanding of over £40 billion and something that is consolidated into the accounts of Northern Rock, I seriously do not see how we can proceed with confidence.
Since I was not able to intervene yesterday, I should start by declaring my interest as a director of a UK financial institution.
The argument that has been made for maintaining the openness of the measure, apart from the hybridity point, is that in an uncertain market there may be other occasions where banks fall into difficulties. We need to understand that, even if the Government were aware of such specific possibilities, they obviously would not be able to reveal them to noble Lords today. My concern about the measure is that it may lend credence to the notion that nationalisation is the only or first option. We all ought to take the view that nationalisation should be the last resort and that wherever possible the appropriate response to a failing institution should be for it to be put in the hands of another private institution; alternatively, the option of an ordered rundown ought to be considered. It is possible that, if the situation had been dealt with sooner, it would have been easier to find a private owner for Northern Rock.
Whether the provision applies for a month or a year, I am concerned that we are leaving it open to the Government to use nationalisation as a first resort. Therefore, irrespective of whether the provision applies for a month or a year, will the Minister explain to the Committee what criteria the Government would use, over and beyond the general criteria set out in the Bill, to decide that nationalisation was the appropriate response to a specific situation? If they are to use the provisions in the Bill to do that, how would they ensure that Parliament as a whole had the opportunity to discuss and challenge them on whether nationalisation was the right response in another instance? If we leave this as an open door for the Government, nationalisation too easily becomes the first resort when it should not be.
I am grateful to all noble Lords who have spoken in the debate. I shall seek to answer the questions that were properly directed to me. I begin by apologising to the noble Lord, Lord Forsyth, if he felt that last night’s reply was inadequate. He will recognise that we had a protracted debate. It took me 20 minutes to answer the central points that were raised in a considerable number of speeches. Had I directed myself then to all the detailed questions that were asked, I would have at least doubled that time. Of course, it may be thought that we have plenty of time at our disposal, but I am conscious of the fact that a Minister ought to speak only for a certain time. That is why at the beginning of the debate I dispensed with the usual formula of going through the Bill clause by clause, although my speech was drafted in those terms, and addressed myself to the fundamental issues that had been raised—we had the advantage of the other place having discussed it only the day before—so that I could as far as possible reassure the House on those questions. That was the purpose behind my opening speech. Although I did not at that stage do much in the usual way of going through the Bill clause by clause, I still spoke for 30 minutes. Noble Lords must recognise that I have to balance the proper response to a debate with the time available.
If the noble Lord will forgive me, I should continue. Because the Committee stage was due to follow today, when the details could be considered—as they are being considered at this very moment—and to which I am expected to give answers, and as more than 25 noble Lords contributed to the debate last night, I thought it right to concentrate on the main issues that they raised. The noble Lord will say that I should have addressed the large number of detailed questions as well. I could not offer to write given the time constraint before the Committee stage. However, that constraint is also an advantage in that we are returning fresh from last night’s debate to the detail which we are considering in Committee today. I hope that the noble Lord will recognise that I shall, of course, address myself to the detailed questions that he and others asked, but that was the reason behind the reply yesterday evening.
I shall give way to the noble Lord. I should also say that one reason why I took so long yesterday was that there were repeated interruptions on every point that I made.
I plead guilty to repeatedly intervening; that is what we are here for. I completely understand the Minister’s problem in respect of time, but he has several thousand civil servants and specific questions were asked. I asked a number of specific questions about the proposals put forward by Lloyds TSB. I asked him to confirm whether what I said was the case and to give an explanation. I have had no response. If the Minister is saying that he will write giving answers to these questions, I am satisfied. It would have been quite good if the officials had actually done the work and written to us this morning. It is not our choosing that this Bill is going through at this ridiculous pace, but it is our responsibility as Members of this place to ask the questions and it is the responsibility of the Executive to answer them.
Of course the noble Lord is right that it is the responsibility of the Executive to respond, but we now have the Committee stage in which the Executive will seek to respond in detail to the issues that are raised. I apologise to the noble Lord, Lord De Mauley, because it will be a little time before I get to the main thrust of his amendment, as I have a series of detailed questions to address.
One question was about Dolerite. Dolerite does not exist. It is of no concern to Northern Rock at this stage. It was an SIV that was used, but it is not used now and it is therefore not relevant to this Bill. On Granite, I attempted to express this point yesterday. Granite has no shares in Northern Rock. Granite is an SIV and there has been no transfer from Northern Rock to Granite since September 2007. The relationship is in suspension in those terms. The reason why Granite is not in the Bill is that we do not need to nationalise Granite, as it is not directly relevant to the position of Northern Rock.
I accept what the Minister said about there being no transfer to Granite since September of last year, but there were transfers before September of last year. According to the technical note, Northern Rock received value for those transfers at the time of the transfers so that, at the time of the transfers, it seems to me that the ownership of those assets moved from Northern Rock to Granite. Northern Rock may have been giving management services to Granite with regard to those assets, which it clearly did, but it no longer owned those assets. None the less, we are told that those assets appeared on its balance sheet. That cannot be so. What on earth is going on? No doubt these special investment vehicles are more sophisticated than I appreciate. I wish that the Minister would explain how it is that assets that Northern Rock no longer owns, for which it has received value, appear on its balance sheet.
As I have sought to emphasise, because of the nature of the relationship between Granite and Northern Rock, Granite is not the subject of this measure and is not part of this Bill. As Northern Rock exercises control over Granite, it means that Granite vehicles are consolidated on Northern Rock’s group balance sheet; that is why they are there. This consolidation does not mean that the assets or liabilities of Granite are those of Northern Rock, or that Northern Rock is liable to Granite bondholders for the repayment of the Granite bonds. That is why Granite does not feature as part of the Bill. I sought to express this yesterday. The noble Lord, Lord Marlesford, has emphasised his view that my response at the end of the debate was inadequate. I sought to make the position clear at the beginning of the debate and I am taking the opportunity of Committee stage to do so now. I have also answered his question on Dolerite. I see that he is about to rise again.
Before the noble Lord leaves the subject, he has admitted that Dolerite existed and that it was a SIV for Northern Rock. It would be nice to be told when it ceased to exist, whether it has been totally wound up, or whether it is merely in a slightly analogous situation to Granite, in that it has done no business with Northern Rock for some while. If it still exists, does it have any debts or finances that have been passed to it and which themselves are still linked to Northern Rock?
The noble Lord must accept that my original answer encompassed this concept, but I will spell it out in more detail. Dolerite was a securitisation structure similar to Granite. It was used by Northern Rock to fund its commercial mortgage book. All bonds under that structure have now been redeemed. Therefore, Dolerite is entirely irrelevant to Northern Rock. As I cannot be any more explicit than that, I hope the noble Lord will forgive me.
I am so sorry, but the noble Lord has the charming ability to make everyone appear to be duffers if they do not quite understand what is happening. I happily fall into that category. I wonder whether he can explain one point about Granite. As I understand it, Granite appears on the books of Northern Rock. It is therefore in some ways owned by Northern Rock. But Granite is apparently a legally separate entity, set up for charitable purposes in Jersey. How can Northern Rock own something that is legally independent? And what happens if Granite goes bust? Does Northern Rock have to pay out? If so, Granite is part of Northern Rock.
I emphasise again that there are no obligations on Northern Rock in that respect with regard to Granite. There is therefore no question of Granite, any more than of Dolerite, being brought within this legislation. Forgive me; I am not suggesting for one moment that the questions being addressed to me are anything other than insightful—of course they are. My problem is how often I am being expected to answer them within the constraints of my time at the Dispatch Box.
The noble Lords, Lord Forsyth and Lord Lawson, asked me about a supposed bid last September, a question which was certainly raised yesterday. There was never a bid or a proposal to which the Government should have responded in those terms. Although the Chancellor made it clear, as did the Governor of the Bank of England and the chairman of the Financial Services Authority, that an inquiry by a possible buyer was made, no firm proposal was ever received. There was nothing on which the Government could act. It is therefore not right to give the impression that what was going on last September was similar to the issues relating to Olivant and Virgin over the past few months.
I apologise for interrupting the Minister again, but I asked that question yesterday. I believe that Lloyds TSB said it was prepared to take over Northern Rock on the basis that the Bank of England would provide a £30 billion facility for two years—a draw-down facility which would not necessarily be used, because banks tend to want to match their long and short liabilities—and that although the Government responded at first that they were not prepared to take the loan book as security on the facility, they then changed their mind. The facility would have been at a commercial rate of interest. Secondly, the Government were not prepared to have a commercial rate of interest but wanted a penal rate. When the Government rejected that proposal they committed themselves to a course which has brought us to this sorry state. The Minister owes it to the Committee to tell us whether that is correct. It is playing with words to say that they did not have a firm proposal. Was Lloyds prepared to take over Northern Rock as a private buyer on these terms or was it not?
Before the noble Lord answers, perhaps I may say that I am a bit baffled. Although I came somewhat late to the debate, I see that it has taken 57 minutes so far to decide whether the clause should say “month” or “year”. I also detect that a number of Second Reading speeches are being made. Perhaps the noble Lord could give brief answers—if possible—to the questions, and then we could move on to the actual subject of the amendment. It is an abuse of the procedures of the House.
With respect to the noble Lord, Lord Tordoff, he is what one might call offside. Second Reading speeches are not being made; questions are being asked of the Government at Committee stage, as is quite right, and the Government are expected to answer. A matter of considerable concern is bound to take some time and, on this occasion, the noble Lord ought to have a little bit of patience.
I have limitless patience; the question I have to judge is the patience of the Committee. We are considering specific amendments but a range of other issues have been raised within that framework. Many of them have been raised before, and I have sought to respond to them. Perhaps I may now address myself to the questions. I have no further reply to the noble Lord, Lord Forsyth, on the position last September. As the Chancellor made clear in another place and I have repeated, there was never a significant development regarding a bid for the Government to consider. The issue is therefore extraneous to the Bill, which is about how to deal with the present situation of Northern Rock.
The noble Lord, Lord De Mauley, deserves a reply on his two amendments. There was some concern when the amendment was put forward in the other place that a full year would not be needed for the process we are undertaking. Of course we recognise that concern, so it may be helpful if I set out why a full year is desirable. But first, to avoid any misunderstanding, I must make it clear that the sunset clause applies only to the powers to make transfer orders under Clauses 3 and 6. It does not apply to the powers to make compensation orders in Clauses 5 and 7 or to the other powers of the Bill.
In addition, Clause 2(9) provides that transfer orders will continue in force even when the powers in Clauses 3 and 6 have expired. However, the powers in Clauses 3 and 6 may have to be used more than once in any particular case. So, following the initial order, further orders may be made under these clauses where, for example, provision must be made in connection with or in consequence of the transfer, or to deal with new matters or issues affecting the transfer. It is too soon to say whether further orders may be needed in relation to Northern Rock. We would not wish to take the risk that we will need to make consequential provision after the one-month time limit has expired. That is why we need time in relation to Northern Rock.
As the Committee will recognise, the Bill is drafted in general terms, and I have explained the two reasons for this generality. The first, of course, is to avoid the issue of hybridity—an issue which raises very real difficulties about the timescale in which any measure should be passed, when everyone recognises the urgency of dealing with Northern Rock. The second aspect of the timescale is that, as I sought to make clear yesterday, the Government are seeking to produce a significant Bill that will encompass permanent solutions to the issues of banking reform. We have had extensive consultations on that because it is an issue of the greatest import. The Government published a consultation document on the reforms at the end of last month and we will introduce a Bill in the present Session. That Bill is not likely to achieve Royal Assent for many months. In the mean time, we have to address significant issues about regulation of the banking system.
The other amendment in the group probes why the Government believe that the Bill and Clause 6 in particular should apply to building societies. Clause 6 gives the Treasury the power to transfer the property rights and liabilities of deposit-taking institutions to companies owned by the Treasury or the Bank of England or a private third-sector party where one of the strict conditions in Clause 2 is satisfied. I address that point to the noble Earl, Lord Ferrers. He will appreciate that very strict conditions have to be met under Clause 2 before the provisions are triggered. That is why they relate to Northern Rock and only to Northern Rock. They would only apply to any other financial institution if we faced the direst crisis with it.
I am very grateful to the Minister for saying that this applies to Northern Rock and only to Northern Rock. Why is it not therefore a hybrid Bill?
I have just explained the problems with hybridity in terms of the timescale in which we would have to operate. The Bill is not hybrid because, at present, the conditions under Clause 2 apply only to Northern Rock. They are emergency circumstances; they apply to Northern Rock. The reason why we require the provision for 12 months is that we cannot foresee the future. It is not a question of the Government knowing something that the rest of us do not know, as the noble Lord, Lord Forsyth, suggested—as if the Government would ever be in a position to know more than the noble Lord, Lord Forsyth. It is not a question of us knowing something that he does not; it is the Government being prudent in these difficult times. What could be more absurd—and just think of the criticism that would emerge from various parts of the House—than if an emergency occurred and there were difficulties with another institution, and the Government came trailing back to the House again to say, “We now need specific legislation with regard to this institution and we are asking the House to go through the whole matter”? It is surely better that we are prudent.
The Minister is on shifting sands. I know that a week is a long time in politics, but when the Chancellor of the Exchequer made his announcement on Monday, he made it absolutely clear that:
“The Government have no intention ... to use the Bill to bring any institution other than Northern Rock into temporary public ownership”.—[Official Report, Commons, 18/2/08; col. 22.]
Last night, the Minister started flirting with the need for “necessary defences” in a “rapidly changing environment”. Does he realise that the Bill has cast a shadow on the banking industry? It is about time that he made the position absolutely clear. Is it just for Northern Rock or is it to cover some other circumstance which the Government can or cannot foresee at present?
Circumstances which the Government cannot foresee—that is the whole point and burden of my remarks. I am merely saying that the Government are prudent to have in place legislation which can be activated if a disaster occurs. If it is suggested that the Government are acting imprudently here, the Committee must be aware that every advanced economy is presently looking very closely at its banking system, the threats to it and the problems that institutions have—problems that occurred on a massive scale with a whole range of institutions. That is why the Financial Stability Forum, the international forum looking at international financial stability, is extremely active.
The British Government are playing a very important part in addressing the circumstances in which Northern Rock has proved to be vulnerable. Let me say that institutions in some other countries are even more vulnerable than Northern Rock, if one looks at the scale of the assets which have collapsed in the face of the present financial circumstances. The Government are not about creating law in order to nationalise any other institution. The Government are creating law to make it possible for that to be done if the very strict conditions of Clause 2 are met—that confidence in the financial system is threatened, the issue that Northern Rock raised, which is why we acted as we did with regard to Northern Rock.
Will the noble Lord clear up one point for me? He is very anxious to stress the irrelevance of the subsidiary company, but is it not possible that there could be a repurchase of the mortgages already given to the subsidiary company, the Jersey-based company, in which case that repurchase would have to be done by Northern Rock? Therefore, it would come under the Treasury guarantees.
I have enough problems with this amendment. The noble Lord is effectively anticipating later amendments, where that issue will be addressed, and I will of course respond to the point at that time.
Will the Minister clarify once again that he is no longer pursuing his language of last night, when he kept referring to “other eventualities”, and that we are back with the position as explained so clearly by Mr Darling on Monday?
If the noble Lord is bringing to my attention that the Chancellor of the Exchequer expresses himself more accurately than I am likely to do, of course I subscribe to that. What I sought to do last night was to reiterate exactly the point that the Chancellor of the Exchequer had made in the debate on Monday. I am grateful to noble Lords for giving me the chance to give that assurance.
I emphasise again that the powers that we are taking are triggered only in the most extreme circumstances. They are merely the actions of a prudent Government in difficult times creating legislation that will carry us over a temporary period. That is why the 12-month limit is there, because we intend to have in place the full banking proposals under a banking Bill, which we hope will become an Act, which will render the provisions in this Bill quite otiose. That is why they are limited powers.
I hope that the noble Lord will think that at last I have got round to his two amendments and will feel that he has created a most interesting debate, but can safely withdraw his amendments.
I am grateful to the Minister for battling through with his response, but I know that we are all grateful to my noble friend Lord Forsyth, to my other noble friends and to the noble Lord, Lord Bilimoria, for the points that they made. No one should be under any misunderstanding about the strength of feeling on this whole matter. We are still unsatisfied. Given the contributions from all other noble Lords, further explanation by me is unnecessary. I say to the Liberal Democrats what Vince Cable said in the Commons on Tuesday in response to my honourable friend Philip Hammond on the same point. Vince Cable said:
“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 ... 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”.—[Official Report, Commons,19/2/08; col. 256.]
I beg to test the opinion of the Committee.
Clause 2 agreed to.
Clauses 3 to 5 agreed to.
Clause 6 [Transfer of property, rights and liabilities]:
[Amendment No. 2 not moved.]
moved Amendment No. 3:
3: Clause 6, page 5, line 46, at end insert—
“( ) An order under this section shall also make provision for the Treasury to lay before Parliament a quarterly report setting out progress made in relation to a deposit-taker’s business plan and the amount of loans and guarantees from the taxpayer still outstanding, when such a deposit-taker has transferred its property, rights and liabilities to the Treasury as set out in subsection (1)(a).”
The noble Lord said: I hope that we now move into slightly calmer water than we did in our discussion of the previous amendments. There are three amendments in the group. Two of them are Liberal Democrat amendments, and I shall confine my remarks to those.
All the amendments deal with twin issues. The first is the nature of Northern Rock; what kind of bank are we talking about? The second is the ongoing role of Parliament in scrutinising Northern Rock’s activities. I think all noble Lords accept that in nationalising Northern Rock we are to a certain extent buying a pig in a poke. We are buying it because we want a live pig, whatever its exact state of health, rather than a dead one, but we would like regular reports on how its health is progressing.
Our two amendments are slightly different in substance and deal with slightly different areas. The first is very straightforward, and deals with reports being made regularly to Parliament—we suggest quarterly—on how Northern Rock’s business plans are getting on and on the amount of loans and guarantees that are still outstanding, so that Parliament and the taxpayer know exactly how much they are in for. The Minister will be pleased to know that I do not intend to discuss the affairs of Granite in great detail, but the debate on Northern Rock has been conducted largely on the basis that we are talking about £100 billion of assets, which the Government were guaranteeing, whereas in fact we are not in the slightest talking about £100 billion but about only £60 billion, although that is still a large number. We therefore need to know and have regular reports on exactly how much the taxpayer is still in for. That is the very straightforward substance of Amendment No. 3.
Amendment No. 5 deals with the character of Northern Rock. As we discussed yesterday, there are a number of options. One is the “carry on as you were” option, which would involve Northern Rock offering reckless products. I think there is agreement that this is not the way forward. The second option is the administration, or Lawson, option: to wind down the bank as quickly as possible. The third option—the Sandler option, and presumably the government option—is that the bank should continue to take deposits and issue mortgages and try to trade itself out of the slough in which it finds itself.
Amendment No. 5 seeks to narrow down the options in a way that would, we hope, give maximum assurance to the country by saying that the bank should be managed prudently and in such a way as to minimise the risks to the taxpayer. I should have thought that everyone could agree with that, and I very much hope that the Minister will feel able to do so. I beg to move.
I have listened with interest to the introduction by noble Lord, Lord Newby, of his amendments in the group, and I am pleased to note that we agree on so many of the points that I intended to make. My Amendment No. 6 seeks to ensure that what the Government have indicated is their intention will actually come to pass. We have heard from the Minister and the Chancellor in another place that directions to the management of Northern Rock will be broad brush, high level and strategic, as of course they should be. Unfortunately, good intentions are sometimes not enough to ensure good outcomes. We have already seen indications of the great pressure that will be put on the Government to use their power over Northern Rock for ends that cannot be considered acceptable for a bank that claims to be running “business as usual”.
I am afraid that I am pessimistic about the Government’s ability to resist a demand from, for example, UNITE—the biggest donor to the Labour Party—that there will be no compulsory redundancies among current Northern Rock employees, and about the pressures that will come in future as the Government are held responsible for the foreclosures and repossessions that are an unfortunate but unavoidable consequence of offering mortgages. The last thing any of us wants is redundancies or repossessions, but such are sometimes the inevitable result of decisions of an unfettered management doing its best for the shareholder—in this case, the taxpayer.
My amendment seeks to make more transparent exactly how the relationship between the Treasury and the board will be handled and what business strategy the bank will be expected to pursue. This would give us a clear benchmark against which we could hold the Government to account, should they be tempted to micromanage any of Northern Rock’s day-to-day running in the future.
It is difficult to argue with Amendment No. 5, the second amendment of the noble Lord, Lord Newby, but I have the worry that it would place too great a constraint on the Treasury and its future management of Northern Rock. I note that the noble Lord, Lord Tordoff, is no longer in the Chamber, so I might be straying slightly into Second Reading territory since I could not be here for the first part of yesterday’s debate.
We have talked about the interests of the deposit holders in Northern Rock; indeed, that was the reason for the intervention. We have talked about, and largely dismissed, the interests of the shareholders. The noble Lord, Lord De Mauley, and the unions have referred to the interests of the staff. However, the real people who are likely to miss out in the whole of this catastrophe are those on the edge of being given a mortgage in the normal way. A lot of the broad-sweep condemnation of sub-prime mortgages here and in the United States will, if we are not careful, rule out an awful lot of decent, hardworking people who would be paying back their mortgage but happen to be on relatively low incomes, to be relatively young, or to be in rather different family circumstances. Those are the real losers in all this. Advancing mortgages to them undoubtedly carries risk, but the vast majority of them have actually repaid their mortgage.
We would certainly expect the management of the bank to be prudent and to take all risk into account, which the previous management of Northern Rock clearly did not do, but placing too great a constraint on the bank’s mortgage-giving arrangements has severe social repercussions, particularly in a situation in which owning your house is often the most obvious and desirable option in the housing market. Noble Lords will have heard me talking before about the absence of flexibility and available social housing and private rented housing—housing that in other circumstances would be the option. In a society in which owning your own house is vital and the best option for a lot of low-income families, we do not wish to see Northern Rock, or indeed the whole banking system, acting as an exemplar by excluding significant parts of the population from receiving mortgages. That point was not made strongly enough in yesterday’s Second Reading debate. If the outcome of this crisis is that a significant proportion of the population can no longer get housing credit, then that is a problem. I fear that over-interpreting the words of the noble Lord, Lord Newby, in Amendment No. 5 could lead to that result.
I am not quite sure that I agree with my noble friend Lord Whitty, which distresses me very much. The noble Lord, Lord Newby, has phrased his Amendment No. 5 with sufficient care in terms of risk minimising so as to leave the people in charge of Northern Rock with a broad guide, within which they can then do whatever they like. Yet I do not think that they should be inspired to do something that prudent banks should not do; they should certainly not start giving sub-prime mortgages just because the bank happens to have been nationalised. That would be a really bad thing.
In the debate on the gracious Speech I pointed out that we have created a housing sector that is a monster by giving it tax advantages and treating it unlike any other asset. We are then surprised that there is a housing shortage. We really have to wean ourselves off giving mortgages to people who do not have the capacity to service them. I do not think that it is the responsibility of Northern Rock to reform society or the housing sector. It has got into enough problems, so it has to behave itself. Within that, it can do either of these things: draw itself down, or, perhaps, maintain a constant size—a strategy that would be perfectly possible by granting a new mortgage only if it has retired another, or something like that. I like the amendment tabled by the noble Lord, Lord Newby, because it correctly formulates how the management should behave.
Amendment No. 3 moved by the noble Lord, Lord Newby, makes provision for there to be,
“a quarterly report setting out progress made in relation to a deposit-taker's business plan”.
That is obviously a sensible proposal that I would happily support but I find it slightly difficult to understand why, given the emphasis of his remarks in moving that important amendment, he is happy to support the Bill when we have no business plan at the moment to look at. Therefore, Amendment No. 6 in the names of my noble friends Lord De Mauley and Lord Hunt is the key amendment in this group. It requires the provision of a proper business plan setting out how Northern Rock will be managed and its objectives. That is to be done before any order is made. It would have been courteous to the Committee to have had this business plan today. I understand that it will be made available to the European Union before 17 March. It would then have been much easier to form a view.
On Amendment No. 5, I have my doubts. Those are not about the sentiments, for it is clearly sensible that an,
“order under this section shall … make provision for a deposit-taker to be managed by the Treasury in a prudent manner”.
I would hardly expect it to be managed in an imprudent manner. Presumably, it will now, at least, be well and truly on the radar of the Financial Services Authority. I do not want to stray into Amendment No. 9, which is for a later stage of our consideration of these matters, but I wonder what Amendment No. 6 actually means if, as the management, you are told that you have to manage,
“in a prudent manner so as to minimise the risk to the taxpayer”.
If I were the chief executive, I would take that provision to mean that I should go out and compete vigorously, making as much money as I possibly could, as that would,
“minimise the risk to the taxpayer”.
That would also maximise the uncompetitive behaviour subsidised by the taxpayer from the point of view of Northern Rock’s competitors. With Amendment No. 5, then, we are trying to find a form of words to bridge an impossible gap. If the bank is to be run on a business as usual basis, as has been suggested by the chief executive, it will be impossible to achieve. It will not be business as usual, but a bank that is backed by a government guarantee and which has an advantaged position.
In short, I support Amendment No. 3. I am not sure about Amendment No. 5, which is whistling in the dark. I am sure that Amendment No. 6, setting out the need for a proper business plan, is the most important amendment. I hope that your Lordships will have the opportunity for a proper debate, with proper time made available, when the order is made in your Lordships’ House and when we have that business plan to hand.
Amendment No. 5 covers a very wide range of possibilities in the area of the bank’s enterprise. I suspect, however, that the motivation behind the amendment was probably benign and proper—to try to safeguard the position of mortgagors who find themselves in difficulties with repayments under their mortgages. The amendment is really an appeal for guidance in those narrow and perilous waters that divide Scylla and Charybdis; I cannot now remember which was the rock and which the whirlpool, but there was a rock—albeit a southern rock. Therefore, it is a difficult situation if a mortgagee finds himself or herself having on the one hand to do that which is prudent and, on the other, that which is humane with regard to a debtor.
I would make an obvious point without apology. The ultimate determination does not, of course, lie with the bank or mortgagee itself, but with the courts. The question of whether one triggers the mechanism to commence an action in the courts for sale or for foreclosure is a decision for the mortgagee, but the ultimate decision—under the Administration of Justice Act 1970—lies with the courts. In practice, it lies with a district judge, who would have to decide whether the debtor has a reasonable prospect, within the total term of the mortgage, of making that repayment.
I want to make a couple of comments on this group of amendments. First, Amendment No. 4, with which I have sympathy, is incorrectly drafted in that the Financial Services Authority has responsibility for the supervision and inspection—
Amendment No. 4 is not in this group.
I beg the Committee’s pardon. Anyhow, there is a warning: it should be the Financial Services Authority. However, I see considerable confusion on the Benches of the Official Opposition, as the noble Lord, Lord Forsyth, somehow believes that Amendment No. 6 has something to do with a business plan. It has absolutely nothing to do with that. It is all to do with ensuring what the noble Lord, Lord De Mauley, referred to as the independence of the operations of the management of Northern Rock. The Official Opposition should sort out what they really think the amendment is about.
I am grateful to the noble Lords who have spoken in this debate. I will first address Amendment No. 6. Amendments Nos. 3 and 5, in the name of the Liberal Party, are on issues which I take seriously and want to address in a moment. However, I want to assure the noble Lord and the Committee that we have given the management of Northern Rock a clear sense of what is expected of them. I take the point that my noble friend Lord Eatwell made; namely, it is not about a business plan, but about strategy.
Last autumn, at the outset of this process, the Government set three clear objectives for the successful resolution of the situation: to protect taxpayers; to protect depositors; and to maintain financial stability. Those objectives have guided everything that we have done to date and will continue to guide our relations with Northern Rock as we develop our shareholder and lender relationships during this period of temporary public ownership. I can confirm that the Chief Secretary has said that we will publish a framework document that sets out the formal basis of those relationships, a copy of which will be placed in the Library of the House.
When will the Minister publish that framework document?
The intention is to do that as rapidly as possible. I do not have the hour to hand, but in my commitment to that framework I am indicating that we treat this as a matter of importance.
I apologise to the Committee and to the Minister, but can he confirm that it will not therefore be published before Report stage?
I probably can confirm that but, as the noble Lord has raised this, if the framework document can be delivered by that stage, I will insist that it is. He is probably right that I will be pressed to have it in the House as rapidly as that. I take the noble Lord’s point and I shall endeavour to do that.
Consistent with the Government’s three key objectives for Northern Rock, the clear strategic aim that we have set for the management is to move the bank off all forms of public support, including the guarantee arrangements, as soon as possible, while ensuring that the taxpayer is exposed only to an acceptable level of risk. The bank’s business plan, which will be developed in the coming weeks and must be agreed with the Government, needs to be directed at those aims. Ron Sandler and his team therefore are clear on what they have to do. As he stated, his priority is to develop a sustainable business plan for Northern Rock that enables the company to return to the private sector on a stand-alone basis as soon as possible.
We look forward to discussing and developing that plan with the new board. I can commit to keep the House fully informed as that planning work reaches a conclusion. The Government will also be committed to reporting on the future strategic direction of Northern Rock regularly to both Houses. I hope therefore that the noble Lord will think that this amendment is unnecessary. The board is clear on the strategic objectives. The framework for the relationship between the Government and the company will be made clear and a strategic plan will be communicated to the House in due course—not quite as rapidly as the noble Lord has pressed me to deliver, but there certainly will be no delay.
The noble Lord, Lord Newby, spoke forcefully on Amendment No. 5 and in principle won the support to a large extent of my noble friend Lord Desai. Of course we should set out the principles and objectives that have been laid down for the new board. I hope that that reassures the Committee that we expect the company to be managed in a prudent manner.
I take this opportunity to make some further points and to answer some of the questions that I notably failed to answer last night in my lengthy reply to the debate. I think that the whole Committee is agreed that during this period of temporary public ownership Northern Rock should be run on a commercial basis at arm’s length from the Government. The Government are not best placed to make decisions on the sort of products to offer and how they should be designed for customers. The role of the Government is to set the strategic framework within which the bank can operate by agreeing a business plan. Let me be clear: Northern Rock has been taken into public ownership only on a temporary basis. The Government are not about the business of running banks. It will be for Mr Sandler to develop a sustainable business plan for the company and to decide which financial products to offer.
I want to comment on one financial product, which was referred to several times in yesterday’s debate and in recent weeks has been raised in questions in this House and, I think, in another place. There has been concern about the 125 per cent mortgages. The noble Lord, Lord Newby, asked a specific question on that. I reiterate what I said when I answered that question, which reflects answers given in the other place. It is far from unusual for lenders to offer products of this nature and the lenders understand well the risks that they are taking on. These products are often sold on a commercial basis to individuals with appropriate credit ratings, which is why I indicated to the noble Lord, Lord Newby, that I was not entirely surprised that his personal application might have received a favourable response. That is standard practice across the industry.
It is worth noting that the problems of Northern Rock have not been a result of lending at high multiples; they arose from raising liquidity in difficult international financial circumstances. I make it clear that the Government will approve Northern Rock’s business plan and subsequent major decisions. Ron Sandler’s job will be to act in the best interests of the taxpayer, the consumer and financial stability. However, it would be inappropriate for the Government to interfere with the day-to-day operations of Northern Rock. It should be operated on a commercial basis and returned to the private sector as soon as is feasible.
I assure the Committee that, as Ron Sandler has said, his business plan will need to stabilise the business and establish a solid future in which the business can be returned to the private sector. As a part of this, he will look carefully at the quality of the assets of Northern Rock. He will agree the business plan with the Treasury. The Government will look at the business plan to see that it meets the three tests of protecting the taxpayer, maintaining financial stability and protecting depositors. Operational decisions of course will be a matter for the board of Northern Rock, but I assure the Committee that the Government will consider the plan to ensure that the risk to the taxpayer is appropriate. I hope that the noble Lord will accept—
I am most grateful to the Minister for giving way and I acknowledge the chastisement from the noble Lord, Lord Eatwell, in that I talked about the business plan in respect of the amendment that was about the overall strategic purpose. However, the two are linked, of course. Will this House have an opportunity to debate and discuss the business plan? When does the Minister expect that to happen?
I shall come to openness and the Government with regard to Northern Rock when I address Amendment No. 3 tabled by the noble Lord, Lord Newby. We are committed to openness on this matter, which has been reflected in our approach to date. We promptly notified Parliament of significant developments in relation to Northern Rock as they arose and will continue to do so. The Chancellor of the Exchequer has made Statements to Parliament on Northern Rock no fewer than six times in the past five months. That approach has been in addition to the normal parliamentary procedures of the approval and accountability of government expenditure, particularly the supply process, together with the laying of departmental minutes for any liabilities. Both Houses have—certainly this House has—had Northern Rock raised on numerous occasions through Parliamentary Questions.
I apologise to the Minister for interrupting him again, but I asked him a straightforward, simple question. Will this House or the other place have an opportunity to discuss and debate the Northern Rock business plan and, if so, when?
If the noble Lord will show a little more patience, I shall flesh out the process of parliamentary scrutiny of the work of Northern Rock. We are committed to regular reporting to Parliament and will continue to do that in the next stage of development. We are already discussing with Ron Sandler and the new board the arrangements for this scrutiny. Of course there is a balance to be struck. The noble Lord, Lord Forsyth, with his considerable experience in government, will recognise that. On the one hand, given the large sums of public support for the company, it is obviously right that Parliament should be kept informed of progress, but that needs to be balanced with appropriate limits to the disclosure of commercially sensitive information. We are talking about a business, not any other kind of body.
We must all be agreed that the best way of ensuring that a company repays public support and returns to normal private sector operations at the earliest opportunity is to run the company at arm’s length from the Government in as close as possible to normal commercial conditions. I can confirm that under public ownership Northern Rock will be regulated by the Financial Services Authority. The noble Lord, Lord Forsyth, already indicated that he expected fairly sharp insight into and scrutiny of the work of Northern Rock by the FSA.
How does the noble Lord propose to deal with the point made by my noble friend Lord Naseby yesterday about the fact that Northern Rock currently has the highest ISA rate of interest and the highest deposit banking rate in the market, thereby pinching business away from the open market with taxpayers’ funds? How do the Government propose to deal with that situation?
I had hoped that I had covered that issue to a degree yesterday. We have a later amendment that will address the issue more specifically. I assure the noble Lord that in addition to the fact that there will be scrutiny and regular parliamentary reports on the operation of Northern Rock, we are consulting the Building Societies Association and the British Bankers’ Association on the future operation of Northern Rock. We will be taking the best advice that we can get from all quarters on seeking to meet our broad objectives on the operation of Northern Rock while at the same time seeking that it should operate at arm’s length from government and be in a state to return to the private sector as rapidly as possible.
We are clear on the need to keep the House informed. We will publish shortly the framework document and set out the operating agreement between the bank and the Government. It is our intention to do that at the earliest opportunity. It will include confirmation of the Government’s strategic objectives, which are the protection of the taxpayer and the consumer and the maintenance of financial stability; the board will be expected to operate the company in a manner that is consistent with those objectives. Ron Sandler will publish his strategic business plan in due course. That will outline the strategic objectives of the company and will need to be agreed with the Government and be compliant with EU state aid rules.
Of course the Committee will not expect the company to publish any commercially sensitive information but the document will include the overarching strategic direction of the business. As I emphasised, Ministers will continue to keep Parliament informed on progress through, for example, the regular—at least six-monthly—update reports to be placed in the Libraries of both Houses. We will expect Northern Rock in temporary public ownership to be run in a prudent manner, which is the burden of one of the noble Lord’s amendments. I assure the Committee that the Government will ensure that there is no inappropriate risk for the taxpayer when considering the business plan.
My right honourable friend the Chancellor has already explained that, having assessed all the alternatives for the future of the business against those objectives, he does not consider administration to be in the best interests of the taxpayer. In order to comply with state aid rules, the company will be subject to growth constraints. That will be entirely consistent with the Government’s view of a company that has had to rely on government support to keep it afloat. We do not expect the company to return to the aggressive strategy of recent years that has proved so unsustainable. I hope that noble Lords will recognise the strength of the Government’s response to the amendments and I hope that the noble Lord, Lord Newby, will withdraw his amendment.
I thank all noble Lords who have spoken in the debate. I say to the noble Lord, Lord Whitty, that my concern is not that as a result of the Northern Rock nationalisation young couples or anyone else will find it difficult to obtain mortgages. We are still in a situation where many mortgage lenders are lending imprudently. In any event, the share of the market that Northern Rock had and will have in future means that there is a lot of the market to go to if you are looking to take out a mortgage.
The noble Lord, Lord Forsyth, stressed the desirability of producing a business plan or at least some indication of the basis on which Northern Rock should be managed going forward. It is a major shortcoming of the way in which the Government have dealt with the issue that such a statement has not been produced by now. Noble Lords will recall that Ron Sandler was appointed in a shadow capacity before Christmas to look at Northern Rock. No doubt people in the Treasury have been working night and day since then. The kind of broad statement of principles that we are seeking could have been produced by this point. The fact that we do not have one, even though we are now promised one in the near future, is a great shame.
In Amendment No. 3, we asked for regular reports to the House. The noble Lord has gone a considerable way towards meeting that requirement. On our second amendment, I will read carefully what the noble Lord said, because he said an awful lot. I think that the word “prudent” appeared, but I am not sure how often the word “risk” appeared and what other words appeared around it. It may be that between now and Report we have the chance to look at that in more detail and decide what we want to do at that stage. At this stage, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
moved Amendment No. 4:
4: Clause 6, page 5, line 46, at end insert—
“( ) An order under this section shall also make provision for a deposit-taker to be subject to independent audit to be completed within 3 months of the date of the order and no less frequently than annually thereafter by the Bank of England.”
The noble Lord said: This is a simple and straightforward amendment, which calls for a take-on independent audit, if I may put it that way, as at the date of Royal Assent—which I hope is today but might be tomorrow—of what the taxpayer has bought. When we buy any business, as the Labour Member Mark Todd pointed out—I heard his speech in the Commons the other night—we like to find out what we have bought. There are important reasons why there needs to be an independent audit by a firm of auditors which is not associated with the previous regime.
As I mentioned yesterday, quoting the distinguished banking analyst Sandy Chen at Panmure Gordon, there are serious concerns in the City about the last interim report—the audited report from Northern Rock as at 30 June last year—and whether the auditors had done their job properly. Did the FSA do its job properly when it looked through some of the funny pieces of paper—the CDOs, SIVs and so on that Northern Rock was then holding? Was the bank even solvent at that stage? Those questions will need to be examined seriously. They should not be examined by the auditors who were responsible for those figures. The noble Lord, Lord Eatwell, was kind enough to give me a little preview of what he was going to say, and one cannot rely on the Financial Services Authority in this respect. It has blatantly failed in its regulation of Northern Rock, and we would not be here today if it had done its job properly. The authority itself has some serious questions to answer. There should be an independent audit commissioned by and reporting to the Bank of England—effectively the banker for the taxpayer, which is lending the money—which we can all see.
It would be a gross dereliction of duty if we did not insist on this because there could well be a very substantial claim for negligence against the auditors of Northern Rock, from which the taxpayer could obviously benefit substantially. That is why it is important. Perhaps the Minister could confirm that the year-end audit of Northern Rock as a public company up to 31 December, which would normally have appeared at the end of January, is in train. That is all well and good, but that audit clearly was of the public company as at 31 December and is therefore a quite separate process from a proper, independent audit of the bank on the day we all buy it.
It is also important that this independent audit should look into and explain simply the position of Granite. Frankly, a lot of nonsense was spoken by the Treasury and the Minister to my noble friend Lord Newby and me last night. I want to ask a simple question. Northern Rock has something like £100 billion worth of assets, of which just under half, £45 billion, are in Granite, and we know that the assets in Granite are all high-quality secured mortgages because they have to be under the terms of the trustee. We are then left with £55 billion of which we know £8 billion is in unsecured loans, a lot of them the top slice of those pernicious “together” mortgages. If £8 billion out of the £55 billion left to the taxpayer is in unsecured loans, surely there is no way that the quality of the Granite portfolio can be similar to the quality of the rest of the Northern Rock portfolio. That is so obvious that I am surprised that the Treasury or anyone else tries to pretend otherwise.
Moreover, I remind noble Lords that £8 billion is five times the shareholders’ funds in Northern Rock in the last published accounts. So we will want to see from the independent auditor a full and frank explanation of exactly how Granite works, the economic and commercial reality of the relationship, not these weasel words, this legal fiction. We need a proper setting-out of the contracts between Northern Rock and Granite, realistic scenarios on how fast the mortgage book runs down, as well as, frankly, the prospect of various rates of house prices falling, which is the realistic assessment of the City and is mine too. That should form part of an independent audit.
Those points are pretty clear and I would be amazed and surprised if the Minister could give any reason why we should not protect the taxpayer’s investment in this way. I beg to move.
I share completely the demand of the noble Lord, Lord Oakeshott, for an independent audit. Among many other things, it should unearth the information so many noble Lords have been demanding on Granite. We also need a full review of the loan book. Amendment No. 10, tabled in my name and grouped here, is a simple one and seeks to make good on a government commitment to the recommendations laid out in the 2001 report in the name of the noble Lord, Lord Sharman, entitled Holding to Account. The National Audit Office’s audit of public bodies provides Parliament and the public with impartial, accurate information about how public money is committed and spent, and as the Sharman report pointed out, such information contributes to accountability, transparency and public confidence.
While no one is suggesting that the NAO should audit Northern Rock, there is a clear need for the Comptroller and Auditor-General to have the powers to go into such a company to appropriate evidence for its audit of the Treasury. The C&AG already has the right to investigate and report on the accounts of a large number of non-governmental bodies which receive government funding. This amendment would simply add any nationalised bank and building society to that number. I hope very much that the Minister will continue to support the basic principles of the Sharman report and accept this amendment. In so doing, the Government will provide the public with the much-needed reassurance that their money is being appropriately spent on Northern Rock by the Treasury.
I strongly support the amendment and agree with all the points made by the noble Lord, Lord Oakeshott, and by my noble friend. However, I would like to make one observation in respect of the requirement to audit. The noble Lord said that it is a good idea to find out what you are buying. I would say that it is a good idea to find out what you are buying before you make the purchase. In these circumstances, we will find out what we are buying after we have paid the money—although of course we do not know what the money is going to be. Looking at the test in the Bill, I suspect that it will be a very small sum indeed—almost zero, I should think.
Clearly it is sensible that we should have a proper audit, so I want to ask the Minister one question: was an accountant’s report prepared for each of the bidders at an early stage? We had Mr Branson and various others. I find it difficult to believe that an accountant’s report was not prepared which set out the assets. Was such a report produced, and if so, why can it not be made available to us?
I am grateful to all noble Lords who have addressed the Committee on these amendments, which suggest two alternative institutions to take responsibility for auditing—the Bank of England and the National Audit Office. Of course I agree with the principle behind the amendments. There certainly should be clear, independent auditing arrangements in place for Northern Rock. The Government’s proposal, however, is that the audit should be conducted in the normal fashion for private sector companies. We have already confirmed our intention that Northern Rock should be subject to the requirements of the Companies Acts 1985 and 2006. This will mean that the company’s annual report and accounts must be independently audited by a professional firm and filed with the register of companies for public access.
It may be helpful if I set out how we propose to apply these requirements to Northern Rock’s 2007 accounts. Once the shares have been transferred, I am sure that Ron Sandler and the new board will want to consider and review whether he has an appropriate audit team in place. I can assure the Committee that the company’s accounts will be published at the end of March, and I will ensure that a copy is placed in the Library of the House.
I contend that these are far more appropriate arrangements than the alternatives before us in the two amendments. The Government’s proposal reflects our policy that the company should be run at arm’s length from the Government on a normal, commercial basis to ensure that it is well placed to return to the private sector at the earliest opportunity. Neither the National Audit Office nor the Bank of England are well qualified to take on responsibility for the auditing of large and complex financial institutions. To state the obvious, the Bank of England is a central bank and not an auditing firm; its expertise lies elsewhere. Moreover, the skills and experience of the National Audit Office, and its statutory role, lie in auditing the financial statements of government departments and agencies, not a large mortgage-lending and deposit-taking institution. Independent professional auditing firms with experience of the City are surely far better placed to provide the necessary expertise and scrutiny.
The noble Lord, Lord Forsyth, asked whether accountants’ reports were prepared for the bidders. Some analysis would have been done, but that was undertaken for their own purposes, not for public accountability purposes, which is the concern of these amendments and very much the concern of the Government as regards the auditing of Northern Rock.
The noble Lord, Lord Oakeshott, returned to the issue of Granite—
I am not sure what the Minister is saying. If there was an accountant’s report prepared for the bidders, of course it was done for that purpose. But why should it not be available for sight by the taxpayers who are going to have to stump up the money for this business? We are buying a pig in a poke.
I hear what the noble Lord says. However, these reports were for the purposes of the two organisations concerned with the bids. As I have indicated, they do not meet our auditing requirements. The amendments are concerned with the 2007 accounts and the audit of Northern Rock in the future.
The noble Lord, Lord Oakeshott, raised what promises to be the spectre at our feast today—the issue of Granite. I reiterate that Northern Rock sold some of its assets to Granite and so it no longer belongs to Northern Rock. No new assets have been transferred to Granite since September 2007. The taxpayers’ exposure continues to be secured by high-quality assets that belong to Northern Rock. The whole of our consideration, therefore, has been about Northern Rock and not about Granite because nothing has transferred to Granite—as I have reiterated time and again to the Committee—since September 2007.
As the Minister has not answered my question perhaps I may ask him a simple question: does he regard the £8 billion of unsecured loans in Northern Rock’s balance sheet as high-quality assets? Yes or no?
One of the reasons I stand at the Dispatch Box is that I am not an accountant. I am not going into waters such as these with the noble Lord when I know his expertise. I merely reiterate the obvious fact that the Government have made it clear that Granite and Granite’s assets are not part of this process with regard to law. It is separate from Northern Rock and there has been no transfer of assets since September 2007. The Government are considering Northern Rock and its assets, and they are sound.
We know that Granite appeared in past accounts of Northern Rock and, presumably, the Minister knows how it was dealt with. How is it to be dealt with in future?
If in its future business plan Northern Rock has any transactions with Granite, then of course Granite will appear in its accounts. That is for Mr Sandler to reach decisions on knowing full well the situation and the past history of his company. But if the present situation obtains—and it certainly applied to Dolerite—and there are no transactions between Northern Rock and Granite, then Granite will not get much of a mention in Northern Rock’s accounts in the future. That is the only answer I can give the noble Lord.
In any case, that is not an issue for the Government; it is an issue for the board, which takes responsibility for the presentation of its accounts. Otherwise, the noble Lord would be asking for the Government to interfere in a specific way when the whole point of our operation is that we should be at arm’s length from it.
However, the noble Lord has succeeded in ruining my plea, which I was going to give in full peroration in the hope that the noble Lord would draw the amendment having heard the Government’s case.
I am sorry to persist—I realise this question has, in a way, been asked before—but it is a regulatory requirement that all bona fide bidders should be given equal information. The taxpayer is a bona fide bidder; will it therefore receive equal information with all the other bona fide bidders, the company itself, Olifant and Virgin? Yes or no?
The noble Lord will recognise the intensive interest in Northern Rock that the Treasury has been obliged to take over the many months since the crisis first developed. Of course the Treasury is and has been in a position to know fully the issue with regard to Northern Rock, its asset base and its book value. That is why we have been able to make the assertions that we have made on the security of the loans that have been made and the basis of the taxpayers’ support.
If the noble Lord is suggesting that the Treasury would do anything else except apply the highest level of diligence to this exercise, I can only state that this has been a significant issue for the Treasury for a considerable period of time. We hoped that the issue would be resolved with a private sector deal, but there was always a possibility that the bank would come into the public sector. That is why necessary work was carried out on the preparation of possible legislation, as noble Lords have been quick to point out. That hard work was done in the hope and expectation that it would be located in the private sector. When that failed, the Government, of course, had their full analysis of Northern Rock to hand.
My noble friend is asking why the taxpayers cannot have the same information as was provided to Richard Branson before they embark upon this purchase. As he said, it is a regulatory requirement that you should treat all potential purchasers the same, so why cannot we have that information? While the Minister is answering that point, perhaps he will answer one of the questions I asked last night. Will the Government make available the very expensive advice that we obtained from Goldman Sachs and others for which we are paying? Why cannot that be provided? What do the Government have to hide?
The Government have nothing to hide on this issue. I recognise that the noble Lord is not speaking from the Front Bench and therefore may not be entirely compliant with his own Front Bench, either in this House or at the other end, with regard to these issues. However, if he is prepared to attest that he is, it will be an interesting point to put in the ledger.
The noble Lord is contending that as far as the Government were concerned there was another alternative once these bids had failed. The Government made up their mind that public ownership was best in the interests of the nation and for safeguarding the resources already provided by the taxpayer. I know that noble Lords opposite have a fanciful notion that Northern Rock could have gone into some kind of Bank of England administration, an absolute canard on how the issue was meant to work to the benefit of anyone. Certainly it would have been a catastrophe for Northern Rock, a catastrophe for its shareholders and a catastrophe for its workforce. The Government never considered that, and are not prepared to consider it, as a realistic proposition. That is why we have taken Northern Rock into public ownership while, at the same time, being confident that there are assets in Northern Rock against which the loans from the Bank of England and the taxpayers’ contributions are secured.
Before I reply, I wish to say that I agree with my noble friend Lord Tordoff. I fear that on both sides of the House we are drifting into Second Reading speeches on quite a lot of these amendments. It is going to be a very long day if we continue on this basis.
I thank noble Lords who have supported me on this amendment. I apologise to the Minister if I had not made it clear—I thought I had—that we are talking not about the normal commercial audit of Northern Rock on 31 December 2007 but about a one-off event, to be followed up later, of an independent valuation of the bank on the day we buy it. That is quite a separate issue.
Listening to him, I was not clear whether he was saying that the auditors are likely to be changed for the year-end report, although I am bound to say that if they are going to be changed, that will need to happen quickly. I would have thought the existing auditors would be well advanced with their work. So that was not very clear, but then it is not the burden of the amendment. For all the reasons I have given, the amendment calls for a totally independent take-on audit to be conducted, not personally by the Bank of England, but on its behalf and on its instructions.
The National Audit Office is a separate issue. In today’s papers, the NAO is talking about investigating the process leading up to the nationalisation of the bank. That is quite different from kicking the tyres, going through the books and seeing properly what the quality of the mortgage book is. I am absolutely sure that the Chancellor and the Financial Services Authority are wrong, and that there are many cans of worms in Northern Rock’s mortgage loan book regarding what has been granted over the past couple of years. I am sure that an independent, properly conducted audit will bear me out in that, but none of us will know until that is done. On that basis, I wish to test the opinion of the Committee.
[Amendment No. 5 not moved.]
Clause 6, as amended, agreed to.
Clause 7 agreed to.
[Amendment No. 6 not moved.]
Clauses 8 and 9 agreed to.
Clause 10 [Tax consequences]:
moved Amendment No. 7:
7: Clause 10, page 10, line 27, at end insert—
“( ) No provision may be made in regulations under this section which would have the effect of depriving any person of rights to use capital losses incurred in connection with a transfer of securities under section 3 or of property or rights under section 6 in the computation of that person’s liability to capital gains tax or, in the case of a person liable to corporation tax, the computation of that person’s liability to corporation tax on capital gains.”
The noble Lord said: I declare my interest as a partner in the national commercial law firm, Beechcroft LLP, and as president of the Chartered Insurance Institute and the other entries in the register. I am merely seeking to probe the Government’s intention behind Clause 10. I understand that the clause is intended to ensure that the nationalisation of Northern Rock, or, as the Minister seemed to imply last night, any other financial institution, does not have an unintended effect on tax revenues. I understand that any steps taken under this clause will be based on a tax analysis report which will be produced in a few months’ time. I wonder whether the Minister could just answer a couple of questions.
First, will the tax analysis report be made public? Secondly, how far will the Government go to ensure that their tax revenues are not damaged by this nationalisation? The specific case that my amendment anticipates is that current shareholders in Northern Rock will potentially make a significant loss upon nationalisation. It would be natural for them to seek to offset that loss against any profit they might have made on other assets in their portfolios. Surely, the least the Government could do in these difficult circumstances is to avoid taking steps that might deny them this. I beg to move.
In rising to speak for the first time on this Bill, I feel I ought to register the fact that I am a long-standing depositor with Northern Rock. Having said that, let me say that we have a lot of sympathy with the point that the noble Lord, Lord Hunt of Wirral, makes. The tax affairs of an authorised deposit taker are likely to be extremely complex. It is therefore necessary to have a broad power to deal with the tax consequences of the transfer of shares or property rights and liabilities which is very likely to give rise to various types of tax charges or losses. Given the aims of a transfer of an authorised deposit-taker under the Bill, it is important to have the power to deal with tax consequences that might arise as a result of a transfer carried out in the public interest.
The tax provision is wide, but it must be so to deal with the complexity. As I said at the start, we take the noble Lord’s point that it could deprive a former shareholder taxpayer of a right to claim a tax loss if one would arise from a transfer. I can now say that Her Majesty’s Treasury would not use the power to deprive such persons from claiming the use of any tax loss that might arise from having had their shares transferred away from them. That concession, if it is one—I certainly hope it is a reassurance to the Committee—should give the noble Lord and the Committee the comfort that they are rightly looking for in this particular amendment.
I am conscious the noble Lord asked me two questions. I do not have answers to them at the present time, but I will write to the noble Lord with them, I hope very soon.
In anticipation of that billet-doux, I welcome the concession of the Minister. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 10 agreed to.
moved Amendment No. 8:
8: After Clause 10, insert the following new Clause—
“Freedom of information
Where an authorised deposit-taker is subject to an order made under section 3 or where the property, rights and liabilities of an authorised UK deposit-taker have been transferred to a body corporate under section 6, that deposit-taker or body corporate shall be deemed—
(a) to be a publicly owned company for the purposes of section 3(1)(b);(b) to hold information on behalf of the Treasury for the purposes of section 3(2)(b); of the Freedom of Information Act 2000 (c. 36).”
The noble Lord said: I also seek to declare my interest as having been the Cabinet Minister for Public Service who introduced the Code of Practice on Access to Government Information which now forms part of the Freedom of Information Act, which is what this amendment is all about. The Government should have nothing to fear from the truth, but they have chosen to shroud this whole issue in secrecy. The public do indeed have a right to know, but the Government’s response is to run precisely in the opposite direction. I hope that the purpose of this amendment is clear. The draft order that the Government intend to make under Clause 3 contained a small clause, very near the end, exempting a nationalised Northern Rock from being affected by the Freedom of Information Act 2000. I was greatly heartened, the Minister will be alarmed to hear, by his words earlier today. He said that the Government have nothing to hide. Admittedly, he was saying that in a different context, but I just want to hear him say that again in accepting this amendment.
I am slightly pessimistic as the Minister touched on this subject in the course of his winding-up speech late yesterday evening, when I heard him give two reasons, as indeed did the Prime Minister at Prime Minister’s Questions in the other place. The first and most extraordinary argument, which I heard from both of them, is that the exemption is needed to protect commercially sensitive information about Northern Rock’s business plan. Of course it would be inappropriate to release just that sort of information. Surely, however, the Minister knows as well as I do that Section 43 of the Freedom of Information Act contains three subsections. Subsection (1) exempts,
“information if it constitutes a trade secret”.
Subsection (2) exempts,
“information if its disclosure under this Act would, or would be likely to, prejudice the commercial interests of any person (including the public authority holding it)”.
Subsection (3) provides that the obligation under Section 1(1)(a)—to confirm or deny that the requested information is held—does not arise. The Government therefore have nothing to fear so far as that is concerned. The Treasury always seeks to protect itself from private companies that attempt to use the Freedom of Information Act to gain competitive advantage. Why would Northern Rock be any different?
The Minister also made the case that since no other bank is subject to the Act, Northern Rock should not be either. Well, to that argument I think the whole Chamber would immediately point out that no other bank is owned by the taxpayer and run by the Government. Northern Rock will be unusual among British banks in many ways. It is the very uniqueness of a nationalised Northern Rock that makes it imperative that there is sufficient transparency and accountability over its operations. Northern Rock will indeed be a special case; its directors’ salaries and bonuses will be paid out of taxpayers’ funds. That raises crucial questions of accountability. Is the Minister really saying that he does not believe that the public have, for example, a right to know how much they are paying a director to run their bank for them or how much he is being given in bonuses? It is bad enough that a serious regulatory failure has brought us to the pretty pass in which we now find ourselves.
I am in an unusual position in that I agreed this morning with every word written by Peter Riddell in the Times. It was a bit of a shock over breakfast. He said:
“Parliament should [not] sign up to a blank cheque—on behalf of us all—granting ministers sweeping powers and providing little information about the possible taxpayer liability”.
He was challenging this noble House to amend the Bill in, I believe, the way in which I am now suggesting. Had there been greater openness and more effective scrutiny in the first place, we would not be here today debating this extraordinary and anachronistic measure. Ministers and their proxies have sadly fallen asleep on the job once; they can hardly blame us for wanting robust systems in place to ensure that they do not do so again. I beg to move.
I support the amendment. I very much agree with all the arguments put forward by the noble Lord, Lord Hunt of Wirral.
The principle of the freedom of information regime is that when one has a public body, it operates under a different rule with regard to the openness with which taxpayers can approach it and find out what it is up to. Although Northern Rock is a bank rather than a government department, it is a publicly owned body—or will be from tomorrow. That is the basic principle. The starting point in our mind is that it should fall into line with all the other bodies that are covered by the freedom of information legislation, not least those that operate in the commercial sector, including, for example, the Royal Mail.
The noble Lord, Lord Hunt, dealt with two of the arguments that the Government have used to try to rebut proposals in this regard. He dealt comprehensively with the argument about material that is in commercial confidence. Ministers use two phrases to try to get out of holes that are of their own making: one is sub judice and the other is in commercial confidence. It is common practice in my experience for these phrases to be bandied about by Ministers who are in difficulty as a way of trying to shut down debate and to prevent information being put into the public domain or discussed. In this case, the argument about commercial confidence has been completely dealt with by the noble Lord, Lord Hunt, when he talked about the trade secret exemption in the legislation.
The other argument that Ministers have used about Northern Rock and why it is different from, for example, those other public bodies that operate commercially, is that it will go back into the private sector. Yes, it will do that, and when it does there will be legislation to enable it to do so. At that point, the application of the freedom of information legislation will no doubt be extinguished. The fact that it will go back into the private sector at some point is not, frankly, an argument for not applying the freedom of information regime to the bank when it is in the public sector. For those reasons, we support the amendment.
Perhaps I should make it clear, as I did last night, that I have every sympathy with the Minister. In making the following remarks, I mean nothing against him personally. The Government are in a pretty shoddy position. We have asked for information—I have asked him repeatedly to confirm the position in respect of Lloyds TSB, and he has refused point blank to answer; and I have asked him to provide information about the reports and advice that were given to Ministers by Goldman Sachs and other investment banks, but he refused to do so. In those circumstances, this amendment is of absolute importance. One is left wondering why on earth, uniquely, Northern Rock would want to be in a position—as the noble Lord indicated, this may already apply to the Post Office, and I think that I am right in saying that it also applies to the National Savings Bank—
Yes it does.
I am grateful to my noble friend.
What is it about Northern Rock, other than that it will pay higher interest rates than National Savings to depositors, that makes it uniquely placed to be not covered by the freedom of information legislation?
What is remarkable about this is that it is coming from a Government who boast about their commitment to open government and transparency. It is an extraordinary thing. Perhaps I am just getting old and cynical but I think that there must be something that the Government do not want us to know. Given the scale of the operation—taking on to the Government’s balance sheet £100 billion of liabilities and £25 billion of cash extended—it is extraordinary that the Government should expect taxpayers to stump up and not get the information. I therefore support my noble friend in this amendment. I am deeply shocked that this Government of all Governments should be resisting this. Perhaps the Minister will have changed his mind; I hope so. I remember what the Prime Minister said on taking office. He talked about increasing the accountability and transparency of government. If this is an example of him delivering on that promise, it is no wonder that the electorate have begun to hold our institutions and our political process in contempt.
I have no difficulty replying to this amendment; nor do I enlist sympathy from the House—certainly not after the contribution of the noble Lord, Lord Hunt. After all, he accused me last night of saying exactly what the Prime Minister had said before. That is an accusation that I can bear with a certain degree of equanimity and I am prepared to repeat the position again today. What the Prime Minister was expressing at that time and what I hope to repeat as accurately today is the Government’s carefully considered position on this matter. Of course we take freedom of information seriously.
By the by, the noble Lord, Lord Forsyth, continually berates me about the Lloyds TSB submission last September as some kind of constraint on my part to be secretive, but I have given him all the information that I can give him. Lloyds TSB came along with a suggestion of how £30 billion of public money could be made available for a particular project with which it would be involved. We did not think that that had a chance of coping with any issue with regard to state aid. As the proposition was put in those general terms, we were not able to respond positively. I am not sheltering under freedom of information because that is all the information that I have and I have given it to the noble Lord on repeated occasions. He cannot keep questioning me about the same issue.
What he can keep asking me about—as he rightly did—is the desirability of the Freedom of Information Act applying to this company. I pay tribute to the noble Lord, Lord Hunt, for his record on freedom of information and his contribution in the past, but he will recognise that the Labour Administration are duly proud of the 2000 Act, which has produced enormous benefits to the public.
If that is so, why are the Government leaping to exclude Northern Rock?
The noble Lord will be the first to recognise that areas of the Freedom of Information Act do not obtain across parts of the public sector. I do not need to innumerate them because the House is well versed in the areas where the Freedom of Information Act does not apply and we are merely presenting the case that Northern Rock fits into such a category. He suggested that banks are exempt under Section 43 of the Act, but that is not an absolute exemption. In applying for an exemption, Northern Rock would need to balance the public interest in maintaining the exemption under Section 43 with the public interest in disclosure. Is a bank meant to be involved in this calculation of where it fits with regard to the Freedom of Information Act? Other banks do not have to, because it is automatic, but Northern Rock would have to make an assessment of what its obligations were in those terms. That would be difficult given the fact that we are seeking to ensure that this bank operates as far as possible like all other commercial banks.
It has been suggested that, with its degree of public responsibility, this bank is in the same position as National Savings, but that is an executive agency of the Chancellor of the Exchequer. It is an entirely different body corporate. I want to emphasise that this bank is also meant to be in public ownership for a short period of time—a temporary concept. National Savings, whatever else it is, is not meant to be in existence on the basis of the short-term relationship with government.
The arguments underpinning the amendment do not hold up against that background. They would do if the Government were, as the noble Lord, Lord Forsyth, continues to suggest, bent on excessive secrecy with regard to all these relationships. We are not. We are committed to the Freedom of Information Act. We are committed to the application of the Act where it benefits the public. But some areas are excluded and our case is that Northern Rock needs to be one of them.
We want Northern Rock to run like other commercial banks: at arm's length from the Government. We want, as far as possible, business at Northern Rock to be on that basis. The bank will not perform a public function that would make it appropriate to apply the Act. This is not a matter on which the Government are determined to keep information confidential, because we enjoy the fact that the Freedom of Information Act will provide for the nation the necessary facts on the operation of Northern Rock. The Treasury, under its framework document, intends to develop effective plans for appropriate publication of reporting information on Northern Rock. That is the basis on which appropriate public scrutiny of Northern Rock can be made. The Treasury is governed by the Freedom of Information Act and will be obliged to make this information public. That is why I deny the concept that the noble Lord is putting forward: that somehow the Government are being excessively secretive about these arrangements.
Maintaining commercial disciplines in Northern Rock and ensuring continuity of business are absolutely critical. If we are to maintain the prospect that this bank will be returned to the private sector as soon as possible, it is vital that we do not apply inappropriate public sector requirements which do not obtain to other commercial banks. The noble Lord, Lord Newby, was dismissive about commercial confidence, but there are good reasons why commercial banks have an exemption under the Freedom of Information Act. That was accepted by both Houses when it was debated. Commercial confidence is not a get-out phrase: it is a real issue with regard to the operation of the bank.
I am not against the principle behind the amendment, but the amendment is unnecessary. The Treasury is a public authority subject to the Freedom of Information Act. The Treasury's relations with Northern Rock as shareholder and lender will be in the public domain. There will be opportunities on later amendments for me to dwell on this, but I have already mentioned the process by which the Treasury intends to make these relationships explicit and how it reports to both Houses of Parliament. As I indicated, that is what we intend to do with certain crucial formative aspects with regard to Northern Rock.
The objectives of the Freedom of Information Act can be met by request to the Treasury about its relationship with Northern Rock. The Treasury would need to consider applications under the Freedom of Information Act in the normal way, including the application of exemptions. But the Treasury continually faces that position. The Treasury is part of a Government committed to open information, supported and promoted by the Freedom of Information Act. I am not saying that the noble Lord’s intention is not benign or helpful, but that the amendments are unnecessary because the Government intend to fulfil the requirements of openness in the proposals that we make.
I am very grateful to the noble Lord, Lord Newby, for making some very telling points in support of the amendment. One of the sad things about Hansard is that it never reflects body language, or however one expresses it. I found the Minister’s response exceedingly interesting because, looking at him really closely, I could see that the longer he went on, the less he really believed in the case he has been told by the Chancellor and the Prime Minister to put forward. I thought my noble friend Lord Forsyth, who I am delighted to work in tandem with again as we did at the Department of Employment, shot a hole in the Minister’s argument by saying that of course it applies to National Savings, the Tote, and the Royal Mail. The Minister then desperately tried to find some argument against that. I do not think he believes what he is being asked to say and I hope the House will support me. I wish to test the opinion of the Committee.
moved Amendment No. 9:
9: After Clause 10, insert the following new Clause—
“Impact on competition
Where an authorised deposit taker is subject to an order made under section 3, or where the property, rights and liabilities of an authorised UK deposit taker have been transferred to a body corporate under section 6, the Office of Fair Trading shall—
(a) lay before Parliament annually a report on the impact of the competitiveness of the market in the UK of the activities of the authorised deposit-taker or of the body corporate to which property rights and liabilities have been transferred (as the case may be); and(b) report to Parliament as soon as it identifies a significant adverse effect on the competitiveness of the market in the United Kingdom as a result of the activities of the authorised deposit-taker or of the body corporate to which property rights and liabilities have been transferred (as the case may be).”
The noble Lord said: Amendment No. 9 seeks to address a major flaw that was picked up by many of your Lordships yesterday during Second Reading, and was widely covered in the press this morning. As a nationalised bank, Northern Rock will, among many other things, have access to significantly cheaper money than its competitors, and so will be able to offer better terms to customers. This unfair practice would, of course, be damaging to the operation of the whole British banking sector.
The Minister may tell me in his response that even without this amendment the Competition Commission or the EU state aid rules will be a sufficient check on such damaging behaviour. However, we are concerned about the Competition Commission’s powers over state-owned companies. Furthermore, I cannot accept that a far off and extremely broad brush set of criteria in Brussels is an adequate substitute to a nationally recognised and respected body whose remit is exactly suited to maintaining a watching brief over a nationalised Northern Rock and the impact it will have on the wider banking sector. So my amendment seeks also to give the OFT the duty to report to Parliament, not only when it identifies an adverse effect but also annually to reassure Parliament and the public that their legitimate fears about unfair competition are not being realised.
I hope that the Minister will appreciate the sense behind this amendment. I beg to move.
We support this amendment. There has been a lot of discussion about the extent to which Northern Rock, if it were anything other than in a rapid run-down situation, would be able to operate in a non-competitive manner on the back of the government guarantees. While there have been various assurances from Ministers that that would not be the case it does seem to us, both in terms of the rest of the banking sector and the country more generally, that we need to have some assurance that this is not happening. The good thing about this amendment is that, if passed and approved, it means that the Northern Rock management would know that the OFT is on their case all the time. In this respect it will be interesting to see whether the OFT is more successful than the FSA has been in the past. But this is its area of expertise and one would expect that it would. Therefore, we support the amendment.
I, too, very much support the amendment. The problem for the Committee is that we have to work from the phrase “business as usual”. We are not working from a phrase whereby Northern Rock is being wound down, where one could perhaps be more assured, but from the phrase “business as usual”. Further, we learnt as of yesterday that Mr Sandler is thinking about employing McKinsey. McKinsey is noted for several things, not least of which is its marketing. Since Sandler himself clearly does not have any real expertise in that world, I am quite sure that he will bring in consultants on the marketing front. So we do need some safeguards.
If it is a case of business as usual, one of the areas that the Rock will have to look at is how it gets more direct deposits. A building society works on how much it can attract in as deposits and therefore how much it can lend. That does not apply to a bank. However, if I were the chief executive of Northern Rock, given the circumstances it is now in, and I was told it was business as usual, I would want to attract deposits. I have not checked today but as of yesterday Northern Rock was offering the most attractive cash ISA in the whole of the United Kingdom. I refer to the interest rate, let alone the fact it was guaranteed by the Government. It was also offering the most attractive deposit account, let alone given the government guarantee. It is wrong that that should continue. The only way we seem to be able to track what will happen at the moment is if somebody audits this. In my judgment it is not acceptable that the Competition Commission should do it. Its track record is not good and the pace at which it works is too slow. Certainly, we cannot leave this matter to Europe. That is why I believe this amendment should be supported.
I do not have a particular view on the mechanism with which these competition issues should be addressed. However, I am puzzled by the strength of people’s feelings that there are real risks in this. Here we have Britain’s wonderful, internationally competitive, innovative banking sector up against an old-fashioned dinosaur nationalised industry with a badly tarnished brand image. How can anyone fail to compete with that?
The argument just put by the noble Lord, Lord Naseby, seems to me to reinforce this point. Despite the government guarantees, Northern Rock is having to offer higher interest rates than anybody else in the market just to get the money coming in to it. So it seems to me that these fears are mostly a chimera which should be swept aside at the earliest possible moment.
I consider that comment rather naïve. It is able to offer the most attractive interest rates in the market only because it has two unique guarantees—one to depositors and one on any bonds that may be issued. No other lending institution in the country has that degree of security. It is very important that there should be a level playing field. My noble friend referred to what the Rock was offering compared with competitors. I believe that this morning it was still offering mortgages at 125 per cent of the value of a property. Therefore, if the property is worth £100,000, it will offer £125,000. If the property is worth £1 million, it will offer £1.25 million. Yesterday, Alliance and Leicester and Abbey National both withdrew their 125 per cent mortgages. In fact, one went further and said that it was thinking of withdrawing its 100 per cent mortgages. But with a bank that has a total and complete guarantee, it can go on doing that. Does not the Minister agree that it is improvident for a bank to be taken into public ownership still to be offering 125 per cent mortgages? Does he approve of that?
On the issue that has just been raised, I think that the noble Lord, Lord Baker, and, indeed, the noble Lord, Lord Naseby, forget that the banking sector in the UK is supported and underwritten by the lender of last resort—the facilities of the Bank of England—and by the fact that major banks in this country are deemed too big to fail. Therefore, the competitive advantage derived by Northern Rock is much smaller than has been suggested by the exaggerated claims that we have heard from Members on the other side of the Committee. That is one reason why this amendment is unnecessary.
The other reason why it is unnecessary is that we have competent competition authorities in the OFT and in the European authorities who will be observing what is done in the UK banking sector and will operate according to their normal procedures. There is no need to gold-plate those procedures in the way that seems to be proposed here.
However, there is one issue that the Official Opposition could helpfully address. When Johnson Matthey was nationalised by the Conservative Government in 1984, it was exempted from taxation, thus acquiring a remarkable competitive advantage over all the firms with which it then subsequently competed in the 10 years that it remained in public ownership. Perhaps the Official Opposition will explain why they offered that extraordinary competitive advantage at that time, and are so over-excited about what is virtually no competitive advantage at this time.
Perhaps I may respond to the noble Lord, Lord Eatwell. I happily agree with him that if we were dealing with the same circumstances, the same terms would apply to Northern Rock as applied to Johnson Matthey. But Johnson Matthey was being run down. It was not continuing to trade on a business as usual basis in the market. I would have thought that the noble Lord would have known that. I am sure that he would not want to give an incorrect impression in making that comparison.
I very much support the amendment. Now that we have a change of Minister, perhaps I can ask him the question that his noble friend had begun to answer. This is a useful opportunity to do so. The noble Baroness, Lady Kingsmill, is not in her place, but yesterday she assured us that we had nothing to worry about because the European Union and the regulators would deal with these matters. If we can rely on the regulators to deal with these matters, why is it that Northern Rock is continuing to provide the very high deposit rates which my noble friend Lord Naseby referred to? It already has a competitive advantage, because the Government have guaranteed the deposits up to any limit. Were it not for the fact that we are parti pris, I would suggest to noble Lords that they should put their money into Northern Rock, because it has an absolute guarantee and it has a very high rate of interest. The Government should be worried about unfair competition, because they are competing with gilts—they are competing with the Government’s own gilt market. The Government are providing the same guarantee that applies to gilts. On gilts you can get something like 4.5 per cent, but go on to the Northern Rock website and you can sign up to an account for 6.5 per cent. The Government are competing unfairly not only with the market but with themselves.
I do not want to talk for too long about this. However, could the Minister tell us what the European Union thinks about these competition issues? It has done nothing about what has happened so far. Can he help us with the criteria that will apply to the business plan? I also return to the question, which I still hope will be answered, of why the Government turned down the opportunity for Lloyds TSB to take on Northern Rock back in September. The noble Lord, Lord Davies of Oldham, gave me an answer in a previous debate; he said it was obvious that the Lloyds TSB offer had to be rejected because it would never have got past Europe. That offer was to borrow £30 billion over two years on commercial terms and for it to be a fall-back facility. That is considerably less damaging an anti-competitive provision than was being suggested by Branson or by any of the other bids.
Can the Minister explain why Europe would not agree to that but is prepared to agree to this, which is a whole quantum leap of additional competitive threat to the existing private sector operators in the banking market? We need to have clarity on where the Government believe that the competition rules will apply and on what the European Union’s view is. In the absence of that clarity—which I do not expect to get even with a new Minister—the importance of this proposed new clause is paramount, and I very much support it.
The amendment seeks assurances that Northern Rock will not be able to compete unfairly with other banks in the retail, savings and banking market. In responding to this short but interesting and important debate, I propose to do two things. First, I hope to reassure noble Lords that this will not be so and that we will not approve a business plan that does so. Secondly, I will address the specific proposal made in the amendment that would require the Office of Fair Trading to produce an annual report and to notify Parliament if it identifies any problems.
I will attempt to assure the Committee that there will be no adverse competition impacts. As explained elsewhere, the bank is in receipt of public support and aid is subject to EU state aid restrictions. Clearly, the interpretation of those laws is a matter for the Commission, but we would be extremely surprised if the Commission interpreted those rules in such a way as to allow a bank to expand its business aggressively on the back of public support. The requirement for prior approval of the European Commission and the Commission’s ability to hold Northern Rock to conditions imposed on approval is, we argue, an important and reasonable constraint on Northern Rock’s business plan.
As has already been said, we intend to submit a restructuring plan to the Commission by 17 March. This will need to reassure the Commission that Northern Rock does not abuse its position. Moreover, like any other company, Northern Rock will be subject to UK competition law in the normal way, including the Competition Act 1998 and the Enterprise Act. That also provides an important check on Northern Rock’s business model. I want to reassure the Committee that my right honourable friend the Chancellor of the Exchequer has asked officials to have urgent meetings and discussions with the British Bankers’ Association, the Building Societies Association and others, to reassure them of the position.
Even if all that was not the case, let me attempt to offer three further points of what I hope will be reassurance to the Committee. First, Ron Sandler, the executive chairman, has already made it clear that he is acutely conscious of competition issues and has no intention of running the bank in a way that abuses its present temporary state ownership. Secondly, the clear strategic aim which the Government have set for the management is to move the bank off all forms of government support, including government guarantees, as soon as possible. The bank’s business plan, which must be agreed with the Government, needs to be directed at that aim. A business plan that was built on abusing the present temporary government support, which in turn reflects the present distorted state of financial markets, would clearly not be consistent with the aims that we have set out for management, because it would not be sustainable.
Thirdly, let me attempt to reassure the Committee on how the financing of Northern Rock will operate. At present, Northern Rock is subject to the same interest rate premium arrangements and is paying for government guarantees in precisely the same way as Northern Rock paid for those facilities in the private sector. It has not had overnight access to some different source of financing. In future, financing arrangements and fee arrangements for guarantees will need to be put in place that are consistent with the business plan and the requirements of the EU. It is too early to speculate sensibly on what those will be, but clearly we expect to be able to demonstrate both to competitors and to the European Union that the bank is operating in a way that does not distort the market.
I have spent a little time attempting to explain to the Committee the safeguards that we have put in place. Let me move on to the amendment. It would, where an institution has been the subject of a transfer order under Clauses 3 and 6, require the Office of Fair Trading to conduct an annual report on the impact on competitiveness and, secondly, a report to Parliament as soon as it identifies a significant adverse impact on competition as a result. Largely for the reasons that I have already stated, we do not think that such an amendment is necessary, but again in an attempt to reassure the Committee, I will say that the Office of Fair Trading is an effective watchdog that oversees competitiveness in UK markets. It has wide powers, including powers to investigate whether any market in the UK is distorted by unfair competition. It does not need specific new powers to report on the competitiveness of the banking market; it can do so in any event. My officials have spoken to the Office of Fair Trading, and I can now say to the Committee that it has proposed that it will publish an annual report assessing any competitive implications of Northern Rock’s business on the banking market.
My problem with the statement that the OFT will publish an annual report is that the Minister keeps saying that this is a very short-term move. What on earth is the use of a report in a year or more—the business plan is a month away, so it will possibly be 13 months—when there will have been a total abuse of the market in the interim?
If the Office of Fair Trading is looking at this, it is likely in any event that it will do so after the abuse has taken place, whether it does so in two months or in 13 months. The OFT will not in the first instance stop any abuse. That is why I have tried to explain to the Committee the various courses that we have taken. When the OFT reports—I cannot give the Committee a date on which it would, as that is a matter for the OFT—it would point out any abuses and by doing so make sure that they would not occur again. I am telling the Committee that the noble Lord’s noble friend on the Front Bench is proposing something with which we largely agree.
I am slightly surprised that the Minister should say that. The Office of Fair Trading frequently starts to investigate and take action in anticipation of an abuse that may take place, in order to guide an institution away from that abuse. The OFT does not always wait until after the event.
I accept what the noble and learned Lord says, of course. His experience of the OFT is greater than mine. However, the Office of Fair Trading is what the noble Lord, Lord De Mauley, has asked for in this amendment and we are happy to concede on that, if that is the appropriate word. I may not have hoped for raptures from the Committee, but I had hoped at least for an acknowledgement that the Government were going some way towards agreeing with the noble Lord in his amendment by saying that the OFT will publish an annual report assessing any competitive implications of Northern Rock’s business on the banking market. Therefore, I give the noble Lord that commitment, which I hope is what he needs, and argue that his amendment, for which we are grateful, is unnecessary.
I am sure that it was inadvertence by the noble Lord rather than discourtesy, but he failed to reply to the questions asked by my noble friends Lord Baker and Lord Forsyth; I, too, raised the issue yesterday. If Northern Rock is continuing to provide mortgages of 125 per cent while two firms that were doing that yesterday have stopped, is that not wrong and is it not unfair competition?
I apologise to the Committee for not answering that question. I did not intend to be discourteous; I was just careless. There has been debate in the House on the 125 per cent mortgages, which are known as the together project. It is far from unusual for lenders to offer products of this nature and the lender well understands the risks it is taking on. These mortgage products are offered on a commercial basis to individuals with appropriate credit ratings, as is standard practice across the industry. It is worth noting that Northern Rock’s problems have not arisen as a result of lending at high multiples; its problems have been around raising liquidity in what have turned out to be extremely difficult financial circumstances. That is all that I want to say on the 125 per cent mortgages.
It may be all that the Minister wants to say, but it does not answer the question. It is wrong to say that such mortgages are common in the market when everyone else has withdrawn them. It is not an issue of how Northern Rock got into trouble; it is an issue of how Northern Rock behaves when it is receiving a subsidy from the taxpayer that is anti-competitive and unfair for its rivals in the marketplace. That is the issue.
I absolutely appreciate that.
Before my noble friend answers, let me say that the implication of what the noble Lord said is that, as of yesterday, there is a distance between Northern Rock and Alliance & Leicester and others. Until yesterday, all were offering 125 per cent mortgages. Today is one day later—and that is what we are complaining about. Maybe tomorrow, on its own calculation, the management of Northern Rock will stop providing such mortgages. We either have to let Northern Rock behave as a commercial bank at arm’s length from the Government or we dictate what it can do. If noble Lords opposite want to bring back the old horrors of nationalised industries, it is up to them. When they get into power, they can do that. We do not want to do that.
Perhaps I may ask my noble friend two questions. My understanding is that Northern Rock has already withdrawn the 125 per cent mortgages. That was reported by the financial press yesterday. Could my noble friend tell me whether there is any material difference between the arrangements that he has described and those for National Savings, which, of all organisations, could compete unfairly if it was allowed to do so? Secondly, has anyone analysed the potential problems for other financial organisations of the consequences of this amendment? In principle, I am not hostile to its objective to ensure fair competition.
The only example that I have heard relates to ISAs, which are simple and straightforward. They have a rate of interest. However, anyone who studies the financial press, particularly at weekends, would spend the whole of the following week trying to decide which offers for savings were competitive and which were not. This matter is well beyond interest rates—people are being offered insurance, interest rates that include bonuses or rates that stop when your balance reaches £2,500. It would require a genius to determine which products were competitive and which were not. In those circumstances, I do not see how the Office of Fair Trading could sensibly, on a daily, weekly or monthly basis, produce something that would be helpful to anyone. If we could deal with this matter broadly along the lines of National Savings, the answer is already there.
I reinforce what my noble friend Lord Desai said about the objections that noble Lords opposite are making to particular policies being pursued by Northern Rock at this time. I really do not think that it is the role of this House or the Government to attempt to micromanage what Northern Rock does. I had understood that the Official Opposition were very much in favour of the bank being managed at arm’s length. If so, surely they should not be second-guessing what particular products or behaviour the bank displays. They should accept the commitment made by my noble friend on the Front Bench that the OFT will report regularly on the impact of Northern Rock’s activities on competition in the banking industry. The OFT is an organisation that has the skills and will have the detailed information to assess the impact on competition. We are just cherry-picking here; we are not being serious. We are just making arbitrary arguments, not doing the detailed investigation and careful study of the facts that the OFT will be able to do.
Perhaps I can put the noble Lord, Lord Eatwell, straight on something. Those of us who have made observations from this side of the Committee are not doing so in order to micromanage or macromanage anything. We are trying to get some information out of the Government and that has not been forthcoming.
I am not in a position completely to answer the questions asked by my noble friend Lord Christopher, except to point out that the objective of National Savings, which of course is run extremely prudently, is rather different from that of Northern Rock. The objective of National Savings is to raise government funding, which will certainly not be the purpose of Northern Rock.
I thank the Minister for his assurances. However, we believe that, in view of Northern Rock’s special circumstances and guarantees and the consequent cheap finance available to it, special measures to supervise its competitiveness are required. The other reason that it is important that the new clause is in the Bill is that, otherwise, later nationalisations under precautionary provisions will be in exactly the same position. I wish to test the opinion of the Committee.
[Amendment No. 10 not moved.]
Clause 11 [Modification of legislation applying in relation to building societies]:
moved Amendment No. 11:
11: Clause 11, page 10, line 41, leave out “any enactment” and insert “the Building Societies Act 1986 (c. 53)”
The noble Lord said: I shall also speak to the other two government amendments, Amendments Nos. 12 and 13, in my name. The House will appreciate that these amendments are in response to one of the central recommendations of the Delegated Powers and Regulatory Reform Committee, which reported yesterday, that the Bill be changed to specify the enactments that may be amended by the Treasury under the clause. Another government amendment deals with another of the core recommendations of the Delegated Powers and Regulatory Reform Committee that the clause be subject to the affirmative procedure.
In addition, the removal of subsection (4)(b)—the purpose of Amendment No. 13—means that the Treasury cannot use an order made under the clause to apply any enactment to building societies that otherwise would not apply. The only such enactments that we would want to apply would be certain provisions of insolvency law, but this is now dealt with by the additional reference to Sections 90 and 90A of and Schedules 15 and 15A to the Building Societies Act 1986, which deal with the application of insolvency legislation to building societies.
The narrowing of the clause as a consequence of the amendments will enable the Treasury to modify only the Building Societies Act 1986, and I hope that this meets the central concerns which the DPRRC put before the House. I therefore hope that the House will accept Amendment No. 11. I beg to move.
I am sure that my colleagues on the Delegated Powers and Regulatory Reform Committee and I will be grateful for small mercies here. Perhaps they are medium-sized mercies rather than small ones. We certainly welcome the alterations, in particular to Clause 11, and the extension of the affirmative procedure to Clauses 5 and 7—the compensation provisions. We do of course regret that the Government have felt unable to accept the most important of our recommendations on the use of the affirmative procedure for orders made under Clauses 3, 4 and 6.
I am very glad that the noble Lord, Lord Goodhart, spoke before me as I wanted to take the opportunity to congratulate him and his colleagues on the Delegated Powers and Regulatory Reform Committee, not only on the quality of its report but the speed with which it produced its recommendations. The Government are testing the procedures of the House to the limit, and I admire the way in which the noble Lord and his colleagues put forward some very important points.
So far as the concerns that the noble Lord has just expressed relate to other matters in the Bill, we will want to think carefully about what he has just said. However, when I first saw Clause 11, I found myself in complete agreement with the committee’s recommendation that this provision is inappropriate and should be removed from the Bill. Yet that committee gave a fallback position, with which the Government have now decided to proceed, and I very much welcome what the Minister has said.
My only other comment is that in the tremendous haste of our procedures, Amendment No. 20, to which I understand that I should speak in this group, seeks to leave out a part of the Bill but refers to “buiding” rather than building societies. That is not an attempt to set up a whole new set of friendly societies, and I apologise for the error. Nevertheless, I will not be seeking to move Amendment No. 20, or to exclude Clause 11 in view of some very helpful comments by the Minister.
On Question, amendment agreed to.
moved Amendments Nos. 12 to 13:
12: Clause 11, page 11, line 16, at end insert—
“(e) sections 90 and 90A of, and Schedules 15 and 15A to, that Act (application of companies winding up legislation and other companies insolvency legislation to building societies).”
13: Clause 11, page 11, line 20, leave out paragraph (b)
On Question, amendments agreed to.
Clause 11, as amended, agreed to.
Clause 12 [Consequential and supplementary provision]:
moved Amendment No. 14:
14: Clause 12, page 11, line 34, leave out paragraph (a)
The noble Lord said: I have tabled this amendment, and Amendment No. 15, to give the Minister the opportunity to explain why he has not seen fit to table amendments addressing the concerns and recommendations of the Delegated Powers and Regulatory Reform Committee regarding this clause. Its report makes it clear that the powers in this clause should be subject to the affirmative procedure, yet they are noticeably absent from the list of orders on which the Government have conceded that procedure.
The DPRRC report also considered the two paragraphs specifically mentioned in my amendments to be particularly unusual, and requested that they be adequately justified. I look forward to hearing what justification the Minister might put forward in response. In particular, I am interested to hear what “rule of law” he could imagine needing to be “disapplied” as the result of nationalising a bank or building society. Does he think that the powers in this clause will be used as a consequence of the nationalisation of Northern Rock, or are these yet more of the precautionary powers that the Government are insisting on including, while denying ever having the intention of using them? I beg to move.
The Committee will have seen from the consideration of the previous amendments, which I moved on behalf of the Government, that we took the report of the Delegated Powers Committee very seriously and examined its recommendations with great care. That is why we produced those amendments. However, as the noble Lord has indicated, we have concerns about other aspects of its recommendations, and I must resist Amendments Nos. 14 and 15.
We have taken powers because it is necessary to facilitate the smooth implementation of temporary public ownership. Amendment No. 14 proposes to remove the power of the Treasury to,
“disapply … any specified statutory provision or rule of law”.
It is proposed to exercise this power in the Northern Rock transfer order. For example—the noble Lord pressed me on what the examples might be—Article 7 of the draft order, copies of which have been placed in the House, disapplies Section 24 of the Companies Act 1985 in relation to Northern Rock while it is wholly owned by the Treasury. Section 24 of the 1985 Act requires a public company limited by its shares, such as Northern Rock, to have at least two members and imposes unlimited liability on its shareholders and other persons in certain circumstances for breach of that provision.
There will be only one member of Northern Rock after its transfer; namely, the Treasury Solicitor. It clearly is not in the interests of taxpayers for unlimited liability to accrue to him. This power is also to be exercised to exclude Ministers, the Treasury and the Bank of England from the application of shadow directorship provisions in the Companies Acts, the Insolvency Act 1986 and the Financial Services and Markets Act 2000. There are precedents for that in Schedule 2(15) to the Commonwealth Development Corporation Act 1999 and other Acts. It is not feasible to provide narrower powers simply because it is not possible to foresee all the circumstances in which the Bill’s different transfer powers might be used. I emphasise that the use of the powers is subject to parliamentary scrutiny and the Government would expect to explain their use of such powers in the customary way.
I hope that I have explained to Members of the Committee why the specific circumstance of Northern Rock raises particular necessities for exemption from Companies Acts and other relevant legislation. That is the basis of the Government’s position and why I am asking the noble Lord to withdraw his amendment.
I am grateful to the Minister for his words, which I need to give further thought. While I reserve the right to come back to this point on Report, for now, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 15 not moved.]
Clause 12 agreed to.
Clause 13 [Orders and regulations: general]:
moved Amendment No. 16:
16: Clause 13, page 12, line 22, at end insert—
“(2A) A statutory instrument which contains an order under section 5, 7, 8(6) or 11 (whether alone or with other provision) may not be made unless a draft of the instrument has been laid before, and approved by a resolution of, each House of Parliament.
(2B) If a statutory instrument to which subsection (2A) applies would, apart from this subsection, be treated as a hybrid instrument for the purposes of the Standing Orders of either House of Parliament, it is to proceed in that House as if it were not such an instrument.”
The noble Lord said: In speaking to Amendment No. 16, I shall consider other amendments in this group. Again, these amendments deal with issues raised by the report of the Delegated Powers and Regulatory Reform Committee. In my earlier contribution, it was remiss of me not to thank the chairman and the committee members for the very assiduous work which they discharged at very short notice to the great advantage of the House. We very much applaud that work. At Second Reading, I said that the Government would take the committee’s recommendations seriously. Its thoughtful scrutiny of delegated powers provides an important resource for this House and, I might add, for the other place where its views are equally rightly respected.
I have tabled Amendments Nos. 16 and 18 in response to the committee’s important recommendations and one of the most important issues. They provide for the orders under the Bill which concern compensation in Clauses 5, 7 and 8(6) and the use of the Bill’s powers in relation to a building society in Clause 11 to be made under the draft affirmative procedure. We have responded to the committee’s recommendations through other amendments that narrowed the scope of the power in Clause 7 in the manner advised in the report.
Amendments Nos. 17 and 19 seek to go further, ensuring that all orders made under the Bill are subject to the affirmative procedure. That builds on the committee’s report, which also advises that transfer orders under Clauses 3 and 6 together with orders under Clause 4 and 12 switching off subscription rights and consequential and supplementary provisions should be made under the draft affirmative procedure.
We considered that argument carefully. We understand the concerns expressed about the scope and significance of the powers set out in the clauses. We have also considered carefully what the committee said about the speed with which, should the occasion warrant it, a draft affirmative order can be passed, and about the certainty such approval can bring. We have also noted the possibility of a dehybridisation provision and the possibility of an urgency procedure whereby in urgent cases an order can be made subject to confirmation later.
In the kind of grave and exceptional circumstances where the powers may be exercised in the future, carefully circumscribed in Clause 2—a recurring theme of my comments from this Dispatch Box is the significance of Clause 2 and the circumscription on the powers reflected in the clause—we would be faced with a serious threat to the stability of the financial system. Let us be clear: a failing bank or building society collapse would create systemic damage to other financial institutions and the UK financial system before there would be any question at all of these powers being used.
We may be faced with this problem at a weekend, in the middle of August or at any time when the House is not sitting. Something may need to be done before markets open the next day and queues form at branches. I have heard it argued on several occasions that other emergency provisions have not sought the exemption that we are seeking today. There is a difference in the industry that we are considering with regard to the legislation. The Committee recognises the significance of confidence in the banking system. Maintenance of financial confidence is of the greatest significance. That is why we have to conceive of action in circumstances such as an emergency where we need to act before others in the markets are able to take account of a developing crisis.
I realise that the Delegated Powers and Regulatory Reform Committee did not fully endorse that argument and I find some difficulty in disagreeing with its position. And I accept its proposition in every other set of circumstances that I can think of. But these powers in Clause 2, which are at the absolute heart of the Bill, are all about responding to an issue of the greatest financial crisis and the necessity for action prior to markets being able to respond. We may need to complete the transfer of the whole bank to another institution because it is sound and able to absorb the troubled bank, or transfer the deposit book to a sound bank. If we could do so only after the draft order had been debated and approved by both Houses, the damage to the financial system could already have been done.
I hope that the Committee will not consider me to be overly dramatic about this issue, but I am obliged to emphasise the difference between the particular circumstances of the industry which is the subject of this regulation and any other. We saw with Northern Rock last September how quickly events can unfold. The matter would be especially acute if the problem were to arise in the Recess. To recall Parliament is no answer as that would only heighten the drama and increase the level of the crisis. Enabling an order to be made immediately, subject to later confirmation by resolution of both Houses, is not an answer to this point. In the case of a transfer of the deposit book, how would depositors have any certainty that their money would remain with the new sound bank rather than being sent back to the failing one? The answer is that they would not. They would want to withdraw their money to a safer haven, and we would have another run. I put it to the Committee that we cannot contemplate that.
It is because we are dealing with banks and building societies, not something like British Leyland, that we are doing this. We all recall the implications for the British economy as a result of the significant problems at British Leyland, as well as the challenges for the workforce and the community where it was located. I do not decry the significance of British Leyland, but I want to emphasise how very different this legislation is, dealing as it does with banks and building societies. That is why we think it is right for this Bill to use what would otherwise not be appropriate. We ask noble Lords, in considering the report of the Delegated Powers and Regulatory Reform Committee, to balance the clear legal concerns which have been expressed against the real issue of financial stability which is at the heart of this Bill, and the particular importance of confidence as much as legal certainty to the sound operation of the banking system.
We continue to maintain our respect for the committee, and of course we have sought to respond as positively as we can in other areas of its work, but I hope it will be understood that in this particular respect, the Government must dissent from the recommendations of its report. Given that, I hope that the noble Lord will feel able not to press his amendments when the time comes, and instead will support the government amendments. I beg to move.
The role of the Select Committee on Delegated Powers and Regulatory Reform is to advise the House, and not to take part in support of or opposition to any contested amendment. Indeed, I have no authority from the committee to do so. In those circumstances, I am afraid there is nothing that I can add to what the committee has already said in relation to the amendment tabled by the noble Lord, Lord De Mauley.
As the noble Lord, the Captain of the Queen’s Bodyguard, introduced the amendment, I thought I detected in his voice a feeling of, “Hooray! Hurrah! This is coming to an end!”. I am sure that the points he has made are very important but perhaps he could help me with one particular point, and then on another one.
Before I come on to the particular point, perhaps I may explain yet again that some of us, of whom I am one, feel that this ought to be a hybrid Bill, because it is dealing in effect with one bank as opposed to all the others. I know that the Government and the noble Lord do not want it to be a hybrid Bill, because that would take up so much time, but as he will realise, the purpose of hybridity is fairness, so that people can have their counsel, put their case, and have it considered. By not making it a hybrid Bill one is deliberately removing fairness. I understand why the Government have done that. We all know that the Bill refers to Northern Rock. But it does so with this caveat that it could refer to anything over the next 12 months.
I am surprised that Amendment No. 16 seeks to insert new subsection (2B) into Clause 13. The subsection states:
“If a statutory instrument to which subsection (2A) applies would, apart from this subsection, be treated as a hybrid instrument for the purposes of the Standing Orders of either House of Parliament, it is to proceed in that House as if it were not such an instrument”.
In other words, if the colour appears white, you pretend it is not white and say it is black. It appears to me that this is conscious and deliberate reasoning by the Government to say, “We do not want hybridity to be part of this. If anyone sees the possibility of hybridity coming up, just tell them that it is not because we have to go on as if it is not hybrid”. I question whether that is a good thing for Governments to put into Bills. Perhaps the noble Lord will explain why that is done.
My next question is of much less concern. In explaining what the amendment is about, the Minister said that it is necessary because action might have to be taken on “certain urgent occasions”. Is that in case something goes wrong in another bank in the next 12 months—another urgent occasion when the Bill’s facilities need to be used? Or is it referring to Northern Rock, in relation to which another order or statutory instrument might need to be laid in the next few months? I would be grateful if the Minister can explain.
I find myself in an unusual situation regarding these amendments because I am not in complete agreement with my noble friend Lord Goodhart. On major issues in secondary legislation, I agree that one should as a general principle proceed by affirmative resolution. However, this is a very particular situation. One of the main arguments for going for an affirmative as opposed to negative resolution is to give Parliament time to think and to debate the issues. We have been thinking about and debating this issue for much longer this week than we ever would if we were simply considering secondary legislation introduced under the affirmative resolution procedure. Therefore, in the narrow case of Northern Rock, is there any advantage to Parliament, or to any of us as individuals, in having a debate on an affirmative resolution, which we could not amend, as opposed to the debates that we have been having this week? Is there or is there not an advantage for Northern Rock and for broader stability in resolving this matter very speedily indeed?
In this case, on balance and somewhat reluctantly, I accept the argument that a negative resolution which enables us to get to the end-point on Northern Rock at the earliest possible moment is desirable. Heaven knows, most of those who have spoken have said that one of the major arguments against the Government’s handling of the case has been their dilatoriness rather than their moving too swiftly.
As for any future circumstance, the likelihood of finding ourselves needing to go through this procedure again during the operation of the Bill is very limited and very unlikely. As discussed earlier, it is useful to have this guarantee—as the noble Lord, Lord Desai, described it—on the statute book, but we do not expect to use it. The Minister talked about what happens if we find ourselves unexpectedly requiring to use it in the depths of August. August, incidentally, is a peculiarly unfortunate month. If you plotted the history of great British economic disasters against calendar months, there would be a huge peak in August. That is undoubtedly the case, and no doubt there is a PhD in it. If we find ourselves, in the first week of August or at any point in that month, with a bank or building society unexpectedly in real difficulties, there will be a significant advantage in being able to move quickly without recalling Parliament. For those reasons we support the Government on this group of amendments.
I am grateful for these government amendments but, as I have pointed out before, it is unprecedented for a Government to ignore a recommendation from the Delegated Powers and Regulatory Reform Committee. It is all the more worrying that the Government are resisting the control of transfer orders in Clauses 3, 4 and 6. Even the Minister gracefully admitted that he had some difficulty with that. Although we all understand the ability of the noble Lord, Lord Goodhart, to take sides, his report stands before us.
We have listened carefully to the Government’s arguments for why these orders should remain under the negative procedure and remain unconvinced by them. The Government’s defence of inadequate amendments is another part of their gradual admission of what the Bill is for.
The wider points have been fully covered today by many noble Lords but they are relevant to these amendments, so I hope your Lordships will forgive me if I highlight them one more time. We promised that the necessary emergency provisions for the nationalisation of Northern Rock would pass through Parliament by the end of this week and we have now considered the Bill for three consecutive days in both Houses. We on these Benches and our honourable friends down the other end are quite happy to consider it again tomorrow, if necessary, to fulfil that commitment. However, what we have rushed through Parliament has been something completely different. We would almost be justified in rejecting the Bill outright, so far is it from what we were expecting. I hope the Minister and his colleagues in another place will acknowledge that at no point have we threatened to do so, nor have we taken anything other than a genuinely constructive approach to the proceedings.
These proceedings have been successful in a rather sad way, in that they have finally teased out of the Government their admission that the Bill is not just about Northern Rock but about the whole of the next year, a year in which they are clearly anticipating yet more instability and more crises in the financial sector. I state again, as I stated last night, that it is right and proper that Parliament should be involved in any future decision to nationalise another financial institution. The Government’s claim that they need to be able to instigate another nationalisation on the sly and the provisions that make that possible are far more damaging to the public confidence in our financial sector than any possible parliamentary involvement.
I accept that a normal affirmative resolution procedure may in some cases be too lengthy; however, the DPRRC has, in its customary thorough way, given a perfectly adequate alternative. We will be tabling amendments on Report to put the order-making powers in Clauses 3, 4 and 6 under the same sort of procedure as was implemented in the Northern Ireland Act 2000. That will allow the Chancellor, when he considers it expedient, immediately to make an order overriding the usual draft affirmative procedures, which would remain the default option.
The Minister will no doubt tell us that even this slight involvement of Parliament will make it impossible for the Government to effectively resolve a looming crisis. Is he also telling us that, if the Government had had the powers in the Bill last summer, Northern Rock would have been handled differently?
I have made my position clear. We will return to this issue on Report in the hope that the Government will finally acknowledge that either they are creating a man of straw in order to demand a big stick with which to beat it or they are cynically exploiting Northern Rock in order to grab exceptional powers on the sly.
The noble Lord has distinguished himself by his contributions so far both on Second Reading and in Committee, but his contention in the speech just delivered ill becomes him in light of the argument that I put forward on the Government’s behalf. I hope that that argument will be accepted. How can it be suggested in the wake of the months of assiduous work by the Government to avoid nationalising Northern Rock that they are about nationalisation on the sly? If there is one thing of which the Government cannot be accused, it is enthusiasm for nationalising the banking and building society structures.
As I have said on numerous occasions, the Bill’s provisions obtain for only 12 months to bridge the gap between the current position, where we have inadequate legislation to respond to potential emergencies—and I cannot emphasise enough that we are talking about emergencies—and the ability to take necessarily drastic and dramatic action to meet a threat to the financial system, such as a potential run on a bank or building society and the destabilisation of the financial markets.
That is the nature of the emergency addressed in the Bill. The Government do not intend to act when, as we all fervently hope and expect, such an emergency does not materialise in the next 12 months. But how imprudent would it be if we had nothing in place? The reason for the Bill’s temporary nature is that, after the 12 months, after the fullest consultation with the banking and financial sector and all other interested parties, and after the most intensive debate in the other place and undoubtedly in this place too, we are planning to produce a reform of the banking and financial system later in the year. But we have a gap in dealing with any potential emergency. We do not foresee using the provisions, but the nature of emergencies is that they cannot be foreseen. Equally, however, it is prudent to be able to cope if an emergency materialises.
As the Committee will recognise, the international financial market is disturbed and troubled. That is why all serious actors on the world stage are bending themselves in taking action to protect the world’s financial structures as best they can and to improve the position over the coming months. It is a challenge that all of us face internationally. It is a challenge that states also face nationally. This is the British Government’s proper response to an emergency that has already occurred with Northern Rock. We are merely being prudent in making provision for our ability to cope, if in fact such an emergency materialises. That is the basis of the Bill. It is why we are saying on this occasion that, if an emergency did occur, it would be different from any other kind of emergency to which the Delegated Powers Committee referred because of the sheer shortage of time in which a Government could act.
I recognise the consistency of the noble Earl, Lord Ferrers, in arguing that the Bill should have been conceived of in entirely different terms—that it should have applied only to Northern Rock and been a hybrid measure. If so, our solution to Northern Rock would have related to the somewhat distant future and we could not have dealt with the issue promptly now. In addition, such a Bill would contain no provisions about how to cope with troublesome times if an emergency occurred. We do not anticipate that one will—we cannot foresee any emergency—because, like the rest of the Committee and the rest of the country, we expect this country to get through these troubled times successfully. However, we would be exceedingly imprudent if, given the necessity of acting on Northern Rock, we did not at the same time make provision to enable us to cope with any such emergency.
My noble friend referred, as did many noble Lords, to the new legislation on banking supervision that we expect to see after this temporary legislation goes into the sunset. Will he consult his colleagues and consider whether, when that legislation is introduced, there should be a joint pre-legislative committee, as there was with the Financial Services and Markets Bill eight years ago? That would greatly facilitate the consideration of such legislation and the speed with which it could be passed. Will he take that back for consultation?
As ever, my noble friend produces a timely representation. I have been at pains to emphasise the need for the most extensive consultation before that legislation is prepared. That extends to ensuring that parliamentary consideration of it is sufficiently adequate and at its most effective. As my noble friend said, that might involve a pre-legislative committee—we have seen the advantages of that in relation to a number of previous Acts of Parliament, including the legislation to which he referred. I take that point on board with a degree—I use appropriate body language—of enthusiasm.
I asked the Minister whether he would be good enough to explain why, in an Act of Parliament—at least, the proposal is that this should be an Act of Parliament—it is suggested that if something appears to be hybrid, it should be treated as not being hybrid. That seems to be like saying that you should tell a lie.
It does not involve telling a lie but it introduces a complex concept, which the noble Earl is right to identify. He will recognise that we need to make orders with regard to one institution; namely, Northern Rock. The Bill is a general Bill with powers that go beyond the issue of Northern Rock, but we will have to act on the issue of Northern Rock. In moving such orders, we must avoid falling into the trap of hybridity. As has been indicated, that involves a range of difficulties. That is why the clause is expressed in the way that it is; it is not because of deceit but because of the need to enable a general Bill to deal with a specific problem. We all know that a great deal of this general Bill is about the specific problem of Northern Rock.
There is nothing particularly novel or unusual about including a dehybridisation clause. It was last used, as we said in our report, in the Building Societies (Funding) and Mutual Societies (Transfers) Act, which was passed in the previous Session.
If that was an intervention before I had sat down, I am unduly grateful for it.
Before the Minister does sit down, may I make a request that does not stem from the degree of learning that we have just heard from the noble Lord, Lord Goodhart? The Minister has insisted that the purpose of these powers is limited to some unforeseen although not perhaps unforeseeable emergency during the lifetime of the Bill within the sunset clause. The request that I am about to make comes from the decision that the Law Lords can have regard to what has happened in Parliament when determining the proper purpose of the Bill. In the light of that, is he prepared to give an express undertaking on behalf of the Government that these powers will not be used, save in the circumstances that he has envisaged time and again today and yesterday? He may not be able to give that express undertaking at the moment, but will he secure it at some later stage of the Bill?
I will take steps should the opportunity present itself.
I have been assured that my arguments, which were based on Clause 2 all the way through, are sufficient. I have argued the case for the necessary restrictions within Clause 2 about when the power is employed. That is sufficient to meet the noble and learned Lord's point. I know that we have been talking about the particular part of a potential order, but if the Committee does not mind I will refrain from trying to produce the multisyllabic word that the noble Lord, Lord Goodhart, used with such facility. We are proceeding with the order on the basis of precedent and the Government will need to make orders with regard to Northern Rock.
The reason I am hesitating is that the noble and learned Lord is well versed in the law and I am not a lawyer. I am also conscious of the fact that what people say from the Dispatch Box, particularly when questioned on the future interpretation of the law, is of the greatest significance. If the noble and learned Lord will forgive me, I will not present the issue further except to say that all the way through we have made it clear that Clause 2 has the restrictive features that guarantee that it is related only to the most obvious financial emergencies.
If his arguments are sufficient for the purpose that I have raised, what would the Government lose by giving an express undertaking?
Not very much, except that I was lacking the confidence to respond to him in quite that way. I give that explicit undertaking.
Is the Minister saying that Pepper v Hart will apply in determining hybridity?
I am somewhat stretched on that issue. Let me explain the purpose of this amendment. We are discussing here only the question of the orders. We may need to make an order which, as the noble Earl, Lord Ferrers, pointed out, would have a hybrid quality—namely; it would apply to only one institution. I have merely established the case for that.
Like the Minister, I am not a lawyer but my understanding of Pepper v Hart is that statements made at the Dispatch Box can be used subsequently in legal proceedings. I asked the question in respect of hybridity because the Minister is on record as saying that we are introducing this Bill with these wide powers in order to avoid the problem of hybridity. If Pepper v Hart applies to considerations of hybridity, and if I wanted to argue that the Bill was hybrid, I would point out that the Minister had told Parliament that he had made it this way in order to get round the problems of hybridity. That is rather like setting up tax-avoidance schemes with the express purpose of avoiding tax—something the Revenue tends to take as not being valid.
The noble Lord has been with us through many long hours, so he will recognise that I have all along argued for the Bill on two very obvious grounds. First, there are general purposes which apply for 12 months and will lapse. They are general because they apply to any conceivable institution in the event of an emergency which we do not anticipate and can therefore in no way, shape or form identify but merely make prudential legislation for. Secondly, there are the issues raised by Northern Rock. But because the Bill has these general objectives it is certainly not hybrid.
I do not wish to detain your Lordships long. We have had a very useful debate and I am particularly grateful to the noble Lord, Lord Eatwell, for his useful suggestion and also to my noble and learned friend Lord Mayhew. My amendments were not only about Northern Rock but also about future nationalisations. We fear that nationalisation may become like a drug to the Government. Having said that, while reserving the right to come back to this on Report, I beg leave to withdraw my amendment.
I apologise to the noble Lord. I may be no lawyer but I am reasonably competent on parliamentary procedure. These debates started on my amendment and therefore it is I who should wind up the debate.
On Question, amendment agreed to.
[Amendment No. 17 not moved.]
moved Amendment No. 18:
18: Clause 13, page 12, line 23, after “Act” insert “to which subsection (2A) does not apply”
On Question, amendment agreed to.
[Amendment No. 19 not moved.]
Clause 13, as amended, agreed to.
Schedules 1 and 2 agreed to.
In the Title:
[Amendment No. 20 not moved.]
Title agreed to.
House resumed: Bill reported with amendments.