Commons Chamber

House of Commons

Tuesday 19 February 2008

The House met at half-past Two o’clock

Prayers

[Mr. Speaker in the Chair]

Private Business

Bournemouth Borough Council Bill [Lords](By Order)

Order for Second Reading read.

To be read a Second time on Thursday 28 February.

Canterbury City Council Bill (By Order)

Order for Second Reading read.

To be read a Second time on Thursday 28 February.

Leeds City Council Bill (By Order)

Order for Second Reading read.

To be read a Second time on Thursday 28 February.

London Local Authorities (Shopping Bags) Bill (By Order)

Order for Second Reading read.

To be read a Second time on Thursday 28 February.

Manchester City Council Bill [Lords](By Order)

Order for Second Reading read.

To be read a Second time on Thursday 28 February.

Nottingham City Council Bill (By Order)

Order for Second Reading read.

To be read a Second time on Thursday 28 February.

Reading Borough Council Bill (By Order)

Order for Second Reading read.

To be read a Second time on Thursday 28 February.

Oral Answers to Questions

Foreign and Commonwealth Office

The Secretary of State was asked—

Afghanistan

Mr. Mark Harper (Forest of Dean) (Con)
1. If he will make a statement on political progress in Afghanistan.

Mr. Peter Bone (Wellingborough) (Con)
9. What progress has been made in the democratisation of Afghanistan.

The Secretary of State for Foreign and Commonwealth Affairs (David Miliband)
There are significant security challenges in Afghanistan, epitomised by the tragic death of a British soldier from the 2nd Battalion the Yorkshire Regiment on Sunday. However, there has also been significant political progress since 2001. Afghanistan has a constitution, and the first parliamentary elections for 36 years took place in 2005. The Interior Ministry has registered more than 80 political parties, and our Government have funding programmes to increase the participation of civil society in politics. The UK will continue to assist the Afghan Government to build on progress so far.

Mr. Harper
I join the Foreign Secretary in paying tribute to the British soldier killed at the weekend and offer our condolences to his family. Following the abortive attempt to appoint Lord Ashdown as the special representative of the United Nations Secretary-General, it all seems to have gone rather quiet on that front. Can the right hon. Gentleman give the House an update on progress? It is critical that all the key agencies working in Afghanistan are co-ordinated properly, so that we can build progress not just on the military front, but on the political front, and ultimately be successful.

David Miliband
As the hon. Gentleman knows, he is echoing the Government’s determination to see a strong political figure appointed to that role. The fact that it has gone quiet in the media and on the airwaves is probably a good thing rather than a bad thing, given the difficulties that arose with the previous suggested appointee. However, I assure the hon. Gentleman that in my discussions with President Karzai and the Secretary-General of the UN, I have stressed the importance of a timely and early appointment of a new special representative. I look forward to announcements when the Secretary-General and the Afghan Government have come to a conclusion. Like the hon. Gentleman, I think that that should happen sooner rather than later.

Mr. Bone
The men and women of Her Majesty’s armed forces are doing an extraordinary job in Afghanistan, and some are making the ultimate sacrifice. However, the total number of service personnel provided by Germany, Portugal, Greece, Ireland, Denmark, Norway, Belgium, Sweden, Spain and France is less than the total number of British troops deployed. What is the Foreign Secretary doing to ensure that our European allies bear their fair share of the burden in this fight for democracy?

David Miliband
The hon. Gentleman is right that the UK is the second largest contributor in Afghanistan, with some 7,800 troops. I agree with him that it is critical for all of NATO that there should be the increased burden sharing of which the Prime Minister has spoken. I also assure the hon. Gentleman that the NATO summit in Bucharest in April is an important occasion, and that there are intensive ongoing discussions in advance of it to ensure that there is a proper, increased deployment of troops from European and other countries, not least to help ensure that the Canadians continue their important work.

However, I am sure that the hon. Gentleman would also agree that it is not only through the extra deployment of overseas troops that progress will be achieved in Afghanistan. Critical, too, is the build-up of the Afghan national army and, of course, the economic, political and social development that must go side by side with military deployment.

Mrs. Ann Cryer (Keighley) (Lab)
Is my right hon. Friend aware that quite a number of hon. Members on the Labour Benches supported the invasion of Afghanistan, owing to our grave concerns about the treatment of women there? Will he therefore give us an update on the position of women in Afghanistan?

David Miliband
I am aware of my hon. Friend’s support in that regard. I think that she would agree that 25 per cent. of the MPs in the Afghan Parliament being women is a start, but that she would also agree that economic and social progress will be critical. One indicator is education, and under the misrule of the Taliban, education for girls was all but banned. The fact that, of the 5 million pupils now in school in Afghanistan, nearly half are girls is obviously a significant start to progress. I can assure my hon. Friend, however, that equal citizenship for all Afghan citizens must bridge the divide in life chances that exists between men and women, and our efforts are certainly dedicated to achieving that.

Richard Burden (Birmingham, Northfield) (Lab)
Does my right hon. Friend agree that one important factor in achieving sustainable political progress in Afghanistan will be the development of effective systems of sub-national governance, to enable people in the different regions and localities to have a real stake in building a future for democracy in their country? Will he tell me what action is being taken to promote that?

David Miliband
I strongly agree with my hon. Friend. He will be pleased to know that the decision last August by President Karzai to establish a dedicated national directorate of local governance—led by Mr. Popal, who has respect across the political spectrum in Afghanistan—has been a significant development. It is leading to neighbourhood level councils being established across the country, and I think that that is critical. After all, our own democracy was built from the bottom up, not from the top down. That should apply in Afghanistan as well as elsewhere in the world.

Sir Peter Tapsell (Louth and Horncastle) (Con)
In judging political progress in Afghanistan, has it occurred to the Foreign Secretary how disbelieving Mr. Attlee would have been if he had been warned that, 60 years after he had withdrawn the British Army from the Indian sub-continent, there would be a Labour Government so stupid as to send yet another undermanned, ill-equipped army to the north-west frontier, when, in the preceding century, the British Raj, with all its expertise in Pathan tribal politics, had never been able to pacify the area?

David Miliband
I think that the hon. Gentleman would agree with me that the late Lord Attlee was critical to the foundation of NATO. I think that he would have reflected on the fact that the end of the division in Europe was a signal event that allowed NATO to think beyond its traditional remit. I think that he would also have believed that the values for which we are standing up in Afghanistan are the values that brought him into politics in the first place. So, although I would not want to put words into his mouth, I think that he would rest happy with the knowledge of the efforts that this Government and others—with cross-party support, it has to be said—are using to try to do good in that important part of the world.

Tony Lloyd (Manchester, Central) (Lab)
Would not Mr. Attlee also have sent a strong message that he left India in order to provide a democratic basis for Indians to make decisions about their own future, just as this Government are trying to do in Afghanistan? Is not that also the message that we should be giving to our European partners? The earlier point raised by the hon. Member for Wellingborough (Mr. Bone) was right: we are not seeing enough commitment or recognition among our European partners that what is taking place in Afghanistan is about preventing the Taliban from coming back, about preventing the erosion of the rights of women, and about the ability to ensure that the Afghan people are in control of the destiny of Afghanistan.

David Miliband
The chairman of the parliamentary Labour party will know that Lord Attlee wrote a famous book called “Empire into Commonwealth”, which epitomised precisely such values. The Minister for Europe tells me that he read that book as a child, which explains a lot about his later political development—

John Bercow (Buckingham) (Con)
At nursery?

David Miliband
I am not sure whether it was at nursery; it was at a formative stage of his budding political career, at the age of eight, that my hon. Friend read it.

My hon. Friend the Member for Manchester, Central (Tony Lloyd) makes an important point, and I wholeheartedly agree with him. He will be pleased to know that, at the meeting of European Foreign Ministers yesterday, there was an extensive discussion about how the European policing mission could help to provide an important counterpart in Afghanistan, where a European police training operation is in evidence. It could be improved, however, and its co-ordination with NATO could also be improved. That is something that the European Union should be taking seriously.

Mr. James Gray (North Wiltshire) (Con)
The Secretary of State can judge the success of our political aims in Afghanistan only if we know precisely what they are. Perhaps he could take this opportunity to clarify them for us. Is the aim to reverse the awfulness of the Taliban, bearing in mind that the Taliban were our allies against Saddam in 1991? Is it to defeat al-Qaeda and to remove the international terrorists, of whom there are many hundreds in Afghanistan? Is it to eradicate the poppy crop, in which case we could be alienating the very people who ought to be our friends? Or are we trying to establish a Guildford style of democracy, with universal suffrage and gender balance? Will the Secretary of State please be clear about precisely what we are trying to achieve in Afghanistan?

David Miliband
Along with our international partners, we have a simple aim—for Afghanistan to be run by the Afghans and not to be influenced by outside foreign fighters inspired by al-Qaeda. The hon. Gentleman says that the Taliban were there in 1991, but I have to disagree with him about that. We can have a longer discussion about it, but our political aim is for democracy to take root in Afghanistan—though not necessarily Guildford-style democracy, as I would not want to speak on behalf of Guildford. Afghans should be able to run their own country; it is a very poor country, which deserves to be able to run its own affairs.

Mr. Tobias Ellwood (Bournemouth, East) (Con)
The Foreign Secretary made a mockery of the non-appointment of Lord Ashdown to co-ordinate international development. Will the right hon. Gentleman update the House on what is happening with that appointment? When this question was put to the Prime Minister, he ducked it and said it was a matter for the UN Secretary-General. Is not that an example of the sort of indecision that is adding to the problems of Afghanistan? If the fundamental lack of co-ordination between the international community and Afghanistan is not solved, we will see the country fall into civil war.

David Miliband
I can only believe that the hon. Gentleman was either not in his place or not listening when I answered the first question put by his hon. Friend the Member for Forest of Dean (Mr. Harper), because there was no mockery at all in respect of Lord Ashdown. We supported his candidacy, but in the end the new special representative must be acceptable both to the UN and to the Afghan Government. I can assure the hon. Member for Bournemouth, East (Mr. Ellwood) that we are talking to and working with the Government of Afghanistan and with the UN to ensure that a new special representative is appointed in a timely fashion. That is not a matter of mockery, but a matter of substance and urgency.

Mr. Keith Simpson (Mid-Norfolk) (Con)
The Foreign Secretary quite rightly pointed out that there were a number of positive aspects to what has happened in Afghanistan in the past, but all hon. Members are only too well aware of a series of more recent powerful reports from national and international bodies, including the International Development Committee, which conclude that Afghanistan is possibly beginning to tip towards failure. Will the Foreign Secretary clarify the strategy of the British Government in what is looking more like a crisis. I fear that there is an element of complacency in his attitude. If we wait cautiously and slowly for the appointment of the new special representative, the position may get completely out of hand, when it has already got far too serious for that to happen.

David Miliband
The situation is far too serious for complacency and I defy the hon. Gentleman to find any suggestion in anything that I or the Prime Minister have said that the challenges we face—security, economic and political—are anything other than extremely significant. We have made that clear in every article, speech or answer that we give, as I did in response to the first question today. However, it is not right to talk about the situation in Afghanistan tipping into chaos or failure. The analysis of the Select Committee on International Development and others, including the Senlis Council, is similar to the analysis set out by the Prime Minister in December, so it is a shared analysis of the economic, political and security concerns that apply in Afghanistan.

As to our own strategy, the Prime Minister set out a number of features. First, the Afghan leadership is important, as we are there to support the Afghans, not to create a colony. Secondly, we want to ensure that we build up the local governance, to which my hon. Friend the Member for Birmingham, Northfield (Richard Burden) referred earlier. Thirdly and critically, alongside the military effort, we are pursuing an economic and political effort to ensure that ordinary Afghans feel the benefits in their everyday lives. That is what we are trying to engineer. Fourthly, critical to that effort are the responsibilities of both the international community and the Afghan Government to each other: the international community must be better co-ordinated and the Afghan Government must clean up corruption and other problems that have stood in the way of making progress towards a solution in that country.

British Overseas Territories

Andrew George (St. Ives) (LD)
2. What services his Department provides to the residents of British overseas territories and Crown dependencies.

The Parliamentary Under-Secretary of State for Foreign and Commonwealth Affairs (Meg Munn)
The overseas territories have a significant degree of internal self-governance. In general, the Government of each territory is responsible for the provision of services to their residents. The UK Government are responsible for the territories’ defence, external relations and internal security. The Ministry of Justice is responsible for the UK’s relationship with the Crown dependencies.

Andrew George
I am grateful for that response, but how can Britain call on other countries to uphold human rights and basic freedoms when the Chagos islanders were unlawfully deported from their homes 40 years ago and denied the right to return—a right restored three times by the courts over the past seven years and appealed against by the Minister’s Department—and when Diego Garcia is being used by the US for extraordinary rendition?

Meg Munn
I make no excuses for what happened in the 1960s and 1970s. That was a dreadful situation. As for the present position, we concluded on the basis of a feasibility study commissioned in 2002 that lasting resettlement would be precarious. As the hon. Gentleman knows, however, the issue of settlement is subject to legal proceedings. We have appealed on the ground that the previous judgment would cause problems for the way in which we run our relationships with other overseas territories, not just the British Indian Ocean territories.

Jeremy Corbyn (Islington, North) (Lab)
Does the Minister accept that that was a deeply disappointing answer? The islanders were forcibly removed from their homeland, disgracefully and wrongfully, one of their islands has been taken over as an American base and possibly used for extraordinary rendition, and many of them have lived in poverty ever since their removal. Is it not time to give justice to the Chagos islanders? Is it not time to pay them appropriate compensation, and allow them to return to the homes from which they were so brutally removed?

Meg Munn
I have already said that I do not excuse what happened previously: in that respect I agree with the hon. Member for St. Ives (Andrew George). The matter is currently subject to a court process. Compensation has been paid—that has been legally agreed—and British citizenship given to all Chagos islanders. We await the outcome of the court hearing.

Mr. Paul Keetch (Hereford) (LD)
Can the Minister tell us when the agreement with the United States on the use of its bases on Chagos expires? Can she also tell us whether the renewal of that agreement requires the approval of Her Majesty’s Government, or whether it can be effectively continued by the United States without such approval?

Meg Munn
The agreement with the United States is continuing. At the moment there is no end date to that. It should mean that at the end of the period, if we no longer needed the British Indian Ocean territories, we would consider the rights of Mauritius.

Andrew Mackinlay (Thurrock) (Lab)
Why does the Foreign Secretary not take account of the mood of the House in respect of the Chagos islanders? Overwhelmingly the House wants this wrong remedied, and remedied with some expedition and dispatch.

Meg Munn
I understand the anger that hon. Members feel about what has happened, and I share their concern. The Government looked into whether it was possible to resettle the islanders. The feasibility study commissioned in 2002 said that lasting resettlement would be precarious and, if sponsored by the Government, would entail substantial open-ended contingent liability to the British taxpayer.

Richard Ottaway (Croydon, South) (Con)
The Minister will be well aware that the economy of Tristan da Cunha depends on the export of crayfish. Regrettably, however, despite being a British overseas dependent territory, it is denied access to European Union markets. Can the Minister explain why that is, and tell us what steps she is taking to remedy the position?

Meg Munn
It is true that the fish industry is extremely important to that territory, but I have had no recent discussions on the matter. It was not raised at the Overseas Territories Consultative Council. However, I will look into it further for the hon. Gentleman.

Zimbabwe

Sir Nicholas Winterton (Macclesfield) (Con)
3. What recent assessment he has made of the political situation in Zimbabwe, with particular reference to the forthcoming elections.

The Secretary of State for Foreign and Commonwealth Affairs (David Miliband)
Zimbabwe is suffering from an economic, humanitarian and political crisis for which President Mugabe is directly responsible. Although the election has been declared for 29 March, the conditions for it are far from free and fair. We are pressing for effective international monitoring and for states in the region to require the election to meet international standards, including those adopted by the Southern African Development Community itself.

Sir Nicholas Winterton
The Foreign Secretary will be aware that the imminent elections in Zimbabwe are critical to the welfare and well-being not only of the country as a whole, but of its people. My support for Zimbabwe and for an African democratic solution to its problems is well known to the House. What steps is the Foreign Secretary taking to ensure that the elections are, in an African context, as free and fair as is acceptable to the civilised world?

David Miliband
The hon. Gentleman’s long record of standing up for democracy and the interests of the people of Zimbabwe is well known. I would point him in three directions. First, it has been important to emphasise that there is a humanitarian crisis in Zimbabwe, which requires humanitarian action by the Department for International Development. Secondly, I would point at the support for the SADC movement, including in its election role. Thirdly, it is critical—not least given that there are 4 million refugees outside the country, which already calls into question the election processes and result—that we none the less support international demands from the European Union, the Commonwealth and elsewhere for proper observation missions that allow an on-the-ground assessment of how the election campaign and the election counting are conducted.

Dr. Julian Lewis (New Forest, East) (Con)
Having served his sentence in Zimbabwe, my constituent, Mr. Simon Mann, has been illegally handed over by Zimbabwe to a dictator in Equatorial Guinea who has promised to sodomise him, skin him alive and drag him through the streets of the capital city. What steps can the Government take against Zimbabwe for the outrageous breach of my constituent’s human rights when he was handed over before his appeal procedures were completed, and what assurance can there be for—

Mr. Speaker
Order. I think that the Secretary of State will have got the point by now.

David Miliband
I am sure that the hon. Gentleman will agree that our first priority is Mr. Mann’s immediate welfare and the legal case against him. That is why we have put such emphasis on consular access, which has now been granted, and on making representations to the Government of Equatorial Guinea in the UK. I am pleased that we have received assurances from the Equatorial Guinean authorities that Mr. Mann will be treated well in detention. Obviously, we are monitoring that through continued consular access. A number of welfare points were raised during the visit of 12 February. We are taking them up and, within the limits of what we are allowed to disclose by Mr. Mann’s family, I would be happy for the hon. Gentleman to see the explanations that we have received. He is right to raise both the humanitarian and the legal side of the case. Those are our current focus, and we can in due course turn to the role of the Government of Zimbabwe once Mr. Mann’s future has been determined.

Lisbon Treaty

Mr. Andrew Robathan (Blaby) (Con)
4. What discussions he has had with his EU counterparts on planned referendums on the treaty of Lisbon in other EU countries.

The Minister for Europe (Mr. Jim Murphy)
My right hon. Friend the Foreign Secretary and I have regular contact with our EU counterparts on numerous issues, including the Lisbon treaty.

Mr. Robathan
May I quote from a piece in Saturday’s edition of the Financial Times on the European Parliament and its legislation? The author writes:

“If we intervene as voters, we get spat on…I realised how cross I felt about the inter-governmental plot—there is no other word—to deny everyone a say on the new Lisbon Treaty, the rebranded version of the failed constitution killed off by French and Dutch referendums…The underlying assumption is that we’re far too stupid to understand.”

Does the Minister think the British people are too stupid to have the referendum that he promised them in his manifesto in 2005?

Mr. Murphy
Far from it. The fact is that only one country across the EU is having a referendum: our good friends in Ireland. The hon. Gentleman quotes from Saturday’s Financial Times. I thought he was going to quote his colleague, MEP Caroline Jackson, in yesterday’s Financial Times, who described his party’s policy as “a hopeless quest” and said that the party was developing

“a bad reputation…for crass and offensive behaviour”,

and she went on to describe his party’s European policy as a “patch of poisonous fungus”. The truth is that the Conservative party is more obsessed about, and isolated on, Europe now than at any time in modern history.

Mr. David Heathcoat-Amory (Wells) (Con)
How many EU countries that are not having referendums are led by governing parties that promised a referendum before an election and then broke that promise after the election, or is the UK unique in that respect?

Mr. Murphy
The right hon. Gentleman knows all about these issues, of course—[Interruption.]

Mr. Speaker
Order. Allow the Minister to answer.

Mr. Murphy
The right hon. Gentleman knows all about them from having been deputy Chief Whip during the Maastricht debacle. The fact is that nine countries—nine separate sovereign states—promised a referendum on the old constitution. Only Ireland intends to hold a referendum, on the basis that it is in adherence with its domestic 1937 constitution, which originates from the constitution of the Irish Free State of 1922 and a High Court ruling of 1987. Opposition Members should recognise that we have an entirely different domestic constitutional arrangement from that of our good friends in the Republic of Ireland.

Mr. Mark Francois (Rayleigh) (Con)
The Minister will know that I had the pleasure of visiting East Renfrewshire last week in support of the “I Want a Referendum” campaign, which is running a referendum in his constituency. I must tell him that a lot of his own constituents do not agree with him on this issue. He and his Government might continue to deny the British people the referendum that they were so clearly promised in Labour’s manifesto, but what will the Minister for Europe do if even his own constituents, who sent him to this place, vote against him on the issue?

Mr. Murphy
At the start of our debates and proceedings on the Lisbon treaty, I joked that I was looking forward to spending more time with the hon. Gentleman than with my own wife. He popped into my house last Friday to visit my wife—[Laughter.] I was not at home. Inexplicably, she had sent me out for the day. The constituent who lives with me, and I, have both decided to bin the ballot, and I believe that most of my constituents and those across the other nine areas where these local referendums are being held will do so too. They will recognise this as an expensive, ineffective publicity stunt by the Conservative party.

Smuggling (Gaza)

Mrs. Louise Ellman (Liverpool, Riverside) (Lab/Co-op)
5. What representations he has made to the Palestinian Authority on the prevention of smuggling into Gaza?

The Minister for the Middle East (Dr. Kim Howells)
Arms smuggling into Gaza remains a great concern. The United Kingdom has not made representations to the Palestinian Authority on this subject. We understand the problems that the authority has with Hamas, which seized control of Gaza nine months ago. However, we support the work of the Quadrilateral Committee, which consists of the Palestinian Authority, Israel, Egypt and the United States, and has been working closely to address the smuggling issue.

Mrs. Ellman
The people of Sderot are under daily bombardment from Gaza, a situation made possible by smuggled arms, by explosives disguised as humanitarian aid and by terrorists coming into Gaza from Iran, Syria and Egypt. Given that reply, will the Minister assure me that he will make renewed representations to both the Palestinian Authority and Egypt? Does he accept that the current representations are inadequate to deal with the growing humanitarian problem faced by the people of Gaza?

Dr. Howells
Yes, I can certainly give my hon. Friend that assurance. I can also tell her that my right hon. Friend the Foreign Secretary spoke to the Egyptian Foreign Minister this morning and that the border was mentioned in that discussion. We know of the conditions that people are suffering from in Sderot—more than 2,000 rockets and mortar rounds have been fired at that town since Hamas took over nine months ago. She is also right to highlight the terrible humanitarian plight of so many people living in Gaza. We are seeking to ameliorate that by urging the Israeli Government to ensure that adequate supplies of fuel oil, for example, are allowed into Gaza and the west bank.

Mr. Gary Streeter (South-West Devon) (Con)
Is it not true that the real losers are the people living in the Gaza strip? Given that any overall peace settlement between the west, the Israeli people and the Palestinian Authority must also include the authorities in Gaza, what is the British Government’s strategy for including them in such dialogue at some stage, whether that be through the Egyptian Government or otherwise? What is our thinking about that?

Dr. Howells
Our thinking is certainly that we support President Abbas, Prime Minister Fayyad and the negotiating team that is talking to the Israelis post-Annapolis. Hamas must renounce violence, and it must recognise the validity of existing agreements and the right of Israel to exist without being bombed and rocketed. If it does that, we would have no difficulty talking to its representatives. We want everybody to play a part in rebuilding Gaza and the west bank. That will not happen at the moment. We certainly have no intention of undercutting the authority of President Abbas and his Government.

Mr. Andrew Love (Edmonton) (Lab/Co-op)
The smuggling of arms is also happening in Lebanon, but little can be done about that while the crisis in that country continues. I understand that the Prime Minister of Lebanon is meeting our Prime Minister today, and that is welcome recognition, but what more will the Government do to bring that crisis to an end, so that we can have stability in that country?

Dr. Howells
I know that Lebanon is not that far from Gaza, but my hon. Friend is ingenious in raising that issue. He is right: one of the common variables is Syria, and we would like Damascus to stop supporting the rejectionists of the two-state solution. We would also like Damascus to stop supporting the smuggling of arms into Lebanon, which is in a very fragile state.

Mr. Brooks Newmark (Braintree) (Con)
Given that much of the smuggling into Gaza is done by the Bedouin tribes through deep tunnels, I am curious as to what conversations the Minister has had with his counterpart in Egypt about gaining greater control over the Bedouins and the smuggling that they are carrying out.

Dr. Howells
The area is not just open desert. There are large urban centres and the hon. Gentleman will know how difficult it was to stop smuggling in Berlin. It is not easy. The material goes down inside one house and emerges up through another house. It is very difficult to stop, and we have talked to the Egyptians about how they might control it. The best suggestion that I have heard so far is for a 20 ft deep trench on each side of the border. That would probably uncover about 50 tunnels.

Sir Gerald Kaufman (Manchester, Gorton) (Lab)
Is it not a fact that what was being smuggled into the Gaza strip from Egypt, while the opportunity was there, was food and fuel to ameliorate the starvation and the terrible poverty of the people of Gaza; that President Abbas’s influence in Gaza is nil; and that the stranglehold of Hamas over the Gaza strip, with terrible deaths among the Gaza people and the Israelis, will continue until a meaningful peace dialogue is started? It did not start at Annapolis and it will not start until pressure is put on both sides.

Dr. Howells
I certainly do not agree with my right hon. Friend that there is not a dialogue proceeding: I believe that there is one, and I am glad to see it happening. I agree with him that the images that we all saw on our televisions of Palestinians living in Gaza smuggling food back into the Gaza strip was a revelation that told us a lot about the situation inside Gaza and the desperate circumstances of its people. But as my hon. Friend the Member for Liverpool, Riverside (Mrs. Ellman) pointed out, the difficulty is that while food and other requirements are being smuggled in, so are arms. As the hon. Member for South-West Devon (Mr. Streeter) said, the people who are suffering as a consequence are the Palestinians living in Gaza, because they suffer from the blockades and the retaliation against those extremists who fire rockets and mortar rounds into Israel.

Dalai Lama

Norman Baker (Lewes) (LD)
6. What the arrangements are for the forthcoming visit of the Dalai Lama; and if he will make a statement.

The Parliamentary Under-Secretary of State for Foreign and Commonwealth Affairs (Meg Munn)
The Government are aware that the Dalai Lama is planning to visit the UK in May this year. The Dalai Lama’s representatives in the UK will make the arrangements for that visit.

Norman Baker
I am grateful to the Minister for that answer, as far as it goes. She will be aware of the significant concern on both sides of the House about China’s human rights record. Although Steven Spielberg’s comments about Darfur have taken the headlines, she will be aware of the gross abuse of human rights in Tibet and the fact that if Chinese migration continues, Tibet will be finished within 10 years as a possible nation state. Given that Angela Merkel, George Bush and the leaders of other countries have met the Dalai Lama, can the Minister say whether the Prime Minister intends to do so?

Meg Munn
As I have said, the visit is some way off and arrangements have not yet been made. Diaries will need to be consulted nearer the time. I assure the hon. Gentleman that we urge China to engage in serious negotiations with the Dalai Lama’s representatives to build a peaceful, sustainable and legitimate solution for Tibet.

Harry Cohen (Leyton and Wanstead) (Lab)
May I urge the Minister and the Government to meet the Dalai Lama when he visits this country? I welcome the fact that the Government have turned from the Prescott philosophy, which is that we cannot tackle China on human rights, to doing so when it matters on issues such as Darfur. It matters over Tibet, too. The Government’s policy is that there should be autonomy for Tibetans and the Dalai Lama is the representative of most Tibetans. I urge the Minister, in a gentle way, to ensure that the leaders of this Government meet him when he comes to this country.

Meg Munn
We take very seriously the issue of human rights and China. The UK-China human rights dialogue took place at the end of January and included a field trip to Tibet and calls on a range of administrative bodies in the Tibet autonomous region. We are keen to ensure that work is ongoing to improve human rights and we will continue that dialogue with China.

Mark Pritchard (The Wrekin) (Con)
When the Minister next meets her Chinese counterpart, will she remind him that the people of Tibet do not want independence but autonomy and cultural protection? In that regard, does she agree with the 14th Dalai Lama that the next Dalai Lama should be chosen by the people of Tibet through a referendum, not imposed by a regime in Beijing that has no regard for religious minorities?

Meg Munn
I assure the hon. Gentleman that my noble friend Lord Malloch-Brown, who has responsibility for our relationships with China, raises issues of human rights regularly with his counterpart. We continue to regard Tibet as autonomous while recognising the special position of the Chinese authorities there, and we make those points when we meet them.

Darfur

Chris McCafferty (Calder Valley) (Lab)
7. What assessment he has made of the political situation in Darfur; and if he will make a statement.

The Parliamentary Under-Secretary of State for Foreign and Commonwealth Affairs (Meg Munn)
Sustainable peace in Darfur can be achieved only through the political process under United Nations and African Union leadership. But fighting between Sudanese forces and rebels makes the situation increasingly complex and the consequences for civilians increasingly dire. We call on the parties to uphold a ceasefire and we are supporting attempts to reinvigorate the political process. We are also pushing for the accelerated deployment of the UN-AU force.

Chris McCafferty
I thank the Minister for that reply. Given the necessity of helicopter units to the UN-African Union Mission in Darfur and the Government’s preparedness to underwrite the costs to other countries of donating helicopter assets, has the Minister had any dialogue with her counterparts in Ukraine and Russia about that possibility?

Meg Munn
As my hon. Friend says, the issue of helicopters is enormously important. The UK convened meetings in New York on 16 and 30 January in support of the UN to discuss approaches to generating helicopter units for UNAMID. The representatives of more than 20 countries attended that meeting. My noble friend Lord Malloch-Brown also visited New York last week to press for rapid effective deployment of UNAMID, and those issues were raised then.

Mr. Edward Davey (Kingston and Surbiton) (LD)
Although the Minister’s answer is welcome, does she realise that Ethiopia has managed to find five helicopters for Darfur whereas the UK Government, the US and all the NATO and EU countries have not managed to provide a single helicopter? Are not the people of Darfur entitled to ask what has happened to the Government’s many promises of help and support? I asked a similar question to the Foreign Secretary six weeks ago, and he told me he shared my sense of urgency. Is it not time that the Government acted urgently, got the helicopters deployed and did not leave all the efforts to American actors and film directors?

Meg Munn
I am sorry that the hon. Gentleman does not recognise the huge effort from the UK to support the mission, as well as the substantial financial support that is being offered. We have lobbied hard to close remaining gaps in helicopter provision. We have targeted Egypt, South Africa and the central European states, including, as my hon. Friend the Member for Calder Valley (Chris McCafferty) mentioned, Ukraine, as well as Bulgaria and Slovakia. The issue is that the helicopters need to be suitable for the circumstances and the terrain in Darfur. We need those helicopters, and it is important that we keep trying to get them as soon as possible.

John Bercow (Buckingham) (Con)
Too many people have suffered too much for too long with too little done to help them in Darfur. Given that foot-stamping by the Sudanese Government has thus far acted as an effective veto on the necessary AU-UN troop deployment to the region, will the Under-Secretary of State tell the House, on a scale of one to 10, what she reckons is the likelihood that that necessary deployment will take place before the genocide of Darfurians has been completed?

Meg Munn
I know that the hon. Gentleman rightly takes a great interest in this issue, and we share his concern about the slow process of deployment. Some 10,000 people—7,000 of them troops—have already been deployed to Darfur, but we want more to happen, and more quickly. We have concerns about the Sudanese Government blocking part of the deployment, and we continue to press them about that. We also have concerns about the rebel groups’ failure to take part in the political talks that must take place alongside the peacekeeping process.

Mr. Barry Sheerman (Huddersfield) (Lab/Co-op)
My hon. Friend’s response to the earlier question was a little bleak and depressing for all of us who care about the continuing misery in Darfur. Is there no way ahead? Is there not even a way to have an intelligent dialogue with the Chinese to try and break the deadlock in Darfur?

Meg Munn
My hon. Friend raises an important point. The Chinese special representative for Sudan and Africa will meet my hon. Friend the Minister for the Middle East later this week. Let us be clear: the Government are providing a great deal of support for the process. We have made available £1 million to the AU-UN joint mediation support team, and we are the second largest bilateral humanitarian donor to Sudan.

Mr. David Lidington (Aylesbury) (Con)
Given that only 9,000 of the promised 26,000 peacekeeping troops have been deployed in Darfur, and that more than 250,000 Darfuris have had to flee their homes in the past 10 months alone, does not the Minister accept that we need rather more than warm words and further meetings, and that our Government must show diplomatic leadership? Will the British Government now press for further sanctions against the Sudanese leadership if they continue to block the deployment of the full peacekeeping force? In addition, will our Government seek to impose an air exclusion zone so that the Sudanese can be prevented from using their aircraft to attack their own people?

Meg Munn
I do not accept the views that the hon. Gentleman is putting forward. We are taking a lead on the matter, and pressing very hard for a full deployment. As I am sure that he recognises, it is very important that other countries in the international community play their part and get involved. Further sanctions are, of course, an option, and tougher measures may be necessary if the Government of Sudan and the rebel groups continue to fail to co-operate.

Topical Questions

Mr. Lindsay Hoyle (Chorley) (Lab)
T1.  If he will make a statement on his departmental responsibilities.

The Secretary of State for Foreign and Commonwealth Affairs (David Miliband)
The House will know that on 17 February the Parliamentary Assembly of Kosovo declared Kosovo to be an independent state. The declaration also committed Kosovo to implement fully UN Special Envoy Ahtisaari’s comprehensive proposal, including extensive safeguards for all Kosovo’s minorities.

The UK has decided to recognise Kosovo’s independence and establish diplomatic relations with that country. I have set out more details in a written statement that I have put before the House today, but I shall take this opportunity to underline three factors that have driven our approach.

First, we share the view that leaving Kosovo’s status unresolved is “unsustainable”, to quote the UN Secretary-General. Secondly, after almost two years of intensive negotiations, it was clear that a mutually agreed settlement between Belgrade and Pristina, although desirable in many ways, was out of reach. In those circumstances, the implementation of the UN special envoy’s proposals was the most viable way forward. Thirdly, the EU and other international players have made clear their readiness to play a leading role in implementing a settlement—a point demonstrated by yesterday’s unanimous Council conclusions.

We shall work closely with our international partners and Kosovo’s Government to support Kosovo as she takes her next steps forward.

Mr. Hoyle
My right hon. Friend has received a request from the overseas territories that they be allowed to lay a wreath at the Cenotaph. Discussions have taken place with his Department, and I do not believe that his ego is so great that he will not recognise that the overseas territories have a right to lay a wreath at the service, given that their people have given, and continue to give, their lives on behalf of our armed forces. Will he give in and allow the overseas territories to lay the wreath themselves?

The Parliamentary Under-Secretary of State for Foreign and Commonwealth Affairs (Meg Munn)
As my hon. Friend knows, the Secretary of State lays a wreath on behalf of the overseas territories at the service at the Cenotaph. There are no plans at present to change that arrangement.

Mr. William Hague (Richmond, Yorks) (Con)
With reference to Kosovo, may I agree with the Foreign Secretary? Nearly two years of negotiations between Belgrade and Pristina failed to reach agreement, so the supervised independence of Kosovo, in line with the Ahtisaari plan, became the only realistic way forward. However, will the right hon. Gentleman make it clear to Kosovo’s leaders that the widespread support here in Britain for that country’s independence depends crucially on one thing above all—the full protection of the rights of all minorities, including property and religious sites? If that protection is supplied, the dark fears of the past in that region will not be ignited again.

David Miliband
I am grateful to the right hon. Gentleman for his constructive and supportive attitude to this difficult issue. I absolutely assure him that the spirit as well as the letter of the Ahtisaari plans is important to us. The cultural and religious sites that he mentions are important to many of the Kosovar Serbs, who are not simply in the north of the country but also in the south. I assure him that, both in our contacts with the new Kosovan Government and in my statement yesterday, I was clear about the importance of this aspect of the Ahtisaari plan.

Mr. Hague
On a separate issue, may I return the Foreign Secretary to the Prime Minister’s speech at the lord mayor’s banquet on 12 November on foreign policy, which called for EU sanctions on the Iranian financial sector and on investment in Iranian oil and gas fields? Iran is now thought to be nearing the threshold for the industrial enrichment of uranium. It continues to develop ballistic missile programmes. Does he agree that the issue has lost none of its urgency since the Prime Minister spoke? Can he say whether sanctions in line with those called for by the Prime Minister are ever going to be agreed, or is there now a danger that western policy on Iran has begun to unravel?

David Miliband
Far from unravelling, the “western” policy that the right hon. Gentleman describes now has the formal support of China and Russia as well, as a result of the E3 plus 3 meeting in Berlin and other discussions that I and other colleagues have been having. He is right to continue to point to the importance of this issue and to stress that there is a clear choice for Iran. It can either work with the international community and reap all the economic, scientific and technological benefits of such co-operation, or defy three successive UN Security Council resolutions—another one is in the pipeline—and suffer the consequences. I believe that the sanctions to which the Prime Minister referred remain important. The UN is in the lead this month with a resolution soon to be tabled, and it will be for the EU then to follow. I might point out that EU sanctions currently go beyond what is required by the UN resolution currently in place.

Paddy Tipping (Sherwood) (Lab)
T4.  Yesterday’s elections in Pakistan were significant. Will it not be important to maintain good relationships with the current President and develop new ones with the incoming Government? What did the British Government do yesterday to ensure that the elections were free and fair?

David Miliband
My hon. Friend makes an important point. The election results to be announced in Pakistan over the next week or so matter to us all, and the credibility of those results is critical to this country. I can assure my hon. Friend that we worked closely with the Government of Pakistan on the detailed arrangements in 64,000 polling stations for which they had responsibility, and the importance of due process in those polling stations. The EU observer mission will be reporting later today, but I am sure it is gratifying for the whole House that despite, by our standards, large loss of life and injury over this weekend of voting, the allegations of electoral fraud seem to be small in number. There seems to be some confidence that, now that the governing party has indicated that it expects to spend time on the Opposition benches, the election results will carry credibility. I certainly intend to follow that up as the new Government are put into place.

Mr. Andrew Mackay (Bracknell) (Con)
T2.  What did the Foreign Secretary make of Vladimir Putin’s belligerent final presidential press conference? What read-across does it have for Kosovo, bearing in mind the welcome news of this weekend?

David Miliband
I would like to have a longer chance to discuss British relations with Russia, but specifically in respect of the western Balkans, President Putin, soon to be Prime Minister Putin perhaps, made it clear that he did not propose to take action in respect especially of the Georgian provinces of South Ossetia and Abkhazia. That is important.

In respect of Kosovo, the Russian position has been made clear at the UN Security Council and elsewhere. Diplomatic protests and political views are welcome, but it is important on the basis of my discussions this morning with the new British ambassador in Pristina that the situation in Kosovo is calm. The continuation of electricity and other supplies is giving confidence to people there that the situation will remain calm.

Ms Katy Clark (North Ayrshire and Arran) (Lab)
T6.  My right hon. Friend will be aware that Colombia is considered the most dangerous country in the world in which to be a trade unionist. Last August, I went with a delegation of British trade unionists and parliamentarians to Colombia to meet victims of human rights abuses. While we were there, we met many trade unionists who had been detained in jail without trial for lengthy periods for their trade union activities. One of them was Carmen Mayusa, who has been detained in custody without trial since 11 May 2006 for being involved in campaigns against the privatisation of the Colombian health service—

Mr. Speaker
Order. I am expecting briefer supplementaries.

Ms Clark
I appreciate that.

Mr. Speaker
It was a hint to the hon. Lady.

The Minister for the Middle East (Dr. Kim Howells)
My hon. Friend is quite right; Colombia is a very dangerous place. I met the chairman of the Colombian TUC on my last visit to Bogota, and a large delegation of Colombian trade unionists will come to this country shortly. We will discuss with them how we can help to ensure the security of trade unionists in Colombia. I add that the people who are murdering the most trade unionists in Colombia are not the Colombian Government but FARC.

Norman Baker (Lewes) (LD)
T3.  Yesterday saw the publication of the first version of the dossier that took us to war in Iraq. It is quite clear that it was written by a Foreign Office press officer, yet in May 2003 Downing street said:“Not one word of the dossier was not entirely the work of the intelligence agencies”,and much of the wording from the first version is replicated in the final version. When will the Foreign Secretary correct that totally wrong statement, and when will we have a proper inquiry into why we were led into an illegal war in Iraq contrary to British interests?

David Miliband
I certainly continue to believe that the September 2002 publication was the work of the intelligence services. The fact that both that document and the so-called Williams draft drew on similar intelligence material explains why the wording, to use the hon. Gentleman’s phrase, is so similar. It seems to me that he and the Government have a difference of opinion about the Iraq war, but the publication of the Williams draft puts to bed many of the phantom scare stories put around about the origins of various aspects of the September 2002 document, not least of which is the so-called 45-minute claim, which he will now see was never in the Williams draft.

Mr. John Baron (Billericay) (Con)
T5.  Further to that question, given that the Foreign Secretary has been forced to publish the Williams draft of the Iraq dossier, will he now reverse his previous refusal to answer the key questions that his Department has been avoiding during the past three years, including who authorised John Williams to produce the draft, who it was handed to and who commented on it? Otherwise, the Government’s continued evasiveness on the issue can only create the further impression that they have something to hide.

David Miliband
The hon. Gentleman has pursued the issue for a long time, but now that the document has been published, I do not see how he can refer to evasiveness in respect of its contents. We do not know who wrote the marginalia and comments; that was made clear yesterday, not least by John Williams. Now that the document is in the public domain, it would be as well for the hon. Gentleman and his colleagues to recognise that publication has taken place and that we can debate what was in the dossier.

However, it remains important that draft documents and discussion within Government should be free and frank. It cannot be the case that officials believe that everything that they write down will go into the public domain. They must be able to advise Ministers without fear or favour, and it was that important point of principle that the Government were defending. [Interruption.] The hon. Gentleman can speak to me afterwards, as I did not hear what he said. There has been the publication of—

Mr. Speaker
Order. May I stop the Secretary of State there?

Tony Lloyd (Manchester, Central) (Lab)
T10.  The world has been rightly preoccupied with the situation in Kenya. Both the previous and the present UN Secretary-General have been involved, and President Bush visited recently. However, in neighbouring Somalia the situation is absolutely desperate. The warlords are still in control, and the peace process and the reconstruction of the Government have not gone anywhere significant. If I were to advise Osama bin Laden where to look for the next failed state, Somalia would be high on the list. Will the British Government give us some assurance that we will play our role at the international level so that concentration through the African Union is devoted to ensuring that Somalia is reassembled and given the opportunity to function as a modern state?

The Minister of State, Foreign and Commonwealth Office (Mr. Jim Murphy)
My hon. Friend is correct. Somalia is generally regarded as being, perhaps, the world’s only current failed state. It has had 16 years of brutal violence and is indeed a human tragedy. My hon. Friend will rightly continue to raise the matter. We are determined to play our part in the international community and also with the transitional federal Government to make sure that there can be effective governance and a degree of reconciliation, and to ensure that those 16 years of violence are brought to an end.

Mark Pritchard (The Wrekin) (Con)
T9.  Does not the Simon Mann case underline the folly and short-sightedness of the Government in closing missions and embassies all over Africa? Twenty-three African nations have no British diplomatic representation at all, including Equatorial Guinea. Will the Minister give a commitment that Mr. Mann’s rights will not be undermined as a result of the Government’s short-sightedness?

Meg Munn
The Government consider carefully where we have our diplomatic missions and we make sure that there are appropriate arrangements for consular support wherever British citizens are in the world. As the hon. Gentleman knows, HM consul in Lagos travelled to Malabo on 5 February and subsequently was able to visit Mr. Mann in prison in Malabo on 12 February. He will continue to keep in contact with Mr. Mann, and we will continue to provide excellent consular services to all British citizens wherever they are in the world.

Ann Clwyd (Cynon Valley) (Lab)
The UN special envoy on Burma is touring ASEAN—Association of South East Asian Nations—countries in an attempt to get them to act together in relation to Burma, and he has confirmed that India and China have the most leverage over Burma. What influence are we exercising over India and China to get them to exercise that leverage?

Meg Munn
My right hon. Friend is right. The role of India and China in seeking to influence what takes place in Burma is enormously important. The topic of Burma is raised whenever we have contact through my noble Friend Lord Malloch-Brown in relation to China and India. The Prime Minister raised the matter when he was in China, and my right hon. Friend the Foreign Secretary will also do so on his visit to China.

Royal Assent

Mr. Speaker
I have to notify the House, in accordance with the Royal Assent Act 1967, that the Queen has signified her Royal Assent to the following Act:

European Communities (Finance) Act 2008.

BILL PRESENTED

Banking (Special Provisions)

Mr. Chancellor of the Exchequer, supported by the Prime Minister, Secretary David Miliband, Secretary Jack Straw, Mr. Secretary Hutton, Yvette Cooper, Jane Kennedy, Angela Eagle and Kitty Ussher, presented a Bill to make provision to enable the Treasury in certain circumstances to make an order relating to the transfer of securities issued by, or of property, rights or liabilities belonging to, an authorised deposit-taker; to make further provision in relation to building societies; and for connected purposes: And the same was read the First time; and ordered to be read a Second time and to be printed. Explanatory notes to be printed. [Bill 73].

Allotments (Planning)

15:33:00

Tony Baldry (Banbury) (Con)
I beg to move,

That leave be given to bring in a Bill to encourage local authorities to make provision for allotments; to require them to consider imposing duties on developers to provide land for statutory allotments when determining planning applications; and for connected purposes.

I am glad of the opportunity to introduce a Bill on allotments that has support across the House, the proposed sponsors all being members of the all-party horticultural group, a number of whom, such as the hon. Member for Islington, North (Jeremy Corbyn) and me, being fortunate enough to be allotment holders.

Allotments have long been enshrined in law. The General Inclosure Act 1845 enabled allotments to provide fresh fruit and vegetables for the “landless poor”. This year we celebrate the centenary of the Act of Parliament that placed a duty on local authorities to make provision for allotments for the use of local people—the Small Holdings and Allotments Act 1908, which is still in force. It places a duty on local authorities to provide sufficient allotments according to demand and also makes provision for local authorities compulsorily to purchase land to provide allotments. The 1908 Act states that if local authorities

“are of the opinion that there is a demand for allotments...in the borough, district or parish the council shall provide a sufficient number of allotments to persons...resident in the borough, district or parish and desiring the same”.

In recent years, there has been a surge in the number of people wanting to work their own allotments. Last year, for example, the London Assembly published a survey entitled “A Lot to Lose: London’s disappearing allotments”. It found that in London alone, more than 4,300 people—3,000 more than 10 years ago—were on allotment waiting lists.

A similar picture can be found in every part of England, given that more and more people want the opportunity to work an allotment. The profile of those launching allotments is changing. Women and young families are increasingly active on the issue, and members of ethnic minorities are often keen to grow their own vegetables. As the chair of Friends of Windmill Allotments in Lambeth recently observed, allotments are

“a scarce, popular and oversubscribed local resource which besides food growing and cutting food miles, contributes to biodiversity targets, decreasing CO2 emissions etc.”

Those who have allotments, and those who would like to, have a love of gardening and a desire to grow better produce than can be bought. They may want to grow their own vegetables or flowers. A century after the passing of the 1908 Act, we should all champion allotments on grounds of health, the environment, community relations and ethnic diversity.

There is, however, a difficulty. I seek to introduce the Bill because as demand for allotments increases, the number of available plots is decreasing. The London Assembly survey found that 54 football pitches’ worth of allotments had recently been lost in London. Again, the picture is pretty much the same throughout the country. Sites are being chipped away a bit at a time, and that is leading to spiralling waiting lists. All too often, waiting lists are counted in years or even decades. The London borough of Camden, for example, has a 10-year allotment waiting list, and three years or more is not unusual across the country. Many councils are having to halve the size of traditional allotment plots to ensure that more families can move off waiting lists, but the reality is that councils need to find extra land for allotments so that more people can benefit.

It is true that existing allotments have some statutory and regulatory protection. In February 2002, the Government issued a circular to chief executives of all local authorities in England. It stated:

“As you know, the Government is committed to ensuring adequate protection is afforded to allotments. The Allotments Act 1925 requires that statutory allotment land only be disposed of with the Secretary of State’s consent”.

However, notwithstanding attempts to protect them, all too many allotments are disappearing and even fewer new ones are being created. Geoff Stokes, secretary of the National Society of Allotment and Leisure Gardeners, has observed:

“In general, few new sites have been set up and those that have are mainly by parish councils”.

Under section 3 of the Allotments Act 1925, there used to be a requirement for every local authority preparing a town planning scheme in pursuance of the Town Planning Act 1925 to consider what provision ought to be included for the reservation of land for allotments. The section also required every council whose district was in the area of a town planning scheme to take into consideration at least once a year whether any lands—and if so, which—were needed for allotments and should be acquired in accordance with the Allotments Acts. At one stage, once a year, every local authority in England had to consider whether it was making a sufficient allocation and enough space for allotments. Alas, when the 1925 Act was repealed, that provision to consider the need for new allotments was also lost.

The Bill seeks to redress the balance. Even when councils are keen to establish new allotments, it is not always easy for them to find and acquire the land. For example, Bicester town council in my constituency has a three-year waiting list for allotments. Debbie Pickford, the leader of the council, is keen to increase the number of available allotments, but with the extraordinary pressure on any available land in the town the council is unlikely to be able to acquire land for allotments at a price that it can afford. In recent years, there has been consistent pressure on all local authorities to dispose of any surplus land, so few local authorities nowadays have surplus land of their own to convert into allotments.

The Bill proposes that under the Planning and Compensation Act 1991, which amended the Town and Country Planning Act 1990, when local authorities are considering planning applications for large developments and what it might be appropriate for developers to provide under section 106 agreements, they are obliged to consider, akin to the 1925 legislation, whether there is a need for the developers to make provision for allotments either on that site or on land elsewhere. In another place on 27 November 2006, Baroness Andrews, a planning Minister, confirmed, in response to Baroness Scott of Needham Market, that section 106 agreements have enabled developers to make provision for allotments. However, the sponsors of the Bill are concerned that such consideration is not being made on a regular or consistent basis across England. We need to see opportunities for new allotment sites.

I am fortunate to have an allotment near Banbury railway station. If one visits allotments at the weekend one will almost certainly find them full of younger people and families. Allotments are in big demand for growing fruit, flowers and vegetables, or just as a great way to chill out. In this, the centenary year of the Smallholdings and Allotments Act 1908, it would be very good if this House and the Government found the way and the will to enable new allotments to be created to meet spiralling demand and to expand allotment availability as we go into the 21st century. I commend this modest measure to the House.

Question put and agreed to.

Bill ordered to be brought in by Tony Baldry, Ben Chapman, Robert Key, Mr. Brian H. Donohoe, Mrs. Gwyneth Dunwoody, Mr. David Wilshire, Mr. David Marshall and Jeremy Corbyn.

Allotments (Planning)

Tony Baldry accordingly presented a Bill to encourage local authorities to make provision for allotments; to require them to consider imposing duties on developers to provide land for statutory allotments when determining planning applications; and for connected purposes: And the same was read the First time; and ordered to be read a Second time on Friday 14 March, and to be printed [Bill 68].

Business of the House (Banking (Special Provisions) Bill)

15:43:00

The Chief Secretary to the Treasury (Yvette Cooper)
I beg to move,

That the following provisions shall apply to the Banking (Special Provisions) Bill:

Timetable 

1.—(1) Proceedings on Second Reading, in Committee, on consideration and on Third Reading shall be completed at this day’s sitting in accordance with the following provisions of this paragraph.

(2) Proceedings on Second Reading shall (so far as not previously concluded) be brought to a conclusion at 8 p.m.

(3) Proceedings in Committee shall (so far as not previously concluded) be brought to a conclusion at 10.30 p.m.

(4) Proceedings on consideration and on Third Reading shall (so far as not previously concluded) be brought to a conclusion at midnight.

Timing of proceedings and Questions to be put 

2.—(1) As soon as the proceedings on the Motion for this Order have been concluded, the Order for the Second Reading of the Bill shall be read.

(2) When the Bill has been read a second time—

(a) it shall (notwithstanding Standing Order No. 63 (Committal of bills not subject to a programme order)) stand committed to a Committee of the whole House without any Question being put;

(b) proceedings on the Bill shall stand postponed while the Question is put, in accordance with paragraph (1) of Standing Order No. 52 (Money resolutions and ways and means resolutions in connection with bills), on any financial resolution relating to the Bill;

c) on the conclusion of proceedings on any financial resolution relating to the Bill, proceedings on the Bill shall be resumed and the Speaker shall leave the Chair whether or not notice of an Instruction has been given.

3.—(1) On the conclusion of proceedings in Committee, the Chairman shall report the Bill to the House without putting any Question.

(2) If the Bill is reported with amendments, the House shall proceed to consider the Bill as amended without any Question being put.

4. For the purpose of bringing any proceedings to a conclusion in accordance with paragraph 1, the Chairman or Speaker shall forthwith put the following Questions (but no others)—

(a) any Question already proposed from the Chair;

(b) any Question necessary to bring to a decision a Question so proposed;

(c) the Question on any amendment moved or Motion made by a Minister of the Crown;

(d) any other Question necessary for the disposal of the business to be concluded.

5. On a Motion so made for a new Clause or new Schedule, the Chairman or Speaker shall put only the Question that the Clause or Schedule be added to the Bill.

6. If two or more Questions would fall to be put under paragraph 4(d) in relation to successive provisions of the Bill, the Chairman shall instead put a single Question in relation to those provisions.

Consideration of Lords Amendments 

7.—(1) Any Lords Amendments to the Bill shall be considered forthwith without any Question being put.

(2) Proceedings on consideration of Lords Amendments shall (so far as not previously concluded) be brought to a conclusion one hour after their commencement.

8.—(1) This paragraph applies for the purpose of bringing any proceedings to a conclusion in accordance with paragraph 7.

(2) The Speaker shall first put forthwith any Question already proposed from the Chair and not yet decided.

(3) If that Question is for the amendment of a Lords Amendment the Speaker shall then put forthwith—

(a) a single Question on any further Amendments to the Lords Amendment moved by a Minister of the Crown, and

(b) the Question on any Motion made by a Minister of the Crown that this House agrees or disagrees to the Lords Amendment or (as the case may be) to the Lords Amendment as amended.

(4) The Speaker shall then put forthwith—

(a) a single Question on any Amendments moved by a Minister of the Crown to a Lords Amendment, and

(b) the Question on any Motion made by a Minister of the Crown that this House agrees or disagrees to the Lords Amendment or (as the case may be) to the Lords Amendment as amended.

(5) The Speaker shall then put forthwith the Question on any Motion made by a Minister of the Crown that this House disagrees to a Lords Amendment.

(6) The Speaker shall then put forthwith the Question that this House agrees to all the remaining Lords Amendments.

(7) As soon as the House has—

(a) agreed or disagreed to a Lords Amendment, or

(b) disposed of an Amendment relevant to a Lords Amendment which has been disagreed to, the Speaker shall put forthwith a single Question on any Amendments moved by a Minister of the Crown and relevant to the Lords Amendment.

Subsequent stages 

9.—(1) Any further Message from the Lords on the Bill shall be considered forthwith without any Question being put.

(2) Proceedings on any further Message from the Lords shall (so far as not previously concluded) be brought to a conclusion one hour after their commencement.

10.—(1) This paragraph applies for the purpose of bringing any proceedings to a conclusion in accordance with paragraph 9.

(2) The Speaker shall first put forthwith any Question which has been proposed from the Chair and not yet decided.

(3) The Speaker shall then put forthwith the Question on any Motion made by a Minister of the Crown which is related to the Question already proposed from the Chair.

(4) The Speaker shall then put forthwith the Question on any Motion made by a Minister of the Crown on or relevant to any of the remaining items in the Lords Message.

(5) The Speaker shall then put forthwith the Question that this House agrees with the Lords in all the remaining Lords Proposals.

Reasons Committee 

11.—(1) The Speaker shall put forthwith the Question on any Motion made by a Minister of the Crown for the appointment, nomination and quorum of a Committee to draw up Reasons and the appointment of its Chairman.

(2) A Committee appointed to draw up Reasons shall report before the conclusion of the sitting at which it is appointed.

(3) Proceedings in the Committee shall (so far as not previously concluded) be brought to a conclusion 30 minutes after their commencement.

(4) For the purpose of bringing any proceedings to a conclusion in accordance with sub-paragraph (3), the Chairman shall—

(a) first put forthwith any Question which has been proposed from the Chair but not yet decided, and

(b) then put forthwith successively Questions on Motions which may be made by a Minister of the Crown for assigning a Reason for disagreeing with the Lords in any of their Amendments.

(5) The proceedings of the Committee shall be reported without any further Question being put.

Miscellaneous 

12. Paragraph (1) of Standing Order No. 15 (Exempted business) shall apply so far as necessary for the purposes of this Order.

13.—(1) The proceedings on any Motion made by a Minister of the Crown for varying or supplementing the provisions of this Order shall (so far as not previously concluded) be brought to a conclusion one hour after their commencement.

(2) Paragraph (1) of Standing Order No. 15 (Exempted business) shall apply to those proceedings.

14. Standing Order No. 82 (Business Committee) shall not apply in relation to any proceedings to which this Order applies.

15.—(1) No Motion shall be made, except by a Minister of the Crown, to alter the order in which any proceedings on the Bill are taken or to recommit the Bill.

(2) The Question on any such Motion shall be put forthwith.

16.—(1) No dilatory Motion shall be made in relation to proceedings to which this Order applies except by a Minister of the Crown.

(2) The Question on any such Motion shall be put forthwith.

17. The Speaker may not arrange for a debate to be held in accordance with Standing Order No. 24 (Adjournment on specific and important matter that should have urgent consideration) at this day’s sitting, or at the sitting on Thursday 21st February, before the conclusion of any proceedings to which this Order applies.

18.—(1) Sub-paragraph (2) applies if the House is adjourned, or the sitting is suspended, before the conclusion of any proceedings to which this Order applies.

(2) No notice shall be required of a Motion made at the next sitting by a Minister of the Crown for varying or supplementing the provisions of this Order.

19. Proceedings to which this Order applies shall not be interrupted under any Standing Order relating to the sittings of the House.

20.—(1) Any private business which has been set down for consideration at 7 p.m. at this day’s sitting or at 3 p.m. at the sitting on Thursday 21st February (as the case may be) shall, instead of being considered as provided by Standing Orders, be considered at the conclusion of the proceedings on the Bill at this day’s sitting or at the sitting on Thursday 21st February (as the case may be).

(2) Paragraph (1) of Standing Order No. 15 (Exempted business) shall apply to the private business for a period of three hours from the conclusion of the proceedings on the Bill or, if those proceedings are concluded before the moment of interruption, for a period equal to the time elapsing between 7 p.m. or 3 p.m. (as the case may be) and the conclusion of those proceedings.

21. The Speaker shall not adjourn the House at the sitting on Thursday 21st February until—

(a) any Message from the Lords on the Bill has been received;

(b) he has reported the Royal Assent to any Act agreed upon by both Houses.

The House will realise that the Banking (Special Provisions) Bill is being introduced in exceptional circumstances. The Chancellor made it clear in his statement yesterday that Northern Rock will be brought into temporary public ownership and explained the reasons for that decision. We will have the opportunity  to discuss those exceptional circumstances, and the interests of protecting the financial stability of the banking system while protecting the interests of the taxpayer, as part of the debate on the Bill.

I want briefly to make a couple of points on the programme motion. I think that the House will understand the importance of reaching a conclusion on this Bill as quickly as possible. Shares have been suspended, and it is now in everyone’s interests for the transfer of shares to be effected as swiftly as possible to avoid any greater uncertainty or unnecessary delay for the bank, and for the bank to have clarity about its position and the way forward. Of course, we also need to set out the details for the scrutiny of the Bill and to ensure that the business motion provides for business to be extended to midnight this evening. Members have been able to table amendments since yesterday evening, and the amendments that are selected will be taken during the Bill’s Committee stage this evening. I commend the motion to the House.

15:44:00

Mr. Philip Hammond (Runnymede and Weybridge) (Con)
Time is limited, or at least it will be if this motion is passed, and I do not want to turn the debate on the motion into a substantive discussion of the issues before the House. However, I must place on record our view that nationalisation is not the way forward and that the Bill is, therefore, not the best use of the legislative time available to us today.

We have always made it clear that if the Government introduced an emergency Northern Rock nationalisation Bill, we would oppose it in principle and seek to amend it where necessary, but would accept a timetabling of the process. We expected, and I believe that the country expected, a specific Northern Rock Bill: a narrowly focused, substantive measure specific to the case that consisted of a few clauses and could be effectively scrutinised in a day. Nothing prepared us for this 24-page Bill of 17 clauses and two schedules, which includes quite complex provisions of wide general applicability.

The Bill is not a measure targeted at dealing with Northern Rock, but one that allows nationalisation of other deposit takers—not only banks, but also mutual building societies. If we are asked to set aside our procedures for a specific emergency, the resulting measures must be targeted at that emergency. They must be concise, relevant and clearly necessary to the resolution of the problem in hand. Of course, we understand that it would be convenient for the Government to have legislation on the shelf to cover any future bank problem, but such standing legislative powers are for another day, with proper consultation and proper scrutiny. We cannot casually hand over to the Government a blanket power to nationalise banking institutions. If such a power is needed in a specific case, the Government must come to this House of Commons and justify it on a case-by-case basis.

Over the past couple of days, we have heard many references to the Rolls-Royce nationalisation by a Conservative Government in 1971. The legislation to nationalise Rolls-Royce consisted of a two-clause Bill, which was read for the first time on 8 February 1971 and given its Third Reading on 11 February 1971. The decision to act in that case was made expeditiously, the legislation was concise and focused on the specific case in hand, and Parliament was able to scrutinise it properly—all very different from the present case.

Indeed, one might ask, “Where’s the fire?” The problems at Northern Rock have been with us since September. The Chancellor has had a fairly laid-back attitude to the passage of time. He originally told us that the fate of the bank would be clear by Christmas, then he came back to us before Christmas and told us that it would be clear by the New Year. Here we are in February, and apparently there is now a pressing need to do everything in one day. Why? The shares are suspended. Depositors are able to operate their accounts normally. There are no queues around the block at Northern Rock branches. There is no threat to the stability of the UK financial system; the damage has already been done. In fact, there is no fire.

The Government have produced a relatively long Bill for an emergency measure, of general application, with a procedure by which the specific provisions, including very important ones, are in a draft order that is unamendable and, if the Bill is passed unaltered, is subject to the negative resolution procedure only. I ask the Chief Secretary for at least an assurance today—now will do, if she would like to intervene—that regardless of whether the Bill is amended, either here or in the other place, the Government will allow a full day’s debate on the orders when they are laid, on the Floor of the House, in Government time. It would be an outrage if the detailed arrangements for the sequestration of private property, for the compensation of those who lost out as a result of that sequestration and for the transfer to the taxpayer of a contingent liability of approximately £110 billion were considered in just 90 minutes on a damp Tuesday morning along the corridor upstairs.

The melodramatic timetable has already created practical difficulties with drafting and tabling amendments, which we have had to do without hearing the Chancellor’s presentation of the detailed rationale for the individual clauses. Outside bodies have had no opportunity to give their input to Opposition parties on the principles or, indeed, the drafting.

We now face a Second Reading debate of probably no more than three hours and a Committee stage of, at most, two and a half hours to consider a Bill that transfers liabilities of £110 billion to the taxpayer. That is about £650 a minute of Committee scrutiny—a rate of pay that would make even Ron Sandler’s eyes water.

The result will be that even the few amendments that the Opposition have tabled will not all be debated, the vast majority of the Bill will not receive line-by-line scrutiny and, once again, it will be their lordships or, more probably—given the time constraints in the other place—the courts that have to deal with the inadequacies, imperfections, drafting errors and omissions that we shall inevitably miss during the travesty of a scrutiny process.

Mr. William Cash (Stone) (Con)
Has my hon. Friend noticed that clause 2 contains a specific provision to exclude the courts when it appears appropriate to the Treasury to make such orders? In other words, the Government are trying to bypass the courts, too.

Mr. Hammond
My hon. Friend makes a good point. I am sure that he will elaborate on it in the debate.

We do not support the proposed nationalisation, but, if it is to happen, we want to ensure that the legislation is workable and as fair as possible; that Northern Rock will be managed without political interference; and that competition in the market will not be distorted. We want to ensure that the process is open and transparent and that Parliament is properly informed of the progress of the company in public ownership.

If the Government had those interests at heart, they would have done in their draft what we must now try to do through amendments: turn their warm assurances on arm’s-length management, lack of political interference—a commitment that was made yesterday and broken within the hour by the appointment of Tom Scholar to the board of Northern Rock—and unfair competition into binding legislative constraints.

We are willing to work through the night tonight to ensure a proper Committee stage. We are happy to sit on Friday to deal properly with Lords amendments. However, an “emergency” apparently occurs only when it suits the Government to override parliamentary procedure, not when it risks Labour Members having to do a bit of a nightshift.

We signalled our willingness to co-operate on a timetabled passage of a Northern Rock nationalisation Bill. We did not—and, in conscience, could not—acquiesce in the procedure for a Bill of extended duration and broad application. Twenty-four clauses and two schedules cannot properly be scrutinised in this House in the time proposed. Inevitably, the burden will fall on the other place. That means that Lords amendments are likely to be tabled, which, again, cannot be scrutinised by this House in the single hour allotted for that purpose.

Taken together, the length of the Bill, its broad definition and the inadequacy of the time provided make the motion unacceptable. On the basis that the Government have our word that, if the business motion is defeated, we will not delay Third Reading in this House beyond 6 am tomorrow morning, and that we will deal with any Lords amendments returned to this House during the course of Thursday night and Friday morning, I urge my hon. Friends to vote against the motion.

15:53:00

Simon Hughes (North Southwark and Bermondsey) (LD)
As the House knows, my colleagues and I support the Bill because it was our idea in the first place. We argued some months ago that the House should have discussed such a measure. There is a debate about whether it could have been more narrowly focused; we understand that the argument is as much about parliamentary procedure as anything else. It would be better if the measure dealt only with Northern Rock, but I understand why it is probably procedurally necessary to have such a Public Bill, which does not suffer from the hybridity problems that could delay it here longer.

However, if we are to have this Bill, it must be properly debated, as I made clear yesterday. It is just not reasonable to ask the House to deal with everything today: Second Reading to debate the principle, the Committee stage to consider amendments—people may have thought of them already or decide that they are appropriate when they have heard the main debate—then Report and Third Reading. It would be entirely possible, as well as compatible with what the Chief Secretary rightly said and we agree with—the Bill should be passed into law by the end of this working week, so that there is an end to the uncertainty and paralysis of Northern Rock—for us to give the Bill proper scrutiny. This House is regularly bounced into timetables on legislation that are not justified by the facts. It is quite possible to have an agreed programme for the Bill that would clear its stages in the House tomorrow, allow it to go to the Lords tomorrow and Thursday, and allow us to deal with it later, without the programme motion before us, as I made clear to the Leader of the House yesterday.

I have two final points. First, the Lords will certainly have amendments; it is not conceivable that on a Bill of such breadth there will not be amendments later in the week. That means that there will rightly be further work for the House of Commons to do. Therefore, it is further nonsense that we are giving ourselves just one hour to deal with any arguments that may emerge in the House of Lords, any of the points made and not answered, and any of the commentary made by the informed press, the City, the financial world, the shareholders, and people in the north-east and elsewhere. To think that we can do that work, with any amendments from the Lords dealt with, in one hour on Thursday is treating the House just disgracefully.

I ask the Chief Secretary, the Chancellor and the Leader of the House to respond to the mood not only on the Liberal Democrat Benches, but in all parts of the House. If we are going to take the business under the national umbrella, as we now have to, and ensure that the shareholders, investors, future investors and above all the taxpayer have a properly secured measure, the Bill may be allowed to go through, but not on this timetable. I hope that colleagues in all parts of the House will say no to the timetable and give this place a proper chance to debate the Bill.

15:57:00

Mr. Richard Shepherd (Aldridge-Brownhills) (Con)
I support my hon. Friend the Member for Runnymede and Weybridge (Mr. Hammond) and some of the comments of the hon. Member for North Southwark and Bermondsey (Simon Hughes).

This is truly a dreadful programme motion. It is consonant with all that the Government are about, and the nearest thing I can think of—the risible equivalent—is the Dangerous Dogs Act 1989, which served the then Conservative Government so well in the ’80s. No case has been made that there is such a national emergency that we need the suspension of Standing Orders and the imposition of an intolerable guillotine by the Government on the House, by majority, to consider a matter of considerable national importance. Five months they have had to come to a determination; they now insist, according to their motion, that the House dispose of the business in about five and a half hours.

The other point, which has already been made, is the consideration of their lordships, if they make amendments. We now treat ourselves with contempt, when they have double the time in the House of Lords to consider such an important issue that touches on our national honour and that has brought this country’s management of its financial affairs into some disrepute in the world. The Chancellor well knows this, the Treasury well knows it, and we well know it, too. The House is therefore required to consider, in proper and effective detail, the proposals contained in the Government’s extraordinary Bill, which covers every bank in the country. No, no—this House should repudiate it.

I say this to Labour Members: it is all very well thinking that a majority is sufficient to justify the actions of the Government, but this House is increasingly becoming a place merely of announcements. We are expected to be pulled by strings and say, “Hail! Hail!” That is absurd. This is a debating chamber. This matter touches on very important issues, and the Government’s motion is a corruption of the processes that we have. If they go on like this, they will be denying legitimacy to the very measures that they seek to secure.

15:59:00

Mrs. Gwyneth Dunwoody (Crewe and Nantwich) (Lab)
Let me make it quite clear that I approve wholly of the Bill. I support the principle and the political implications behind it, because I believe that they are not only necessary, but in some measure overdue. However, it would be wrong for the House of Commons just to accept such a programme for a Bill of such complexity without registering that we should not be bounced, as the hon. Member for North Southwark and Bermondsey (Simon Hughes) put it, into accepting timetables. The House itself has limited its activities by passing rules that give us the sort of procedures that consistently and continually timetable Bills.

The privileges of the House of Commons were not easily won, and nor are they to be discarded after many hundreds of years simply because it is convenient for the Executive of any particular Government party. However, it is therefore the responsibility of every individual Member of Parliament not simply to accept whatever they are presented with. If the debate breaks down along the easy and comfortable lines of party privilege and party view, we not only underplay the role of Members of Parliament but frequently discard the implications and responsibilities associated with being Members of Parliament.

I do not think that this programme motion is defensible. It has not been properly thought out, and I think that it will prove difficult to pursue in the way that the Government want. However, my views have been activated by something much stronger and deeper. If the House of Commons consistently accepts limits on its ability to debate legislation, irrespective of the content of that legislation, on the spurious ground that it is important that we proceed in a particular number of hours and minutes, we shall be responsible for the poor quality of legislation on the statute book. The House of Commons, and not just the Government, will then be responsible for accepting second best, because we are too lazy and, if I may say so, too happily unaware of the implications of our own actions to do anything to reverse them.

The Government are wrong to pursue this timetable for a Bill that has very large implications and is quite complex. I regret the fact that Members of Parliament on both sides of the House now accept that they should be directed as to the times and the ways in which they debate legislation. I believe that the result will make the United Kingdom a poorer nation.

16:03:00

Mr. John Redwood (Wokingham) (Con)
I rise to speak because I see a disturbing trend: the way in which this legislation is being handled is reminiscent of how European legislation is handled—[Interruption.] Labour Members should listen carefully to this, because it is about Parliament, accountability and creating better legislation.

I rise to speak in defence of the Committee stage. All Members with experience in the House will know that the Committee stage provides an opportunity for Members of all parties who are interested, have experience or have been well briefed by outside interests to come to the Committee and make their contribution in order to help the Government to get the legislation right in their own terms.

Obviously, I speak as someone who disagrees with what this legislation is trying to do. However, were there to be a proper Committee stage, I and people like me would be able to join in and to try to get the words and clauses right in order to do what the Government want to do, having vented our anger on Second Reading about what they want to do. In order to have proper Committee proceedings, there has to be a gap between Second Reading and the Committee. I appreciate that in this case, the gap might have to be rather short, for reasons that Ministers have set out, but there could have been a gap so that we could have heard first, on Second Reading, what the Government were trying to achieve, after which those interested could have tried to help the Government pick their way through in Committee.

When I was a Minister putting legislation before the House—I did so relatively infrequently, because I do not think that legislation is a very good idea on many occasions—I was always very grateful for the Committee stage, and for the contributions made by some serious-minded Labour Members. I did not think that I and the draftsmen and women working for me in the Department had a monopoly on all wisdom, so it was helpful to have interested and well-briefed people making suggestions in Committee and trying to get the measure right.

As the House knows, we get only an hour and a half in Committee to debate huge chunks of constitutional treaty, and we are going to get only two and a half hours this evening, if the motion goes through, on an extremely complicated Bill that has implications for the country’s whole banking sector. I urge the Government to think again. The Committee stage is crucial. Members of Parliament need a chance to talk to people outside the House who have real expertise in these areas, and Members with expertise in their own right need the chance to marshal amendments and bring them to the Government’s attention. We need to table probing amendments to see whether the Government have got it right and we need to table amendments to help them get it right. That has not been possible in this case. Will the Government please think again?

16:05:00

Mr. William Cash (Stone) (Con)
I endorse what my hon. Friend the Member for Aldridge-Brownhills (Mr. Shepherd) and my right hon. Friend the Member for Wokingham (Mr. Redwood) said. The question before us is very simple. The Bill does not have the urgency that the Government seem to claim for it by the means of its introduction, but they are railroading a series of parliamentary conventions. In introducing retrospective legislation, the Government are in fact trying to avoid the prospect of introducing a hybrid Bill by transferring the provisions over to a hybrid instrument—if that is what it turns out to be—while dealing with the matter in a way that will bypass the courts if they can possibly get away with it.

All those are matters that require proper consideration in themselves. It is absolutely and abundantly clear that House procedures and conventions on taxation are being overridden by the way that the Government are proceeding. By denying this House and thereby the people affected in the country through the methods that they are employing, all the Government are doing are bringing themselves into total contempt.

16:07:00

Yvette Cooper
Let me respond briefly to the points that have been raised, which I have listened to very carefully. The hon. Member for Runnymede and Weybridge (Mr. Hammond) made points that should really be raised on Second Reading. He will have the opportunity to raise them then.

I hope that hon. Members will recognise that the Bill is being introduced in very unusual circumstances. It will allow us to deal swiftly, by order, with the position of Northern Rock, and it is right that we are able to do so. Northern Rock shares were suspended yesterday morning, and it is a bank that has faced a series of problems with implications for the financial stability of the banking system. It is also a bank in which the taxpayer has an important and legitimate interest, so it is right that the circumstances surrounding this bank should be resolved as swiftly as possible. Those in the bank, creditors, depositors and so on should have certainty and clarity about who the shareholders are and what the direction of the bank should be. It is important to resolve those issues as swiftly as possible, so I hope that hon. Members will recognise these unusual circumstances and understand that the House needs to respond to them. We need to respond swiftly, now that shares have been withdrawn, in order to be able to put the bank on a proper longer-term footing as rapidly as possible.

Finally, the hon. Member for Runnymede and Weybridge effectively asked for a hybrid Bill to deal just with the circumstances of Northern Rock. Any hon. Member who sat on the Committee considering the Crossrail Bill—our most recent hybrid Bill—would not regard it as a Bill that came through the House rapidly to deal with problems that needed to be addressed rapidly.

I hope that hon. Members will take this issue seriously and bear in mind that there is a sunset clause on the main powers in the Bill and that we will have an opportunity to debate at great length in the usual way the proper reforms that will be made to the banking system. We shall do so in the proper way through the revised Bill that will replace these powers. I support the motion.

Question put:—

Division 80
19/02/2008 16:09:00
The House divided:
Ayes: 291
Noes: 223
Question accordingly agreed to.

 Orders of the Day

Banking (Special Provisions) Bill

[Relevant document: The Fifth Report from the Treasury Committee of Session 2007-08, The run on the Rock, HC 56.]

Order for Second Reading read.

16:23:00

The Chancellor of the Exchequer (Mr. Alistair Darling)
I beg to move, That the Bill be now read a Second time.

As the House knows, the powers in this Bill are necessary to take Northern Rock into a period of temporary public ownership and the Bill is a general one. The reason for its being general is that it contains provisions that could be applicable in other circumstances, but I made it clear yesterday, and I make it clear today, that it is being introduced now only because there is a need to enable the Government to take Northern Rock into that temporary period of public ownership and it is essential that we proceed quickly.

The hon. Member for Runnymede and Weybridge (Mr. Hammond) asked why the Bill was urgent. I listened to the Opposition complaining yesterday that we should have introduced this legislation some time ago, so for them now to say that it is not urgent and that we do not need to make any haste seems complete nonsense, although it is in line with the attitude that they have taken on every other aspect of Northern Rock so far.

It is an obvious point, but now that the Government have made their intentions clear, it is important that legal ownership and certainty of authority is given to the board as quickly as possible, which is why we need Royal Assent to the Bill—[Hon. Members: “Why?”] It is because it is impossible to run a bank, let alone any other company, unless it is clear who is in charge of that bank and who is running it—[Interruption.]

Mr. Speaker
Order. Hon. Members must not shout.

Mr. Darling
Shouting is all they are good for at the moment: they certainly have not come up with any good ideas.

Several hon. Members
rose—

Mr. Darling
I will, as I usually do, give way to as many Members as possible, but because this is a timetabled debate I intend to make progress so as not to detain the House too long.

Mr. John Redwood (Wokingham) (Con)
Can the Chancellor give us an indication of how long it will take to value the bank and therefore how long it will take to transfer the shares if the Bill goes through this week?

Mr. Darling
If the Bill is approved, the necessary order will be laid to make that transfer. As I shall say when we reach the relevant part, the Bill makes provision for compensation to shareholders under the terms and conditions that I made clear. In addition, the timing is clearly laid out.

Mr. William Cash (Stone) (Con)
Will the Chancellor deny that in clause 2 there is an attempt to override challenge in the courts? The provision that “it appears…to be” necessary for the Treasury to take certain actions seems to be an attempt to bypass the courts. Does he agree?

Mr. Darling
No, I do not.

The hon. Member for Runnymede and Weybridge also made the point that the Government are consulting on longer-term legislation to make more substantial reforms to the banking system, and I believe that that has general support in the House. We are consulting on that because it is important that we get the detail right. Legislation will be introduced thereafter. Some clauses may be closely followed in that future legislation, and they are necessary not only to allow us to acquire the shares in the bank, but to deal with it after acquisition, with a view to returning it to the private sector.

Stewart Hosie (Dundee, East) (SNP)
The Chancellor makes the point about consultation on changes to the banking regulatory framework generally. He has said that that would require primary legislation and take some months. Does he not think that it is odd that we will nationalise Northern Rock if this Bill is passed in the next few days, but the framework that allowed its collapse is still in place? Should he not have taken emergency measures to bring forward more quickly the changes to the banking regulatory framework, perhaps at the same time as this legislation?

Mr. Darling
If I had included in this Bill legislation to amend the Financial Services and Markets Act 2000, it would have been a formidable Bill indeed, because that is a very long piece of legislation. It is important that we continue with the consultation that we launched in January on some of the more far-reaching and radical reforms to the regulatory and supervisory system of banks and other financial institutions, with a view to introducing legislation in the remaining part of this parliamentary Session, so that we can get it onto the statute book as soon as possible. Today’s legislation, which is being introduced now because of the particular circumstances that we face, is necessary, as I hope to be able to demonstrate when I get to the detail of the provisions. I wish to say a word about competition, because that issue has been raised by Members on both sides of the House, and it is a perfectly legitimate concern.

Mr. Philip Dunne (Ludlow) (Con)
The Chancellor has just referred to the consultation document that he published only last month, which referred to the Government’s proposals to bring forward legislation after consultation to cope with financial stability. What perplexes Opposition Members and those watching from outside the House is that the legislation that we are discussing, particularly clause 2(2), covers the maintenance of stability in the UK financial system. It goes far wider than the narrow issue of Northern Rock. Is that not in direct conflict with the document that he published last month, which will require extensive public consultation?

Mr. Darling
It might have been tempting to have a Bill that simply had one clause saying, “Let’s nationalise Northern Rock.” It is just not possible to do that. As hon. Members are aware, the procedures of this House require that for a specific Bill on one institution we adopt a procedure that can take some years rather than a matter of days. It is because of the urgency of establishing the certainty that the board needs in order to run the bank—it is a bank and it is important that the board has that authority and certainty—that we need that legislation. I have said on previous occasions that I think that we need to make more substantial reforms to the banking and supervisory system. We also need to learn from what is happening in different parts of the world, as systems in many countries have been found to be in need of reform. To carry on with that consultation is important.

Mr. John Greenway (Ryedale) (Con)
rose—

Mr. Darling
Let me say what I have to say about competition, and we will then see what the hon. Gentleman has to say. I think that he raised the matter yesterday.

I recognise that banks and building societies want to be assured about the impact on competition of taking Northern Rock into public ownership. We intend to hold discussions with the British Bankers Association, the Building Societies Association and the Council of Mortgage Lenders before the final business plan is submitted to the European Commission for state aid approval.

Just as protecting the taxpayer has been one of the key principles of our actions and decisions over the past few months, one of the key features must be to ensure that we have the proper approach to Northern Rock in future. Although we will not be involved in the day-to-day management of Northern Rock, we will need to approve its business plan, as I said yesterday. We want to ensure that it is prudent and sensible and that it protects the interests of the taxpayer. We also want to ensure that it avoids distortions.

If the business plan were built on taking advantage of the temporary Government support, it would not be consistent with our general aim of running the bank so as to reduce and remove that level of support. I hope that that provides the House with some reassurance that we do not want the bank to compete unfairly or distort competition. As I say, we will have discussions with some of the banking and building society associations before we submit the proposals for state aid approval, which we have to do by the middle of the month.

Mr. Greenway
I am grateful to the Chancellor for giving way, and I am particularly grateful that he is addressing the question that I put to him yesterday. There is concern and nervousness in the banking and building society community, and I am sure that what he has just said will be studied carefully. May I link this point to the one that he was making about the need for supervisory reform? Between now and the reform of the Financial Services and Markets Act, the Financial Services Authority will have to monitor the solvency of all the smaller lenders. Will he therefore ask the FSA to monitor the impact on the market of any commercial or competitive advantage that accrues to Northern Rock as a result of nationalisation? Whatever reassurance he gives the House, the public might have a different view.

Mr. Darling
I appreciate the hon. Gentleman’s point. That is a concern that we need to address. I met the chief executives of some of the major banks fairly recently and they expressed that concern. They recognise that the Government have to ensure that Northern Rock can continue to trade and conduct business. The alternative to managing it through the proposed process is to wind it down. As I said yesterday, it would be far better to allow it to carry on trading. That means that it has to be able to compete, but it would obviously be wrong if it did so unfairly, taking advantage of the support that it has. As I have said, our aim is to reduce the amount of support. It will eventually be removed, but that has to be consistent with the business plan that Ron Sandler, as executive chairman, is working up.

Mr. Doug Henderson (Newcastle upon Tyne, North) (Lab)
The whole House will appreciate that there is much less uncertainty in the city of Newcastle today than there was three days ago, especially among the work force, but a lot of anxiety remains. My right hon. Friend mentioned the business plan, but people who work for Northern Rock, and others, have asked me the following question: what will be the public sector company’s repayment schedule to the Treasury on loans that have been issued? If he cannot answer me today, will my right hon. Friend say when people in Newcastle can expect to know, at least in broad terms, what the Government’s expectations will be?

Mr. Darling
My hon. Friend is right to ensure that we keep the concerns of people employed by Northern Rock at the front of our minds. It is an uncertain time, and has been since the company got into difficulties last September. Ron Sandler and his team will be drawing up a business plan which, among other things, will look at how the business can be managed so that the sums due to the Government, and in particular the lending supplied by the Bank of England, can be repaid.

I understand people’s frustration, and that they want to make progress as quickly as possible, but that is all the more reason to get the authority that the new team need. However, as I have said, the business plan has to be ready for submission to the European Commission by the middle of March. It will have to be prepared in fairly short order, but we will be able to address the implications with a bit more certainty when that work is completed.

Jim Cousins (Newcastle upon Tyne, Central) (Lab)
I want to pursue the point raised by my hon. Friend the Member for Newcastle upon Tyne, North (Mr. Henderson). The Chancellor has made his position very clear, but less than a fortnight ago the Government were saying that the bond issue that they were then considering to support the private sector options would have to be repaid within one to three years. Will that limitation stake out the terms for Mr. Sandler’s work, or will he be able to come up with some different options?

Mr. Darling
We will have to see what he proposes and why, but one hurdle to be overcome is the fact that whatever we do must comply with European rules on state aid. In general terms, and for understandable reasons, those rules mean that state aid support cannot be carried on indefinitely. The EU is also dealing with the actions that have been taken by other member states—for example, Germany has also been helping its banks—and will want to ensure that the rules are applied consistently. Such matters will be dealt with in the business plan. As I said, we will not have to wait too long for it, as we have to submit it by the middle of March.

I want to add one other thing, in anticipation of what Opposition Members may say about the board. The hon. Member for Runnymede and Weybridge made a remark about a civil servant who is a member of the board, but we have appointed Ron Sandler because of his formidable experience, much of it gained when he restructured Lloyd’s of London. He in turn appointed Stephen Hester, who was chief officer of the Abbey National building society. Philip Remnant is chairman of the Shareholder Executive, which advises the Government on their remaining shareholdings, and so his appointment is not surprising. Mr. Scholar will be on the board for an initial transitional period. It is proposed that the Treasury will have the option of appointing two people, but that is not surprising when one considers Northern Rock’s indebtedness to the public purse. It is important that the Treasury has that option, but the full board membership will be announced in the next couple of days or so. I believe that the board will be able to restructure and refocus the bank in the way that is necessary.

As for the Bill, clause 1 defines the class of institutions that could be acquired. In practice, it means that they have to be incorporated here or regulated by the Financial Services Authority. However, the powers can be exercised only in what I regard as exceptional circumstances and a pretty high hurdle has to be passed. Those circumstances, which are set out in clause 2, include a serious threat to the financial system—so serious that the Treasury considers that the exercise of the powers is necessary—or conditions under which significant financial support has had to have been provided beyond the Bank of England’s lender of last resort functions. The Treasury has had to have underwritten that support and notified it to Parliament under the existing conventions. Both of those conditions were met in the case of Northern Rock, but they are exceptional. There must be a serious threat to the stability of the financial system before the powers are exercised. That is a high test to be met, and the action must be proportionate. The Treasury must consider alternatives. The circumstances go way beyond simply a threat to depositors.

In relation to public support, the scale of assistance necessary has to be such that it could not be met by the Bank of England in the normal course of its support operations. It would have had to be underwritten by the Government and then reported to the Public Accounts Committee and the Treasury Committee, which is what we did in relation to Northern Rock. I assure those Opposition Members or any Members of the House who are concerned that the Bill gives us the arbitrary power to act that it does not do so. Only in defined and what I regard as exceptional circumstances would it be possible to use the power in the Bill to acquire the shares or other assets of a financial institution. Clause 2 is important because it erects what I regard as a high hurdle that the Government must cross before they can proceed further.

Mr. Edward Leigh (Gainsborough) (Con)
The Chancellor may recall that when I informed him that the Comptroller and Auditor General was instituting a review of the costs of the rescue, he assured me that fees paid to Goldman Sachs and other advisers would be covered by Northern Rock. As Northern Rock is effectively now to be nationalised, will not those fees now be paid by the taxpayer? According to The Times, the total fees could amount to £100 million.

Mr. Darling
As I think I also said to the hon. Gentleman, and if I did not I will say it now, when we know the total costs that we have to deal with, we will report them to the House in the normal way. It has been necessary in the exceptional circumstances of Northern Rock for us to take advice. People would expect us to do that, especially in relation to Goldman Sachs, in trying to find a private sector—

Mr. Peter Bone (Wellingborough) (Con)
Will the Chancellor give way?

Mr. Darling
I would like to finish answering the first question before I go on to the next one, and I do not think it is unreasonable to do so.

Mr. Stephen Dorrell (Charnwood) (Con)
Will the Chancellor give way?

Mr. Darling
I will give way to the right hon. Gentleman and then I will make some progress.

Mr. Dorrell
The Chancellor has laid great stress on the fact that the circumstances have to be exceptional to satisfy the tests set out in clause 2. Can he confirm, however, that in clause 11 the Bill gives him the power to grant financial assistance to building societies independently of the exceptional circumstances on which he has just laid such stress?

Mr. Darling
The right hon. Gentleman is right. I will come on to clause 11, which deals with a different issue. Clause 2, which is the precursor to the exercise of powers under clauses 3 or 6, presents a significant hurdle that must be overcome, as I hope that the right hon. Gentleman will accept. Clause 11 deals with a slightly different set of circumstances, and I will explain why.

Several hon. Members
rose—

Mr. Darling
I will give way to the hon. Member for Hexham (Mr. Atkinson) and then I will make some progress. I may well be able to take the other interventions as well.

Mr. Peter Atkinson (Hexham) (Con)
Can the Chancellor explain something to me? Why was it not possible to introduce a one-clause Bill because it might be hybrid, when it was possible to introduce a short Bill in 1971 called the Rolls-Royce (Purchase) Bill?

Mr. Darling
I am not immediately acquainted with the rules and procedures of the House of Commons back in 1971. I do know the rules and procedures in 2008. I am endeavouring to explain by going through the Bill in some detail why we need its clauses. Of course it is open to the House to decide that we do not, but we need to make sure that we have adequate provisions to take over this bank, operate it and transfer it back into the private sector. That is what we want to do.

Mr. Greg Hands (Hammersmith and Fulham) (Con)
Will the Chancellor give way?

Mr. Bone
Will the Chancellor give way?

Mr. Darling
I am going to make some progress and then I will take some further interventions.

Clauses 3 and 6 will give the power to transfer shares, property or other securities. Clause 3 deals with the transfer of securities. Securities can be transferred to the Bank of England, to a nominee of the Treasury or Treasury solicitor or to another private sector body—in other words, another bank or building society. The power is extremely important, and a similar power may well find its way into future legislation, because it allows us either to take the shares into Treasury control or to transfer them to another private sector body.

Clause 6 will allow the transfer of property rights and liabilities in cases where one wants to remove part of a bank that has got into difficulties and transfer it to another bank. It is the sort of bridge facility that the Governor of the Bank of England has mentioned on many of the occasions when he has appeared before the Treasury Committee. Clauses 3 and 6 contain precisely the sort of power that the Opposition seek to promote, in so far as I understand their position. I therefore hope that they can support those two clauses at least. Clause 8 provides for further transfers following a transfer to the public sector, and is designed to give some flexibility in restructuring the business.

All the powers are necessary. No matter where parties or individual Members of this House stand on the question of public ownership, there is nearly universal agreement that it can be only a stepping-stone to transferring the business back into the private sector. The clauses to which I have referred are necessary to transfer ownership from Northern Rock and clauses 8 and 9 allow transfer back to the private sector. Opposition Members such as the hon. Member for Hexham (Mr. Atkinson) have asked, “Why can’t you do it all in one clause?” The answer is that we need to provide powers to acquire the bank, to run it and then to transfer it back into the private sector. That is how the Bill is structured.

Mr. Hugo Swire (East Devon) (Con)
Is the Chancellor exposing the Government to a legal challenge by existing shareholders if the compensation offered to those shareholders by the Government is at variance with the price achieved by the Government—and, effectively, by the nation—once the bank is re-privatised?

Mr. Darling
I will come to compensation shortly, but first I will conclude my point about how the Bill is structured. If it had been possible to have fewer than 17 clauses, there are many reasons why the Government might have tried to ensure that, but it is necessary for the Bill to contain powers not just to acquire Northern Rock but to run it and then transfer it back into the private sector.

On the question of compensation—

Greg Clark (Tunbridge Wells) (Con)
Will the Chancellor give way?

Mr. Darling
If it is a question on my previous point, I am happy to answer it before I go on to compensation.

Greg Clark
As we now know that the cost of the advice received by the Government is likely to fall on the taxpayer, will the Chancellor undertake to publish that advice so that we can judge its quality?

Mr. Darling
The Government have received all sorts of advice on the matter. As I said at the weekend, I will consider when and how it is appropriate to put the right information in the public domain.

Mr. Henry Bellingham (North-West Norfolk) (Con)
Will the Chancellor give way?

Mr. Darling
No, I am going to discuss compensation, because hon. Members have asked about it.

Mr. Bellingham
Will the Chancellor give way before he moves on?

Mr. Darling
I am not giving way; I do not know how to put it more clearly. I want to turn to the question of compensation. If there is time at the end, I will give way to the hon. Gentleman, as he is a regular attendee at such debates.

Compensation is provided for in clause 5. As I said yesterday and in my statement to the House on 21 January, compensation will be decided by an independent valuer. The Bill provides for the appointment of that valuer, but it does so on the basis that the valuer must assume that financial support provided by the Bank of England and the Treasury has been withdrawn and that no further public financial support will be given, apart from the ordinary market support that banks may receive from the Bank of England.

The reason for that is simple. If we had not intervened last September, the bank would have gone under. It would have gone bankrupt. It would be unfair to the general taxpayer, therefore, to calculate compensation on the basis that the bank is continuing as a going concern purely because of public support. We have to strike the right balance between what is right for individual shareholders and what is right for the general taxpayer. I think, though I may be wrong, that there is all-party support for that.

Mr. Graham Brady (Altrincham and Sale, West) (Con)
The Chancellor makes the important point about achieving fairness for the taxpayer. Obviously that will be achieved only when the bank is transferred back into the private sector. What are the criteria that he would expect to be fulfilled for that to happen?

Mr. Darling
Again, much depends on the business plan that is to be prepared. As the business plan progresses, the Government will have to reach a judgment as to when it is right—when it is the best value for the taxpayer in terms of getting the Bank of England money repaid—to do so. That judgment will have to be reached further along the line. I cannot tell the hon. Gentleman when exactly that will be. I have made it clear, however, that the business plan will need to set out the direction in which the company is to proceed. I have also made it clear on many occasions that the measure can only be a stepping stone before the company is returned to the private sector.

Mr. Christopher Chope (Christchurch) (Con)
Does the Chancellor accept that if the board of Northern Rock had known the terms on which the Government are setting out compensation back at the time that it received Treasury and Bank of England assistance, it might well have declined that assistance because it thought that it would lead to confiscation of shareholder value?

Mr. Darling
I do not know on what basis the hon. Gentleman can make that claim. The board’s position last September was rather more stark. It had reached a situation where it could not continue because it could not raise the billions of pounds that it needed in order to continue trading. That is why the board came to the Bank of England for lender of last resort support. That was in the forefront of its minds. The then board would have taken legal advice as to what it ought to do and what its options were. That is a matter for the board, but as I have said on many occasions, by the end the company did not have much choice because it was so exposed. When the difficulties arose in the financial market, the board had little alternative but to come to the Bank.

Mr. Philip Hammond (Runnymede and Weybridge) (Con)
Clause 9(7), dealing with provisions for compensation, includes

“power to make different provision for different cases or circumstances”.

Is it the intention of the Chancellor that different classes of shareholders might be compensated differently?

Mr. Darling
That might be difficult. Shareholders are shareholders, and it is difficult to discriminate between one and another. What we want to do is to try and put in place a compensation scheme that allows as much fairness as possible, consistent with the problem that the bank had run out of money and is trading today only because of Government support. We hope that as it is restructured and refocused, it can recover its position. At this stage, in the absence of the business plan, we must wait and see what the new management proposes.

Mr. Kevan Jones (North Durham) (Lab)
My right hon. Friend will be aware that many of the small shareholders are former employees of Northern Rock who saved in the company savings plan at their retirement. If the Government had not interceded last September, is it not the case that those shareholders would have got nothing, and that they would likewise have got nothing if we had followed the barmy suggesting of putting the bank into administration?

Mr. Darling
My hon. Friend is right. Had the Government not agreed to the Bank of England intervention last September, Northern Rock would have gone under. It had simply run out of money; it could not raise the money that it needed. If that had happened, not only would employees and shareholders have been affected, but depositors would have been put at risk. We have always made it clear that the reason why we intervened was, first, to ensure financial stability—the first and foremost duty of any Government—and, secondly, to assure the savers and depositors. We also had to have regard, quite rightly, to the interests of the taxpayers, and we have been doing that.

I have said on many occasions that to have put the bank into administration would have been a huge mistake. It would have crystallised the losses, which would have had to have been met by the taxpayer, and it could have provoked a fire sale. I am not alone in thinking that; the hon. Member for Tatton (Mr. Osborne) said something very similar last November.

Mr. Swire
I am grateful to the Chancellor for giving way again. What discussions did he have at the time with Paul Thompson on the new management proposal? He and his team had raised £700 million—£500 million from existing shareholders, and another £200 million from the Tyne consortium in the United States. What discussions did the Chancellor have with them at the time?

Mr. Darling
I do not think that I have had any discussions with Mr. Thompson. In relation to the Northern Rock board and the Virgin consortium, they had discussions with Treasury officials and others about their proposals. As I said in my statement yesterday, both their proposals were considered and both were judged against the option of a temporary period of public ownership. As I said yesterday, the best value for money is the course of action that I am putting forward today.

Mr. Hands
Will the Chancellor give way?

Greg Clark
rose—

Mr. Darling
I shall not give way; I have done so fairly generously.

I hope that I have outlined to the House the way in which the Bill is structured. I readily recognise that no matter what I or anyone else might say, the Conservative party is against this proposal. I am not entirely sure, and I do not think many people outside the House are, about what exactly its proposal is. Its whole approach throughout this whole affair has been muddled, confused, opportunistic and without any solution whatever.

We are proposing a course of action that will maintain financial stability. It will support the savers and give a chance for the company to be refocused and restructured. However, above all it is a proposal that supports the interests of the taxpayer, which must be first and foremost. I commend the Bill to the House.

16:57:00

Mr. George Osborne (Tatton) (Con)
Thank you, Mr. Deputy Speaker—[Interruption.] The hon. Member for Blyth Valley (Mr. Campbell) should calm down.

Today we debate all stages of a Bill that will give the Government, for the next year, unprecedented powers to take into public ownership any bank or building society. We are also to debate the particular application of the Bill to Northern Rock. Having listened to the Chancellor for the last half hour, one could forget that for five months he and the Prime Minister had done everything possible to avoid the course of action that the Chancellor is recommending this evening. Even after his half-hour speech, we still do not know the simplest things about the Bill. For a start, we do not know how much we are buying the bank for. We do not know what we are buying in terms of its assets and liabilities, nor how long we are buying it for. What do the Government plan to do with it once it has been bought?

I know that the Prime Minister has a long record of doling out public money with no regard as to how it is spent, but even by his standards this is a huge blank cheque. Let us go through the questions in turn. First, what are the Government going to pay for Northern Rock? We are told that that will be decided after we have bought it, which is certainly an unusual approach to buying something. The Chancellor hopes—I stress “hopes”—that the shares will be valued as all but worthless. However, as he knows full well, the hedge funds will fight tooth and nail through the courts for £4 a share, which would leave the taxpayer with a bill just shy of £2 billion. He can give the House absolutely no assurance that he will be successful in persuading either an independent valuer or the courts to agree with his valuation. When the House passed the British Leyland Act 1975, the cost to the taxpayer was limited in the Bill to £265 million. There are precedents in nationalisation Bills for putting a limit on taxpayer exposure in terms of the amount of money that the taxpayer will pay for initial purchase of the company.

Frank Dobson (Holborn and St. Pancras) (Lab)
rose—

Mr. Osborne
I give way to the right hon. Gentleman, who probably remembers the British Leyland Act.

Frank Dobson
Would it be the policy of the Conservative party to support a court action by the hedge funds to get compensation that they do not deserve?

Mr. Osborne
I certainly would not support such a court action. I personally believe, as indeed the Chancellor believes, that the shares are virtually worthless, and without the Government support in September they would not be worth anything.

I hope that the Chancellor succeeds in achieving this objective, but he has no way of assuring us that he can do so. Let us be clear; some of the hedge funds that we are dealing with specialise in taking Governments through the courts for years in order to achieve the maximum return. I was told a story about one of the hedge funds involved, which finally ended up seizing the aircraft of the Argentine state airline in lieu of defaulted Argentine Government bonds that it had bought on cheaply from other banks. We are dealing with a lengthy process; this is the beginning of a long period rather than the end of one.

Mr. Leigh
Will not the courts take the view, sadly, that the shares have an obvious value, which is the value that was proposed by Virgin, so the figure of £2 billion that my hon. Friend mentioned is quite possible?

Mr. Osborne
My hon. Friend is right. A whole range of different sums could be agreed on by the independent valuer, and I am sure that my hon. Friend’s Committee will want to take a close look at this matter given its concern for the use of public money. The key point is that we do not know how much we are buying the bank for and how much we are being asked to shell out at the end of this debate.

Mr. Geoffrey Robinson (Coventry, North-West) (Lab)
The whole House will be pleased that the hon. Gentleman has put a value of precisely zero pounds sterling on the shares of Northern Rock—we have heard that very clearly from the Conservative Front Bench. Is that the value at which, in his nutcase scheme, he would transfer them to the Governor of the Bank of England so that he could conduct a fire sale for him?

Mr. Osborne
I know that the hon. Gentleman is an expert on giving mortgages to people who cannot get them through normal channels. However, let me deal with his first point. I agree with the Chancellor of the Exchequer and, I think, with the deputy leader of the Liberal Democrats, that we have to accept, I am afraid—it is not a happy story for many small shareholders, particularly those in the north-east of England who received shares when the bank demutualised—that the value of the shareholders’ shares is very low, and they would be worthless without the Government support back in September.

Let me be clear about our proposal for a Bank of England-led reconstruction, which the hon. Gentleman mentioned in derogatory terms. That is exactly the procedure that we are all going to be asked to vote on for future bank rescues. I make a heady prediction that he will be trooping through the Lobby to support Bank of England-led reconstruction, which, by the way, would not double the liabilities of the taxpayer, as nationalisation will, would mean that the taxpayer comes first in the queue rather than last, and would not mean that the rest of the world looks to Britain and says, “This is the country where they have nationalised a high street bank.”

Mr. Kevan Jones
I am listening closely to the hon. Gentleman. Is he saying to those small shareholders in the north-east that he would give them no compensation whatsoever?

Mr. Osborne
I am saying that I agree with the hon. Gentleman’s Chancellor of the Exchequer that the value of those shares is, I am afraid, very small. It will be a decision for the independent valuer, but I am afraid that they would not be worth a great deal without the support that the Government gave in September. I am afraid that the hon. Gentleman had better break the news that this is the approach that the Government have taken. By the way, Bank of England-led reconstruction would mean that at the end of the process, once the taxpayers got their money back, there was at least a possibility that something would be left for the shareholders. I suspect that that will not be the case if we go down the route that he will vote for tonight.

Not only do we not know what we are paying for this bank, but we do not know what we are buying into. We know that nationalisation will double the exposure of the taxpayer from £55 billion to £110 billion—£3,500 for every taxpayer—but the Government simply refuse to tell us how risky that exposure is. The Chancellor did not tell us today, either. All he says is that the FSA judges the bank’s loan book to be of good quality. He said that last September, and says the same thing now, even though the prospects for the housing market have deteriorated markedly since then.

We know, however, that the independent rating agencies disagree with the Chancellor’s assessment. Standard and Poor’s says of Northern Rock’s mortgage securitisation that the losses are rising and repossessions are on the way up. We also know that Northern Rock wrote more mortgages than any other bank in Britain at the top of the housing market. We know that it offered 125 per cent. mortgages when most of its competitors thought that such mortgages were too risky. We are told that, as a result, Northern Rock is repossessing more homes than any other major bank in Britain. The least we should have from the Government before we vote on this Bill is an honest and independent audit of what we are being asked to buy.

Will the Chancellor tell us how many bad loans there are? What is the default rate? What is the pension fund deficit? The private sector bidders know those things; they were told. But the public sector and Parliament, which are being asked to buy the bank, know none of those things. Surely that is not an acceptable state of affairs. We are entitled to know what we are buying.

Mr. Bellingham
My hon. Friend is making an absolutely vital point. Does he agree that it is strange, to say the least, that the Chancellor did not tell the House the level of Northern Rock’s unsecured debts? Surely he should have told the House that, because we do not have a figure for it.

Mr. Osborne
My hon. Friend is right in the sense that we have not heard anything from the Chancellor about the general state of Northern Rock’s mortgage book beyond his bland assessment, repeated month after month, that it is in a good state. That is not what the credit rating agencies are saying.

My hon. Friend the Member for Gainsborough (Mr. Leigh), the Chairman of the Public Accounts Committee, said that we do not know how much we will be paying for the various City fees that have racked up while we have been waiting for the Prime Minister and the Chancellor to make a decision. We know that Mr. Sandler is going to be paid more than £1 million a year, but we do not know what the total bill for the advisers will be. I think that the Chancellor said, in answer to my hon. Friend the Member for Gainsborough, that he would publish the fees at some point—I hope that he did; I shall have to check Hansard tomorrow. I hope that that is the case, and that he does not just publish the fees for Goldman Sachs; hon. Members may not realise it, but we are paying the banking fees of Olivant, Virgin and Northern Rock. Once they became preferred bidders, Northern Rock agreed to pay their advisory fees, and that is how we get to the £100 million figure on the front page of some of the newspapers.

Let us be clear: the consequence of nationalisation is that the risk of every Northern Rock loan defaulted on, of every Northern Rock mortgage that cannot be repaid, of the pension deficit and of those City fees will now be borne by the taxpayer.

Mr. Jonathan Djanogly (Huntingdon) (Con)
rose—

Mr. Cash
rose—

Mr. Osborne
I shall give way first to my hon. Friend the Member for Huntingdon (Mr. Djanogly).

Mr. Djanogly
Would my hon. Friend agree that the fees incurred so far would be dwarfed by the litigation fees that may arise if the shareholders are not sorted out quickly?

Mr. Osborne
As my hon. Friend is a very successful solicitor, I am sure that he did not need to declare an interest. He well knows the substantial fees we all have to pay for good legal advice. I now give way to my hon. Friend the Member for Stone (Mr. Cash), who also has some expertise in this area.

Mr. Cash
I do not know whether my hon. Friend will reach clause 10, which is entitled “Tax consequences”, but does it worry him that the arrangements that it sets out constitute carte blanche, especially given the width of the orders,

“in connection with…or in consequence of”

the transfer of property and so on, and the fact that the 

“provision that may be made by the regulations includes provision for or in connection with…a tax provision not to apply”?

In other words, clause 10 could lead to no tax being paid and total tax relief being given in all the circumstances that the provision outlines.

Mr. Osborne
I think that my hon. Friend’s interpretation of clause 10 is right. When we went through the technical details of the Bill, we asked Treasury officials about the clause and we were told that the reason for it was to avoid any perverse tax consequences of nationalisation and that it was an insurance policy against taxpayers losing out unexpectedly. However, my hon. Friend makes a good point. I suspect that we may not even reach clause 10 in the couple of hours allowed for the Committee proceedings, but if we had longer, the points could be explored in more detail and we could hear Ministers’ reasons for its inclusion.

John Hemming (Birmingham, Yardley) (LD)
Perhaps the hon. Gentleman accepts that the difficulty is that, as soon as the Government underwrote the Northern Rock depositors, they were in a position whereby, if the music stopped, they were responsible for all the remaining losses. The error was to incur all the due diligence costs of hundreds of millions of pounds rather than nationalising straight away so that the Government were in control and could act to minimise the losses for the taxpayer.

Mr. Osborne
The one point of agreement between the Conservatives and the Liberal Democrats on the substantive point is that, whatever the Government wanted to do, they should have done it earlier instead of dithering for four or five months. However, I am glad that we have Liberal Democrat support for some of the amendments, which we tabled with Liberal Democrat agreement. I therefore hope that there will be opportunities to vote on, for example, ensuring the public’s right to know and fair competition. If there is no opportunity to vote tonight, there will be plenty of opportunities in the House of Lords, where circumstances mean that we may carry the day through working with the Liberal Democrats, and that we will come back on Thursday evening, perhaps late at night, to discuss those matters.

We do not know what we are buying or how much we are paying for it. We also do not know for how long we are buying it. The Prime Minister and the Chancellor keep telling us that there will be a temporary period of public ownership. They still cannot bear to utter the word “nationalisation”. It has become the policy that dare not speak its name. How long could “temporary” be? The Chancellor and the Prime Minister refused to say. The Chief Secretary, whom it was enjoyable to watch on “Newsnight” last night, also refused to answer the question. However, Ron Sandler is not so coy. He said yesterday, “We’re clearly talking about some years”. Why did we hear that from Ron Sandler but not from the Chancellor of the Exchequer today or yesterday?

We know that, in private, the Chancellor tells journalists that “temporary” could be at least three years. That is reported as being said by authoritative sources in Government. Why does not he say that in Parliament and to the public instead of simply briefing the press?

The sorry history of nationalisation is littered with examples of companies that were taken into what was supposed to be temporary public ownership and stayed there for years. I repeat that we do not know what we are buying, how much we are paying for it and for how long we are going to own it. We do not know what the Government plan to do with that high street bank. The formal business plan will not be presented until 17 March. When it is, I understand from the Chancellor that it will be presented to the European Commission instead of the House of Commons. Are we in Westminster not entitled to know the plans for the bank that we are being asked to buy?

We will try to amend the Bill to require the new management of Northern Rock to explain to Parliament and the taxpayers’ elected representatives the Government’s plans for the taxpayer-owned bank.

Jim Cousins
rose—

Mr. Osborne
I give way to one of the critics of nationalisation.

Jim Cousins
Perhaps I will have an opportunity to deal with that point later.

The hon. Gentleman has implicitly criticised Mr. Sandler’s comments about the length of time it could take for the bank to remain in public ownership. Does he believe that a brief period of public ownership—days, weeks or months—would be in the taxpayer’s interests?

Mr. Osborne
I am not in favour of nationalisation, full stop. What I am pointing out is that it will take a long time; indeed, Mr. Sandler said yesterday that it would take several years. That is not something that has been heard from the Chancellor’s lips—at least not in public—but it is something that Mr. Sandler says. The hon. Gentleman was fairly acute in pointing out the dangers of nationalisation, telling the House that

“the policy of nationalisation would lead to a slow lingering death for the jobs of the Northern Rock workers, its assets and Britain’s reputation as a major financial services centre, with my right hon. Friend the Chancellor cast in the role of undertaker”.—[Official Report, 19 November 2007; Vol. 467, c. 968.]

I therefore look forward to the hon. Gentleman’s support in the Division Lobby tonight.

The next point that I want to address is exactly what the Chancellor hopes to do to prevent the bank from unfairly competing in the market. He said yesterday that he wanted business as usual. However, he said at the beginning of his speech—this was when north-east Members suddenly woke up and paid attention—that there would be elements of the business plan that prevented the bank from competing on a commercial basis in a straightforward way and which prevented business as usual. We are talking about a Government-owned bank. It can borrow more cheaply than any of its competitors and can offer better savings rates and cheaper mortgages than any other bank.

If the bank is operating on a strictly commercial basis, which the Chancellor said yesterday—[Interruption.] I know that the hon. Member for Blyth Valley wants Northern Rock to use the fact that it is backed by the Government to undermine every other bank and building society in the country, but the rest of us are concerned about the other jobs in the financial services industry. The Chancellor said that he wanted the bank to operate on a commercial basis. However, anyone who visits its website today will find that it is offering the most generous savings rate in its class and a 0.5 per cent. bonus for existing savers, and it is still offering those 125 per cent. mortgages that people cannot get in most other places. There are no plans for that to change. Ron Sandler said yesterday:

“We will continue to operate on normal commercial principles, both as a deposit-taker and a mortgage provider. On a day-to-day basis, nothing will change”.

But to allow Northern Rock to compete vigorously as a nationalised company in a fiercely competitive mortgage and savings market is completely unacceptable. It will cost jobs in other banks and building societies, and do more damage to Britain’s reputation as a home for financial services.

Dr. Gavin Strang (Edinburgh, East) (Lab)
Is there not a slight contradiction between that point and the hon. Gentleman’s earlier statement, when he described what a poor state Northern Rock was in, citing the fact that many of the loans were no longer viable? I put it to him that either we want the firm to be successful and profitable, before going into the private sector, or we are going to cripple it, along the lines that he suggests, giving it no chance to achieve that. Surely the idea that a successful Northern Rock will undermine the rest of the financial sector is a bit overdone.

Mr. Osborne
The right hon. Gentleman should pay attention to what Mr. Sandler and the Chancellor are saying in briefings to the press, which is that they are going to shrink the bank to half its size and lay off many thousands of the work force. That is what we read in the newspapers, but not what we hear from the Chancellor at the Dispatch Box, when he is standing in front of his colleagues from north-east constituencies.

If the Chancellor were absolutely straight with us, he would tell us what he knows the business plan for the bank will be. If the plan is a managed run-off of the bank, let him tell us. He said yesterday that it would be business as usual. But business as usual for a Government-backed bank that can borrow more cheaply than any of its competitors means that other companies in Britain’s financial services markets will be undermined and jobs will be lost in Edinburgh and every other part of the country.

Mr. Cash
Has my hon. Friend noticed the consequential and supplementary provisions, which, under a Treasury order, would effectively give a power to disapply any statutory provision or rule of law, quite apart from the fact that the provisions also provide for indemnities to everybody for everything?

Mr. Osborne
My hon. Friend is persistent in making the point that clause 2 introduces general powers for the Government. We may actually reach clause 2 in the Committee stage, so I look forward to his contribution on that point.

Rob Marris (Wolverhampton, South-West) (Lab)
I know what the hon. Gentleman says about unfair competition and the possibility of destabilising other financial institutions in this country. Following the logic of what he has said, would he be in favour of privatising the Royal Mail?

Mr. Osborne
Royal Mail operates under a regulatory regime specifically designed to consider its impact on private competitors. We have tabled an amendment, and I know that the hon. Gentleman is assiduous in looking at amendments and taking part in the debate—

Rob Marris
They are not available yet. This is Second Reading.

Mr. Osborne
I know that they are not, but we did try to change that.

We have tabled an amendment, with the support of the Liberal Democrats, that would allow the Office of Fair Trading to have a supervisory role, in order to ensure that we were not simply relying on the assurances of the Chancellor of the Exchequer—or, indeed, EU state aid rules—to protect other financial services and institutions from unfair competition from Northern Rock.

Mr. Kevan Jones
Will the hon. Gentleman give way?

Mr. Osborne
I will give way again to the hon. Gentleman, even though he keeps referring me to the Standards and Privileges Committee.

Mr. Jones
I missed you but got your leader!

Following on from the question put by my hon. Friend the Member for Wolverhampton, South-West (Rob Marris), will the hon. Gentleman tell the House whether he would privatise National Savings and Investments or premium bonds? They are clearly investment vehicles that are in direct competition with other banks and savings institutions.

Mr. Osborne
First, they operate under a proper, statutory regulatory regime. That will not be the case with Northern Rock in these special circumstances. The hon. Gentleman can vote for our amendment tonight. Secondly, with the best will in the world, National Savings is not offering the extraordinary rates that are to be found on the Northern Rock website at the moment, which are better in their class than the savings rates of any other major institution in Britain.

Mr. Greenway
My hon. Friend knows from my interventions yesterday and today that I very much share his concerns. Has he also taken on board the fact that the likely offering of Northern Rock to depositors could have such wide implications that it could undermine the gilt market? That is undoubtedly the view in the City of London.

Mr. Osborne
That is a possibility, and it has been raised with me by various people in the City. It is another reason why I am against the nationalisation of Northern Rock. I shall be voting against the proposals later this evening, and I am sure that my hon. Friend will join me.

I should also say—as we might not get the chance to discuss these matters in Committee—that we shall be tabling a couple of other amendments. Labour Members might not be aware that article 18 of the draft order exempts Northern Rock from the Freedom of Information Act 2000, on the bizarre ground that it should not be treated as a publicly owned company. Royal Mail is not exempt. National Savings is not exempt, and neither is the Tote. Why should Northern Rock escape public scrutiny? We shall seek to amend the Bill so that members of the public can find out more about what they own.

We shall also table amendments to prevent our Prime Minister from interfering in the day-to-day management of Northern Rock. Only he could keep a straight face, after announcing yesterday morning that Northern Rock would be entirely at arm’s length from the Government, when, yesterday afternoon, he appointed his former chief of staff to the board. We shall seek amendments to keep the Ministers out.

We will also try to reduce the extraordinary scope of this legislation, so that it will be exactly for the purpose for which we are told it is intended. If it is simply intended to bring about the nationalisation of Northern Rock and to get around the hybrid Bill procedures, the Government could easily reduce the length of time for which the legislation is to be active from one year to one month. We shall table an amendment to that effect. It is interesting that the British Bankers Association, which the Chancellor quoted in his speech, has said this afternoon that it is very concerned about the year-long period for which the provisions will be active. It believes that that will be “repuationally detrimental” to UK financial services.

We can only assume that the Government are taking on these sweeping powers to nationalise banks because they think that there is at least a possibility that they might have to exercise them. In that case, they should bring forward proper legislation at the proper time, which we can debate in the House.

Mr. Deputy Speaker, the correct way forward, I believe, is to follow the plan that the Chancellor is going to ask us all to vote on later this year for future bank rescues, which would minimise the already substantial exposure of the taxpayer: it would not double it, but ensure that the taxpayer comes at the top, not the bottom, of the list. We would also avoid the “nationalisation” word, which the Chancellor is so keen to avoid as well. That is the way to minimise the taxpayer’s exposure. Instead, we are being asked to vote for something that the Chancellor did everything he possibly could to avoid for five months. The Chancellor did so because he knows that nationalisation will double the taxpayer’s exposure; he knows that the public will bear all the risk; he knows that nationalisation means years of lingering uncertainty and no clear exit; he knows that nationalisation could do real damage to Britain’s reputation as a home for financial services; and he knows that it will destroy the Government’s reputation for economic competence as well as the Chancellor’s own credibility. All those things are right, which is why we are going to vote against nationalisation tonight.

Several hon. Members
rose—

Mr. Deputy Speaker (Sir Alan Haselhurst)
Order. Hon. Members may have noticed that Mr. Speaker has placed a 10-minute limit on Back-Bench speeches, which operates from now.

17:25:00

John McFall (West Dunbartonshire) (Lab/Co-op)
I am pleased to contribute to the debate on behalf of the Treasury Committee; our report, “The run on the Rock”, is tagged to today’s debate.

As the House will know, the Treasury Committee has undertaken a five-month inquiry into financial stability and transparency, which began with the taking of evidence from the Governor of the Bank of England on 20 September—within days of the announcement of the support operation for Northern Rock. Our report of late January covered the events leading to that support operation and the subsequent run, guarantees and proposed reforms, which the Committee believe will prevent a recurrence of these problems. I do not propose to talk about those aspects of our report today; instead, I want to concentrate on the proposals for public ownership and how they relate to the analysis in the final chapter of our report on Northern Rock since September last year.

The Bill allows a bank or building society to be taken into public ownership when there is a threat to financial stability or when state support has been provided. I realise that there are concerns that Northern Rock might set a precedent for other institutions, but it was clear during our inquiry that Northern Rock’s excessive dependence on wholesale markets made it an extreme outlier among banks. Indeed, we were told by the European Central Bank in Frankfurt that no European bank had comparable exposure. I understand why the Bill is drafted so that it relates to deposit-takers in general and why there is no provision on the face of the Bill for a particular interest—thereby making it a public, not a hybrid Bill. I will confine my remarks to the case of Northern Rock.

On 11 October, my right hon. Friend the Chancellor of the Exchequer told the House that any proposals on the future of Northern Rock would have to be considered in the context of how far they, first, protected taxpayers; secondly, promoted financial stability; and, thirdly, protected consumers. He subsequently confirmed in an answer to my question that he viewed those three criteria as being of equal importance. My own assessment of the proposals for Northern Rock arising from this Bill relates to those three criteria.

On the first—the protection of taxpayers—I believe that the decision to nationalise Northern Rock is the right one. The taxpayer has been paying the piper since September and it is now rightly time for the taxpayer to call the tune. The Virgin offer seems to have been based on an optimistic view of the value that Virgin Money would bring to the table. I well remember the BBC reporting that Richard Branson was going to put in £200 million of his own money. When I spoke to people in the City, I discovered that Virgin Money was being sold to Northern Rock, and when I asked someone very close to Northern Rock what they thought the value of Virgin Money was, they said that it was not £100 million, but only £50 million. Hey presto—Richard Branson’s personal contribution of £200 million from the sale of Virgin Money to Northern Rock! The £10 million to £11 million that was requested for the branding of the Virgin Money name did not strike me as a good investment.

Any private takeover would have posed the threat of taxpayers continuing to bear all the risk, with the bulk of any profits going to a private owner. The scandal that that might have created in due course, particularly if the profits were realised in a tax haven, could have been far more damaging than any difficulties associated with nationalisation.

Mr. Djanogly
Will the hon. Gentleman give way?

John McFall
I have only eight minutes left, and I want to put my views on record. If I have time at the end of my speech, I will give way to the hon. Gentleman.

On the second criterion of financial stability, the Treasury Committee concluded that the Chancellor’s decision to make public support available to Northern Rock was the right one. For a time at least, there was political consensus on that decision. I have heard no convincing argument as to how, having embarked on providing taxpayer support, the Government could extricate themselves from their commitment without jeopardising financial stability. Under existing insolvency law, administration would mean deposits being frozen, and the expensive guarantees offered by the Government would be invoked. In modern circumstances, the difficulties of individuals with no access to their bank accounts, even for a short while, would undermine confidence in the whole banking system and jeopardise financial stability, and there would be multiple runs on banks. At least until there is a new legislative framework for handling failing banks, administration is not a realistic option.

The third interest on which we must focus is that of consumers. It must be made clear that the consumers who matter are all consumers, not just those who have accounts or mortgages with Northern Rock. In the long run, the interests of all consumers will be best served by a competitive and properly regulated banking system. We must be alert, as I am sure the European Commission will be, to the danger that Northern Rock will distort the financial markets. Such a distortion would jeopardise the long-term interests of consumers and the financial system. At times of economic uncertainty other financial institutions do not need a new heavyweight competitor, numbed to the pain of competition by the anaesthetic of state aid.

As has been mentioned, Northern Rock is a high loan-to-value lender. I believe that its average loan to value is more than 60 per cent., compared with percentages in the low 50s in the rest of the industry. That makes Northern Rock more risky. Probably a gratuitous request to the new management is for it to ensure that the together mortgage, with a 125 per cent. loan to value, is no part of the company in the future. A statement to that effect from the management would reassure the rest of the market.

To satisfy myself and others that a nationalised bank will not distort competition, four conditions must be met. First, as the Chancellor has acknowledged, the terms of the agreement between the Government and the new management must meet the Commission’s state aid rules. I trust that the way in which that is done will be made public. Secondly, given the state guarantee, a nationalised Northern Rock must continue to pay a penalty for attracting new depositors, as the private Northern Rock has done since last October under the terms of guarantee in paragraph 303 of the 9 October extension document. I hope that, when she replies to the debate, my right hon. Friend the Chief Secretary of the Treasury will confirm that the penalty charge will continue when the bank is in public ownership.

Thirdly, there must be proper accountability and transparency of the new management’s business decisions. When it is a public entity operating in the private sector, the Treasury Committee and the House will want to be assured that Northern Rock’s business plan is good for the bank, its employees and its customers and for the taxpayer, the consumer and the wider financial services market. I welcome the appointment of Ron Sandler as chief executive. As I have said, he has form in the financial services sector: he was called in by Lloyds in the mid-1990s when there was chaos there, and served the interests of Lloyds and the financial community well. However, it is important that his incentive plan is examined. The incentives should focus on the appropriate size of the company rather than on growth objectives. It was the incentives and growth objectives in the old Northern Rock that led it into such trouble with its extreme business model.

Another question is, what is the disclosure regime for Northern Rock? There must be a focused retention package for Northern Rock employees, particularly those in IT and product design. I well remember the comments of the Governor of the Bank of England telling the Select Committee that Northern Rock’s middle management had done its job in exemplary fashion, and that if the senior management—the board—had followed the lead of middle management and the rest of the work force the company would not have found itself in this position.

There must be a commitment to the principle that state ownership is temporary. The decision to nationalise must have been difficult, but the judgment of when to privatise will be just as difficult, and of crucial importance.

Mr. Djanogly
I thank the right hon. Gentleman for giving way. He said that he believes that nationalisation is in the best interests of the taxpayer. How does he know what is in the best interests of the taxpayer? What due diligence information has he received on the assets and liabilities of the bank? What information have we Members received on the bank, on which we must make this decision today after one day’s notice from the Government?

John McFall
If the hon. Gentleman had read the newspapers yesterday, he would have seen that although the top headlines were critical of nationalisation, almost every writer on the inside pages said that nationalisation is the best alternative to protect taxpayers’ interests. It is folly for the hon. Gentleman to consider otherwise, and to think that we should accept a bid from Virgin or others on the basis that the share price will double and they will then start paying money back in 10 or 20 years. Is that a good deal? Of course it is not. We only need two clear eyes to see that.

In due course, the Government must spell out the criteria they will use in judging when to privatise Northern Rock. I expect that the Treasury Committee will continue to monitor that when Ron Sandler and others appear before us, and we will try to make sure that the Committee carries out its objective, as laid down by the House, of ensuring true accountability.

17:27:00

Dr. Vincent Cable (Twickenham) (LD)
I made it clear yesterday that we support the decision and the Bill, and I fully understand the Government’s need to move quickly; the bank is paralysed, so we must help to pass the Bill this week. That said, the Government seem to have an extraordinary search engine for finding banana skins to slip on. It was announced this afternoon on the BBC, which I presume is right, that Mr. Ron Sandler, who has been appointed as the chief custodian of taxpayers’ money, is a non-dom. It seems that all the Government’s favourite businessmen, including Sir Richard Branson and now Ron Sandler, have so little commitment to the country, let alone the Government, that they prefer to pay their taxes elsewhere. I presume that Ron Sandler will now become the second best-paid person in Newcastle after Michael Owen, but at least Michael Owen pays his taxes here. [Interruption.] Yes, we think so.

Clearly, there is scope for improving the Bill. As the Conservative spokesman, the hon. Member for Tatton (Mr. Osborne), rightly said, important challenges need to be made, particularly on parliamentary accountability, and we shall support his and other amendments designed to strengthen the Bill in that respect.

Mr. Redwood
Should we welcome the idea that taxpayers’ money could help to pay Michael Owen’s salary through the sponsorship deal that I believe is already in place?

Dr. Cable
The right hon. Gentleman is one step ahead of me on that.

We can continue to debate the argument that has been going on for several months about the pros and cons of nationalisation, but we have passed that point; the decision has been made, and the nature of the question has now changed and is to do with what kind of bank we are now talking about.

Mr. Cash
The hon. Gentleman might not know this, but in the draft order to which my hon. Friend the Member for Tatton (Mr. Osborne), the shadow Chancellor, referred there is a remarkable provision that says that no director of Northern Rock shall be liable for any act or omission of theirs that occurs while Northern Rock is wholly owned by the Treasury and, accordingly, no proceedings may be brought. Would the hon. Gentleman and his party approve of a provision that exempted directors of Northern Rock—being paid more than £1 million a year—from any liability for anything they do as directors?

Dr. Cable
The hon. Gentleman has an eye for legal detail, but I am not clear about whether he is talking about Crown immunity and civil servants’ status.

Mr. Cash
I am talking about a specific provision, which the hon. Gentleman will doubtless alight upon when he has a chance to examine the draft order. Does he approve of it in principle?

Dr. Cable
I shall alight upon it and then decide whether I approve of it in principle.

May I return to the central question of what kind of bank will now operate? Will it be built up or run down? The hon. Member for Newcastle upon Tyne, Central (Jim Cousins), with whom I have had several exchanges in the past few weeks, put it rather well yesterday when he asked whether this is the end of the beginning or the beginning of the end of this bank. That question is crucial. It is at the heart of the argument about the business model, on which Ron Sandler will presumably be asked to decide. It is not clear to me which of the two approaches is the better. A wide range of options exists, so one can envisage a kind of continuum, at one extreme of which the bank would be run off and would have no new business. The other extreme might involve a highly expansionary strategy—a kind of publicly owned Virgin or “the people’s bank”, as somebody called it yesterday. Alternatively, something between the two might happen.

At some point, there must be a proper debate about which option will be chosen. This is a political issue; it is not just a technical issue for the man who has been appointed to chair the company. It is not obvious to me which is the best approach. My instincts suggest that given the excesses of the past, the bank is probably best run on a more conservative basis, but there is an argument for saying that if the primary concern is repaying the taxpayer, that could be done in two different ways. The assets could be run off to realise cash or the bank could be built up to sell it at a large profit. It is not clear which of those approaches is the better.

There is an issue to address in respect of the staff, who are important in themselves. If large numbers of them are laid off, one must deal with not only the redundancy bill, but problems of retention, management and keeping the bank going effectively. A crucial human resource issue is involved, and somebody has to decide on it. The matter is political as well as administrative.

The Conservative spokesman rightly mentioned the nature of competition and unfairness, and that is clearly important. It is complex, because the banking industry is not a normal one—Cruickshank reported on that several years ago—and other banks have lender of last resort privileges. A few moments ago, I saw the former chairman of Lloyds complaining on television that it was very unfair that Northern Rock would be the only bank that could not go bust. That is not true, because his former bank could not go bust either. The national savings bodies have complex competition arrangements. Insurance companies may well say that Aviva does not have lender of last resort facilities, but where an insurance company is owned by a bank, the parent company does. This is a messy area where competitive principles are very unclear, so there must be proper, publicly accountable discussion about which of the options will be taken.

I want to discuss a second set of questions, relating to the inheritance from the pre-nationalisation stage. This is not the point at which to have an inquest or post-mortem on what has happened—the Treasury Committee and the Public Accounts Committee will have plenty of opportunity to do that. Some questions about the past are highly relevant to what happens now, the first of which was posed by the Conservative spokesman—how sound is the bank?

An important contribution was made yesterday by the right hon. Member for Hitchin and Harpenden (Mr. Lilley). He reminded us of the scale of the repossessions that are now taking place. They run wholly contrary to everything we had previously been told about the bank’s soundness. I began to become concerned about that matter about a year ago, possibly because of my particular personal interest—some would call it an obsession—with problems of personal debt and the housing market. It was clear that something very strange was happening with this bank and its performance. I questioned it, but the Financial Services Authority was completely blind to it. I recall being telephoned by the FSA’s chairman on the day the crisis originally broke. He said that I was being irresponsible in talking about the bank and criticising its management. He said that it was a very well run bank with an exemplary loan book, and he asked what my problem was. Unfortunately, his position was undermined by the fact that at the same time a press conference was being held in the City explaining how Northern Rock’s management had taken on rather a lot of the sub-prime mortgage liabilities in the US. None the less, that remains the official view, and as far as I know the Chancellor still subscribes to that description of the bank. However, we have had plenty of evidence to the contrary, including not just the evidence given yesterday, but serious brokers’ reviews. For example, Panmure Gordon has said that bad debts were systematically hidden.

There were therefore all sorts of problems with the bank and the next step—which I advocated yesterday and on the day of the announcement, and which has been taken up today—is for a proper, independent audit under the supervision of the Bank of England, and not carried out by the FSA, to investigate how sound the bank and its mortgage book are.

The second inheritance from the past is the costs of delay. What were they? We have had questions already about the costs of financial advice, but there is a potentially much bigger cost, which is the cost to the bidders. Who has paid the bills for Sir Richard Branson and other bidders for due diligence and other costs, which have been formidable? I was alerted to this problem at the outset when it was said that 10 companies were interested in bidding. I happened to talk to someone from one of those companies and he said, “We are not going any further with this, because we have discovered that the Branson consortium has preferred bidder status and the Treasury is paying all its bills. Why should we compete on that basis?” A few days later, the other companies were told that the Treasury had changed its mind and would cover everybody’s bills. I do not know what happened, but since last October bidders’ costs have been paid by the Government. What are those costs? I suspect that they are a lot more than the Goldman Sachs bills.

The question of costs is important not simply because we want to rake up the past but because if the bank is to be sold again we need to know the principles on which it will be done. That is why the status of the bidders and who covers their costs is important.

A third question from the past is precisely how the Government came to make the decision to nationalise, which they announced formally on Sunday. Strategically, they made the right decision, but what steps led them to that conclusion? That is important, because if the bank is to be privatised eventually, the potential bidders need to understand the criteria that will be used. It has emerged in the press—we have no other source on this—that what seemed to have tipped the Government’s decision were the scale of the fee offered for the security, the length of time of repayment of the taxpayer and what the professionals call the equity kicker for the Government. But there were many other issues involved that were not discussed.

I wrote to the Chancellor and Sir Richard Branson about those other issues. They include, for example, the nature of the security that was being offered for Northern Rock assets, and the tax status of the bidders and their vehicle. Those issues have never been discussed publicly and, at some point, we will have to have a proper explanation of the process by which the Government reached that decision to ensure that when the eventual sale takes place there is complete clarity about the criteria.

My final question is about Government debt. We all understand that by nationalising the bank the Government are taking on its full liabilities. Some of the newspapers yesterday, including the Daily Mail in its headline, assumed that nationalisation would increase the Government’s liability from £50 billion to £110 billion. That is wrong, because the Office for National Statistics classified the bank a week ago as a public company, under which all or most of the debt became public. I am not sure that that is the case either, as there may well be new commitments that have been taken on, and it would be useful to have an explanation.

My questions relate to the Bill, to what it says and to how its provisions can be strengthened. The first issue, compensation, has been touched on already. The Conservative spokesman put it clearly and correctly: although we would all like to make a sentimental distinction between the hedge funds and the £100 shareholding grannies in Newcastle, it is not possible legally to do so. The practical, painful reality is that without Government support the shares would be worthless. Any independent valuer is bound to have to come to that conclusion, I would have thought—but those involved obviously need to fight their legal corner.

The second issue relates to competition and how the competitive process will now be dealt with. I think the right questions have already been asked. Other banks will certainly make several points, such as about the deposit interest rate that can be offered by the new Northern Rock bank. Will it offer a higher rate of interest in attracting deposits, or the same rate of interest? How will it be constrained? What will its lending practices be? We know that in the past those practices have been extremely aggressive to expand market share. Will the bank be allowed to do that, or will it be constrained in some way? A more important question for competitors will be what will happen when the wholesale markets open. Will the Northern Rock bank be able to access them much more easily than other banks? A lot of questions will be asked about the fairness and appropriateness of competition.

It is right to say that although the EU has rules, it also has a lot of state banks—in Sweden, France and elsewhere—that are accommodated in a fairly permissive way. It is not entirely clear that European rules meet our requirements. I support the measures to build in a role for the Office of Fair Trading.

The Bill inadvertently opens up the whole question of the banking system in general, because it is about banks in general and not Northern Rock. We understand the parliamentary procedural reasons for that, but the Government have inadvertently brought forward an argument that we were going to have in six months’ time about the nature of bank rescues, bank nationalisation, intervention and how it all happens. They have therefore brought to the fore an argument that was originally made by Cruickshank in 2000. The former chairman of the stock exchange made the point that this is a strange industry that has what it calls regulatory privileges. It pretends that it is operating as a normal commercial operation and the bankers claim to be buccaneers who are out there competing in the market, when of course they are not—they are ultimately underpinned and protected by the Government.

The logic of Cruickshank’s argument points in one of two ways. Either the industry must be much more tightly regulated against excess profits, as he put it—or, in some instances, companies should be nationalised—or it has to be fundamentally reformed so that new companies can come into banking much more easily and those that perform badly can go bust. One of the unexpected outcomes of the debate might be that we will go through the first approach, but finish up with the second. Eventually, the cosy little set-up in British banking and the pretence at having a competitive industry will be broken. The industry will have to become genuinely competitive, like others are. Perhaps the Chancellor will be the author of a much more radical set of reforms than even he yet appreciates.

17:53:00

Jim Cousins (Newcastle upon Tyne, Central) (Lab)
The House is confronted this afternoon with a new and rather interesting situation. In front of the House is the question—in a sense, it has been there to be debated and thought about since last September—of what sort of bank this will be in the future. The reason why I have been very sceptical about nationalisation as an option is that the people who put forward the case for nationalisation, as I think the hon. Member for Twickenham (Dr. Cable) will be honest enough to acknowledge, clearly saw it as a transitional move—a more decent option than bankruptcy. They saw it as a kind of state-organised wind-down, with some of the less attractive features of bankruptcy removed.

The nationalisation that has been offered to the House by Mr. Sandler in Newcastle over the last 24 hours and by my right hon. Friend the Chancellor in the House yesterday and today may prove to be a different beast. That prospect gives me some optimism about the outcome of the affair. The Conservative Front-Bench spokesman’s policy was clearly to have a rapidly managed run-down of the bank; I think that that was the phrase he used—“managed run-down”. As I have discovered in the past couple of days, one has to check Hansard very carefully for the words that people use. Rapidly managed run-down is just about the worst possible outcome of the affair for the taxpayer, who will get less value out of the bank; for the jobs in Newcastle and in Durham, which will all be lost; and for the human resources that have been built up in the bank, which have proved quite remarkable and have sustained the difficult experiences of the past few months. Such action would fire into the markets at one of the most difficult moments to dump assets and to undermine savings. It is the worst possible course of action that we could adopt at this moment.

Mr. John Maples (Stratford-on-Avon) (Con)
rose—

Jim Cousins
I hope that the hon. Gentleman will understand my situation.

Mr. Maples
I completely understand the hon. Gentleman’s situation with his constituency; in his position, I might think the same thing. However, I do not think that he can argue that putting the bank into liquidation, for instance, and freezing the situation as it is now—we are told the loan book is good—would leave the taxpayer in a worse position than letting the bank go on, making more and more unsecured loans at 125 per cent. loan to value on mortgages. I do not see how that would put the taxpayer in a better position than they are in now.

Jim Cousins
At least the hon. Gentleman has clearly stated what was implicit, although not so clear, in the comments made by those on his Front Bench—that they were, in fact, advocating bankruptcy. That would destroy the assets and the ultimate value in the business. Let us be clear: that is not a good course of action for the people of Newcastle or for the markets.

Mr. Redwood
As a local Member for the business, has the hon. Gentleman been given any assurances by the Chancellor that he is going for the growth model and not the wind-down model?

Jim Cousins
No, I have had no such assurance; nor, at this stage, would I necessarily look for one. We have had from Mr. Sandler clear comments that he sees the business as a going concern and is preserving the option of growing it on. Let us be fair about this. Northern Rock was trying to be a big bank based in the north-east that could take on the big boys of the banking sector. That prospect, from the north-east’s point of view, must be retained. It may not ultimately work out that way, but it must be retained.

My right hon. Friend the Chancellor has not ruled out that option, because 11,000 jobs in Newcastle now depend on the finance and business services sector. They are jobs that people were told were a modern economy into which they should put their aspirations and careers. Most of those jobs depend directly or indirectly on Northern Rock. Retaining the possibility that the good business that is still there in Northern Rock can be grown on is an important part of the proposals. It is clear that that option has not been ruled out. I did not quite understand the remarks made by the hon. Member for Twickenham on that issue. He was not clear. His phrase about whether this was the beginning of the end or the end of the beginning seemed to me to mean that the logic of what he went on to say was that this should be the beginning of the end. That is a matter that the House will have to consider in the future.

John Hemming
Will the hon. Gentleman give way?

Jim Cousins
I am sorry; I cannot give way.

I must also take issue with my right hon. Friend the Member for West Dunbartonshire (John McFall). I do not think that it would be sensible to insist on the continuation of the penalty arrangements imposed on the bank in September. I do not think it would be sensible for the target of repayment of outstanding obligations to the Treasury and the Bank of England to be sought to be achieved in one to three years, as was the apparent position of the Government only a fortnight ago. Those matters must be reconsidered.

I agree that the business plan is the next step, which the House must consider, but it is extremely important that the work force, who have proved to be so steady and stable in what have been very difficult circumstances, are actively involved in its preparation. I look to my right hon. Friends on the Front Bench to give me clear assurances about that issue before the end of this debate.

The House must understand that mortgages are now not long-term products. The life of a mortgage is less than five years. If a mortgage business does not grow, it dies. Saying that Northern Rock in its present form cannot take on new business will kill it off, and again I look for further reassurances from my right hon. Friends on the Front Bench that none of the proposals in the Bill is predicated on the assumption that Northern Rock will be unable to take on new business. As Northern Rock’s fixed-term mortgages become due, borrowers are already being directed back to the markets rather than to the bank’s own mortgage review provisions. That policy has been pursued for the past two months, but if it continues for any length of time, it will mean certain death for the bank. I look to my right hon. Friends on the Front Bench, and to Mr. Sandler, for very clear assurances that it will be discontinued, so that Northern Rock has the option to construct new business.

Another important thing to understand is that there has been a significant change in the Liberal Democrats’ thinking about nationalisation. They began by saying that nationalisation would be an almost momentary interlude, merely a phase in the transition to private ownership. Over the past few days, however, it has become clearly recognised in all parts of the House that the problems at Northern Rock will not be solved in a moment or two, and perhaps not even in a year or two. The sensible framework for the House’s thinking is that we will have to deal with the situation at Northern Rock over a number of years. Moreover, in due course—I do not think that it would be reasonable for us to insist on their doing so this afternoon—the Government will have to consider how they discharge their obligations to Parliament in reporting on the management of a publicly owned bank that is likely to remain in public ownership for quite a significant period.

Another welcome aspect of the Bill is that it not limited to one line that deals with the specific problems posed by Northern Rock. Instead, it provides means of dealing with other problems that may exist and with which the House will have to deal. Northern Rock is not an isolated piece of rock in an otherwise quiet and calm sea. We are talking about a very turbulent market, and other unexpected things could happen. The Government have been right to use the Bill to provide a context for dealing with other matters if the need arises. In particular, I welcome the additional provisions that deal with problems that might affect building societies. They are especially helpful, as they will calm the markets and reassure borrowers and depositors until the Government can put longer-term legislation in place.

The Government have various other matters on their agenda at the moment. Affordable housing is one problem, and another is how higher levels of home ownership can be achieved among people whose incomes are neither great nor especially stable. Some of what Opposition Members have said about Northern Rock this afternoon leads us precisely to the debate about how the Government should deal with such matters, because the fact that there is a bank in public ownership means that they will be in the front line of providing housing finance.

Some of my other doubts centre around whether the Government, at this stage in their life, can take on such problems—

Mr. Deputy Speaker
Order. I call Mr. Stephen Dorrell.

18:06:00

Mr. Stephen Dorrell (Charnwood) (Con)
The matters that I want to cover in my remarks follow very directly from the comments made by the hon. Members for Twickenham (Dr. Cable) and for Newcastle upon Tyne, Central (Jim Cousins). However, I draw a conclusion that is almost precisely the opposite of the one drawn by the latter: my central concern about the Bill, and the reason why I believe that Opposition Front-Bench Members are right to say that it must be resisted, is that after virtually six months of indecision about Northern Rock’s future we are being offered a mechanism but no clarity about the objectives that it is being put in place to achieve.

We are told that nationalisation will be merely a short-term phase, but we are given no clarity at all as to the objectives that management should follow in that supposedly brief phase, nor about the shape of a business that the Government hope ultimately to be able to move back into the private sector. The hon. Member for Twickenham touched on the fact that Northern Rock’s new management have two alternative ways to discharge their responsibilities as a nationalised enterprise. In crude terms, he said that they had a build-up option or a realise-the-assets option.

The hon. Gentleman said that he could see arguments for both, but I find it rather more difficult than he appears to do to understand the arguments in favour of continuing to develop the business model that clearly failed very dramatically in the events of last September. Let us examine the two options that he rightly identified, starting with the build-up option, if I may use that shorthand.

In effect, the build-up option would involve using state support to back a business model that caused the bank to land up in the situation that it found itself in in September. The state would be used as a sort of turn-around venture capitalist, with Ron Sandler taking a business in trouble and making a success of the problem that he inherited. I am not a banker, and I would not try to second-guess bankers’ views about the realism of that option, but neither would I seek to second-guess the results of what actually happened. Moreover, I do not think that the addition of the state in the role of venture capitalist does anything to make it more likely that the option would be more successful the second time around than it was the first.

John Hemming
The right hon. Gentleman is right that there is no certainty about the situation, but does he accept that the biggest uncertainty has to do with the quality of the loan book, the organisation’s key asset? Markets sell uncertainty, so the faster one tries to solve the problem, the bigger are the losses that may arise, with the taxpayer picking up the ticket.

Mr. Dorrell
The hon. Gentleman makes a different point, if I may say so. I agree that there is a benefit, if we are going for the run-down option, in an orderly run-down. I understand that, and I think that he is right. However, it is a different argument from saying, as the hon. Member for Newcastle upon Tyne, Central apparently believes, that the way to deal with the situation is to put more money behind the business idea that landed us in the circumstances that we found last September.

In the circumstances that Northern Rock is in now, the Government should be clear that they are not proposing support for another attempt to make the failed model work. But that is what the hon. Member for Newcastle upon Tyne, Central apparently wants the Government to do. It is on exactly that question that the Government are being studiedly vague.

May I pick up a specific term used earlier in interventions on the Chancellor? He took some comfort from the proposition that Northern Rock in public ownership, as  he calls it—a nationalised industry—would be run on a normal commercial basis, as if that was a term of art capable of independent analysis. The whole point about a commercial market is that commercial players look for new ways of exploiting markets. They look for competitive advantage. Northern Rock thought until last summer that it had found a new model from which it could derive commercial advantage. It was therefore being run on a normal commercial basis. It is just that that normal basis of seeking to exploit a new business model did not work. To attempt to confine the scope of the new corporation by saying simply that it will be run on a normal commercial basis begs all the difficult questions and gives absolutely no comfort to me on behalf of my constituents as taxpayers.

So I oppose the Bill not because I deny the benefit of providing a period for orderly management of the company’s affairs, but because the Bill fails to take advantage of the opportunity to clarify a series of objectives for new management, which in my view should clearly be the orderly realisation of the assets of Northern Rock. I believe that that is right from the point of view of taxpayers and of avoiding state-subsidised competition in the marketplace. I acknowledge that it will be difficult for those who have been employed in the building of a business model that ultimately did not work in the marketplace, but I believe that those people’s futures will be far better secured by re-employing them in a business model that works than by trying to offer them a second round in a business model that did not work.

John Hemming
Does the right hon. Gentleman accept that the business model that did not work was not covering the loan book by deposits and that, whatever happens tomorrow, the loan book is not going to be covered by deposits, so the same business model is being maintained?

Mr. Dorrell
It is a question of what the objectives are during an avowedly transitional stage. I do not want to repeat that point. If we are rejecting the option of building up the bank on the previous model, we also need to be clear what is the alternative set of objectives that we are holding out. I think that a period of orderly realisation of assets is required. The thing that gives me real concern in the statements that the Chancellor has been making is the apparent implication that the only form of orderly realisation that he envisages is the sale of a business called Northern Rock. It could very easily be—I hope that Mr. Sandler’s business plan will include this as one of the options that he will explore—that the best way of realising the assets of Northern Rock is to do so in parcels: to sell parts of Northern Rock to different purchasers.

The idea that success in this set of circumstances is creating a new, profitable enterprise does not seem to be self-evident from the facts. What is important is that there should be, as the hon. Member for Birmingham, Yardley (John Hemming) says, an orderly realisation of assets to secure the interests of taxpayers, to avoid subsidised competition in an already competitive market going through its own difficulties, as we all know, and to secure permanent, stable employment for the people who undoubtedly face uncertainty as a result of having secured employment in a business that ultimately, sadly, did not work.

18:15:00

Mr. Doug Henderson (Newcastle upon Tyne, North) (Lab)
There really is only one issue before the House this evening, and that is the question whether nationalisation of Northern Rock is appropriate at this time. There is a secondary issue if a decision is taken to nationalise—although it would have arisen whether the bank was nationalised or not—of what happens to Northern Rock in business terms in the future.

If the Government had announced in September in response to the difficulties of which they were notified by Northern Rock that nationalisation had to take place immediately, there would have been an outcry from the Opposition. They would have said that the Government had not given time to think about what the issues were, that the Government’s action was ideologically driven and that it was a return not to the 1970s but to the 1940s. The Government were right to ask what were the issues before us.

The Government were clear, and they had the support of the British people—people in Newcastle, shareholders, workers and even the Conservative party—when they said that the issue was not only about Northern Rock. Northern Rock is an important issue—believe me, it is in my constituency—but it is also important for Britain’s financial markets. From the Government’s point of view—I say this coming from Newcastle—the key issue is the future of the financial markets in Britain. They are a massive employer, they make a massive contribution to our economic growth, and they are important to our reputation as a trading nation. The Government made the right decision, which was to say that if the problems of Northern Rock spilled over into other sections of the financial community there would be serious problems for everyone, including even worse problems for Northern Rock.

What the Government did then of course helped to bolster Northern Rock, and that was welcomed more by depositors than anyone else, as was shown by their response. I supported what the Government said then, which was that Northern Rock would not stay as it was. There were three ways forward: to close the business as quickly as possible and sell off any assets; to find a private sector solution that could lead the business forward; or to nationalise the bank, which is the third option that we are dealing with today. It was right to try to find a private sector solution, and that was supported by the trade unions in Newcastle because they know, as I know, that people who have experience of retail banking and the mortgage business realise the pitfalls and know what is necessary to make the business tick.

If we could have found as a nation a private bidder to take over Northern Rock in a sensible way, that would have been by far the most desirable outcome. I am pleased that we have the support of the Liberal Democrats today on nationalisation. They were somewhat premature in jumping to the conclusion that nationalisation was inevitable, but that in a sense is history; it is behind us now. I believe that today the House will be overwhelmingly in support of the nationalisation of Northern Rock because there is no alternative. If we do not nationalise, there will be immediate damaging consequences for Northern Rock and for the rest of the financial industry, even today. That is how we must go forward.

I must say that I am still not clear what the Conservative position is. I do not want to wind this debate up into a big rhetorical battle between us and the Conservatives, but I have listened to what has been said on the radio and in some media outlets, and the message being sent clearly to the British people is that the Conservative party is against nationalisation, full stop, and that whatever happens to Northern Rock, its shareholders and its workers as a result of no nationalisation just happens. According to the Conservatives, if the consequence is that the business goes bust, people are laid off and the shareholders get nothing because Northern Rock is a business without value—the Conservative Front-Bench team has confirmed it today—we as a nation generally, and those of us in Newcastle, who have a special interest, must all live with that. If that is not the Conservative position, I would be extremely grateful if someone could tell me what it is.

Mr. George Osborne
I am not sure whether the hon. Gentleman is aware that what he will vote for tonight could lead to very substantial job losses at Northern Rock. What the Chancellor of the Exchequer said at the beginning of his speech implied that the bank would not be able to operate in an aggressively commercial way, as Ron Sandler suggested it should. The Chancellor’s view, by the way, is that the shareholders should get nothing. That is what the hon. Gentleman will be voting for tonight.

Mr. Henderson
I know what I am voting for tonight, and I think that my constituents will know, but even after the hon. Gentleman’s intervention, I am not sure that my constituents or even his will know what he is voting for. If he is not voting for nationalisation, what is he voting for? We cannot just leave Northern Rock in abeyance, floating through some land where no one knows the terrain. People want to know the terrain. The people who work in the business want to know what the different political parties are saying and what Parliament will do about their jobs.

Mr. Andrew Love (Edmonton) (Lab/Co-op)
Will my hon. Friend give way?

Mr. Henderson
I am taking up other people’s time if I give way, but I will do so.

Mr. Love
My hon. Friend asked what the Conservatives propose. They propose the direct loss of 5,000 jobs in Newcastle, and probably 6,000 other associated jobs. I read in my newspapers that the Conservatives have set up a committee to try to make inroads in the midlands and the north of this country. As long as they have that cavalier attitude towards jobs, it is unlikely that they will make any progress.

Mr. Henderson
I am grateful to my hon. Friend. It is not just in the north that they will make no progress; they will make no progress elsewhere, because people throughout the country will see what is going on. There is plenty of spin and the suggestion that the Conservatives are now a new party and all the rest of it, but when it comes to policy positions on things that affect people’s lives, they do not make the tough decisions. We do not get much advice from the Conservative party these days.

I move to the second question: the future of the business. The Chancellor said in his statement yesterday that a framework agreement would be published shortly, and that we would then know the parameters for the relationship between the Government and the new board of Northern Rock. That is very welcome, but of course it is not a business plan. It is a framework between the Government and the board. The business plan concerns what employs people, creates wealth and gives the business a future.

Stewart Hosie
Will the hon. Gentleman give way?

Mr. Henderson
I am sorry; I cannot give way any more.

The business plan is the key issue. We as politicians have offered the country some advice in this debate, but I do not think that we are the best ones to judge what the business plan should be for Northern Rock. Others who are more qualified and know the details of running a business—the risks, the responsibilities and the rewards—are far better placed to make recommendations about the future business plan for Northern Rock. I hope that when the board does so, it will hold close consultations with the workers and their trade unions. The workers have been remarkably loyal over the past five or six months, during a period of great uncertainty. The workers still have huge anxiety about their future, so I hope that there will be no great delay, and that we will move forward quickly on that issue.

I have said that I do not think that politicians should outline the business plan, so I will not do so, but one of the key questions that has to be taken up by the board is: what is the marketplace? There is no easy answer to that, because the board has to judge not the marketplace of the past—which it could look back on—or that of today, next month or even next year. It has to take decisions on a much longer term. Mortgages last a long time, and they have to be financed. That is a key issue for the board, and there is no clear-cut plan.

The right hon. Member for Charnwood (Mr. Dorrell) said that there was not enough clarity, but I do not think that we can have that clarity. In some senses, we have to take it on trust that the board will come up with commercial thinking, balanced against the principles of accountability—for which, of course, the Government are responsible, as there are vast amounts of public money at stake. The board cannot even say, “If we take out this mortgage book, this is how it will be financed.” It cannot say whether such a book will be financed entirely from deposits, or from a mixture of deposits and other loan finance, because it does not know what the international wholesale money markets will be like in future. It will therefore have to plan conservatively, using an option that allows it to develop the business if the markets change. It will have to face up to that key issue. There is no certainty for the board in the decisions that it will have to reach.

The board will have to decide on the shape of the business, based on the long-term future. It will have to consider how many retail units it needs, whether high street retail banking will be the way forward or whether internet banking will take off to a greater extent, and whether it wants to be in the internet banking sector. It will have to consider what sort of back room it needs. For example, will it need large numbers of people working in call centres, or are there other ways in which the business can be developed? Those are crucial decisions for the future of the business, and there are no clear-cut or certain answers at the moment.

The board will have to decide on the number of people whom it needs to employ. Again, that will be a difficult issue for it to face up to. Northern Rock has grown at a remarkable pace in employment terms; it has gone from 4,000-odd members of staff in 2003 to more than 6,000 today. That was during a period of growth. I discussed the issue with the trade unions at lunch time, and they are aware of all those considerations. The board will have to decide on its staffing requirements for the longer term.

Earlier in the debate, I raised with the Chancellor the issue of the repayment terms that the Government can expect, and the period over which repayments will be made. It is almost impossible to answer that question with great precision. One could make a political statement and say that the repayments would be made over a certain period, but if that was not in line with the commercial operation of the business, there would be severe consequences, so there has to be some flexibility. That is why the business is in the public sector at this stage—so that the repayments that must be made, and made with interest, can be made over a period. That is vital, not only for the taxpayer, but for maintaining the business as a going concern. Hopefully, the business will go forward in a positive way, as was said by my hon. Friend the Member for Newcastle upon Tyne, Central (Jim Cousins), who represents a constituency that neighbours mine.

18:28:00

Mr. Peter Lilley (Hitchin and Harpenden) (Con)
The Government spent five months or more in prevarication before putting a Bill before the House. In so doing, they were primarily driven by political considerations. They were determined to avoid the current outcome if possible—and not simply because they thought that it would be bad as far as managing Northern Rock was concerned. Above all, they thought that it would be bad for the Labour party’s image to be associated with nationalisation, hence the fact that even now they try not to use the word. That is a bad reason for long delay, but the Government are making a virtue of the delay, saying that it was good to consider all options, and that essentially there was no hurry.

There was no hurry until Sunday. Suddenly, on Sunday, it was essential to do everything in a day. Why? Again, I suspect, it was not because of any need on the part of the company. No detailed indications have been given by Ministers as to why the rush is necessary. The real reason is political. Because of the huge embarrassment of a Labour Government—a supposedly new Labour Government—reverting to the mechanism of nationalisation, they have decided to ram the Bill through in a day and minimise any discussion that we can have and the ensuing publicity in the press.

Was that necessary? No, as we know from the experience of Rolls-Royce. The Rolls-Royce Bill was more specific, and although it did not take a hugely long time to complete its passage through Parliament, it took longer than the Banking (Special Provisions) Bill will take. It was not necessary for the then Government to dress it up as a Bill to take over the whole of the aerospace industry; they made it a two-clause Bill to take over Rolls-Royce. There has been no explanation from Ministers about why a similar procedure has not been followed today.

Those were five wasted months because all that time Ministers could and should have been planning the tentative business model that would be adopted under nationalisation, administration or a Bank of England-led reconstruction. We are not told what the business model will be, not even in the broadest outline—whether it is one of growth or contraction, consolidation or business as normal. Nor have the Government spelled out how they will deal with the problems of competition and competition law. So we have had five wasted months, then suddenly one shameful undemocratic day of ramming the Bill through Parliament.

I shall say a little about the lessons in prevention and regulation that emerge from the issue. The problem arose because of the marketing of sub-prime mortgages through special investment vehicles. That triggered the closing of the market on which Northern Rock relied, and raised fears about Northern Rock itself because it was thought to be involved to some degree in that business. When such problems arise, we ought always to look elsewhere and see where they have not arisen and why.

Spain is a notable exception. No Spanish banks have any of the problems that I described. No Spanish banks have reported losses from sub-prime loans. Despite the fact that the Spanish property market is overheated and will probably cause problems of its own, Spanish banks did not suffer from the problem. Why? It is because Spanish banking law, as a consequence of past problems of failure to consolidate off-balance sheet debt, insists that all such debts and obligations are consolidated and revealed. There is a lesson for us there, but nothing in the Bill learns from that and makes sure that we do not suffer from those problems in the future.

The regulatory approach adopted by the FSA appears to need to change. There are two possible approaches for a regulatory body. One is to be essentially routine—to consider every case in the same way and adopt a box-ticking approach to regulation. That is what regulators will do if they are left to their own devices. What they ought to be doing, however, is focusing the bulk of their effort on areas where there is some reason for concern.

There was some reason for concern in Northern Rock. It was pursuing a very unusual policy. It increased its loan book by 50 per cent. in a year at the peak of the market. It offered the lowest mortgage rates and some of the highest interest rates. It offered 125 per cent. mortgages. It has, I believe, £1 billion of unsecured debt on its balance sheet. We are assured none the less, on the say-so of the FSA, but with the endorsement of the Chancellor, that it has a fine, high-quality loan book. I wonder whether he stands by that. In response to my question yesterday about why, if Northern Rock has a high-quality loan book, it is the most active in the field of repossessions, he failed to restate his assurance that Northern Rock has a high-quality loan book.

We ought to be examining the regulatory procedures and learning from abroad. One of the lessons from the Continental Illinois problem was the diagnosis that the regulator had relied on the information and procedures supplied by the bank for auditing its loans. I rather suspect that the FSA did much the same and the Chancellor no better, but we ought to establish procedures that look for a problem, rather than ask for reassurance from the management.

Mr. Redwood
Was it not an international and global problem and was not the regulatory failure the failure of the Basel agreement, which said to every bank, “Go for growth off-balance sheet. Go to growth by securitisation”, in order to ensure less regulatory capital for that route?

Mr. Lilley
I am sure that my right hon. Friend is right, but it was possible to stand out against that, as the Spanish authorities did, and all credit to them.

We need to know more from the Government about the quality of the loan book and about the reason for the relatively high level of repossessions by Northern Rock compared with any other high street bank before we go ahead and authorise the public sector to take on huge obligations permanently through nationalisation.

The Conservative party is clearly opposed to nationalisation as the normal way of running large businesses. We are not absolutist about that. I revealed to the House the other day in another debate that I was probably the last Minister to nationalise anything. I had to do so after Saddam Hussein invaded Kuwait. I nationalised all the Iraqi Government-owned assets in this country. It took me five minutes to make the decision, not five months, and I was dealing with the problems created by the leader of an enemy Government rather than the leader of my own, which I appreciate is the problem that the Chancellor has had to put up with.

There is not a strong case for the nationalisation to which the Government have finally resorted, because it gives rise to inevitable conflicts. With ownership come responsibilities, and the Government as owner will not be able to escape those responsibilities. [Interruption.] My hon. Friend the Member for Tatton (Mr. Osborne) in an admirably clear and forensic speech spelled out what we would do and why we would not do what the Government are doing, and I support him.

I would be extremely reluctant to put myself in the position that the Chancellor will be in when it comes to the issue, for example, of repossessions. When he was in opposition and there was a serious level of repossessions in the 1990s, he urged institutions to exercise social responsibility. As owner of a bank that is most active in the field of repossessions, will he require his managers to exercise social responsibility? Yesterday he said no—he was going to take on the role of Pontius Pilate and tell the management to carry on.

Severe conflicts of interest are created. The Chancellor is paying Mr. Sandler £1.2 million a year—the two top people between them £2 million a year—and asking them none the less to get rid of that profitable way of life rapidly. Will they really have an incentive to bring the bank back to private ownership speedily? Unless they think that they will continue in their role when it is privatised, perhaps not. Many conflicts will arise from the decision, which the Government have not thought through, which they are not giving the House the opportunity to consider, and which will mean that in the long run Northern Rock moves from being Northern Rock to a national millstone.

18:39:00

Frank Dobson (Holborn and St. Pancras) (Lab)
I support the Bill because there is clearly no sensible alternative. I shall address the principal Tory objection to it, which is their objection to the concept of nationalisation, and their assertions that it will damage Britain’s reputation for financial services, and that the fault for all that lies with the Government. Nothing is further from the truth.

The original mess at Northern Rock was caused by the irresponsible and stupid policies of its private sector bosses. When they got into that mess, they turned to other private sector banks and asked them for additional loans. Those banks refused to give Northern Rock those loans because it was such a bad risk. In other words, there was a market failure.

Northern Rock turned to the state and taxpayer to bail it out; to say that that was ironic would be an understatement. It was hypocritical as well. The bank was chaired by Matt Ridley—an old Etonian, like the leader of the Tory party. He is on record as saying

“it is vital we reduce the power and scope of the state.”

When his bank needed bailing out, the first thing he did was turn to the state. He had to, because his enterprise-culture, old Etonian friends in the City had turned him down in the marketplace.

Mr. Kevan Jones
Does my right hon. Friend agree that the chairman’s only qualification for his job and salary of some £300,000 was that his name was Ridley?

Frank Dobson
That may be the case. It brings to mind the time of the Oxford martyrs, when Cranmer, Latimer and Ridley were facing the Catholic experts. It was said at the time that in the arguments, Master Cranmer leant on Master Latimer, who leant on Master Ridley; Master Ridley leant on the singularity of his own wit. It is a pity that the Oxford fire snuffed out the wit in the Ridley family.

We need to come to the wider question of why the other banks turned down the request for help. The answer is that irresponsible banks in the United States, Britain, Switzerland, France and Germany had all lost fortunes on what they call “sub-prime mortgages” in the United States. Other people call that lending money to people who could not pay it back.

It was not just that the banks gambled and lost billions of dollars. None of them could trust what any other bank said about its potential losses. Some were making false statements and others refused to reveal what their losses were, so the banks cut down on their lending to each other, and none was in a position to bail out Northern Rock. The situation was not just the result of a failure of a single bank—it was due to the failure of the whole market. Those losses and that distrust have also stymied the Government’s efforts in the past five months to get a private sector solution to the Northern Rock crisis. If the sub-prime mortgages crisis had not occurred, the chances are that there would have been a private sector solution to the problem, and everybody would have welcomed that.

On top of all that, the Tories and their friends in the news media go on and on about how nationalisation has damaged Britain’s financial reputation in the eyes of the world. However, it cannot do such damage in a substantial part of western Europe, where there are publicly owned commercial banks.

In whose eyes do the Tories and their friends believe that Britain’s reputation has been damaged? Is it in the eyes of Citigroup in the United States? It lost $24 billion in the sub-prime crisis. Merrill Lynch lost $22 billion, the Bank of America lost $5 billion and JPMorgan lost $3 billion. Has our reputation been damaged in the eyes of France, where Crédit Agricole lost $5 billion, Société Générale lost $3 billion and BNP Paribas lost $1 billion? Has it been damaged in the eyes of Germany, where Bayern LB lost $3 billion, Commerzbank lost $1 billion and Deutsche Bank lost $3 billion? Perhaps the Tories and their friends think that Britain’s reputation has been damaged in the eyes of the Swiss, but UBS lost $18 billion, Swiss Re lost $1 billion and it has been revealed today that Crédit Suisse lost $3 billion.

Mr. Maples
Will the right hon. Gentleman give way?

Frank Dobson
No, I have given way already.

Goldman Sachs, which has been advising the Government, says that it is concerned about Britain’s reputation as well. Apparently, its representatives are patting themselves on the back because they lost only $1.5 billion in the sub-prime scandal—they were stupid, greedy and short-sighted. The right hon. Member for Hitchin and Harpenden (Mr. Lilley) would agree that the institution was not properly supervised by the regulatory authorities in its country.

This morning, I had the pleasure of listening to Howard Davies of the London School of Economics, formerly of the Financial Services Authority—one would have thought that he would have been on the ball as far as making sure that things are properly regulated. He is a director of Morgan Stanley, which lost $18 billion as a result of its stupidity over the sub-prime scandal. Such people say that there is something wrong with the Government—it is an understatement to say that that is the pot calling the kettle black.

Mr. Maples
Will the right hon. Gentleman give way?

Frank Dobson
No, I shall not.

Who else’s concern should we fear, according to the Tories? Should we fear the concern of the bond credit rating companies—including Standard and Poor’s, which gave triple-A ratings to sub-prime borrowing? The agency has been quoted with approbation by Tory Front Benchers this very day. Perhaps we should fear the concern of monoline insurers in the United States. Their normal business is, apparently, bordering on collapse because they have been insuring speculators who got their speculations wrong.

I have been talking about all the people who were apparently very concerned and bothered about the state of the British financial services industry—entirely as a result of the Government’s action. I should like to ask the hon. Member for Tatton (Mr. Osborne), who clearly does not like the truth, a question. When he and his mates were in Davos, were they sticking up for Britain on this issue, or were they talking Britain down? That is what they do most of the time on radio and television these days.

Rob Marris
Will my right hon. Friend give way?

Frank Dobson
No, I really need to get on.

The Government have had to act to preserve the integrity of the financial system and public trust in banks, and to protect the depositors and staff involved at Northern Rock. They have bailed out a bank that failed because of the greed and stupidity of its top management. That bailing out by the public sector was necessary because the private sector was in such a state of distrust that it would not or could not help. That was a consequence of the greed and stupidity of the lending policies of international banks on sub-prime mortgages.

Instead of criticising the British Government, the Tory party and the ill-informed alleged financial experts who come on radio and television—and get a creepy response from the interviewers that no politican, not even a Tory, would get—should accept that the Government are the only ones in the whole affair who acted responsibly when the market failed. This is a market failure, not a Government one, and that is why we have had to introduce the Bill today.

18:48:00

Mr. John Maples (Stratford-on-Avon) (Con)
The right hon. Member for Holborn and St. Pancras (Frank Dobson) should applaud all the losses, because they have been a gift of billions of dollars from big international banks to poor people who could not otherwise have got mortgages; I would have thought that he would be in favour of such Robin Hood-ery.

I want to make a couple of points. If a bank were not involved, we would not be talking about a rescue operation at all. Such an operation was put in place to save not Northern Rock, but the banking system—it was to stop there being system failure. We should not be concentrating on that particular company and why it is good for Newcastle, for the north-east, for jobs, or whatever. That is not why the Government stepped in to save it—they did so because of the threat of system failure. In any other circumstances, that would not be the case at all. If some of the Labour Members who have spoken substituted any other industry for the word “banking” in their speeches, they would find that they sounded pretty old-fashioned.

By any standards, £100 billion is a huge amount of money—about 22 per cent. of annual Government spending, or four times the defence budget—and the Government’s strategy should be to recover that money for the taxpayer as soon as possible and with as little risk as possible. If that involves some redundancies and the north-east’s favourite building society not turning into a big international bank, then I am sorry, but that is what happens in business. The Government dithered around unnecessarily for six months. When they found that Lloyds bank—one of the biggest banks in the country—could not take on Northern Rock without a Government guarantee or loan of £25 billion, they must surely have realised that the chances of any of the other people who paraded their interest doing so were negligible. They gave credence to a possible bid by Richard Branson, whose company, which had never run anything of such size or scale before, planned to put in a bit of new management and £200 million of new equity—a lot of money, but negligible in the context of a £100 billion balance sheet—and fiddled around with bidders who never had the equity to do the deal. The Government either did not recognise the realities of the situation or did not have the courage to make the decision then that they have found themselves forced to make now.

I ask the Chief Secretary to deal with the question of nationalisation versus administration. Nationalisation will give the Government a huge amount of headaches. They will become a debt collector on a massive scale; if they have never been in the debt collection business before, they have some nasty shocks in store. On Northern Rock’s 2006 balance sheet, there were £8 billion of unsecured loans, which I suspect will be difficult to collect. There are 125 per cent. mortgages, which must inevitably involve a bit of unsecured lending as well. Repossessions are running at 50 a week and will probably step up as the economy slows down, as looks likely. The Government have taken on all the bank’s liabilities, and they have almost inevitably taken on the necessity to make thousands of redundancies—not all 6,000, I guess, but certainly many of them—as well as an unknown and unquantified pension fund deficit. If the bank had gone into administration, that would have provided far greater flexibility to deal those matters without taking on those responsibilities. That alternative would also have had the great advantage—I hope that the Chief Secretary will deal with this point—of avoiding the need to deal with shareholders’ compensation, because they would merely have got what was left at the end, probably nothing. Nationalisation means having to deal with compensation, and, given that there are some pretty tigerish hedge funds out there, I suspect that there will be some lengthy and expensive litigation.

A casual glance at Northern Rock’s balance sheet makes one wonder how good is the security for taxpayers’ money. I mentioned the unsecured loans; there are also some derivatives and intangibles, and a lot of the good mortgages are already securitised at a loan-to-value in excess of 100 per cent. The ability to recover all its assets to satisfy the taxpayer seems to be limited, which is why I worry about the idea of continuing to run it as a business.

I checked Northern Rock’s website today. Even with a Government guarantee, it offers a better savings rate, by nearly 1 per cent., than Cheltenham and Gloucester. I use that comparator because it happens to be where my own mortgage is, but it is owned by Lloyds bank and is a long-standing and very reputable lender and savings institution. One of my richest friends in the City told me the other day that he and all his friends had put all their money into Northern Rock, because where else could one get 6.5 per cent. with a Government guarantee? It is ridiculous that it is being allowed to do that. That arrangement is not only uncompetitive—it encourages the company to make more unsecured and 125 per cent. loans in what looks like a dodgy and difficult housing market. If it is allowed to carry on doing that, we will find that it is harder to recover our money than it is now, and it will take longer. If it goes on making new loans, the recovery from cash flow of the Government’s money and guarantee will inevitably take longer. The first thing that the Government should tell Ron Sandler to do is to stop making risky loans. We want the credit criteria under which Northern Rock lends to be tightened up considerably so that they are the same as those of other lenders. If that results in a run down in the size of the business, that is probably a good thing.

Moreover, the bank cannot be allowed to distort the market by offering above-market interest rates with the backing of a Government guarantee. The Government guarantee ought to mean that people are willing to save at National Savings and Investments or gilt rates, not that they need a premium. Whether it is in administration, liquidation or a nationalised state, we must instruct that the company be run for the benefit of the taxpayer and instruct it to recover the loan and the guarantees that are outstanding, which now, in aggregate, must amount to more than £100 billion. That must be its objective in any of those formats; the one that the Government have chosen is nationalisation. If one puts other political objectives into the mix, the Government will risk huge sums of money. In the context of jobs alone, we are talking about £15 million per job.

John Hemming
Given the expensive loans from the Bank of England and the high rates of interest that are being paid, if Northern Rock were in administration, where would it get the money to pay the phone bills and wages?

Mr. Maples
It has a cash flow from mortgage repayments and interest payments. Serious consideration should have been given as to whether the bank should just sit back, make no new loans, collect the interest and repayments on debts as they flow in, and, if and when the market recovers, perhaps securitise and sell off some of the other mortgages. That would be the fastest and probably the most secure way for the taxpayer to get their money back.

If the Government had taken the administration route they would not have needed to deal with compensation. The shares were worth nothing without the Government’s guarantee. I hope that they are going to hang tough and not pay compensation, despite feeling sorry for the small shareholders. Having said that, most of the shareholders seem to be people who were given their shares on demutualisation or big City operators who bought the shares in the distressed circumstances thinking that they might be able to railroad the Government into some kind of rescue. They are not little old ladies in tennis shoes with their life savings in the bank.

Jim Cousins
Does the hon. Gentleman acknowledge that almost half the assets of Northern Rock are in a securitised vehicle that has several more years to run? If we attempt to realise those assets in the short term, we will dump them at far less than they are worth—or we have to live with this until that securitised vehicle comes to the end of its life.

Mr. Maples
Yes, of course I understand that. It may be possible, if market circumstances change, to refinance those vehicles and the other mortgages that are not within them. However, I still think that the securest way of the taxpayer getting their money back is for the company to stop doing new business, stop making new loans and just collect the cash flow as it comes in. That would pay off the securitised creditors and the taxpayer.

I have not been a Member of this House for as long as some of the people sitting in here—actually, that does not apply to many; I think that the right hon. Member for Holborn and St. Pancras (Frank Dobson) is one. There has been a banking crisis every 10 years since I came here, and there was one in the 10 years before that. They come along at fairly regular intervals. They take different forms, but they are usually the result of over-exuberance on the part of the management, and the Government end up having to do something to bail those companies out. In the case of this crisis, we have found that the Bank of England cannot organise a rescue for a modest-sized mortgage bank. In the past, that has not been the case. With Johnson Matthey and with County bank, the Bank of England was able to organise a rescue.

We must face the fact that in future even such modest-sized institutions will have an implicit Government guarantee. That encourages irresponsible behaviour. If someone can get 6.6 per cent. from an institution that is taking greater risks than one that will pay 5.5 per cent. but also has a Government guarantee, why should they worry? That is bad business for the Government, because it will encourage people to save with the marginal and more risky operators. That is not only unfair on the people who operate in a safer environment but stores up trouble for the Government in future, because banking crises may come along more frequently than once every 10 years. That is one of the aspects of moral hazard, which gets discussed every so often. If we are, in effect, standing behind the liabilities of the British banking system, then we as the taxpayer need to know that the Financial Services Authority is regulating banks much more closely, and particularly watching those that are paying high rates of interest and making risky loans.

I end by referring to a point that I made in a previous speech on this subject. When the Bank of England was given independence to set interest rates, the Government made a mistake with regard to the regulatory system. I understand why they did it, but taking bank regulation away from the Bank and giving it to the Financial Services Authority was a mistake. First, as lender of last resort, the Bank needed to know, and did know, a huge amount about different banks. I experienced that myself when I was a Treasury Minister in a very junior capacity when the Bank of Credit and Commerce International was in trouble. The Bank of England’s intimate knowledge of the banking system was extraordinarily valuable in that situation. At that point, we also had two people talking to each other: the Governor of the Bank of England and the Chancellor of the Exchequer. We now have three, and I think that having three makes things twice as complicated as they used to be. I urge the Government to look again at how the system is regulated because giving bank regulation back to the Bank of England would be a better way of doing things.

In future, once we have given an implicit guarantee on the liabilities of all the banks, we will be in a different ball game from the one we were in before—one where we cannot organise rescues. We will have to take banks into public ownership, make loans and give guarantees. In the past, we were able to organise rescues, but if that is not possible, we will be in a different ball game. There will be a different attitude to regulation, which demands a greater level of risk-averseness on the part of the Government.

Several hon. Members
rose—

Madam Deputy Speaker (Sylvia Heal)
The time remaining for this debate is somewhat limited, and I can see a number of Members hoping to catch my eye. May I please ask Members to reduce their contributions voluntarily so that more Members will be successful?

19:01:00

Phil Wilson (Sedgefield) (Lab)
Speaking as a north-eastern MP, I believe that, on Northern Rock, the Government have taken the hardest and most difficult of decisions, but none the less, the right one. I support the Bill. The Government did not rush to take this decision, and they have found themselves dealing with a problem that is not of their making. It would have been a mistake to act in haste. If the Government had opted for temporary public ownership five months ago, the Opposition would no doubt have said that they should have looked for a private buyer first.

The Government’s approach has been consistent in its aim of achieving the best possible outcome for the country. The Government were guided by the need to maintain financial stability, to safeguard depositors and to protect the interests of the taxpayer. The decision to take Northern Rock into temporary public ownership was not ideologically driven, but unlike the Conservatives, my party knows that from time to time it is right for the Government to intervene to protect the best interests of the country, to save jobs and, on this occasion, to promote the economic well-being of a region that suffered so much under the Opposition.

Rob Marris
Would my hon. Friend agree that just one measure of the acceptance of the nationalisation of Northern Rock is that the FTSE yesterday—the day after the announcement was made—was up 2.8 per cent.? I believe that it has gone through 6,000 today.

Phil Wilson
My hon. Friend makes a good point. Yesterday, a lot of the editorials in the newspapers in the northern region, as well as the one in the Financial Times, were very much in favour of the Government’s decision.

The dividing factor between the Government and the Opposition is that my party has a policy on this issue. The Opposition started with at least four—from nationalisation to administration, from private sale to restructuring by the Bank of England, which seems to me to be a kind of nationalisation in itself. They started with four, dithered from one to the other, and have ended up with none. To lose one policy can perhaps be excused, but to lose four is rather careless.

On this issue, it is the Opposition’s claim to economic competence that has dithered into oblivion, not the Government’s. Northern Rock and the Northern Rock Foundation are institutions that employ thousands in the north-east and in supporting communities throughout almost every constituency in the northern region. As an MP in the north-east, my concerns are the local economy, the effect of any job losses at Northern Rock and the future of the foundation. I am pleased that the foundation is being funded to the tune of £15 million per year for the next three years, and that the board is being asked to look into the long-term future of the foundation as well.

Northern Rock employs about 6,000 people, and I know that Ron Sandler is drawing up a plan that will better define the future of Northern Rock. I urge him and the Government to work closely with the trade unions, such as Unite, which represents Northern Rock staff, to ensure that jobs can be protected and employment terms promoted.

Any crises faced by Northern Rock that were left to the Government to sort out were not of the Government’s making. Under these circumstances, temporary public ownership of the bank was the best way of securing the future of Northern Rock, its employees and the regional economy. Instead of carping from the sidelines, the Opposition should join us in the Lobby tonight to help to secure a future for Northern Rock, and to help to build the economic base of the north-east, which has thrived under this Government during the past 10 or 11 years. But they will not do that. If they had their way, there would be no bank—

Mr. Kevan Jones
Will my hon. Friend give way?

Phil Wilson
I am just coming to the end.

If the Opposition had their way, there would be no bank and no jobs. We know about the Tories and the north-east of England. They have a long history of having no empathy with the people of my region, and unlike their policy on Northern Rock, that approach has remained consistent.

19:05:00

Mr. John Redwood (Wokingham) (Con)
I have declared my interests in the register.

I want to see this business survive, recover and flourish. I quite understand its importance to the north-east. I do not think that the nationalisation model on offer is the way to do that. Indeed, as those on my party’s Front Bench have made clear, it could well be that given the constraints on competition policy and the uncertainty of the Government over the business plan, nationalisation will mean substantial redundancies and a winding down and a scaling back of the business—the very opposite of what Members in the north-east want.

I propose, as I have consistently advised the Government, that the Government and the Bank of England should act as an intelligent and tough bank manager to this business. They are the bank manager, because they are the lender of last resort, and they gave a large loan to the bank when it was in difficulties. What they should have done was taken enough asset protection for the taxpayer so that there was no argument about getting our money back. They should now secure what assets they can, which they need to give us protection, and then agree a timetable for the repayment of the money. They should agree a timetable that makes sense for both parties. Of course, if the parties cannot agree it, they can dictate it because the Bank of England is the only bank that will lend to this business, but it is better to agree it. It should be tough; there should be exacting targets to get the money back. 

Under such a course of action, Northern Rock has all sorts of options. It has the opportunity to get money back if the markets get freer and it can refinance. It has the opportunity to get money back through cash flow, profits and the success of its business. If it cannot do either of those things, it can always pay the money back—assuming that enough asset cover has been secured, as we were told originally—because it can sell assets. The pace of the sale and the cash generation should be agreed between the bank manager and the business. The bank manager should lean on the bank to go further and faster, should watch inappropriate spending and should ensure that the bank is not spending unnecessarily on capital expenditure, high wages or elaborate bonuses. People should not be earning bonuses in a business that is under this much pressure. I submit that that is a far better model than the nationalisation model, with all its uncertainties.

As someone who has spent time in business and has, from time to time, bought a company, what I find breathtaking about the business before the House is the lack of the information that a buyer of any size of business would wish to have, let alone the purchaser of the biggest business, in cash terms, ever bought on behalf of the taxpayer. But we do not know the price. We are told that the Government have decided to buy the business without negotiating the price with the sellers—or without deciding what price they are going to impose on the sellers. We are told that we have to rush the legislation through in a week, but the Chancellor cannot even tell us how long it will take the Government to work out the price to complete the deal. It is obvious that they cannot complete the deal until they know the terms of transfer for the shares. Why the rush? Why can we not do some due diligence on the business first, as they will have to, when trying to work out a price for the compensation, so that the House knows what it is buying?

As the shadow Chancellor said, we do not know about the quality of the assets we are buying. There is no analysis of the repossession rate, past and future, or evidence about the quality of the lending made. There is no evidence about how many of the loans are at the 125 per cent. rate and no analysis of the unsecured loans. Such things are the first things someone would ask about if they were thinking of buying such a business. We have no analysis of the properties and the branch network. We have no idea whether there is surplus property, or whether the business needs to carry on with its big capital programme to build new property. There is no environmental report on the state of the properties and no report on the leases, or on the commitments to those property leases. Are they long leases? What would be the cost of paying some of them off if they are on inappropriate property?

There is no duty of due diligence on the people whom we will employ on behalf of the taxpayer. There is no human resource report, or report on the contracts of senior executives. We have no idea of the cancellation costs for senior executives if some proved not to be wanted in future by the new executive team. We have no idea of the number of write-offs and losses that the new executive team will want to record in the first set of accounts to clean everything up and make the task a bit easier. Somebody coming in on a salary of more than £1 million would be unlikely to want to accept everything as a given and to make no adjustments to the accounts.

We do not know from the Treasury what the impact on public borrowing will be. We do not know what the capital expenditure programme is and how much will have to go into public accounts because it cannot be funded out of the cash flows of the business. We know nothing about virtually anything that we are buying or about the risks that we are taking on.

There is no pensions report. We do not know the impact of the pension regulator’s latest idea that pension funds have been understating the longevity of the people in their funds and that the allowance made for that must be increased. The pensions liability, like contracts with the staff and any redundancy payments, will now rest with the taxpayer.

It is a disgrace that no normal financial and due diligence information is available on the business before we commit that huge sum of money. My hon. Friends have been generous in saying that the commitment is £110 billion. It could be more than that sum, which is the stated liability on the balance sheet, but does not include the pension, redundancy, property and environmental liabilities and all the other things that might come out of the woodwork. When one buys a business, one normally agrees a price in principle, fulfils due diligence requirements and either decides that the price is right or agrees a revised price in the light of what one has discovered.

Will Ministers please think again? Will they perform some due diligence duties for the taxpayer? If not, they will rue the day because they will lose us a huge sum of money and end up making unpleasant decisions, which will not suit the north-east.

19:11:00

Mr. Mark Todd (South Derbyshire) (Lab)
I support the Bill, but with considerable concerns. For me, the measure is emphatically the least bad option. I have listened carefully to the option that Conservative Members presented and it held some appeal for me. However, the Bill offers greater control over the process of realising the assets that we require to get back the loans that we have made to the business. Control makes the difference, enabling us to manage matters to achieve the outcome that we seek. I shall consider that outcome shortly.

First, I want to list some of the reasons for my considerable hesitation. Many have already been covered, so I shall deal with them in shorthand. We do not know whether we will survive a shareholder court challenge. As has been said, the companies involved are well resourced and had thought their way into the outcome when they bought into the business. I am optimistic that we will survive, but there is nevertheless a risk.

Competition is a predictable concern in the marketplace and I have some sympathy with it. I expect dealing with challenges from competitors to occupy a significant amount of the business’s resources, if it is run in a particular way.

Staffing has been mentioned. The state will now be responsible for retaining staff and maintaining the morale of those employed in the business, as well as for some of the redundancies that are likely to befall under any business model.

We do not know the company’s asset base. The right hon. Member for Wokingham (Mr. Redwood) was accurate about that. We know neither the assets thoroughly enough to decide whether we are buying what we are told is as good as any mortgage-lending business in the land nor the liabilities that we are taking on. I doubt whether I have bought businesses on the scale that the right hon. Gentleman has handled but I have dealt with business acquisitions and I would expect to know a great deal more about a business that I was acquiring than the information that we have been offered to date.

We will have to take on running a bank at a time—though I have not followed the shares in the past couple of days—when banks’ values have been hit hard in the past month or so and I would expect competition to be vigorous. I cannot say with certainty that the business will thrive in that environment. We do not know.

We also have the task of clearly communicating our limited purpose. Nationalisation can suggest greater state engagement in the financial services sector than is perhaps intended by the move.

Accommodating the governance of a retail bank into a state system will be uncomfortable and provoke difficulties, such as dealing with repossessions and other matters that colleagues have mentioned. I have plenty of anxieties about what may lie ahead.

We desperately need clarity of purpose. My purpose is risk limitation. From a business perspective, we are taking on many unknowns. I therefore look to holding our risk to the absolute minimum. I am worried about how easy that will prove. The most obvious strategy for achieving that is, as several Opposition Members said, to pursue an ordered—or, I suspect in some instances, less ordered—run-down of the business and basically farm money from the existing loan book as far as possible and look for buyers at appropriate times. The debate has shown the difficulty of doing that—I put it gently—when the bank is in political hands.

My hon. Friend the Member for Newcastle upon Tyne, Central (Jim Cousins) spoke powerfully for his community and I suspect that many would have done the same. There will be challenges from those who perceive other perspectives and purposes in the state owning the bank. It will be difficult in a political context to maintain a focus on the narrow objective of returning to the state the assets that the bank has temporarily held. I am worried about that.

Some of the remarks made in the first few days conveyed inappropriate signals. Suggestions were made of the possibility of aggressive strategies by the bank as well as understandable assertions of support for the Northern Rock Foundation. Again, that is an indication of a wider purpose beyond the narrow issue of recovering our resources, and it should concern us. I am worried about the mixed messages and I want reassurance that we have a firm purpose of recovering the assets loaned to date as rapidly as is reasonably possible. The advantage of state ownership is that it at least allows us to dictate the timetable in a more ordered way, and more sensitively to the communities that are involved. I firmly believe that a clear statement of that purpose is required as early as possible.

I support the Bill, but the critical questions are why we are taking such action and how we intend to achieve the outcomes. Let us clearly express the answers as early as possible. That would be easier for the communities involved than maintaining perhaps an illusion that we will build some great financial institution in the north-east. I do not perceive that as a reasonable purpose for Government or a reasonable use of the risks that we have deployed today.

19:19:00

Mr. Michael Fallon (Sevenoaks) (Con)
That was easily the most realistic speech that we have heard from the Government Benches in this debate.

I have learned two things about temporary legislation introduced over the years. The first is that it is rarely temporary. In the end, it is usually extended or converted into a more permanent form, which is why we need to consider the Bill carefully. The second thing is that temporary legislation is usually bad legislation, drafted too quickly, scrutinised too little and with implications that are not easily understood. We already know that the Bill has a life beyond 12 months. We have been told by the Chancellor, quite openly, that some of its provisions may be translated into the major banking reform Bill, which will be presented to us after Easter. We know, too, just how loosely drafted the Bill is, thanks to the excellent speech by the shadow Chancellor. We see the wide-ranging powers that are being taken, not simply over banks, but over building societies.

The key to the Bill is clause 2(2), under which the Chancellor is taking formidable powers to nationalise any bank and prop up any building society, which can be exercised for two purposes. The first is for

“maintaining the stability of the UK financial system”

where there is

“a serious threat to its stability”,

while the second is for

“protecting the public interest in circumstances where financial assistance has been provided”.

We have spent too little time in the Chamber talking about this, because we have had so little time, but nowhere in the Bill are those terms defined. What do we mean by “financial stability”? How do we define a “serious threat to financial stability”?

That takes us back to the untested premise of the Government’s original authorisation of an operation of lending of last resort. The Chancellor concluded that there was systemic risk. He did not show us what that risk was, he did not define it and he did not have it externally validated. Indeed, he did not do anything to allay the suspicion that some of the systemic risk was to the Government’s political stability in the run-up to a general election.

We have had endless discussion about systemic risk without any of us being clear about how we should measure the threat. We need that clarity; otherwise any bank with a significant number of UK customers or any building society will come hammering on the door, saying that there is a threat to the UK financial system. We need to be clear about what that threat is. Is it a series of bank failures—a domino effect through a range of building societies—or a threat to the integrity of the clearing system? We need to be much clearer.

We also need to be clear about who decides whether there is a systemic threat. Under the Bill, it is simply for the Chancellor to decide, all on his own. That is wrong. As the Treasury Committee concluded, the Bank of England should advise the Chancellor. Of course he has to authorise public money to support a particular operation, but he should have to do so on the advice of the Bank of England.

The other thing that I want to concentrate on is the extraordinary provisions in clause 11, which I asked the Chancellor about yesterday. I asked him what a clause enabling him to give any amount of money to any building society that might need financial assistance was doing in the Bill. He said that he thought it “prudent” to include such a clause. That was the only explanation that we had. He said that he would speak about clause 11 today, but he skipped it altogether. Clause 11 is the most extraordinary clause. It empowers the Chancellor to alter any enactment, without any restraint or definition of terms and conditions, and simply to apply public money to any building society that he deems ready to receive it. There is no explanation for that.

This is a bad Bill, for three reasons. First, it says that it is temporary, but it is not going to be temporary—on that, at least, I can agree with the hon. Member for Newcastle upon Tyne, Central (Jim Cousins). The Swedish had their banking crisis in 1991, when they nationalised the biggest bank in Sweden, which is still partly publicly owned today, 16 years later. British Leyland was publicly owned for 13 years. We are going to be stuck with Northern Rock for a great number of years, but we have seen no timetable either for the repayment of the money that we have lent or for managing the exit. Indeed, shareholders have seen no timetable for paying them the compensation that they look forward to.

Secondly, the Bill is not a specific measure—a fact that my hon. Friend the Member for Tatton (Mr. Osborne) brought out so clearly. It takes general powers, but I am not at all persuaded that hurrying to do that is a good thing. If there is a specific problem that has to be dealt with in an emergency, let us deal with it, rather than taking such sweeping general powers in such a rush.

The third reason I oppose the Bill is that it sends out the most appalling message from the British financial system, which is that any bank or building system, however incompetent its directors or however great the regulatory failure of its supervisors, will now come to the door of the Chancellor and ask to be bailed out. This is bad legislation.

19:25:00

Stewart Hosie (Dundee, East) (SNP)
I would like to make a couple of preliminary remarks. The first is that the Bill is intended to allow for the nationalisation of Northern Rock, which will then operate at arm’s length from the Government, with commercial autonomy for its decisions. However, that will be predicated on a framework agreement covering the relationship between Northern Rock and the Government that is yet to be published. My second remark is that the nationalisation expected to flow from the Bill has apparently been tested against the two private sector bids and deemed to represent the best value for taxpayers’ money. I would like briefly to test that assertion.

On 23 September last year, only a week or so after the Northern Rock crisis broke publicly, the BBC reported that at least 12 of the UK and Europe’s biggest banks had declined to buy the bank. It quoted The Sunday Times as saying that the

“banks have estimated that it would require…capital”

of

“as much as £20 billion…to successfully refinance Northern Rock.”

Given that that figure was likely to have been the maximum taxpayer liability, should everything have been sought from a private sector concern, and given that it may well have been lower, in loans and guarantees facilitating a private bid, I am curious to know how the Chancellor and those on the Treasury Bench can argue, five months down the line, that a £110 billion liability for the taxpayer represents better value for money than a rather more modest contribution in loans and guarantees last autumn.

I said that the framework agreement between Northern Rock and the Government has not been published. In addition, the new framework to regulate banking in the UK and protect depositors is out for consultation. The Chancellor said that that would take some months and require primary legislation. There are a number of questions about the Bill and the sweeping powers that it contains. Given that the bank will operate at arm’s length from the Government, why should we pass the Bill in the absence of the framework document?

There are other questions to do with why we should support the Bill, given that we are to have a nationalised bank, with £110 billion of taxpayers’ money, operating within a tripartite arrangement that many believe is not fit for purpose and which the Government intend to replace anyway. That tripartite arrangement not only is not fit for purpose, but may have been at least partly responsible for stopping or not facilitating a quick and early private sector takeover of Northern Rock last year, because of the confusion among the FSA, the Treasury and the Bank.

Clause 3(1), entitled “Transfer of securities”, says that the Treasury may by order transfer securities to

“(a) the Bank of England;

(b) a nominee of the Treasury;

(c) a company wholly owned by the Bank of England or the Treasury;

(d) any body corporate not within paragraph (c).”

However, clause 8 says that if securities have been transferred to a specific named person under clause 3(1)(a) to (c) following nationalisation, provision can be made for further transfers—that is, transfers back—to the private sector. However, clause 8 seems to exclude any reference—I will stand corrected if I have missed it—to a body corporate that is not a company owned by the Bank of England or the Treasury. If that is the case, primary transfers of assets can be made to that body, but on my reading of the Bill there is no ability to transfer them back to the private sector later. 

Clause 4, on the “Extinguishment of subscription rights”, allows the Treasury, where it has made an order providing for the transfer of securities from a deposit-taker, to acquire the securities not only of the deposit-taker, but of any of its subsidiaries,

“whether the rights have been granted by the deposit-taker or otherwise.”

That provision seems extraordinarily wide, and I am concerned that it might preclude the breaking up of a group that is in trouble, where subsidiaries could be sold as going concerns to raise cash. It does not seem to place any restriction on securities from a subsidiary being acquired, even if they are worth more than the indebtedness of the principal deposit-taker, which could be the reason for the necessity for assistance in the first place. If that is the case, I suggest that this is a gaping hole in the Bill.

The Bill is also riddled with terms such as

“where the Treasury make…an order”

and the Treasury

“may by order make provision for”.

In the absence of detailed orders or a framework agreement between the bank and the Government, however, it is difficult to know precisely what the Government intend the Bill to do.

The Bill is doubly confusing because clause 13(2)(a) states that orders and regulations

“may make different provision for different cases or circumstances”.

The Government are expecting us to vote for a pig in a poke, because the provisions are so wide and utterly undefined, and the secondary information that we need is simply not available.

We are certain that everything that should be done to preserve the integrity of the banking sector must be done, not least because of the 127,000 jobs in Scotland that depend on banking and finance. However, the Bill before us tonight should have been a Northern Rock emergency nationalisation Bill, containing only a few clauses. We have yet to determine whether we will support the provisions at the end of the day, and we will look at the amendments that have been tabled, but we are dreadfully disappointed by the generality of the Bill, by its extremely wide scope, and by the ability of the Government to do almost anything by order, when we should have had a much tighter and more focused emergency nationalisation Bill.

19:31:00

Mr. Richard Spring (West Suffolk) (Con)
This is called the Banking (Special Provisions) Bill, but it should really be called the Banking (Pig in a Poke) Bill. We do not know the price, or the cost, of the whole exercise. We do not know what we are buying into, or for how long.

The demise of Northern Rock arose out of the sub-prime mortgage crisis in the United States. However, it happened specifically in this country because of the national situation here. Of course there was managerial excess, but it was the asset-based, overspend economic policies pursued by this Government, and the regulatory system instituted by the Government, which failed. We did not see queues of people in Paris, New York, Sydney or Beijing concerned about their deposits. We were in a unique situation.

We have before us no clear business plan, either for our benefit or for that of the European Commission—it will have to wait another month—so we are being asked to sign a blank cheque. What on earth have Ministers been doing? Why did they not develop some sort of plan B over the past five months in case they had to go down the route of nationalisation, when such a huge sum of taxpayers’ money is clearly at risk? Now we understand that the very details of how the bank will be faring are to be denied to us through an exemption from the Freedom of Information Act 2000. That is an absolute disgrace.

The Chancellor has been tilting at City bonuses recently, yet a whole series of bankers and lawyers will be rejoicing at the opportunity that has now been presented to them. When will we know exactly when fees are being dispensed, and how much they will be?

My hon. Friend the Member for Tatton (Mr. Osborne) has dealt with the crucial element in the Bill, which is the right being given to the Government to nationalise other financial institutions. The excuse for this has been hybridity. On a moment’s reflection, however, does it not become clear that to keep the power to nationalise in reserve, even if for supposedly technical reasons, sends out a truly incredible message to the outside world? It is no wonder that the Chancellor finds it impossible to say the word “nationalisation”. Now that depositors are fully protected by the state, will Northern Rock draw savings away from other financial institutions? How will the Financial Services Authority monitor this? The consequences for other financial institutions could be dire. What will they be able to do about it?

We have come full circle because of the failure of the regulatory system. We have heard much about the arm’s length relationship between the Government and the new management of Northern Rock, but that has come from a Prime Minister whose micro-management is famous. We leave the debate today with myriad questions about how Northern Rock will be run, and about what information will be made available to Parliament, when the situation is at present beyond opacity. Despite the dithering and delay, the fiscal excesses, the regulatory failure and the massive risk to the taxpayer, we can only hope that Ron Sandler and his team will salvage something of the impaired reputation of this country, which has been so brutally and incompetently tarnished by this Government.

19:35:00

Mr. Philip Dunne (Ludlow) (Con)
The reason we are here today is that, uniquely among any of the 192 countries in the world affected by the credit crisis, we have suffered a run on a bank. The banking supervisory regime failed to spot the risks posed by the reckless business model of Northern Rock, and when the risks were finally spotted, the tripartite authorities failed to act decisively—mainly because no one was clearly in charge.

The reason for that is the failure of the present Prime Minister and Chancellor—when, as Chancellor and Chief Secretary, they introduced the new banking supervisory regime—to anticipate what might happen in a significant financial crisis. No stress testing was carried out for the possibility of a major bank getting into serious difficulty. That barely seems credible now, but that is what we established through the Treasury Select Committee.

We are now presented with a Bill that, according to the Chancellor, will give the Treasury the power to determine threats to the financial stability of individual institutions. As many Members have pointed out, this will apply not only to Northern Rock but across the banking and building society sectors. The Chancellor’s arguments for the Bill, and his recent actions, show that he is obviously confused. He says that the Bill is needed to provide for clear management accountability at Northern Rock, but he also says that he wants to consult in the coming months on the regime to improve the management of financial stability in the UK economy. Why, then, is he pre-empting his own review by using the Bill to give the Government wide-ranging powers that go way beyond the problems of Northern Rock and will extend to all deposit-takers?

The Chancellor is ignoring the recommendations of the Treasury Committee’s report—and pre-empting his own response to the report, which has not yet been published—by giving powers not to the Bank of England, as the Committee recommended, or to the Financial Services Authority, as he had flagged up in speeches last month, but to himself and the Treasury. What confidence can we have in the ability of Treasury Ministers to take the necessary decisions provided for in the Bill? One of the Ministers now sitting on the Treasury Bench appeared before the Treasury Committee the other day, and when she was asked what experience she had in financial matters, gave the extraordinary response that she had a big overdraft. It is barely conceivable that we should place responsibility in the hands of Ministers who have little, if any, experience of handling banking matters, rather than in those of the professionals whom they pay—through the Bank of England or the FSA—to take such responsibilities.

This nationalisation raises a host of questions about the role of banking supervision and the relationship between the FSA, the Bank of England and the Treasury. Given the way in which the Chancellor is taking such peremptory powers for himself, he owes it to us during the course of this debate to answer certain key questions. Is there any longer any credence in the independence of the Bank of England? What should the Bank of England be responsible for, operationally, if not for the provisions in the Bill? Can the UK regulatory structures cope with the complexities and rates of change in the modern financial world? What is the role for the Bank of England? And where is the experience among those in the Treasury to exercise the powers that they are giving themselves in the Bill?

19:39:00

Mr. Philip Hammond (Runnymede and Weybridge) (Con)
At the end of this debate, perhaps we could take a few moments to remind ourselves why we are here. We are here because of a failure of the banking regulation system that the Prime Minister introduced in 1997 to notice a bank with what the Chancellor has subsequently described as a “fundamentally unsound” business model expanding its market share to become the provider of one in five of Britain’s new mortgages; because of a dithering by the Government when they were presented with an opportunity to explore a private sector solution before the crisis broke in September; because of incompetence in handling the crisis between Thursday 13 September and Monday 17 September 2007, when the Government finally put guarantees in place, which stopped the run on the bank; and because of the rejection of what we now know was very expensive advice, telling the Government to act quickly and decisively in the days and weeks after 17 September.

At the end of that catalogue of mishandling, we have finally arrived at a Government decision—nationalisation, the solution that they have sought to avoid for five months, and with good reason. Nationalisation does not achieve anything that could not be achieved outside public ownership. It does not in itself provide a solution to the problems of Northern Rock’s flawed business model, as my right hon. Friend the Member for Charnwood (Mr. Dorrell) pointed out in his contribution. Nationalisation also comes with clear downside risks—risk to the reputation of the UK’s already battered reputation as an international financial centre; risk in extending the taxpayer’s liability to include instantly full responsibility for every penny of Northern Rock’s balance sheet; and the risk of political interference.

We have heard plenty of warm words from the Chancellor about the arm’s length management that Northern Rock will have. Forgive me for being a little cynical, Madam Deputy Speaker, but Conservative Members have seen nothing in our Prime Minister to lead us to believe he does “arm’s length”. I would have said that he was more a “fingertip” man, myself, and we have already seen the evidence with the appointment of his former chief of staff to the board of Northern Rock. I think that the hon. Member for Newcastle upon Tyne, Central (Jim Cousins) tonight unwittingly provided in the starkest possible terms a perspective on the kind of political pressure that the Chancellor will be under with regard to Northern Rock; he has conceded that the period of public ownership will not be temporary at all, but may last for many, many years.

As my hon. Friend the shadow Chancellor has pointed out, we are being asked to buy a pig in a poke. That was a new phrase when I wrote it down, but two people have used it in the last 10 minutes. We do not know the price that we, the taxpayers, will pay for this business. We do not know exactly what the assets and liabilities of the business are and we do not know how long the commitment will be made for, although we note the discrepancy between the Chancellor's “temporary” period and Ron Sandler’s “some years”. We do not know what they plan to do with the business—not even whether the plan is to double or  halve it in size. We are being asked to buy an unqualified liability for an unspecified price over an as yet undefined time period and for a completely undetermined purpose—and we will not find answers by looking in the Bill, because none of those issues is addressed by it and none of the Chancellor’s warm reassurances is enshrined in it.

The meat is in the order, and the order is unamendable, so let me try one more time to tempt the Chief Secretary to give us a commitment when she replies to provide at least one full day’s debate on the Floor of the House to debate those orders when they are laid. None of the assurances on arm’s length control or on competition are meaningful when even today 125 per cent. mortgages and best-in-class deposit rates are still available from Northern Rock.

What little we do know is not very promising. We know that we are buying a bank that wrote more mortgages at the top of the market than any other and that it is now repossessing more homes than any other. We know that the Prime Minister appointed his former chief of staff to the board and we know that the Government have spent nearly £100 million on advice, most of which they have clearly ignored. We know that the Government have appointed an executive chairman and a chief financial officer, both of whom, according to the BBC’s website this afternoon, are non-domiciled for tax purposes and will between them be paid £160,000 a month. I wonder how the champions of the people’s bank below the Gangway feel about that. This afternoon, Downing street could not even confirm that those payments would be made onshore in the UK—and that, Madam Deputy Speaker, is just week one of the Northern Rock in public ownership saga.

We will now have to try to amend this flawed Bill to give legislative muscle to the commitments that we heard the Chancellor give yesterday and today, but the situation is worse than that. Looking at the draft order, it is clear that the Government want to exempt Northern Rock from the freedom of information obligations of a publicly owned company. They want to allow Ministers and civil servants to act as shadow directors, but not to be liable to the risks and penalties that shadow directors face. Indeed, they want to exempt all directors of Northern Rock from any legal action whatsoever, putting them in a unique position. So we will have to seek not only to enshrine the shadow Chancellor’s warm words in primary legislation, but to amend the primary legislation to prevent these extraordinary measures from being slipped through in unamendable orders.

Rob Marris
Will the hon. Gentleman give way?

Mr. Hammond
No, I will not; I must complete my remarks.

So is it inevitable? No, it is not. There is a better way. Indeed, the Government have hinted at it in their own consultation document on the future of the banking regulatory system. They call it a special resolution regime. However, Conservative Members, contrary to the Chancellor’s repeated assertions, have been entirely consistent in our opposition to nationalisation and in our support for a private sector solution, if it were possible to find one—although it is increasingly obvious that the Government should have concluded some time ago that it would not be. Before the Chancellor came out with his consultation document, we had proposed a regime of Bank of England-led protective administration—this was not dissimilar to the proposals in his consultation paper—to allow the resolution of a major business failure in a single banking institution.

I ask the Chief Secretary this question: if the Chancellor’s plans and proposals are good enough for a future failed bank, why are they not good enough for Northern Rock today? We could have used this legislative opportunity to pass an emergency amendment to the Enterprise Act 2002 to create a special protective administration regime for banks in difficulty—a regime that would allow the Bank of England to oversee a reconstruction of a bank first and foremost in the interests of maintaining the stability of the UK financial system, and then in accordance with the priorities laid down in the Insolvency Act 1986.

The Chancellor and the Prime Minister have been fond of repeating that any kind of administration or bank-led reconstruction would amount to a fire sale of assets, but the website of the Government Insolvency Service makes it absolutely clear that the first duty of an administrator is to try to salvage the business as a going concern and rescue it so that it can emerge from administration. If that is not possible, getting the best possible deal for creditors is important. In the case of Northern Rock, although the Chancellor, with his facile “business as usual” slogan, cannot bear to bring himself to say it, that almost certainly means a reduction in the size and scale of the business and an orderly realisation of some of the mortgage book in order to deliver a business based on a different and sounder business model—a financeable business model which may be capable of being made viable for the future and, ultimately, saleable back to the private sector.

Despite the five months that the Government have had to prepare for this moment, they have no answers to any of the important questions. Nationalisation is a mechanism—the wrong one, in our view—not a solution. This kind of non-specific and enduring nationalisation power is the worst of all outcomes, tarnishing Britain’s reputation as a financial centre for the year of its lifetime.

Perhaps this debate is best ended with the words of the hon. Member for Newcastle upon Tyne, Central, who may well be vindicated by history in his prediction a few days ago that nationalisation would deliver

“a slow lingering death for the jobs of the Northern Rock workers, its assets and Britain’s reputation as a major financial services centre”.—[Official Report, 19 November 2007; Vol. 467, c. 968.]

I urge my right hon. and hon. Friends to deny the Bill a Second Reading.

19:50:00

The Chief Secretary to the Treasury (Yvette Cooper)
In general this has been a thoughtful debate, to which wide-ranging contributions have been made.

My right hon. Friend the Member for Holborn and St. Pancras (Frank Dobson) pointed out that the Government had to step in because of market failure, because of the problems created by a global credit crunch and United States sub-prime lending, and because of Northern Rock’s particular business model, which put a United Kingdom bank at risk and posed a potential risk to the rest of the banking system. The Government acted in the autumn to keep Northern Rock running, in order to save the bank and also to prevent the risk from spreading.

I agree with the hon. Member for Stratford-on-Avon (Mr. Maples)—if it is possible to agree with him and with my right hon. Friend the Member for Holborn and St. Pancras at the same time—that the most important aspect is the wider stability of the banking system. That is why we were right to intervene, but it is also why we are right to decide to continue the guarantees and ongoing support for Northern Rock in a way that will secure the best possible deal for the taxpayer, safeguarding both the taxpayer’s interests and the wider interests of the financial system.

Mr. Hands
Will the Chief Secretary give way?

Yvette Cooper
I want to make some progress, as I have only a short time in which to speak. I shall be happy to take interventions later if there is enough time.

I pay tribute to my right hon. Friend the Member for West Dunbartonshire (John McFall) for his thoughtful speech, and for the work that he and his Committee have done in examining not just the position of Northern Rock but the possibility of wider reforms in the banking system. That has fed into our broader programme and our consultation on future reforms. My hon. Friends the Members for Sedgefield (Phil Wilson), for Newcastle upon Tyne, North (Mr. Henderson) and for Newcastle upon Tyne, Central (Jim Cousins) drew attention to the importance of Northern Rock in their constituencies, and also to the fact that Northern Rock would not be running now had it not been for the Government’s decisions.

Several Members raised concerns about the scope of the Bill, which extends beyond Northern Rock. It was suggested that we could have simply followed the model for Rolls-Royce. The Rolls-Royce (Purchase) Act 1971 is, obviously, several decades old and precedes my memory, but its purpose was to vote money to purchase a company from a liquidator. The present circumstances are completely different. Northern Rock is not in liquidation, and we do not want it to go into liquidation. That is the point of the kind of intervention that we have already put in place and will continue to put in place for the future.

Some Members seemed to be calling for a hybrid Bill. I do not consider that to be the right way to deal with the time pressures that we face, and the need to secure certainty for Northern Rock. The right hon. Member for Hitchin and Harpenden (Mr. Lilley), on the other hand, seemed to criticise the Bill for not covering all the wider issues connected with banking reform. We are deliberately not doing that in this Bill. We will do it as part of a consultation, and in a Bill that will deal much more broadly with the lessons we must learn and the action we must take in order to deal better in future with the kind of problems experienced by Northern Rock, which may include wider reforms.

Hon. Members raised important questions about unfair competition. My right hon. Friend the Chancellor has already addressed many of them. In particular, the right hon. Member for Charnwood (Mr. Dorrell) expressed such concerns. It is important to ensure that there is no inappropriate unfair competition as a result of the arrangements that are introduced. The bank must and will be subject to European Union state aid restrictions and also to United Kingdom competition law, and Ron Sandler has already made it clear that he has no intention of running the bank in a way that would abuse its temporary public ownership position.

I do not think that Ministers should be taking decisions on individual products—something for which some Members seemed to be calling. I do not think that that approach would be appropriate, but Northern Rock’s business plan will need to be agreed with the Government. The overarching plan will need to be published and agreed in terms of the strategic aims that we have set for the management. They include removing all forms of public support for the bank, including Government guarantees, as soon as possible. A business plan built on abusing temporary public support would clearly not meet that strategic aim, as it would not be sustainable.

Several hon. Members
rose—

Yvette Cooper
I must make progress if I am to deal with all the points that have been made.

No one expects Northern Rock to operate the aggressive strategy that it operated before the summer, which was clearly unsustainable. Its market share has already dropped. However, the right hon. Member for Charnwood and the hon. Member for Stratford-on-Avon were concerned about the very principle of Government guarantees, or of allowing a Government-supported business to operate in the market at all. The logical conclusion of their argument is that there should be no Government guarantees, and the logical consequence of having no Government guarantees, given the current state of the market, in which banks are not lending to each other in normal circumstances, the global credit crunch, and the history of difficulties at Northern Rock, would be for the bank to go under. That is why we do not support that course of action, and that is why Opposition Members are in fact calling for the bank to go under. They are calling for it to be wound down, with all the problems that that would create for the wider stability of the financial system. It is clear that unfair competition is not in the interests of the consumer or of other banks, but nor is it in the interests of consumers throughout the country and of other banks for Northern Rock to go under, and for us to risk wider instability in the banking system.

Taxpayer exposure was mentioned by a number of Members, including the hon. Member for Twickenham (Dr. Cable). He raised some important issues and I welcome his support for the Bill, but I should make it clear that our action has not been at a cost to the taxpayer. The Bank of England has lent money to Northern Rock which is secured against its assets, and we expect that money to be repaid in full and with interest. We have provided further guarantees that have not been called: the taxpayer has not paid any money. The guarantee arrangements have not been changed as a result of the Bill, and transferring ownership of Northern Rock’s shares does not mean taking on legal responsibility for the full liabilities. The Government are simply becoming the shareholder. Granite remains a separate legal entity. It is not owned by Northern Rock, it is not being taken into public ownership, and it has not been guaranteed by the Government. The exposure for the taxpayer remains unchanged.

The hon. Member for Tatton (Mr. Osborne) has said that he and his party oppose the Bill because they have set out an alternative. The rest of us are struggling to understand quite what that alternative is, not least because it seems to change from day to day. Indeed, the director general of the CBI has said that

“the Conservatives have been banging on about Northern Rock and what a disaster it is, but they haven’t told us what they would have done.”

Exactly so. The Conservatives have said that they want administration by the Bank of England. They variously claim that it would keep Northern Rock running, and that it would run it down. They call it administration, but they say that it is not a sell-off or a fire sale of the assets. They say that it would mean taking over shareholders’ rights, but that it would not be nationalisation. They are all over the place.

The Conservatives say that they want a special form of administration. Let me tell the hon. Member for Stratford-on-Avon that administration would trigger a series of claims from creditors with claims on the collateral of the bank. Putting Northern Rock into administration and triggering insolvency would make it impossible to reconstruct the bank. It would mean selling off assets at the bottom of the market—and we all know the present condition of the market—leaving the Bank of England and the taxpayer with potentially hefty bills. It would be a really bad deal for the taxpayer.

Today Opposition Members offered us a new idea. They said that they wanted to adopt our proposals for longer-term reforms in the banking system. I welcome their support, but what they have produced is a set of principles for consultation. Where is the detailed set of powers that the hon. Member for Tatton wishes to use to perform this magic? How would he introduce the necessary safeguards? What provisions would the Conservatives introduce to ensure that property rights were dealt with properly? They have mentioned none of the serious measures that would be necessary to bring about Bank of England administration in the way that they propose. In the absence of such powers, what are they really calling for? They are calling for the Bank of England to take over the decision-making and ownership rights of shareholders, and that sounds a lot like nationalisation to me.

What the Opposition are saying is incoherent nonsense. They oppose public ownership, and then propose a policy that requires it; they say that they want to protect the taxpayer, then propose a policy that would rip the taxpayer off. It is shameless opportunism, shameless stupidity, or both. They should drop their opportunism and back the Bill.

It being Eight o’clock, Madam Deputy Speaker put the Question already proposed from the Chair, pursuant to Order [this day].

Division 081
19/02/2008 20:00:00
The House divided:
Ayes: 367
Noes: 164
Question accordingly agreed to.

Bill read a Second time, and committed to a Committee of the whole House, pursuant to Order [this day].

Further proceedings stood postponed, pursuant to Order [this day].

Banking (Special Provisions) Bill [money]

Queen’s recommendation having been signified—

Motion made, and Question put forthwith, pursuant to Standing Order No. 52(1)(a),

That, for the purposes of any Act resulting from the Banking (Special Provisions) Bill, it is expedient to authorise the payment out of money provided by Parliament of—

(a) any expenditure incurred by the Treasury in connection with any guarantee arrangements put in place to protect some or all of the depositors or other creditors of any deposit-taker,

(b) any expenditure incurred by the Treasury in connection with the provision of financial assistance, or the giving of any indemnity, for any purpose connected with the Act, and

(c) any other expenditure incurred by the Treasury by virtue of the Act.—[Liz Blackman.]

Question agreed to.

Banking (Special Provisions) Bill [WAYS AND MEANS]

Motion made, and Question put forthwith, pursuant to Standing Order No. 52(1)(a),

That, for the purposes of any Act resulting from the Banking (Special Provisions) Bill, it is expedient to authorise—

(1) the conferring of power on the Treasury to make provision for or in connection with varying the effect of any tax (including stamp duty) in relation to or in connection with—

(a) anything done for the purpose of, in relation to, or by or under or in consequence of, an order made by the Treasury under the Act which transfers, extinguishes or otherwise affects certain securities or property, rights or liabilities,

(b) any securities, or property, rights or liabilities, which are transferred, extinguished or otherwise affected by provision made by or under such an order, and

(c) certain securities issued by, or certain property, rights or liabilities of, any transferee or any body in relation to whom such an order is made, and

(2) the payment of sums into the Consolidated Fund.—[Liz Blackman.]

Question agreed to.

 Banking (Special Provisions) Bill

Postponed proceedings resumed.

Bill immediately considered in Committee, pursuant to Order [this day].

[Sir Michael Lord in the Chair]

The Second Deputy Chairman of Ways and Means (Sir Michael Lord)
I must inform the Committee that an informal list of proposed amendments is available from the Vote Office and a provisional revised selection has been circulated. The amendments are technically manuscript amendments. I will refer to them by the numbers given on the informal paper.

Clause 1 ordered to stand part of the Bill.

Clause 2

Cases where Treasury’s powers are exercisable

20:15:00

Mr. Mark Hoban (Fareham) (Con)
I beg to move amendment No. 13, page 1, line 14, after ‘if (and only if)’—insert ‘(i)’.

The Second Deputy Chairman
With this it will be convenient to discuss amendment No. 14, line 16, at end insert ‘and

(ii) the Treasury has laid before both Houses of Parliament a Minute setting out a scheme for the management of the authorised UK deposit-taker following the exercise of this power, including provisions setting out the strategic objectives for the business as determined by the Treasury and further provisions to ensure the independent day-to-day management of the business of the authorised UK deposit-taker to achieve these objectives.’.

Mr. Hoban
The hon. Member for South Derbyshire (Mr. Todd) highlighted in his Second Reading speech the problem that the Government face. He was concerned that the clarity of the objectives of nationalisation would be clouded by political pressures brought to bear on the Chancellor by others. The amendments, particularly amendment No. 14, try to create a proper framework in which Northern Rock and any other bank or building society nationalised under the Bill would be able to operate at arm’s length from the Treasury.

The past five months have been characterised by the Government’s focusing on the politics of Northern Rock and not on its resolution. During that time, not only has the taxpayers’ exposure risen from £25 billion to £55 billion and now to £110 billion, but the Chancellor and Prime Minister have cast around for a solution to avoid the political embarrassment of nationalising Northern Rock. A lack of clarity has been displayed about who was to make decisions about Northern Rock’s future. Was it the shareholders? Was it the Government, as the largest creditor? Was it the tripartite authorities acting collectively? That lack of clarity has made it very difficult for people to understand the extent of the Government’s involvement in the day-to-day running of Northern Rock.

Unless there is clarity in the division of responsibilities between Treasury and the management, I fear that we will see a continuation of micro-management. Such micro-management is a habit ingrained deep in the heart of this Government, and each difficult decision that is made may be taken with an eye on the politics of the situation, rather than on the taxpayers’ interest. The hon. Member for South Derbyshire made that very point in his speech. If he had had a chance to read the amendments, perhaps he would have added his name to them, because they encapsulate his concern.

Today we have seen pressure put on the Government by their own Back Benchers about the future direction of Northern Rock; we have seen a sense of relief that nationalisation creates certainty about the future job prospects of its employees; and we have seen Unite, the biggest donor to the Labour party, ask for a Government guarantee that there will be no compulsory redundancies. Those are signs of the pressure that the Government will come under unless there is a clear distinction between a proper role of the Treasury in managing the relationship with Northern Rock and what Northern Rock has to offer.

We heard more words from the Chancellor of the Exchequer in his statement yesterday and during his Second Reading speech, but we have yet to see a framework agreement to set out the division of responsibilities between the Treasury and the management. Such an agreement is fundamental to ensuring a proper division of labour. It should not be an afterthought or something that is left until the politically difficult decisions have been taken. It should be on the table now for this Committee to see, so that this Committee can understand what the Government have set as priorities for the new management of Northern Rock and so that we can ensure that it is clearly left up to that management to take the day-to-day decisions that it needs to take.

We believe, as amendment No. 14 in particular sets out, that the scheme of management and the division of responsibilities between the strategic direction that the Treasury as guarantor of the taxpayers’ interests should take and the decisions that management should make should be set out at the same time that the order is made. Such matters should not be left. It is right that the Treasury is able to set the strategic objectives; it is responsible for securing the full recovery of the money that has been lent to Northern Rock, so that there is no liability to the taxpayer. Once the Treasury has set the framework, it is right that management will be free to manage the business to deliver the outcomes.

Mr. John Gummer (Suffolk, Coastal) (Con)
Does my hon. Friend agree that before the framework is laid out the Government should give an absolute and direct answer to the pressures placed on them and say to Unite that there is no question of special arrangements for jobs in the bank? Unless the Government say that, it must be assumed that there is such special protection.

Mr. Hoban
My right hon. Friend makes an important point. There is a lack of clarity in the way in which the Government have chosen to manage their relationship with Northern Rock. As long as that clarity is lacking, the Government will be seen by some as potentially offering a special relationship or a special deal, or being open to pressure from and influence by sectional interests. It is in the interests of taxpayers that such an agreement is in place and we have that clarity. It may also be an insurance policy for the Chancellor, who is under some political pressure. He may want to feel insulated from those pressures by an agreement that means that he cannot bow to those demands. That is an important part of the provision.

Ms Dari Taylor (Stockton, South) (Lab)
Does the hon. Gentleman think that the Chancellor was not telling the House the truth yesterday? He said:

“The new board and the bank will operate at arm’s length from the Government with commercial autonomy for their decisions.”—[Official Report, 18 February 2008; Vol. 472, c. 21.]

Does that not satisfy the hon. Gentleman?

Mr. Hoban
The hon. Lady should remember that not long after the Chancellor made that statement to the House he appointed Tom Scholar to the board of Northern Rock—someone who was chief of staff to the Prime Minister. We need some clear and robust arrangements for the arm’s length agreement. We cannot rely on warm words. Businesses do not rely on warm words when it comes to agreements: they need legally watertight agreements, such as a memorandum of understanding or a shareholder agreement to set out the relationships clearly and precisely. The amendment would provide that clarity by requiring in law that the relationship be clearly set out.

Ms Dari Taylor
rose—

Mr. Hoban
The hon. Lady looks desperate to intervene again, so I shall give way to her.

Ms Taylor
I am grateful, as I was disappointed not to be able to speak on Second Reading. I was in and out of the Chamber because of the demands of my diary.

The hon. Gentleman is right to say that we want clarity, but the Chancellor’s words yesterday provide it. The memorandum of understanding says that all operational decisions will be made by the board with no interference from the Government. The commitment that the hon. Gentleman seeks is already there.

Mr. Hoban
We want on paper, in black and white, a clear division of responsibility, not just warm words spoken in the Chamber. I would have thought that, given that the Government have apparently been working on nationalisation for some time, they would have had the memorandum of understanding in place, with a scheme of management. It should not have to be cobbled together in the hours after the Government made the announcement. I expected far better of the Government. They should have had those arrangements in place and been prepared to publish them. That is important in order to give confidence to the House and the business community, which is concerned about how Northern Rock will operate in future. The agreements should be public, not take the form of cosy side deals or warm words between the Chancellor and Ron Sandler. We need clarity, instead of leaving it to the interpretation of words in a statement to the House.

The hon. Lady and I perhaps agree that we need some clarity on this issue and to go further than the Chancellor went in his statement yesterday, to demonstrate to the wider world that there is a clear division of labour between the Treasury’s role of setting the strategic objectives for Northern Rock and the day-to-day responsibilities of management, so that taxpayers and the wider community know that  decisions will be taken in the interests of recovering the money that has been lent to Northern Rock and not for other purposes, such as shielding the bank from the pressures that may be placed on it by politicians, trade unionists and others. This is a simple amendment, but it would provide much more certainty and clarity. It would reassure us that decisions will be made for the right reasons, not for political reasons. The longer it takes the Government to produce such a framework, the more people will question whether decisions are being made in the long-term interests of the taxpayer or in a narrow, short-term, political interest.

It is an important amendment because it would set out clearly the respective responsibilities of the Treasury and management. It is also important that if other circumstances arise to which the Bill applies—and its powers continue for a year—such arrangements could be put in place sooner rather than later. If the Government decide to act under the powers in part 2, the agreement could be put on the table so that people could see exactly the terms under which the Government would work with the authorised deposit-taker.

Rob Marris (Wolverhampton, South-West) (Lab)
Amendment No. 14 has two limbs. The first is in the fourth line, where it mentions

“provisions setting out the strategic objectives for the business”.

The second limb is in the sixth line, which mentions

“the independent day-to-day management of the business”.

On the first limb, the amendment is based on a misunderstanding of what the Bill will do, especially in clause 2(2)(a) and (b), which are the shorthand financial stability tests. That is the threshold beyond which Government action would be prompted. As the Chancellor said on Second Reading, that is a high threshold. There has to be a “serious threat” to the UK financial system and it is clear that any nationalisation under the Bill would be against that background. The strategic objective would be implicit, if not perhaps explicit—to avert any further instability.

That is precisely what the Government intervention in Northern Rock in September 2007 did: it stopped the spread of instability, and banks are carrying on business much as usual in the UK, although there are some liquidity problems. Record profits for banks were announced today and yesterday the FTSE was up, following the announcement about nationalisation. The strategic objective of stability has been met thus far by the Government’s prompt action on Northern Rock. The strategic objective called for in amendment No. 14 is at least implicit—to my mind, it is pretty explicit—in paragraphs (a) and (b) of clause 2(2), which are the thresholds for prompting Government action.

I quite understand the second limb of amendment No. 14, which concerns the independent day-to-day management of the business, but it does not match my understanding of how business very often works. Others in this Chamber have more experience of business than I do, but I have some. My experience is that any major shareholder will, in most cases, wish to have a say in the running of the business. Whether that is a say in the day-to-day management of the business, to use the words of the amendment, is to some extent in the eye of the beholder.

20:30:00

I am sure that some major shareholders in private business in this country and other capitalist countries simply put in the money and have no views and no take on how the business is run. I suspect—although I cannot produce evidence to prove it—that such shareholders, who might almost be described as altruistic, are the minority. Amendment No. 14 suggests that the Government, as a major shareholder in a nationalised financial institution, whether Northern Rock or anything else, would not be involved in the running of that business. I understand the motivation for that, and have some sympathy with it. Realistically, however, I do not want the Government—on behalf of the taxpayer and our electors—to have no say whatever in the running of Northern Rock, whether on a day-to-day basis or otherwise. The Government, as a major shareholder, ought to have an eye on that. The Chancellor said in his statement yesterday:

“The new board and the bank will operate at arm’s length from the Government with commercial autonomy for their decisions.”—[Official Report, 18 February 2008; Vol. 472, c. 21.]

I stress the word “commercial” because in an era of corporate social responsibility a shareholder—whether they are the Government or any other shareholder—ought to be aware of what that business is doing in his, her or their name.

The first limb of the amendment, which concerns the strategic objective, is not needed because of a misunderstanding of the Bill. I would not support the second limb, overall, and particularly not in the way that it is worded.

Dr. Vincent Cable (Twickenham) (LD)
I am normally sympathetic to the interventions of the hon. Member for Wolverhampton, South-West (Rob Marris), but I do not think that he has understood the purpose of the amendments. Simply, they are a rather modest means of strengthening parliamentary accountability and oversight. I was happy to support them. They are not suggesting anything very radical, such as that the Minister should come forward with statements and debates. We are just asking for a reporting mechanism, not on exactly how the Government intervene in the company but describing the process.

As the hon. Gentleman correctly pointed out, there are two distinct thoughts. The first relates to the business plan—the strategy that will drive the company. As emerged from our debate on Second Reading, that is the issue that most concerns hon. Members: whether the business is run down, built up or dealt with by any of the permutations between those two options. For quite proper political reasons, it is important that it is reported to us what course of action is pursued by this nationalised company, whatever it happens to be. There is no requirement, as I understand it, for the Chancellor to tell us anything that is going on, and experience while the Government have effectively been acting as a shadow director shows that they prefer to say nothing. The requirement that they simply tell us what the strategic business plan is seems to be a modest but necessary improvement on what would happen otherwise.

All we know at the moment is that Ron Sandler is going to have a look at the company. He has to prepare a business plan, before, I think, the European Union competition policy determination. After that, the Government will adopt it. However, there is no obligation at the moment to tell us anything about it. The amendment would require the Government to report to Parliament on what that plan is.

A similar situation applies to the arm’s length relationship between Ministers and the company. I rather sympathise, because of course the Government cannot simply ignore what is happening entirely. We have had a problem over the past six months as the Government have stepped back from decisions that ought to have been made, the first of which was the decision to sack the old management. The Chancellor quite properly stood up and said, “There is nothing I can do about it.” Under the new arrangements, however, he will have that power of intervention. How it will be exercised is important.

It is not in the Chancellor’s interest to be involved in micro-management, regardless of whether he would want to be, because he would be blamed for all the repossessions, redundancies and so on. There is clearly a balance to be struck between the need to intervene on important issues and the need to avoid micro-management. I do not know how the Government will strike that balance, but we should know about the basic outlines and parameters. The amendment would merely establish a report-back mechanism that would explain how the arm’s length relationship will work.

For all those reasons, the amendment is very reasonable. It does not ask a great deal of the Government, and it is reasonably precise. I would have hoped that, in the spirit of reasonableness, the Government could have accepted it.

Mr. Kenneth Clarke (Rushcliffe) (Con)
I strongly support amendment No. 14, and the arguments put forward by my hon. Friend the Member for Fareham (Mr. Hoban) and the hon. Member for Twickenham (Dr. Cable).

As has just been noted, it is very important that we have parliamentary accountability for the strategic objectives that the Government propose to give to the bank, which they now wholly own. However, I need to be persuaded that the Government know what those strategic objectives are. I took part in the exchanges with the Chancellor yesterday, and it seemed to me that he was not capable of answering the question in any but the most general terms.

I regret that I was not able to attend this afternoon’s Second Reading debate but, as sometimes happens, I was giving evidence before a Select Committee. I did hear the wind-up, however, and I was left none the wiser, even though it was obvious that the Minister was addressing the point that several hon. Members had raised about what objectives the Government are setting the new management of the bank that they have acquired.

It seems to me that the bank is potentially in a very powerful position. The question is not how it is controlled day by day—we all accept that there must be a considerable amount of independence in its day-to-day management—but what objectives the Government are expecting it to pursue. We are virtually in the situation that, once again, every citizen could bank with the Bank of England, at least indirectly—something that has not been possible for many years.

I said yesterday that if the nationalised bank was going to be competitive and aggressive, the fact that it will be totally secured by the Bank of England means that it would be a very attractive option for any sensible saver with cash in savings deposits. At the moment, it is able to offer very attractive rates of interest, but much will depend on the strategic objectives that the Chancellor and his colleagues set for the people whom they have appointed to manage a bank that is in crisis but of which the Government are the 100 per cent. owners.

The owner of a business does not appoint a management team and say, “Now run it in a commercial way, as seems best to you.” That would be an almost meaningless instruction. While I was doing other things this afternoon, I gather that the following question was pursued: “Is the Chancellor meant to be building up the business, so that it can be sold to the private sector, or running it down to prepare for the disposal of its assets?” There is a great deal of variation between those options.

If the idea is to build the bank up and prepare it for sale on the best possible terms, it is in a very powerful position. It probably has a greater ability to access the money markets than any other banking institution in the country, because it has behind it the full security of the Government and the Bank of England. It is able to underwrite its business in every conceivable way, so is it the strategic intention that it should go out into the market—at a time when its competitors are in difficulty—and offer the most attractive terms for mortgages that it can so as to increase its market share? Should it make sure that it finances itself as much as possible by enticing depositors in these nervous times with extremely attractive rates of interest?

The bank could be a glorious success. If we were investors from Kuwait or Qatar—if we were a sovereign fund—we would probably encourage the new management to use what amounts to guaranteed funding and head for a 70 per cent. share of this country’s mortgage market.

Of course, the Chancellor realises that the prospect that the bank could do that is causing considerable concern, so I did not ignore his answers yesterday. He said that the European competition laws offer the best protection, but that was all that he said in that regard, and it is something about which I should like to press the Minister. Will she give the House some idea of how she thinks that the European competition laws will affect the bank’s objectives? The current Competition Commissioner, Neelie Kroes, is very powerful and a formidable person, and she is quite rightly trying to strengthen European competition policy, but the policy takes a long time to enforce.

My suspicion is that the Government do not have the first idea how far European competition law will bear down on what the bank will do. I suspect that it will require quite a long process, with propositions going to the European Commission to determine the basis on which it will accept that the bank is not guilty of unfair competition. However, I do not think that the Government have thought through the constraints that they would expect the new management to place on itself to avoid the charge that it is competing very unfairly with other banks and savings institutions. That is a very great danger, as those other organisations are going through very difficult times in the current market.

Jim Cousins (Newcastle upon Tyne, Central) (Lab)
Has it occurred to the right hon. and learned Gentleman that the pressures from the European Commission and the Commissioner might be considerably greater if amendment No. 14 was carried, with its wording:

“setting out the strategic objectives for the business as determined by the Treasury”?

Does he not think that those words in themselves would bring the European Commission down on the Government?

Mr. Clarke
I doubt it. It is the Treasury’s duty to all of us to have some strategic objectives and to tell Parliament what they are. The Treasury is effectively now acting on behalf of the owners, who are the citizens of this country, and we need to know what its strategy is. Then, presumably, the Minister can explain how the Government intend to sort out the European competition angle. Presumably, they will try out the strategic objectives on the Commission to see whether they are acceptable as a fair base for competition. I do not know, and yesterday I got the impression that the Chancellor did not know quite what the impact was going to be.

Mr. Greg Hands (Hammersmith and Fulham) (Con)
Will my right hon. and learned Friend give way?

Mr. Clarke
I will in a second, but I do not want to go on too long. Let me just put the other side of the equation. Is the objective to run the bank down? I make it clear that I support nationalisation of whatever form the Government or Opposition put forward. It is defensible if one is going for an orderly run-down of the business. That means no fire sale now, in awful market conditions. It means holding the assets, particularly the loan book, for as long as is necessary to get the best reasonable return when market conditions return to normal.

If one is sailing on, trading, is the objective to run the bank down? I gather that the new management were giving guidance to the press that the bank would be smaller, preparing people for the fact that there might be redundancies and the bank might be scaled down. How is it supposed to do that? I do not understand how a publicly owned business sets out to run itself down. Does it decide to offer rather less attractive terms for mortgages? Does it tell its customers when they come back to renew their mortgages that it will refinance them only at a higher rate than the competition in order to drive them away? Does it reduce its savings rate after looking at what other people are advertising to make sure that it does not get too many people coming along to save?

If the idea is to slim the business down a bit, what is the Treasury guidance? How much should it be slimmed down? Will the Treasury tell the management, “Slim it down a lot. We are really trying to get rid of it, just like the Tories, but we don’t want to admit to all those north-east MPs that that is what we are doing?” Or will the Treasury say, “Just slim it down a little bit. Make it look respectable. Just reduce the size of the business; get it trimmed down a little”? Of course the strategic plan will have to be on more formal terms than that, but there must be guidance from the Government. Anyone running the bank now must ask the Government, “Do you want us to build the business up as aggressively as possible or to run it down? If so, could you give a bit of an indication of how much either way?” My feeling—I trust that the Minister will correct it—is that neither the Chancellor nor the Minister has the faintest idea at the moment which of those directions they are going to give.

Mr. Hands
Did my right hon. Friend hear Professor Alan Riley, one of Britain’s foremost experts on state aid, express the opinion that the European Union would certainly require the downsizing of the business as a precondition for clearing the state aid approval in this case? Does he think that Ministers are being just a little disingenuous, as we expect that they have access to equally clear and expert opinion and information?

Mr. Clarke
I am sure that they have, but they are not sharing it with us at the moment. I need to be reminded what the European process is and of how far a process of negotiation can be opened with Miss Kroes. Can the Government try out on her a strategic plan involving a bit of running down and see what she says? Will she expect the strategic plan to be published and some indication to be given of how the bank will operate in the market and then rule on it? Yesterday, I did not think that the Chancellor knew, which was why he kept giving answers that were all about the Conservative party and not about what he proposed to do.

Mr. Hands
My right hon. and learned Friend is making a strong point about the need for the strategic objectives. Does he agree that one of the essential functions of the bank in public sector ownership would be properly to sort out the risk management of the bank? It is difficult to have proper risk management without the strategic objectives. Some of the worst banking scandals of the past 15 years have involved public sector banks. Credit Lyonnais ended up financing a large part of Hollywood in the early 1990s and most recently Bankgesellschaft Berlin in Germany was essentially making politically motivated loans.

20:45:00

Mr. Clarke
I heard the speeches on that on Second Reading. I quite agree; risk management seems to me to be what banking is all about. That is the commodity in which banks trade, and throughout the history of banking, the most appalling errors have been made in risk management, as they were in the case of Northern Rock. If one looks back far enough, one begins to feel that there will always be extraordinary examples of risk management being suspended or not operating properly in banks’ pursuit of higher than average returns. That is how banks get into such trouble. Presumably, the business plan presented and agreed by the Government will include details of how the nationalised bank proposes to have its risk management under control.

The day-to-day running of the business is also quite important. The Government have been saying all the right things, such as that they will not be involved in the day-to-day management but will use commercial management, to which they have given guidance. Can we rely on that? I am afraid that the history of nationalised industries reveals that the moment an industry is nationalised, most people think that it has been politicised, and one rapidly finds that it is under great pressure. How many employees should there be? How will redundancies be handled? How will the business operate?

The amendment would require Ministers not only to say now that the business will be free of political pressures but to maintain that position. Yesterday I saw delight among Members below the Gangway on the Labour Benches that the people’s bank was being set up. It will not be too long before those who expressed that delight indicate clearly how they expect the bank’s business to be conducted, in the interests of their constituents and their region, so we will have to hold to what the Government have said. I would prefer to see that objective set out in the Bill, as the amendment recommends, and I hope that the Chief Secretary to the Treasury will be able to accept it. If she does not, she must give us more clarity about what she expects the bank to do now that it is in public hands.

Ms Diane Abbott (Hackney, North and Stoke Newington) (Lab)
It is not unreasonable that more information should be available about the Government’s strategic objectives in relation to Northern Rock. I say that particularly in the light of the debate earlier today. I sat through most of it, and two things are not clear to me. First, people are accustomed to talk about Northern Rock as though it were the hapless victim of international credit crunch storms. Actually, it was the victim of a flawed business model, and I have yet to hear Ministers from my own Front Bench take a view on that business model.

Secondly, colleagues representing seats from Newcastle and the north-east strongly stated the point of view that, in public ownership, the bank should both stick to the same business model and get bigger and better—to paraphrase a colleague, it should be a northern bank to vie with other great international financial institutions—yet many newspapers and commentators talk of an orderly run-down over time. Until we have some clarity about where the bank is going, the kind of robust accountability that we need from a nationalised bank will not be possible.

The Chief Secretary to the Treasury (Yvette Cooper)
I understand the spirit of the amendment. I shall first address what it would do and why I think that it would be a problem, and then address some of the wider points raised that underlie it.

The amendment would require the Treasury to lay a minute setting out the company’s strategic objectives and, effectively, a business plan for delivering those objectives before a transfer could be executed. That would cause problems given the Bill’s purposes and overall aims, which are to deal with potential risks to financial stability and the kind of circumstances in which it might be appropriate for Government to act swiftly—perhaps in a matter of days. The different powers in clauses 3 and 6 will allow the Government to respond quickly to a difficult situation. Setting out the strategic objectives of the company and the business plan may take longer. The new board is coming into place and Ron Sandler is taking up his post. It is right that they should have at least a few weeks to consider their options, develop a business plan, look in some detail at the bank’s overall position and set out the appropriate arrangements.

Mr. Philip Hammond (Runnymede and Weybridge) (Con)
We know that for the past five months the Government’s preference has been to sell the business as a going concern to a private sector buyer, but is the right hon. Lady telling the House that during those five months the Government have not done any preparatory work on establishing a business plan for the eventuality of a nationalisation, which the Chancellor noted was on the table as long ago as October?

Yvette Cooper
As we have said many times, the Government carried out appropriate contingency planning, and it was right that we should do so. That goes to the heart of the concern about the amendment. First, there is the question of timing. Secondly, there is the question of who should do the work. The wording of the amendment would be counterproductive. Opposition Members have said that they want to reduce the level of intervention by Government Departments and Treasury officials. If they are asking for a plan that was drawn up in advance of any transfer order being put in place, they should recognise that such a plan could only have been drawn up by the civil servants and the Department.

It is right that a great deal of work should be done by the board—by Ron Sandler and his team in the case of Northern Rock, but bearing in mind that the Bill applies more widely, the provision should be applicable in other circumstances as well. We need to provide for the circumstances in which a new team might need to come in and look at the books in some detail before making more specific proposals.

Mr. Kenneth Clarke
I entirely agree that the new management should be given time to look at the books and that they must draw up the business plan, but does the right hon. Lady agree that they will need some strategic direction from the Government before they do so, including—to reduce the question to its most elementary, as several of us have been asking for the past two days—whether the team are supposed to grow the business, to make it as powerful a business as they can in the marketplace, or whether they are supposed to shrink it, a bit or a lot? I am sure the Minister accepts that as the new management are effectively being sat on the Consolidated Fund when they are put in their new position, they are in an extremely powerful position.

Yvette Cooper
I appreciate the point that the right hon. and learned Gentleman is making, but he is asking questions that will depend in part on the business plan. The Government have already set out some key objectives about securing the ongoing stability of the financial system—which is why we have said that at this stage we believe that the Government guarantees need to continue—and about securing value for money and the best possible return for the taxpayer. As part of that we have already said in the Chancellor’s remarks and in my earlier remarks that that includes being able to return the business to the private sector at the earliest opportunity, getting the loans paid back with interest to the Bank of England, and moving the business at the earliest opportunity to a point where the Government guarantees are no longer needed. Those objectives must all be kept in place, but we also have to make sure that we comply with the EU state aid rules and that we do not create unfair competition.

My hon. Friend the Member for Hackney, North and Stoke Newington (Ms Abbott) asked what views Ministers had taken of Northern Rock’s business model. The Chancellor has made it clear that part of the problem that we have is due to the Northern Rock business model. When the global credit crunch occurred, which was triggered for all sorts of reasons including events in the US sub-prime market, because of Northern Rock’s business model, which was unsustainable, it got into particular trouble. That is why action was needed and the Government had to step in. Earlier in the debate, it was said that no one would expect Northern Rock to operate the kind of strategy that it was operating last summer; that was clearly unsustainable. The new strategy should be drawn up by Ron Sandler, and it will then need to be approved by the Government.

In the arm’s length arrangements that we are trying to establish, it is important that the detailed work should be done by Ron Sandler and his team. They have the expertise to do it and will put forward proposals that will need to be agreed by the Government and to comply with EU state aid requirements and other provisions to ensure that there is no unfair competition.

David Howarth (Cambridge) (LD)
The problem with the Chief Secretary’s argument is that the two objectives—financial stability on the one hand, and securing the Government’s position on the other—might conflict. A profit-maximising strategy on the part of the bank, of the sort described by the right hon. and learned Member for Rushcliffe (Mr. Clarke), might further destabilise the market by undermining competition. On the other hand, that exact strategy might well secure the Government’s position in the short term. Surely the strategic direction needed is the balance between the two objectives.

Yvette Cooper
The action that we have taken so far has made clear the priority that we give to the financial stability of the banking system as a whole; that has been evidenced. Any suggestion that as part of the process the Government will put maximising their income above the financial stability of the banking system would clearly be nonsense.

We have made it clear throughout that our key objectives are financial stability and returns for the taxpayer. We will publish two documents. The first is the business plan for Northern Rock, based on the work being done by Ron Sandler. The other is a framework document, which will set out the operating relationship between Northern Rock and the Government. The framework document will be published shortly.

Those two documents will provide hon. Members with the information that they understandably and rightly ask for. However, in respect of the amendment, it is inappropriate in principle to ask for those documents to be published before any transfer can be taken. In practice, the kind of financial stability issues with which we might have to deal may involve issues of timing and of who should take the decisions, who should do the work and who should put forward the proposals. The amendment would not allow those to be dealt with.

Mr. Hoban
May I probe the Chief Secretary a bit more on the framework document and the timing of its publication? Will it be published before we debate the order to nationalise Northern Rock?

Yvette Cooper
I cannot confirm the precise timing; I also do not know the precise timing of the debate on the order. However, I certainly assure the hon. Gentleman that we intend to publish the framework document shortly. A lot of work has been done on it, and we intend to publish it as soon as we can.

Ms Abbott
Earlier, my right hon. Friend said that until Ministers had a business plan, they would be unable to say whether their strategic intention was to grow Northern Rock or run it down. Is not the contrary the truth? Until we know whether the intention is to grow Northern Rock or run it down, we cannot draw up a proper business plan.

Yvette Cooper
With respect, Ron Sandler and his team are considering the nature of the assets and liabilities and the detailed provisions that support Northern Rock at the moment. They will have questions about what a sustainable future for the bank will be. As I have made clear, no one expects Northern Rock to be able to operate the kind of strategy that it operated last summer. Equally, the bank’s market share has already contracted significantly. However, rather than Ministers making precise judgments about strategy on individual products and other such things, it is right that we should have the further assessment on the strategic plan from Ron Sandler and his team before we confirm it and take the decisions on the right way forward.

Mr. Kenneth Clarke
The Minister keeps saying that of course there can be no question of going back to the business model that there was last summer, when Northern Rock failed because it could not access the money markets any more. However, the new management may say, “But we can access the money markets—we are about the only bank that can at the moment. Our spreads are considerably lower than the competition. Look at the state of the others given what we can offer with our access to markets. We can slay the Halifax, get rid of Alliance and Leicester, do a hell of a lot of harm to Bradford and Bingley, and give you a lot of market share.” That would be a very attractive financial business plan. If the Kuwaitis had bought it, they would probably find it attractive. What will the Minister do if she gives the management no strategic guidance and leaves them to go away and do their best, and they come back with an aggressive plan showing that in the current market conditions, with the Bank of England behind them, they can move in and make this a very healthy business?

21:00:00

Yvette Cooper
Once again, I point out that the approach in the business plan will need to be compliant with the new state aid rules. The European Commission is likely to propose particular conditions on the operating of the bank to ensure that it complies with state aid rules. We will need to have further discussions with it about what those conditions should be and what the appropriate arrangements will be. It would not be in the interests of the Government, the consumer or long-term financial stability to have a bank that abused its position in the public sector. That would not allow it to withdraw from the kind of public support that is currently there for it, and we would like to withdraw as rapidly as possible. A series of frameworks is in place.

Hon. Members are asking perfectly legitimate questions that will need to be answered. The difference between us is that I am setting out very clearly the fact that it is important for Ron Sandler and his team to do a programme of work before we fully answer all these questions. The amendment asks for them to be answered even before any transfer can be executed. Given the risks to financial stability that the Bill is designed to address, it would be irresponsible to tie Government’s hands in terms of dealing with financial stability and potential risks to the banking system as a whole by requiring a programme of work to be done that cannot properly and effectively be done until after the transfer has taken place. On that basis, I ask the hon. Member for Fareham (Mr. Hoban) to withdraw the amendment.

Mr. Hoban
It almost beggars belief that the Minister made those comments about what is going to happen to Northern Rock. In most businesses that I know—I have been involved with businesses throughout my professional career—the starting point for a business plan is the business’s objectives. What plans do the Government have for how Northern Rock should behave in future? Are they expecting it to get bigger or smaller? Those are important issues for the Treasury, as a guardian of taxpayers’ money, in giving guidance to Northern Rock’s new management. The Minister says that the business should be transferred back to the private sector at the earliest point. It would be easier for Ron Sandler to come up with his plans if the Minister were able to say that the Government would prefer it to happen in one year, three years or five years. That will affect how he runs the business—whether he shrinks it or grows it. That lack of strategic direction comes across in yesterday’s statement, today’s Second Reading debate and the Minister’s response to the amendment.

As taxpayers, we need some clarity about the Government’s objectives for Northern Rock—when they think that it should emerge from nationalisation and what shape of business they are expecting. It is ludicrous for them to have turned down two private sector offers and not to know what the outcome will be. The Minister should get a grip and demonstrate that the Government know what they expect Northern Rock to be like when it emerges from nationalisation, whether in one year, three years or five years. It is time for them to give much greater clarity about how they expect Northern Rock to develop over the next few years. That is why we tabled the amendment and, given that the Minister has not given a satisfactory response to the issues that affect not only this House but the business community and taxpayers, why we will press it to the vote.

Question put, That the amendment be made:—

Division 082
19/02/2008 21:05:00
The Committee divided:
Ayes: 222
Noes: 299
Question accordingly negatived.

Mr. Michael Fallon (Sevenoaks)
I beg to move amendment No. 1, in page 2, line 2, leave out “Treasury consider” and insert “Bank of England considers”.

This amendment is simple and does not require a lengthy explanation, but it is important and I alluded to it on Second Reading. The amendment proposes that the Bank of England rather than the Treasury should advise on whether there is a serious threat to the stability of the UK financial system. The Bank has a detailed knowledge of that system and can better judge it from inside than some civil servants at one end of Whitehall.

By replacing the Treasury with the Bank of England in that key role, we would also remove the Chancellor and his Ministers from any perception that they were making a political judgment when they decided to intervene. There have been scurrilous accusations that Ministers’ intervention last September was perhaps designed to assist their friends in the north, or, indeed, to prepare the ground for a general election, which appeared imminent. It is essential to remove, as far as possible, any perception that the decision on whether systemic risk is present and how it is defined is being taken by Ministers.

The Treasury Committee gave this matter a lot of thought while looking into a special resolution procedure, and we recommended that the Bank’s deputy governor for financial stability should become the Chancellor’s principal adviser. Of course, the Chancellor has to take the final decision. He is the guardian of the taxpayer’s interests, and the amendment is not attempting to evade that fact, but we need to put that position at one remove from any suspicion of political judgment. The best people to advise on whether there is a serious, systemic threat to the stability of the UK financial system are those in the Bank of England.

Yvette Cooper
The powers in the Bill to transfer the shares or business of a deposit-taker are exercisable only for the purposes set out in the clause. The first of these purposes is to maintain the stability of the UK financial system in circumstances in which the Treasury considers that there would be a serious threat to its stability if the order were not made. It is right that the decision should be taken by Treasury Ministers, just as the decision to authorise exceptional financial support is a decision for the Chancellor, under the memorandum of understanding. Ministers are accountable for the exercise of these powers, so it is right that such a decision should be based on their assessment of the threat. They are accountable to the House for that decision. It would, of course, be based on the advice of the Bank of England and the FSA, as required by the memorandum of understanding. The memorandum of understanding is clear about that. That is what has happened for Northern Rock and it is what would happen in the future, should the powers in the Bill ever need to be exercised again. Given that, the amendment is unnecessary and inappropriate.

The Government are consulting on providing the Bank of England with a statutory basis for its role in financial stability under the banking reform Bill, which will be introduced later in the Session. That would be the appropriate vehicle for formalising the Bank of England’s role. We have made it clear that we think that there is a stronger role for the Bank of England to play, but it would be more appropriate to provide for that in the banking reform Bill, rather than in the Banking (Special Provisions) Bill, as the hon. Member for Sevenoaks (Mr. Fallon) has suggested. His amendment would result in our not being clear about the accountability for decision making and assessment, or about accountability to the House. On that basis, I ask the hon. Gentleman to withdraw his amendment.

Mr. Fallon
I am grateful to the Minister for the consideration that she has given to the amendment. I accept her point about accountability. Of course it is the Chancellor who is in charge and he must account to the House for his decisions to put taxpayers’ money at risk—or not, as the case may be. I am not quite clear about the Minister’s answer. First, she said that the amendment was unnecessary, then she said that under the new banking reform Bill she proposes to put the Bank of England’s role as the Chancellor’s principal adviser on a more statutory basis, so there might not be as much between us as I originally thought. I will certainly reflect on what she has said and, in the meantime, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Mr. Philip Hammond (Runnymede and Weybridge)
I beg to move amendment No. 10, in page 2, line 40, leave out ‘year’ and insert ‘month’.

The amendment seeks to replace the provision in clause 2(8), which gives a limited period of one year for making an order under sections 3 and 6 of the legislation, with a provision for a limit of one month. I should say at the outset that this is not intended to be a wrecking amendment—far from it. We have already debated the overall principle of the Bill and we are now looking at its working realities.

The Bill was presented to the House as emergency legislation, designed specifically to deal with the problems of Northern Rock, and on that basis we are asked to expedite its passage. Whatever else we do, Sir Michael, I suggest that we cannot concede to this Government or to any Government—the hon. Member for Crewe and Nantwich (Mrs. Dunwoody) made this point earlier—a standing power to nationalise banks and building societies. There are huge issues pertaining to our international reputation and about the propriety of a Bill going through the House according to a time scale that might be appropriate for dealing with an immediate—or what the Americans would call a “clear and present”—danger that needs to be addressed, but is certainly not appropriate for Bills with a longer period of application that might be used to deal with circumstances unforeseen and, perhaps at the present time, even unforeseeable.

Conservative Members feel strongly that if the Government find they have a need for such a Bill, as they have for Northern Rock, to deal with a specific problem in the immediate future, they should justify their need for further expedited legislation. In the fullness of time, we will have a properly debated, properly scrutinised and properly considered series of measures to reform the banking regulatory regime that the Prime Minister introduced in 1997, the failure of which is at the root of current problems that have given rise to the Bill that we are debating today.

The purpose of the amendment, however, is to focus on the fact that this measure is intended to deal with Northern Rock and Northern Rock alone. The Chancellor has said in terms that he has no plans to use the Bill for any other nationalisation and he has explained that it was drafted widely and with enduring application in order to avoid issues of hybridity and thus to facilitate the Bill’s passage under an expedited procedure. The amendment is designed to narrow the scope of the Bill without creating any risk of hybridity. We believe that one month is long enough for the Government to lay and pass the required orders—or at least the transfer order under clause 3. Having laid that order, and assuming that it is approved, it will endure. It is designed to be enduring and to outlive the primary legislation powers. In any case, the order for compensation provisions is intended to be and can be introduced later.

In tandem with subsequent amendments designed to limit the Bill’s scope to banks only—Northern Rock is not a building society, so an emergency measure targeted on Northern Rock does not need to deal with building societies—the amendment is designed to emphasise the focus on the specific problem of Northern Rock, sending out a signal that whatever the parliamentary manoeuvring necessary to avoid hybridity, this Bill has a narrow, specific focus on nationalising the Northern Rock bank.

As the Chief Secretary will know, there is considerable concern in the City about the potential damage to Britain’s reputation that might result from a standing power to nationalise being on the statute book. Reputations are fragile things: they are easily destroyed, and much more difficult to rebuild. The Chief Secretary can give all the assurances she likes at the Dispatch Box that she has no intention of using the power, but—although she may consider this irrational—I assure her that narrowing the time scale one month to make clear the specific nature of the Government’s intention will send the appropriate signal to those in the City and the international financial community who are concerned about the latest development.

21:30:00

We made plain our opposition to the principles of the Bill on Second Reading. What we are trying to do now is improve its workability. The Government do not need a year in which to carry out a Northern Rock nationalisation. They should not have a standing power without proper scrutiny for other nationalisations. I therefore hope that, in an attempt to make what is by definition a rather poorly scrutinised piece of legislation a little narrower and more focused, the Chief Secretary will either accept the amendment or give us an assurance that a similar period—perhaps two months, or three months—would be acceptable to the Government, and that they will introduce an amendment to that effect in the other place.

Dr. Cable
I did not subscribe to the amendment originally, as its objective was not clear. I suspected initially that it might be a wrecking amendment, which I would not have supported. Having heard the arguments, however, I feel that some perfectly sensible points have been made. For practical reasons, the Government are not able to limit the scope of the Bill, but at least they can limit the time scale for its implementation to an appropriate period. I understand that Royal Assent will have been sought and hopefully given by the end of the week, and that there is then a relatively short period in which statutory instruments can be implemented. There is no particular reason for the power to continue beyond that point, and it seems rather indulgent to let it go on for a year.

The hon. Member for Runnymede and Weybridge (Mr. Hammond) is right: we shall have to return with more extensive and far-reaching legislation covering the conditions in which Governments should intervene. Such issues should be properly considered, and not under emergency legislation of this kind.

I did not, however, agree with everything the hon. Gentleman said. I have not yet heard all the arguments, but I am not entirely persuaded in regard to the concern about building societies. I think there is a genuine issue—I am not sure why banks should have a lender of last resort and building societies should not—but it is an issue to be dealt with separately when we reach the intervention powers. I also think we should be a little sceptical about the rather precious sensitivities of the City. After all, the problems in the financial markets were caused by a breakdown of trust between financial institutions themselves, rather than by a fear of nationalisation. That apart, I think the hon. Gentleman made a sensible, practical case for limiting the Government’s action to a one-off emergency intervention.

Yvette Cooper
The Bill was deliberately designed to impose constraints. Clause 2(2) specifies some high-level tests in relation to the purposes of the power:

“maintaining the stability of the UK financial system in circumstances where… there would be a serious threat to its stability if the order were not made”,

and

“protecting the public interest in circumstances where financial assistance has been provided by the Treasury… for the purpose of maintaining the stability of the UK financial system.”

As a later part of the clause makes clear, that does not apply to circumstances in which the Bank of England is simply providing financial assistance or playing its ordinary lender of last resort role. We have also made it clear that Northern Rock is the only institution that currently meets those high-level tests, and that we need to be able to deal with the specific problems that it has created. As Members have recognised, however, the Bill is drawn more widely. Therefore, it could in theory be used for other organisations in similar unusual circumstances to those of Northern Rock, but, as I have said, we have set the test high and put in place a sunset clause of one year. We intend to introduce a full Bill—which would, of course, go through the normal procedures—following on from the detailed consultation that we have conducted. It would look more widely at what further reforms are needed to the way in which problems in the financial system, particularly to do with banking, are dealt with. Those reforms would be made in a considered fashion, and in the normal way through this House, after full consultation and debate in this House. However, we need in the interim to be able to deal with the position of Northern Rock.

Under the Bill, there are other powers that can be used in the interim in the sunset period, until the full measures are put in place.

Mr. Hands
I am not sure that the right hon. Lady gives us a lot of confidence when she says that the Bill could be used for other organisations in similar circumstances. That is potentially market-sensitive information. Will she outline to the Committee why, if she does not believe that one month is appropriate, she believes that one year is?

Yvette Cooper
It is hardly market sensitive: we have said this repeatedly, and I am merely describing what the scope of the Bill is and how it could apply. Under clause 6, as well as clause 3, it could be applied to circumstances that some people called for back in the autumn. People called for powers to be in place that would have enabled Northern Rock to be transferred directly to another bank or institution prepared to take it on. In fact, that opportunity was not available for Northern Rock at that time, but people did call for that power. That is contained in this Bill, again as a temporary measure for one year.

Jim Cousins
Will my right hon. Friend deal with the point of the hon. Member for Twickenham (Dr. Cable)? To turn his point against the argument he was making, there is some value in the provisions in clause 11; for the first time, a lender of last resort facility will be created for building societies, and a building society that gets into difficulties will not be imprisoned and made captive by the restrictive terms of the existing building societies legislation. I accept that that is only a temporary situation until matters can be looked at in more detail, but does she not think that it is an attractive feature?

Yvette Cooper
My hon. Friend is right that clause 11 allows for the Bank of England to be able to provide greater assistance to building societies, should they need it given the circumstances of the current global credit crunch. The Bill provides for interim arrangements in advance of the full debate on banking reforms that we need to introduce.

Mr. Philip Hammond
For the sake of clarity, the hon. Member for Newcastle upon Tyne, Central (Jim Cousins) said he recognised that that was only a temporary provision ahead of new arrangements coming in, but the sunset clause applies to clauses 3 and 6, and our concern about clause 11 is that it introduces wide and far-reaching new powers but is not subject to the sunset clause. Will the right hon. Lady confirm that?

Yvette Cooper
I think that that is right as things stand, but we would expect this issue to be dealt with more widely as part of the banking reform provisions that we are consulting on. The current measures are about having interim arrangements in place in circumstances of unprecedented turbulence in world financial markets and a global credit crunch as a result of—or triggered by—events in the US sub-prime market, as a result of which banks are not lending to each other in the normal way. These are highly unusual circumstances, and they lie behind the introduction of the Bill. We have repeatedly made it clear that Northern Rock is the only institution that currently meets these high tests, and we are introducing this Bill at this time so that we can deal with the problems that Northern Rock has created.

The amendment would greatly shorten the period for completing the orders transferring the securities or business of an authorised UK deposit-taker. On that basis, we think that the tests and safeguards being introduced are significant, and having a sunset clause in place for a year should provide the House and the wider community with the reassurance that they need.

Mr. Hammond
The Chief Secretary has just made the extraordinary assertion that reducing the period to a month would place the Government under an unreasonable constraint in terms of laying these orders. We were led to believe that this was a matter of great emergency that had to be dealt with today and that legislation had to be completed by the end of the week. If I have misunderstood, perhaps she will correct me. I was expecting that the order, a draft of which we have seen, would be laid within a matter of days, at the most, of the Bill completing its parliamentary passage. If that is wrong, hon. Members ought to be made aware of the fact. She has not made any case for providing for a period of longer than one month. She has certainly not made a case for providing for a year. Had she made a convincing case for providing for a three-month or two-month period, Conservative Members would have been prepared to listen to that and to any assurances that she wanted to offer us about introducing such proposals at a later stage.

Yvette Cooper
Simply to clarify, may I say that we expect to introduce the order—we have done so in draft—dealing with Northern Rock? The hon. Gentleman will recognise the unusual circumstances that we face in dealing with Northern Rock. Further work will obviously need to be done after we have put in place the main transfer to ensure that any subsequent issues that might require powers to be provided under clauses 3 or 6 are dealt with to ensure that the business of Northern Rock is taken properly into temporary public ownership on the appropriate basis.

Mr. Hammond
I am grateful to the Chief Secretary, but I think she will find—I am sure that she will receive a note telling her this in a minute—that once the initial order is made, the Government will be safe. They will be able to make subsequent orders without complying with the various conditions—that is how the legislation is drafted. She is now telling us that she does not need more than a month to get the order made. Once the first order is made, the Government will be safely home. I have not heard a convincing argument about why we should not agree this amendment, which would provide the Bill with much greater clarity and focus. Therefore, I must ask my right hon. and hon. Friends to vote in favour of the amendment, and I seek to press it to a Division.

Question put, That the amendment be made:—

Division 083
19/02/2008 21:42:00
The Committee divided:
Ayes: 222
Noes: 302
Question accordingly negatived.

Clause 2 ordered to stand part of the Bill.

Clauses 3 to 5 ordered to stand part of the Bill.

Clause 6

Transfer of property, rights and liabilities

Mr. Philip Hammond
I beg to move amendment No. 12A, in page 5, line 36, at end insert—

‘(1A) No order under subsection (1) shall be made in respect of the property, rights and liabilities of a building society.’.

The amendment continues the theme of the previous amendment to which I spoke. The Bill has been presented to the House as an emergency measure to deal with a special situation—the nationalisation of the Northern Rock bank. For clarity, Mrs. Heal, I advise the House that later we will also vote against the proposition that clause 11 should stand part of the Bill, but with amendment No. 12A our aim is to remove references to building societies from the legislation.

22:00:00

It may be that there is a very good case for making some changes to the regime governing building societies. We have already had a discussion about that this evening. There may be a case for applying a regime along the lines of clause 6 in future to building societies, but there is no case to be made for including provisions relating to building societies in a Bill whose purpose is to nationalise a bank, which, by definition, is not a building society. Therefore, we seek in the amendment to leave intact all the provisions of clause 6 as they relate to banks, such as the possibility of transferring assets, liabilities, properties and rights from a bank to a company owned or controlled by the Bank of England or the Treasury in order to facilitate the partial nationalisation of a bank, which is a power that the Government say that they need. We seek to introduce into subsection (1)(a) the additional words in amendment 12A to ensure that the powers in clause 6 cannot be applied to a building society.

If the Bill is emergency legislation, it does not need to apply to a building society. There is no immediate and pressing need to have such a provision applying to a building society. We cannot allow the Government to include in a sort of omnibus, portfolio approach any power that they think they might need in a supposedly emergency Bill to deal with a specific situation.

We have reached clause 6 in the space of an hour. It is already apparent to the House that no proper scrutiny of the provisions in the Bill is possible. The timetable means that it has not been possible for Ministers properly to consider the amendments tabled by the Opposition—to sleep on them, to consult widely on them and perhaps to decide that some of them have merit. So we get a blanket, defensive blocking mechanism, quite understandably, to amendments that Ministers have seen only a couple of hours ago. This is not the way we can agree to proceed to deal with provisions that are not explicitly needed for the immediate purpose in hand—the nationalisation of Northern Rock.

If the Minister wants the provisions relating to building societies, she should put them in a Bill that will go through the House in the normal way, with proper scrutiny, so that we can debate with her their purpose and she can explain what she needs them for, and so that we can bring to bear the views and opinions of experts and interested parties outside the House and consider them properly. The provisions are not needed in this Bill tonight, so I urge her to agree that building societies should be excluded from the scope of clause 6.

Dr. Cable
I have agreed with all the amendments tabled so far by the Conservatives as ways of strengthening the legislation, but I disagree with this amendment. There are perfectly good reasons why building societies should be put in a position comparable to that of banks. I was not aware until this Bill came along that building societies were not in the same position as banks and could not access lender of last resort facilities in the same way as banks. That has just come to light, but if it is the situation, it seems entirely reasonable to address it.

The argument that the hon. Member for Runnymede and Weybridge (Mr. Hammond) made was, “Why don’t we think about all this in the bigger scheme of things with the intervention powers?” However, we are not talking about omnibus powers of nationalisation. We are talking about situations that could well arise in the next few weeks or months in which a building society, as one understood that Barclays did in the autumn, could go to the Bank of England for liquidity support. We are in difficult circumstances, and it seems right that those powers should be available now both to protect the interests of the building society sector and to maintain a level playing field between banks and building societies, which surely we want to do.

Mr. Hammond
I may have confused the hon. Gentleman by speaking about clause 11, which introduces lender of last resort powers for building societies. Clause 6 deals with the nationalisation of the assets and rights, but not shares, of banks and building societies. Amendment No. 12A was tabled to avoid the possibility of the nationalisation of building societies’ assets, property rights and liabilities.

Dr. Cable
I thank the hon. Gentleman for that correction. That is not the point that I wish to address; I am anticipating what I will say on clause 11.

The Exchequer Secretary to the Treasury (Angela Eagle)
Clause 6 gives the Treasury power to transfer property rights and liabilities of deposit takers when one of the conditions in clause 2 is satisfied. Amendment No. 12A would remove building societies from the ambit of the clause. There are two issues to re-emphasise. First, as Opposition Members will know, clauses 3 and 6 are subject to a sunset clause. Secondly, on the proportionality of the powers, I had hoped that Opposition Members would bear in mind the high hurdles that will have to be jumped before there can be any kind of intervention under clause 2. The issue should be considered in that context.

Clause 6 is the only power in the Bill that would allow the Treasury to take a building society into public ownership or transfer it to another private body. The power in clause 3 to transfer shares and securities would not work for building societies, because building society shares are essentially deposits held by their saving members. Acquiring them would therefore not transfer ownership of the society in the same way that the transfer of a bank’s shares would. However, the Government believe that the power in clause 6 should be exercisable in respect of building societies.

The Bill provides the powers on an interim basis, so that we can deal with any further problems that may emerge in the next 12 months. In the current climate, it is not inconceivable that a building society may run into difficulties, although I should make it clear that none has; it is important to emphasise that we do not have a particular building society in mind. That is partly why we are introducing the powers in clause 11, to which hon. Members have already referred, to allow the Bank of England to give certain financial assistance to building societies if they get into trouble. Extending clause 6 to building societies ensures that all interim measures available for banks are available for building societies. We think that that is prudent in the interim period. I emphasise that it is a precautionary step, but as hon. Members have suggested, we are consulting on longer-term proposals for banking reform. We will come back to the issue in the fullness of time, as part of that consultation.

Mr. Peter Bone (Wellingborough) (Con)
Does the Minister think that there is a danger that including building societies will send markets the signal that there might be risks for building societies? If there is no risk, why include building societies in the first place?

Angela Eagle
I did not say that there is no risk; there is risk all around at the moment, given what is happening in the global credit crunch. There are risks that that could affect institutions other than banks. What I did say is that we do not have in mind any particular building society that is in difficulty at the moment. I wanted to emphasise that point, so as not to set alarm bells ringing. However, in the interim period, while we are considering banking reform more generally, we think that it is prudent to introduce the precautionary powers in clause 6 and clause 11, which we shall come to later.

Mr. Mark Field (Cities of London and Westminster) (Con)
Will the Minister tell us what the lender of last resort arrangements are for building societies, and what it is about those arrangements that makes it so essential that building societies be included in clause 6?

Angela Eagle
That is a debate that would be more accurately held under clause 11 when we come to those specific powers. I am happy to deal with the issues then. I expect that I would be called to order if I extended the debate to clause 11.

With those clarifications of the Government’s position, I hope the hon. Member for Runnymede and Weybridge (Mr. Hammond) will withdraw his amendment.

Mr. Hammond
No, I am afraid I shall have to disappoint the hon. Lady. Her explanation is not good enough. The legislation was billed as emergency legislation to deal with a specific and pressing problem—pressing enough that the Chancellor had to make an announcement about it on a Sunday afternoon. It is a huge relief to hon. Members that the Minister does not have any particular building society in mind. I expect that it is a huge relief to the Clerks as well, as we may have had to decide that this was a hybrid Bill after all if she had a particular building society in mind.

The point that the hon. Lady has failed to address is this: the House is being asked to set aside its normal procedures for scrutiny of legislation. The Opposition parties and outside experts and interests are being asked to forgo the usual opportunity to make their representations and present their case during a proper Committee stage of a Bill. It is not good enough for the Government to sweep up all sorts of powers that they think they might possibly need one day, although they do not have in mind a specific example of that need, and put them into a Bill which they then ask the House to pass in a single day without the opportunity for proper scrutiny.

We would be very happy to look at the case for introducing the kind of powers that the Minister describes in relation to building societies in general, but what the House, the media and the great British public expected when they heard the announcement on Sunday of emergency legislation to nationalise Northern Rock was a narrowly focused Bill for the announced purpose of nationalising Northern Rock. Patently, such a Bill does not need a provision that deals with building societies.

Angela Eagle
I do not want the hon. Gentleman to caricature my position too much. This is not a wide-ranging provision that will remain on the statute book for ever. He will admit that clause 6 is one of the sunset clauses and that these are focused powers in very specific and unusual circumstances, so it does not go quite as wide as he is trying to make out. I hope he will recognise that. I tried to put my remarks in that context when I spoke about including building societies.

At least the hon. Gentleman ought to recognise that the circumstances are unusual, that there are high hurdles to get over in clause 2, and the provisions are quite focused. I made a point of saying that this was an interim solution while we were examining the longer-term issues of banking reform, which he and the House know we will return to later in the Session, after due consideration and consultation with all the outside forces that he mentioned.

Mr. Hammond
The hon. Lady is right that the powers are time-limited, with a year’s life. They are quite specific powers, but they are not specific to dealing with the Northern Rock situation, which is what all of us thought we were coming to the House today to do. We have been surprised and the commentators will be surprised by the breadth of the Bill, which was widely expected to be a specific, tailored measure to deal with Northern Rock. We do not think it reasonable to ask the House to approve anything that is not absolutely necessary today in this compressed one-day consideration of the Bill, which clearly will not allow full scrutiny line by line.

As I said in my initial remarks earlier this afternoon, that is bound to lead to a situation where the other place or, as is perhaps more likely in the end, the courts will have to resolve many issues that we have been unable to pick up and deal with during this afternoon’s deliberations. Goodness knows, even in a Bill that receives proper scrutiny in Committee, we invariably find—this is particularly the case with complicated Finance Bills—that the Government have to come back the following year in order to deal with problems, omissions and technical drafting failures that have occurred, or with loopholes that have been uncovered in the courts. What we are discussing tonight is not the type of measure that we should address under this emergency procedure, unless it were explicitly needed for the purpose of the principal business in hand today—the nationalisation of Northern Rock. That nationalisation does not require any powers in relation to building societies. I will therefore press the matter to a Division. I ask my right hon. and hon. Friends to support the amendment.

Question put, That the amendment be made:—

The Committee proceeded to a Division.

The First Deputy Chairman of Ways and Means (Sylvia Heal)
I ask the Serjeant at Arms to investigate the delay in the No Lobby.

Division 084
19/02/2008 22:15:00
The Committee having divided:
Ayes: 169
Noes: 351
Question accordingly negatived.

It being after half-past Ten o’clock, The First Deputy Chairman of Ways and Means proceeded to put the Question necessary to dispose of proceedings in Committee, pursuant to Order [this day].

Clauses 6 to 17 ordered to stand part of the Bill.

Schedules 1 and 2 agreed to.

Not amended in the Committee, considered.

Mr. Patrick McLoughlin (West Derbyshire) (Con)
On a point of order, Madam Deputy Speaker. We have just heard the formal words of the Government Whip. Would it be possible for the Modernisation Committee to consider the matter? The Committee of the whole House has not gone through the Bill—the guillotine has come down and the House has been prevented from debating it. The Committee has not gone through the whole Bill, so should not the matter go to the Modernisation Committee so that we get a more accurate record of what has actually happened?

Madam Deputy Speaker (Sylvia Heal)
I thank the hon. Gentleman for his point of order. It is not a matter for the Chair, but it will be brought to the notice of the Chairman of the Modernisation Committee.

I ask hon. Members who are not staying for Third Reading to leave the Chamber as quickly and quietly as possible.

Order for Third Reading read.

22:34:00

Yvette Cooper
I beg to move, That the Bill be now read the Third time.

I thank hon. Members for the speedy consideration of the Bill, which was introduced under unusual circumstances.

Last summer, triggered by events in the US sub-prime mortgage market, a global credit crunch began. Banks stopped lending to each other in the normal way and Northern Rock, owing to its business model, could not get the money that it needed to keep going. The action that we took last autumn was widely supported at the time. The Government stepped in and effectively saved Northern Rock. As a result of the decisions that the Chancellor took at that time, not only is Northern Rock still operating, but its customers’ deposits are secure and we have prevented the problems affecting it from spreading elsewhere in the banking system. That has been one of our main concerns from the beginning—to safeguard the stability of the banking system.

Mr. Colin Breed (South-East Cornwall) (LD)
Will the Chief Secretary confirm that throughout the period since Northern Rock fell into problems there have been no branch closures, that it has been receiving deposits and repayments on its mortgages, and that it has operated perfectly satisfactorily every day, including today? Can she explain why there has been such a rush to introduce the Bill when Northern Rock has been operating perfectly satisfactorily over those months?

Yvette Cooper
If the hon. Gentleman had been here earlier, he would know that we have discussed the reasons for bringing the Bill through rapidly. We took action in the autumn to ensure that Northern Rock could continue. As well as the Bank of England loans, we provided Government guarantees. Those have proved necessary in order for Northern Rock to continue and to support financial stability at the time.

We took the decision on Sunday after detailed consideration of the two bids—two serious bids, I should point out—which we could have gone with. We took the decision, however, that temporary public ownership was in the interests of the taxpayer. We took the decision and announced it very soon after on Sunday, and shares of Northern Rock were suspended on Monday morning. Those shares are still suspended. They have not yet been transferred to the public sector and the Treasury solicitor.

It is important for Northern Rock that it should have some certainty about its future operations, and that it should know who its shareholders are and who is in charge. It is important for Ron Sandler to be able to get on with his work in an environment of stability and security. Therefore, it is not in the interests of Northern Rock, the wider stability of the banking system or the House to extend unnecessarily our consideration of the Bill, when we can get it in place rapidly, in order to be able to effect the order and provide certainty for Northern Rock for the future.

Mr. Philip Hammond
The Chief Secretary has said that it is important for Northern Rock and its employees and shareholders to have certainty. Does she accept the recurrent theme of our debates today: in order for them to have that certainty, they need to know whether the Government’s strategic objective is to grow the business or shrink it? That is the key issue.

Yvette Cooper
We have made clear our objectives throughout the process: to ensure the financial stability of the banking system. We have also been keen to secure the interests of depositors and, in particular, to ensure that the taxpayers’ interests are protected. That is why we have taken the decision, and we have made detailed assessments of all the options for that purpose. We have said that we will shortly publish a framework document, which will deal with the arrangements that need to operate between Northern Rock and the Treasury and the Government. Ron Sandler will publish a business plan in due course which will need to be agreed with the Government and compliant with EU state aid rules.

It is important also that we should operate within a framework that is fair, and in which there is no inappropriate unfair competition. It is right that that should happen, but it is equally right that the new board of Northern Rock should have a chance to go through the books, assess the business in detail and draw up its proposals on how the interests that the Government have set out can best be secured. Those will then need to be approved and considered by the Government, and obviously they will be published at that time.

Mr. Hugo Swire (East Devon) (Con)
Have the Government made any calculation of what would happen if the business plan were to shrink the business, and of how many job losses that would lead to in the north-east?

Yvette Cooper
Ron Sandler is assessing what the options and future course of the business should be. Hon. Members want us to answer all their detailed questions about what the business plan should be, yet they also want Ministers not to take those decisions. They want this to be an arm’s length operation—which is what we think it ought to be—that is properly run on a commercial basis and in which the decisions are taken by the board and by the people with the expertise to do so, but they want us simultaneously to prescribe to the board the exact details of its business plan. We are clear that Ron Sandler and his team should have time properly to draw up a business plan. It will need to be agreed with the Government and to be compliant with EU state aid rules. That is a sensible way for us to go forward.

Mr. William Cash (Stone) (Con)
The Minister has just said that it will be necessary to comply with a range of provisions, including European legislation with respect to competition policy. Will she explain why clause 12 specifically states that an order may

“disapply…any specified statutory provision or rule of law”?

In that context, is she saying that we will disapply any Westminster-based legislation, but that we will not be able to disapply any European-based legislation?

Yvette Cooper
The hon. Gentleman must be quite mortified that we are saying that the clear safeguards that will be in place to ensure that we do not have unfair competition lie with the European Commission. I realise how difficult that is for him. I also realise that he had been hoping to have a debate on Europe today, and he has obviously come in specially for that. It must have been quite frustrating for him to have to discuss the details of a bank instead. As a result, he is now desperately trying to find some way of getting in a question on Europe—

Mr. Cash
Will the Minister answer my question?

Madam Deputy Speaker (Sylvia Heal)
Order.

Rob Marris
Will the Minister give way?

Yvette Cooper
I will give way to my hon. Friend.

Rob Marris
Northern Rock got into difficulty because it had a rubbish business model. Sticking with clause 12, subsection (3)(d) will enable powers to deal with

“exempting directors of any relevant deposit-taker, or of any group undertaking of any relevant deposit-taker, from liability in connection with acts or omissions in relation to the deposit-taker or undertaking”.

Will my right hon. Friend assure me that those powers will not be invoked to let the directors of Northern Rock who got it into difficulty off the hook should there be any legal liability for the incompetence of those directors?

Yvette Cooper
I have now had questions from both my hon. Friend and the hon. Member for Stone (Mr. Cash) about that. Let us be clear that the purpose of clause 12 is to ensure that the Treasury has the power to make consequential and supplementary provisions, given the complexities of the financial system and of the way in which the banking system works. We need to be able to ensure, if particular consequences follow through later when more detailed considerations are looked into, that they can be dealt with. It is clearly not the intention that people who should rightly take responsibility for their decisions should be exempt from doing so. Nor is it the intention to disapply any appropriate laws—be they European or UK laws—that should apply in these circumstances. This is simply about ensuring that we have the consequential powers that we need to implement the intention of the Bill, which is exactly what we have been discussing throughout the debate today.

As hon. Members will know, the global credit crunch is continuing. That means that banks are still not lending to each other in the normal way, and that is why the Government guarantees are still in place. Given that they are in place, it is right that we should expect an appropriate return for them, and that is why we have done the detailed assessment and chosen temporary public sector ownership as the appropriate way forward.

Interestingly, one thing that has come out of today’s debate is the fact that hon. Members who at the time of the intervention in the autumn supported both the introduction of Government guarantees and the intervention to prevent Northern Rock from going under are now arguing that those guarantees should be removed and that the bank should be put into administration. Throughout the different stages of today’s debate, a number of Conservative Members have said that they cannot accept the very principle of a bank continuing to have Government support, yet operating in the marketplace, despite the particular, unusual and difficult conditions that apply and despite the fact that the Financial Services Authority has emphasised the good loan book and the solvency of the bank.

Mr. Bone
Does the Minister have a plan B if the current arm’s length business plan—though she does not know what it is—is rejected by the European Union? Is there a plan B if the EU will not allow us to proceed?

Yvette Cooper
Detailed discussions with the European Commissioner will need to take place and they are likely to consider, for example, the conditions that need to be in place for the business plan to proceed. That would be the usual approach of the Commission in these circumstances. Clearly, that sort of discussion will need to happen and it will consider the detail of the business plan and the particular conditions with which it needs to comply.

Several hon. Members
rose—

Yvette Cooper
Conservative Members need to understand that they are effectively arguing for Northern Rock to go under—either very rapidly because of the withdrawal of Government guarantees or because it was put into administration. On the Government side, we have made very clear the consequences of putting Northern Rock into administration at this stage. It would mean that creditors would have claims on collateral and they would be exercised. In practice, it would mean a significant risk both to the Bank of England’s contributions and loans and to the taxpayer as a result of the guarantees that are being put in place. Given the current market conditions, it is important that we do not promote a fire sale of assets or effectively a sell-off at the bottom of the market. That is not in the interests of the taxpayer. It is important to promote the interests of taxpayers rather than the ideological approach of Conservative Members.

Keith Vaz (Leicester, East) (Lab)
My right hon. Friend is absolutely right and I would like to remind her of what happened to BCCI 17 years ago when the then Conservative Government refused to support its creditors and depositors. It has been in liquidation for 17 years, but all the money has been found all of a sudden.

Yvette Cooper
My right hon. Friend, who has greater expertise in this area than me—details of the BCCI case are beyond my memory—makes an important point.

Mr. Gerald Howarth (Aldershot) (Con)
rose—

Mr. Hands
rose—

John McDonnell (Hayes and Harlington) (Lab)
rose—

Yvette Cooper
I give way to my hon. Friend.

John McDonnell
I want to follow on from a point raised by my hon. Friend the Member for Wolverhampton, South-West (Rob Marris) about the liabilities and responsibilities for Northern Rock’s actions. If I recall correctly, when my right hon. Friend the Chief Secretary summed up on Second Reading, she said that the Granite exercise was excluded from the legislation. I understand that the Granite exercise was an offshoring of securitisation that offered 50 per cent. of the funding for Northern Rock—as far as I can see, it was used as a tax-avoidance measure—yet it is to be excluded from the scope of the Bill. If there are responsibilities and liabilities, surely those who participated in that exercise for their own advantage should be brought into the scope of the legislation. Should not responsibility and liability fall on them as well?

Yvette Cooper
Perhaps I should clarify that there are two different points. Granite is part of the funding mechanism for Northern Rock and it is on the bank’s balance sheet; however, it is a separate trust and has never been covered by the Government guarantees. It is not being taken into public ownership and it is not, in fact, owned by Northern Rock, so it is not part of the taxpayer’s exposure and has never been so. On the matter of how clause 12 relates to the directors, it does not apply to old or former directors; it is about the potential to make provision for directors who are in place while Northern Rock is temporarily in the public sector. It is an enabling provision—[Interruption.]

Several hon. Members
rose—

Yvette Cooper
We had this discussion earlier, on Second Reading. This is a Third Reading debate. [Interruption.]

Madam Deputy Speaker
Order.

Yvette Cooper
I am conscious of the time, and of the fact that other Members wish to speak in the debate. I will give way to Members, but they may need to be patient.

Mr. Philip Hammond
The Chief Secretary just said something about the ownership of Granite. Will she make clear to us who owns the shares in the Granite incorporated vehicles? Are they owned by Northern Rock, or by a third party?

Yvette Cooper
I understand that Granite was set up on a trust basis. I shall be happy to give the hon. Gentleman further details, because I think they are in the public domain. Granite is not owned by Northern Rock; nor will it pass into the hands of the public sector.

Mr. Philip Hammond
I am sorry to press the Chief Secretary on this point, but it is important. The Granite entities are consolidated on the Northern Rock balance sheet. When Members look at the totality of Northern Rock’s assets and liabilities, they see Northern Rock plus Granite. Is the Chief Secretary now telling the House that the public sector will acquire ownership of Northern Rock, but not of the Granite entities?

Yvette Cooper
That is what I said earlier.

John McDonnell
Can it be made clear for the record that although Granite is a creature of Northern Rock, was established by Northern Rock and was undertaken as an exercise for profit and tax avoidance, liabilities resulting from the overall exercise of Northern Rock will fall on the taxpayer, while those who participated in Granite to make profits will have no liabilities whatever? Is that statement accurate?

Yvette Cooper
Granite is and has always been a separate legal entity. What we are taking into temporary public ownership is Northern Rock, the bank, not Granite. I clarified that on Second Reading.

Mr. Hands
May I return the Chief Secretary to something else that she said earlier? She said that she opposed a fire sale—as, I think, does everyone—but that her reason for opposing it was that that would take place at the bottom of the market. Will she tell us why she is so sure that this is the bottom of the market?

Yvette Cooper
Opposition Members may say that they are not in favour of a fire sale of the assets, but that would be exactly the consequence of putting Northern Rock into administration. Creditors would have claims on collateral that would be triggered by insolvency; assets would need to be sold, and the bank would be rapidly wound down. That would not be in the interest of taxpayers. Members in all parts of the House should recognise that the purpose of the Bill is to protect the interests of taxpayers. I think that that is responsible, and it is something that the Government consider important.

Madam Deputy Speaker
Order. I remind all Members that this is a Third Reading debate, and we are discussing the content of the Bill.

Yvette Cooper
Members in all parts of the House should recognise the importance of protecting the taxpayers’ interests. That is why we have made detailed assessments of the different options throughout this process. We must continue to safeguard financial stability, but we must also secure the interests of the taxpayer.

Let me tell Opposition Members that presenting different options which do not stack up and which unravel in the end, resulting either in administration and a sell-off that is against the interests of the taxpayer or in nationalisation by another name, is simply disingenuous. We have had a serious debate about Northern Rock’s difficulties, but we have also debated the need to secure the financial stability of the wider banking system. I wish Opposition Members would acknowledge that that is the overall purpose of the Bill.

The financial stability of the banking system is not something that we should ever take for granted: it is something about which we should always be vigilant. The consequences of losing it would be devastating for people throughout the country. That is why it is important to protect it, and important for us to present the Bill now. I hope that Members will stop playing politics with the banking system and its stability, and will recognise the advantage to us all of achieving a secure deal and a secure future for Northern Rock.

22:55:00

Mr. Philip Hammond
The Chief Secretary has given her version of the events leading up to the introduction of the Bill, so let me remind the House of mine. In the summer of 2007, the credit crunch arrived—from the United States, as she said—and placed Northern Rock in difficulties. The Government had an opportunity then to pursue an expression of private sector interest in acquiring Northern Rock, but they were not interested; they dithered and passed up the opportunity. On 13 September, when it became clear that Northern Rock was in serious trouble, they dithered, delayed and prevaricated over the weekend, leading to the events of Monday 17 September, when eventually they stopped the run on the bank by introducing a general guarantee on deposits. They then ignored—very expensively, as it has turned out—the advice they received that they needed to act quickly and decisively in order to protect the taxpayers’ position and resolve the issue of Northern Rock. We have had more dither and delay since 17 September, leading on Sunday to the announcement that the Government were going to go down the route that they had desperately sought to avoid for the past five months and nationalise Northern Rock.

One thing that we have clearly understood from today’s debate is that the nationalisation of Northern Rock is but a mechanism. The Opposition submit that there is nothing substantive that the Government will now be able to do with Northern Rock in nationalisation that could not have been done without taking the bank into public ownership and with only slight modifications to powers that already exist in the Enterprise Act 2002 and insolvency legislation. However, proposed legislation was rushed out yesterday and rushed through this House today under an emergency procedure, and we and the public were clearly told that it was legislation for the purpose of nationalising Northern Rock. What we have before us today is a Bill—now on Third Reading—that includes many provisions that are not relevant to the nationalisation of Northern Rock, but which deal with other situations that we are not facing today. They might be sensible provisions with which we could agree, but we will never know because we have not had the opportunity to scrutinise the Bill properly and to consider those measures. It is our submission that when a Government come to the House and ask it to set aside its procedures and its standard practices for scrutiny and to rush through legislation in a day, that legislation must be for an immediate and pressing purpose; it must not be a portfolio of powers that the Government would quite like to have in case they come in handy at some point in the future.

We have seen the weakness of this compressed procedure this afternoon and this evening. Our amendments were tabled without the benefit of consultation with outside bodies; they were our amendments and they did not reflect, as is the usual practice in this House, the real and detailed concerns of experts in the relevant field and from across the relevant industry. Ministers saw the amendments just a couple of hours at most before having to respond to them. In those circumstances, I do not blame them for adopting a defensive strategy and approach; what else could they do? They have not had a chance to consider, or consult on, the amendments; they have not even had a chance to sit with their officials and think about them. [Interruption.] Yes, they might have another chance when the other place gives them an opportunity to consider some of them again. All of this is a genuine shame, because it means that the legislation that is leaving this House today is weaker for lack of scrutiny, and that we, as the superior House, are once again in the humiliating position of relying on the other place to look in detail at the provisions that have been put before us. As it, too, has been prevailed upon to limit its consideration of the Bill, it is likely that unelected judges in the courts will have the final say on a matter that we know will be the subject of substantial litigation.

Mr. Cash
Does my hon. Friend agree that in respect of the other House a number of important provisions are privileged? I am thinking of tax consequences, which are dealt with under clause 10, and a number of other matters relating to guarantees and indemnities, which are at the heart of the financial liabilities that arise. The other House will be unable to consider such provisions, and that compounds the disgraceful way in which the Government have truncated consideration of the Bill.

Mr. Hammond
My hon. Friend makes a good point, because at least one clause will be privileged and thus will not be considered by the other place. I must say that he slightly surprised me, because I thought that he was again going to raise the issue of the exclusion of the courts. I am somewhat disappointed that he did not do so.

The debate has made it clear that whatever their view about the principle of nationalisation—the hon. Member for Newcastle upon Tyne, Central (Jim Cousins) understandably has his constituents’ interests at heart, while other hon. Members have given greater primacy to the taxpayer’s interest—hon. Members on both sides are deeply uncomfortable about the lack of clarity about the Government’s intentions. Perhaps it is a lack of honesty about their intentions.

I do not know whether I am alone in this House in finding it slightly extraordinary to be presented with the proposition that over the past five months, when one of the most politically explosive situations has been sitting on his desk, the Chancellor of the Exchequer has not established a plan B and he has not considered what he would want to do in the event that his preferred private sector sale of Northern Rock failed. He also does not have a strategic business plan setting out the objectives for its new management team and he has not given Ron Sandler a brief that sets out those strategic objectives. That is all extraordinary. Perhaps that is why the Government have included a provision in their draft order that the publicly owned Northern Rock will be exempt from freedom of information requests—so that we may never know.

The risks of nationalisation are clear. The first is the politicisation of the decisions. I do not blame the hon. Member for Newcastle upon Tyne, Central for one moment for putting the interests of his constituents first, as we would all have done in his position, but this evening we have seen the kind of pressure that the Government will come under from hon. Members and from outside interests. Other risks include the transfer to the taxpayer of a huge additional tranche of liabilities at a stroke and the risk to Britain’s reputation as a financial centre.

We know that the risks are clear, but we do not know much about the business that the Government are acquiring on our behalf. We do not know how much we will pay for it, how much it is worth, what its assets and liabilities are, how long we are acquiring it for and what the purpose of our acquisition is. The truth is that nationalisation is not a solution; it is simply a mechanism.

The solution has to be based on a plan, and the strategic direction of that plan must come from the top down. The Minister chose not to recognise a clear distinction a few moments ago. Nobody in this House, except perhaps for a few people below the Gangway on the Government side, wants the Government to micro-manage a state-owned Northern Rock, but we all recognise that the Government, as shareholder, must set out the strategic objectives that they want the management of Northern Rock to follow. The Government must give a clear picture of where they want Northern Rock to be in six months or a year or two years’ time, of how quickly they want to shrink the business and of what priority and level of importance they place on returning it to the private sector with all taxpayer loans repaid. That is how the Conservatives would like the NHS or the education system to be managed—with a clear, strategic direction from Government and a hands-off approach that lets the professionals get on with delivering those strategic objectives.

What we have is a wide-ranging Bill that has received little scrutiny. Many issues are unresolved and will have to be dealt with in the other place. I set out earlier our alternative proposals, not for a fire sale—as Ministers like to characterise them—but for an orderly resolution of Northern Rock in a Bank of England-led reconstruction. The Government have a consultation paper out on future legislation to reform the banking sector, and I predict that when we finally get round to putting in place a regime to deal with—God forbid—any future Northern Rocks, it will reflect much more of our proposal and much less of the Bill that we are being asked to pass today.

At the end of this debate, we are no clearer about many of the key questions. The Government have rejected all of our amendments. They will brook no criticism. The Chief Secretary has probably taken her cue from the Prime Minister, who said yesterday in his press conference on Northern Rock, with typical modesty, that

“we have made at all times the right decisions”.

The taxpayer is now much deeper in. There is no sense of the direction in which the Government intend to take us and no business plan is on the table. I must therefore ask my right hon. and hon. Friends to vote against Third Reading.

23:07:00

John McDonnell (Hayes and Harlington) (Lab)
I first wish to make it clear that I welcome the Bill. In fact, with the greatest respect to the hon. Member for Twickenham (Dr. Cable), I think that I was the first MP to call for nationalisation, although that is hardly surprising because I have been calling for the nationalisation of the financial sector for 30 years or more. However, I was astounded when my right hon. Friend the Chancellor said on Second Reading that the Granite operation was not included in the legislation.

From my reading of the Treasury Committee’s brief reference to Granite and the advice received from accountants in the tax justice campaign, my understanding of the scheme—even its name suggests that it was a great wheeze—is that several of the directors at Northern Rock established an offshore vehicle to avoid tax. It was still on the balance sheet of Northern Rock and they securitised a large percentage of their assets in it and received about 50 per cent. of their funding from it. As a result and as far as I am concerned, Granite is a creature of Northern Rock and therefore is part of the asset base of the bank and its operations.

Mr. Alan Beith (Berwick-upon-Tweed) (LD)
It should not go without mention that one feature of the arrangement was a purported benefit to a charity for handicapped children in the north-east, which has so far received no money from it whatever.

John McDonnell
I understand the issue that the right hon. Gentleman raises, and I have seen reports about it. It is an issue that needs to be exposed and examined, but my concern is the greater issue. Those who took that decision will be exempted from their responsibilities as a result of this legislation. They deliberately undertook an exercise of tax avoidance and tried to maximise the profits for their company. As a result, they enhanced their own benefits in salaries and bonuses through a scheme that is completely exempt from the Bill. The taxpayer and the community will pick up some of the liabilities from that exercise and those who have profiteered through Granite will be completely exempt of liabilities. They will walk away with their profits secure, while others suffer. Some of the constituents of my hon. Friend the Member for Newcastle upon Tyne, Central (Jim Cousins) may lose their jobs and some people may have their homes repossessed. Yet the Granite scheme has enabled those people to walk away scot-free.

I tell my right hon. Friend the Chief Secretary that when there are discussions in the future about further legislation and regulation, we will need to take into account what happened with regard to Granite. We will need to consider how to prevent tax exemption and tax avoidance regimes being used in such a way at the cost of the long-term interest of the workers involved and of those people who are dependent on mortgages from a company such as Northern Rock. If there is any way in which Granite can be brought within the ambit of future legislation, the Government should examine that matter.

Ms Abbott
Does my hon. Friend agree that when the Government are considering future legislation they should also consider the long-standing and vexed issue of conflict of interest when it comes to audit? A firm such as PricewaterhouseCoopers will make a lot more money out of its consultancy on securitisation than out of the audit. In banking collapse after banking collapse, we see auditors who see no problem in continuing to trouser their consultancy fees.

John McDonnell
I hope that that is one issue that the Treasury Committee will come back to at some future stage when it further examines transparency within the financial arrangements of such companies and the City itself.

I support the legislation, but I believe that we have missed an opportunity to nail down one of the devices that has been used by Northern Rock and its directors to avoid their long-term responsibilities to its work force, to those who have borrowed from the company and to this country and its taxpayers. I regret that such a measure was not contained actively in the Bill.

23:11:00

Dr. Cable
I had not intended to speak at length at all, having made my points, but I am prompted to by the important speech that we have just heard from the hon. Member for Hayes and Harlington (John McDonnell). Alarm bells rang slightly for me when I heard the mention of Granite on Second Reading, but its full significance did not dawn on me at the time. I do not think that the problem is quite that identified in the hon. Gentleman’s point about tax status. The problem is that Granite is a separate institution that, as I understand it, securitises the best assets of the bank. The best mortgages of the bank are wrapped up in the Granite vehicle. We are being told that in some way that is being hived off to the benefit of person or persons unknown, apparently, to the Minister.

What is going on here appears to be not the public ownership of Northern Rock but an asset-stripping operation designed to benefit someone—we do not know who. That is a serious development, and unless we get a proper explanation by tomorrow morning of what exactly is going on—

Mr. Philip Dunne (Ludlow) (Con)
If I may, I want to see if I can help the hon. Gentleman to understand the true implications of Granite’s not being included in the nationalisation. My understanding is that Northern Rock retains a seller’s share in the packages of mortgages provided to Granite to provide security for the debt obligations that Granite issues, and that that package of mortgages will have to be refreshed continually by Northern Rock as mortgages are redeemed or repaid or come to the end of their natural lives. If Northern Rock fails to supply continuing fresh mortgages into Granite, the liabilities will crystallise, there will be a default in Granite and the entire securitised  debt obligations will implode and will have to be sold off on a fire sale basis, with proceeds going to the bondholders. At that point, the seller’s share held by Northern Rock will also be part of the fire sale and will become of much lesser value than its stated asset value in the books. Guess who will pay the bill, if Granite is not included in the nationalisation? The taxpayer.

Mr. Deputy Speaker (Sir Alan Haselhurst)
Order. That was a very generous intervention.

Dr. Cable
I am trying to absorb the hon. Gentleman’s analysis, and I hope that he will repeat it at greater length. My understanding is that the remainder of the assets of Northern Rock, outside Granite, consist of unsecured mortgages and the so-called Together mortgages—those at 125 per cent. of value—or, in other words, the rubbish. That is what the Government have acquired. We now need a rapid and thorough explanation of exactly what has gone on, as otherwise the Bill can be stopped in the other place.

Mr. John Maples (Stratford-on-Avon) (Con)
The problem is actually worse than the hon. Gentleman has described, as Granite’s loan-to-value ratio is more than 100 per cent. Mortgages are placed in Granite to securitise a loan that is for a smaller amount so, if the security had to be exercised, the mortgages could be sold at a discount. I think that what is left is actually worse than the hon. Gentleman is making out.

Dr. Cable
We are all getting a rapid education. Perhaps the hon. Member for Hayes and Harlington can tell us more.

John McDonnell
I may not have explained the point that I was trying to make well enough. My view is that the motivation was a tax avoidance dodge, but the problem is that the liability, which is on a significant scale, now rests with the public purse. As a result, the people who will gain are the participants in Granite. The ones who will lose, and who are in jeopardy, are those who retain an interest in Northern Rock—that is, the taxpayer, and the workers who may lose their jobs.

Dr. Cable
These are big questions, and we are not getting any answers. I see that the Minister has fled the Chamber to get an urgent briefing from the Treasury. Unless the Paymaster General can give us a proper explanation, it is clear that an Exocet has landed somewhere in the middle of the Government’s proposals. The Government need to come up with some proper explanations overnight, as otherwise they will be in serious difficulty in the other place tomorrow. 

I could make many other points but I shall restrict myself to two, as I think that we have highlighted a critical issue that we need to focus on.

Mr. Gerald Howarth
On a point of order, Mr. Deputy Speaker. It is perfectly apparent that a key part of this nationalisation is wholly uncertain. Something has come to light that means that the House cannot reach a serious decision on this matter. The Minister has fled the Chamber, presumably to go and get advice. Would it not be sensible to suspend proceedings until she is able to inform the House on this very important consideration? [Interruption.]

Mr. Deputy Speaker
Order. It would be unfortunate if the debate were to become ragged at this hour, bearing in mind the seriousness of the issues under discussion, both in the course of the day and at this moment. I think that the hon. Member for Twickenham (Dr. Cable) put his finger on it when he said that there will be further debate before the legislation is finally approved by Parliament. [Interruption.] Order. If matters are still being raised at this stage, there will be further opportunities to discuss them. This is a matter of debate.

Dr. Cable
I apologise if I have contributed to the raggedness of the discussion, but important issues have been raised. However, perhaps I should reduce the temperature by moving on to other points.

Some very important amendments were tabled that, unfortunately, were not discussed today. I hope that they will be debated tomorrow and when we come back on Thursday. One of the more important amendments related to the Bill’s implications for competition policy, and I think that hon. Members of all parties acknowledge that potentially serious difficulties could arise as a result of the nature of Northern Rock’s ability to compete for deposits and mortgages, and in wholesale markets.

Although some mechanism must be established to manage that, it is equally clear that the regulatory body, the FSA, does not have the necessary powers. It is also clear that the Office of Fair Trading—the body that deals with competition policy—should be referred to explicitly in the Bill in order to resolve those specific questions.

The other important matter that we did not get around to discussing was new clause 2, which deals with freedom of information. One of the most appalling problems so far is that we have been unable to get access to basic information about how the Government and the Bank of England have operated hitherto. Information will be even more difficult to access now, because I understand that the new public company will be excluded from the freedom of information provisions.

Along with other hon. Members from all parties, I have been trying to find out how much the Government, via the Bank of England, have lent to Northern Rock. We have had to study the Bank of England’s weekly accounts, which are not entirely clear. I once asked for a meeting with the Governor to try and find out what was going on, and I was treated rather like an armed robber who wanted to inspect the gold in the vaults. It was impossible to get anywhere near asking the questions that I wanted to ask, but the problem is that information has become even more controlled and even less accessible. That is something that must be dealt with properly.

Those of us who have been trying to follow the saga properly know that information has not been coming from the Government but from the BBC business correspondent and from leaks from the various bidders against each other. That is how we have kept abreast of developments. The Government have been a closed book. There has been no access to information. That is why we need to build into the Bill provisions to create much more transparency than has existed so far.

23:20:00

Rob Marris
I support the Bill. I have to say that some right hon. and hon. Members have rather overlooked the fact that it does not deal just with Northern Rock. It has been prompted by Northern Rock, but it deals with the continuity and continuation of financial stability in the United Kingdom.

The aim of the Bill is to foster and maintain confidence in the economy and the financial services sector in the United Kingdom. Other countries—Germany, the United States, France and so on—are, of course, going through banking difficulties as well. In September, the Government were faced with a difficult decision against the backdrop of financial turmoil around the world stemming primarily but not only from the sub-prime market in America.

The Government took a bold decision about Northern Rock aimed at maintaining economic stability. By and large, I think that we can say ex post facto, five months later, that that decision was not only the right one but that we have maintained economic and financial stability. The FTSE went up this week, just after nationalisation of Northern Rock was announced. We have record bank profits. We have a thriving financial services sector, which of course is under pressure; not everything in that garden is rosy. It is under some pressure, but as the premier financial services sector in the world now, thanks to this Government, it is under less pressure. Part of the reason for that is what the Government did in respect of Northern Rock.

At every opportunity the Conservative party accuses any and every Minister of dithering and, boringly, it levelled that charge again tonight. Over the past five months, the Government have explored the options. They tried to see whether Northern Rock could be sold to some management buy-out, Virgin or whoever. They found that, in terms of protecting the taxpayer, that was a non-starter. But the Government were absolutely right to explore those options.

Had the Government not done so and announced in the middle to end of September that they were nationalising Northern Rock, I can only imagine the outcry from the official Opposition. They would have said, quite properly, “You are being hasty. You have not explored the options. You have not looked at whether it can be sold to another private banking institution.” So the Opposition are trying to have it, as ever, both ways. If we explore the options, they say that we are dithering. If we do not explore the options, they say, “You are being hasty and not exploring the options.”

Mr. Maples
The Government turned down the only decent offer that they received. Lloyds bank was prepared to buy it with a Government guarantee or loan, which was a quarter of what the Government now have on the table.

Rob Marris
My recollection of the Lloyds bank indication of interest was that it asked for a considerable amount of money from the Government, and that it kept going up. That showed that it would be difficult to sell Northern Rock, and it proved to be impossible.

Most hon. Members would agree that we cannot continue with Northern Rock as it is. It clearly could not continue with the business model that it had because it was a bankrupt model both metaphorically and almost literally.

The third option that the Government explored was that of trying to sell the bank. They found that they could not sell it, other than at a ridiculously low price. The option before us, which is enabled but not carried out by the Bill, is to nationalise Northern Rock. That seems the sensible option, because the only other one that is talked about—it is discussed in rather woolly, vague terms by the official Opposition—is putting Northern Rock into administration and winding it up.

In administration, the administrator tries to sell the business as a going concern, either wholly or in part. We know that the business cannot realistically be sold as a whole as a going concern, because the Government tried to do that for five months and could not. The alternative way of proceeding in administration, which the official Opposition are suggesting, is to wind down the business to shut it down. When they talk glibly about administration, they are not open about the fact that that, realistically, is the route that they would take. They say, “The administrator will carry on and do what he or she can.” He or she cannot sell it, ergo they will wind it down and eventually close it. Nationalisation, which is foreshadowed in the Bill, is a much better option.

Mr. Philip Hammond
I should like to challenge the hon. Gentleman’s logic. He says that, in administration, the administrator would not be able to sell the business, ergo he would have to wind it down. In nationalisation, when the Government cannot sell it, the Government will have to wind it down. Is that not the case?

Rob Marris
No, of course it is not the case. As ever, the hon. Gentleman is trying to have it both ways. People say that the process might take one, two or three years, but as the hon. Gentleman knows well, an administrator cannot take that length of time. Under nationalisation, there is more time.

On freedom of information, again the Opposition try to have it both ways. On the one hand, they propose amendment No. 14 on arm’s length management. On the other hand, when it comes to the arm’s length management provisions in the draft order that relate to the freedom of information powers, which of course do not apply to the private sector, they say, “Well, the bank is nationalised; it’s public sector, so the freedom of information powers should apply.” That contradicts what they have argued for in terms of arm’s length management; they are trying to have it both ways.

I understand the criticisms that have been made on the subject of the cost, but my understanding of the Bill as enabling legislation, and Northern Rock’s concrete situation, is that one cannot value Northern Rock until a valuation tribunal procedure is completed, pursuant to the powers in the Bill. Even the shadow Chancellor, the hon. Member for Tatton (Mr. Osborne), more or less conceded on Second Reading that the likely valuation of Northern Rock is nil. Of course taxpayers should know what the cost is, but it flies in the face of reality to demand that the Government today reveal the cost of the procedure and of buying out Northern Rock, as though they were sitting on a figure. The reality is that it is likely that the valuation will be close to nil, as the hon. Member for Tatton said, but we cannot tell until the valuation tribunal decides.

I say to my right hon. and hon. Friends on the Front Bench that the business framework agreement should be drawn up and revealed as soon as possible, not only because that is right for taxpayers, but to reassure staff and depositors—and, potentially, pensioners, who are the subject of an amendment of mine that was selected but that we did not discuss. Paragraph 6(3) of schedule 1 says:

“Provision made in pursuance of this paragraph may be made by means of modifications of a relevant occupational pension scheme”.

I would like reassurance from the Government that there is no intention to modify the Northern Rock pension scheme in a way that adversely affects Northern Rock pensioners and prospective pensioners.

I conclude by urging the Government to hurry up with the consultation on tightening the regulation of banking in the United Kingdom, so far as they can. However, I do not want them to make haste, as some seem to want them to do, for the reasons that I gave. Those reasons relate to the Government taking time to explore what could be done with Northern Rock, after that decision was made to support it in September. The uncertainty about UK banking regulation changes, which is recognised by Members on both sides of the House, should not continue longer than is absolutely necessary. The need for changes to banking regulation was revealed by what happened with Northern Rock. I hope that proposals for such changes can be brought before Parliament, if not in the form of primary legislation, then in the form of an indication that the next Queen’s Speech will provide for legislation that will change the regulation of banking in the UK to make it even tighter and even more stable, and to prevent another Northern Rock.

Mr. Hammond
On a point of order, Mr. Deputy Speaker. It is clear from the debate that has taken place over the past 10 or 15 minutes that there are some important questions outstanding that have been put to the Chief Secretary. Can you confirm that it would be possible, with the leave of the House, for the Chief Secretary to speak again in the debate in order to clarify those points? If you so rule, I hope that those on the Treasury Bench will make that known to the Chief Secretary so that she can return to the Chamber.

Mr. Deputy Speaker
I have no power to compel the appearance of a Minister at the Dispatch Box, but it is always possible in the course of debate for a Front Bencher or a Back Bencher to seek to intervene in the proceedings. That opportunity is available and it may or may not arise, but I cannot predict whether it will.

23:30:00

Mr. John Greenway (Ryedale) (Con)
I am grateful for the opportunity to contribute to the Third Reading debate. I had hoped to say something on Second Reading, but Pensions Bill Standing Committee duties took precedence.

It is clear from much of the debate that I have heard that the Government’s case for the nationalisation of Northern Rock and for the Bill lies in tatters. It has been cruelly exposed, not least by the exchange about the assets in Granite. We can win debates and arguments in the House and lose votes. I shall concentrate on the prospect that despite the shortcomings of the Government’s position, by Friday Northern Rock will be in public ownership. What does that mean?

There are differences of principle across the Chamber among the region’s MPs, who include some of my best friends in this place. We have a difference of principle, but an agreement that Northern Rock is an extremely important financial institution in our region. We are all concerned about the jobs of the people who work for Northern Rock, particularly in the north-east. The fact that the Government have been unable to produce any kind of business plan at this point in the proceedings, after all this time, suggests that there may be some false hope about how many jobs may in the end be protected.

In her Second Reading speech, the Chief Secretary said that Northern Rock would grant mortgages in future under public ownership with less virility than it did under the previous board. One hopes that that is true, but it suggests that Northern Rock will be open for business for mortgages. The majority of jobs in Newcastle and Sunderland are in the processing of mortgage applications, so unless Northern Rock is open for business for new mortgages, there will be massive redundancies. That is a fact of life.

In addition, we are not clear where the money will come from to lend to new borrowers. Will it come from new deposits? If it does, what impact will that have on the deposit-taking market which, as I pointed out to the Chancellor in an intervention earlier, includes the sale of Government gilts? If that went on for any length of time, it could undermine the deposit-taking market as we know it in this country. I do not know whether that will be the case or not.

Without a business plan or any strategic idea about the direction in which Ron Sandler will take a publicly owned Northern Rock, we can have no view on the prospects for jobs of Northern Rock employees or the likely impact of the new publicly owned bank on competition in the banking sector, both in deposit-taking and in lending. The House ought to have been given a much clearer indication about those matters before we were asked to give the Bill a Third Reading tonight. It is disgraceful that that was not done. The lack of preparation has become clear even in the exchanges across the Chamber in this Third Reading debate. One suspects that in the two days during which the Bill will be debated in the other place, those positions will become even more cruelly exposed.

The one ray of hope concerns the people whom the Government have appointed to run the business. I know Mr. Ron Sandler very well; he headed up the Lloyd’s reconstruction and renewal project, which was supported by the all-party group on insurance and financial services. I chair that group, and the hon. Member for Newcastle upon Tyne, Central (Jim Cousins) is one of my officers. We supported the project in the teeth of opposition from some of my hon. Friends, who had lost money at Lloyd’s. Lloyd’s was a basket case at that time; the proceedings that Mr. Sandler instituted not only saved it, but recreated it as one of the greatest insurance institutions in the world. It remains so today.

Mr. Dunne
I should like to endorse what my hon. Friend has said about Ron Sandler, whom I also know of old. As my hon. Friend has just outlined, Mr. Sandler’s experience is in wholesale money markets—not retail financial markets, which are precisely the business of Northern Rock.

Mr. Greenway
That is true, but one of the reasons why Mr. Sandler was successful in the Lloyd’s reconstruction and renewal project was that he had good people around him; I hope that he will have them in this case, too.

We can have an argument on a difference of principle, but whatever happens at the end of this week has to be a success. If it is not, taxpayers will lose and jobs will be lost. We can have our different views, but in the end we have to come together, in a sense, to ensure that the banking institutions and banking market remain stable, jobs are protected and there is no adverse effect on competition.

I end with one other point. Mrs. Ann Godbehere, the lady whom Mr. Sandler has appointed his chief executive, comes from Swiss Re, another insurance institution. I understand that her name is Dutch and means “God protect you”. I hope that that is true as far as the employees of Northern Rock are concerned, but it is the last thing that the Government and Ministers deserve, given the shambles that they have created and the shambles of the Bill that we are being asked to approve tonight.

23:37:00

Mr. William Cash (Stone) (Con)
My problem with the Bill is simple: it is a disgraceful, shambolic exercise that has been brought through all its stages in one afternoon and runs completely counter to a whole raft of principles by which we normally legislate in the House. I am thinking not only of the truncation of time, but of the principles that underpin any proper legislation.

In the first place, it is perfectly clear that the real reason for this so-called emergency legislation is, in part, to avoid the possibility of the Bill being declared hybrid. We will discover that in due course when the draft orders are examined. If any of them turn out to affect particular private interests in a way that designates classes and treats people within those classes differently, the Bill will be declared a hybrid instrument. We will then know that the Bill is nothing more or less than a con trick pushed through the House at short notice for the purpose of avoiding the difficulty that the Government would have in giving a fair hearing to the shareholders, who, under the hybrid procedure, would have the opportunity to have their case heard before a Committee of the House.

Connected with that first principle is the fact that, as part of the avoidance of the hybrid procedure, the one thing not mentioned in the Bill is Northern Rock, which has been mentioned only in the debates. The Bill itself does not mention Northern Rock at all, yet that is what we have spent the entire afternoon discussing. That is part of the con trick that is being perpetrated on the House by this deceitful legislation.

The second question relates to retrospective legislation. We do not legislate retrospectively in this House, but the Bill provides for retrospective legislation by order. In other words, it is another misuse of the conventions of this House to provide for retrospective legislation. If that were to be justified in any circumstances, it should be done only by primary legislation, not by order.

Thirdly, as regards the tax consequences—this will not be debated in the House of Lords, because it is subject to privilege—examination of clause 10 shows that it would be possible, although in fact I believe that it is intended, to rearrange the tax arrangements, some of which may affect Granite, in such a way as to avoid tax altogether. The clause provides that no tax whatsoever should be paid in respect of the matters contained in the Bill. We do not know how far that will go, because the words used in terms of the order-making power are so wide; they appear in phrases such as “in connection with” and “in relation to”. Connected with that is the fact that the tax consequences are specifically stated as including—[Hon. Members: “Ah!”] I am deeply honoured that the Chief Secretary has come back. I dare say that it is possible that she has discovered answers to some of the points that were raised about 15 minutes ago by a series of hon. Members. I hope that she may take this opportunity to try to reply in the terms that were just suggested.

Not only does the Bill contain very serious and dangerous provisions that could exclude the payment of tax in a whole range of permutations—[Hon. Members: “Ah!”] Here is another one—members of the Cabinet are streaming in. The Bill also includes provision for the disapplication of statutory provisions of any kind and of the rule of law. It may seem astonishing to you, Mr. Deputy Speaker, as it does to me, that any statute should specifically provide that, by order—not by primary legislation—any statute or rule of law can be disapplied in order to achieve the scurrilous activities that lie at the heart of these arrangements. That is an astonishing state of affairs. Under the draft order, a copy of which I have, there is provision for directors of Northern Rock to be exempted from all liabilities under company law. It says explicitly that no director of Northern Rock shall be liable for any proceedings that may be taken against them in relation to their conduct of the affairs of Northern Rock. That includes not only the chairman, who is paid £1.2 million, but other directors.

That is about as shocking and extraordinary a situation as one could possibly imagine. If the Government had gone down the route of selling off Northern Rock as a commercial concern to another commercial concern, would the same provisions have applied? Would the directors of Virgin, having acquired it, have been exempted in the conduct of its running from all liability of proceedings under the Companies Acts through a disapplication of law and statute? That is inconceivable, yet it is what is being done under these arrangements.

Furthermore, under clause 2, it appears that there is a severe probability that the courts would be excluded from challenge. In other words, it would not be possible for any challenge to the arrangements to be made by order in the administrative court, enabling a person such as a shareholder to take action in the courts to rectify problems that they face.

The final question is that of the carte blanche provisions in the Bill. In every conceivable respect this Bill, described as the Banking (Special Provisions) Bill, is a carte blanche one. Never, in my 23 years in the House, have I seen a Bill that was so incredibly invasive of the procedures, conventions and principles upon which legislation should be devised. I have given a number of examples that are all in this Bill; the Chief Whip, who is looking over here, knows perfectly well what I mean. The Bill is a total disgrace to the House. It gives by order—not even in primary legislation—a carte blanche to the Government to give indemnities, and to guarantee that those indemnities will be paid for by the Treasury.

This Bill is a total and unutterable disgrace, and the Government stand condemned for the manner in which they have brought it in, in terms of time, content and the total, flagrant breach of the conventions by which legislation in this House is passed.

23:47:00

Mr. Greg Hands (Hammersmith and Fulham) (Con)
I shall be very brief; I have only a few points to make.

First, I would like to reinforce what many of my colleagues have been saying about the strategic overview that this new institution should be given. It is absolutely vital, if we as taxpayers are taking on this £110 billion portfolio, that some kind of strategic overview should be given to the business on behalf of the taxpayer. The basic questions of whether the business should expand or be able to contract, whether it should continue to be a mortgage bank or something else, and whether securitisation should continue or not are vital ones that should be debated and decided here tonight. Taxpayers cannot really comfortably say that they know what they are getting into. We know virtually nothing about the assets of this bank that we are taking on. We know virtually nothing about its personnel or its procedures, especially those relating to risk management, which is a vital part of any financial institution these days.

The Chief Secretary mentioned the importance of protecting taxpayers’ interests, and we are talking about an enormous amount of money. The amount of money we are talking about is 12 times the Olympic budget, and three or four times the budget for the Ministry of Defence. The Chief Secretary said something extraordinary when she said that it would be a mistake to have a fire sale. I happen to agree with her about that, but she said that it would be a mistake because we are currently at the bottom of the market. That could be a huge gamble to take on the position of the housing market in this country. Effectively, we are going to take on a huge mortgage bank, and pretend that it is the bottom of the market and that things can only improve. I am not an expert on the housing market, but I very much doubt if we are at the bottom of the market, and she may well come to regret having made that call on the market’s direction, especially given the amount of risk to the taxpayer she is willing to take on board.

I mentioned risk management, which is absolutely vital. In the 10 years since I left the banking industry, risk management has become enormous. It has become the largest part of most banks’ activities. We know virtually nothing about the risk management of Northern Rock, the current procedures or the procedures that will be in place following nationalisation.

The Chief Secretary talked about a flawed business model in relation to Northern Rock. There is nothing terribly unusual about the Northern Rock business model. The problem has been its operation and the huge amount of risk and leverage that was taken on. However, the basic concept of borrowing money at indexed or variable rates and lending it in the form of a mortgage at a variable or fixed rate, possibly with securitisation, which has been with us for around 25 or 30 years, is a tried and tested business model.

Two things went wrong at Northern Rock. The first is known nowadays as event risk—that is how risk managers perceive it. There was no assessment of the likely event risk of the market simply seizing up for a time. The second was the mismanagement of the interest rate risk and the credit spreads involved. The Bill gives no idea of the way in which the risk management of the current institution is carried out and how it could change under new management—public sector management in the case that we are considering.

In my time in banking, I have witnessed some major financial scandals, including those concerning the bankruptcy of Orange county in California; the Ministry of Finance of the Kingdom of Belgium; Credit Lyonnais; the London borough of Hammersmith and Fulham with its swaps scandal; and the US army facilities management fund. They all have one thing in common: they are in the public sector. It is not only the private sector that has rogue traders, unauthorised transactions and breaking of credit limits and so on. Oversight and financial management of the new institution are therefore crucial.

The Bill has been drafted far too widely. Although it is not the stated intention, the measure allows almost the arbitrary nationalisation of banks or building societies. [Interruption.] I hear cheers from the Labour Back Benches at the prospect. That gives the game away. We must fundamentally oppose arbitrary nationalisation, and I hope that the Bill does not get a Third Reading.

23:51:00

Mr. Philip Dunne (Ludlow) (Con)
I am pleased that the Chief Secretary is back in her place to hear the final observations. I should like to repeat the point about the impact on Granite that she missed when she stepped out of the Chamber. Earlier, she said that Granite would be excluded from the Bill and thereby from the nationalisation. As the hon. Member for Twickenham (Dr. Cable) and other hon. Members remarked, that leaves a gaping hole in the nationalisation programme.

Yvette Cooper
indicated dissent.

Mr. Dunne
The Chief Secretary shakes her head, so I hope that she will take the opportunity to clarify the matter.

Northern Rock owns a seller’s share of the mortgages that are supplied to Granite to underlie the securitisation package to provide funding back to Northern Rock. If the security package is not continually replenished with fresh mortgages for Granite, Granite’s structure will implode. That is the contractual basis of the securitisation documentation. If default occurs, the seller’s share in Northern Rock will also have to be sold at a fire sale price to fulfil obligations. If there is insufficient confidence that new mortgages will be put into Granite through the mechanism under national ownership, which requires continuing business flows, the Government and the taxpayer are at significant risk of sustaining a much larger loss than the Government have let the House believe. It is important that the Chief Secretary tackles that point.

Mr. Beith
Would the hon. Gentleman be prepared to take an intervention from the Chief Secretary or to allow a couple of minutes at the end of the debate for her to respond? Many of us are genuinely anxious to hear her comments about that point.

Mr. Dunne
The Chief Secretary is more than welcome to correct the impression if it is wrong.

Yvette Cooper
We have made the position on Granite clear. We said throughout Second Reading that it is a separate legal entity, which will not be covered by the order, and was equally not covered by Government guarantees. We made that clear from the beginning. The assessment of what was in the interests of the public sector and the taxpayer took all that into account. The private sector proposals and temporary public sector ownership were fully assessed. On that basis, we are clear that it is right to take Northern Rock into temporary public sector ownership to protect the financial stability of the system and the taxpayer’s interests.

Mr. Dunne
That is about as clear as mud. Granite has the contractual ability to suck assets out of Northern Rock, which will be in national ownership.

Mr. Stephen Dorrell (Charnwood) (Con)
The only assets worth having.

Mr. Dunne
Indeed. The quality of the assets in Granite is higher than the quality of the assets remaining in Northern Rock, and it will have the ability to take what other good assets remain in Northern Rock.

As the Chief Secretary is here, I would like to ask her another question—again, she may not be prepared to answer it: why is there such urgency over the suspension of shares? One of the main planks in her argument for the haste with which we are having to consider this nationalisation Bill—we are doing so in one day: today—is that it is vital for shareholders to have some clarity about their future. The shareholders know that Northern Rock is going to be nationalised; the shares are suspended. It is perfectly normal corporate practice when shares are suspended these days for resumption to take weeks, and in some cases months. It is not a legitimate argument to pin the speed of nationalisation on the issue of suspension.

Finally, I would like to point out another commercial practice, in relation to administration. This point was missed by the hon. Member for Wolverhampton, South-West (Rob Marris), which is surprising given his legal background and his understanding of corporate law. The administration arrangements were set up to mirror in the UK legal context what happens in the US under chapter 11, under which businesses can be taken into administration to protect them from their creditors, not to wind them up or declare them insolvent. The purpose of an administration is to provide a protective umbrella, under which the administrator takes steps to restore the company to health. That is precisely what my hon. Friends on the Front Bench have proposed, but Government Members have consistently obfuscated the issue or misunderstood it.

23:56:00

Mr. Kenneth Clarke (Rushcliffe) (Con)
Time will not permit me to repeat the points that I made earlier, but they remain valid.

The more this debate has gone on, the more it has seemed extraordinary that this legislation has been passed so quickly—at least in this stage, through the House of Commons—only two days after the Prime Minister finally made his mind up on Sunday that, after all, he could be persuaded to nationalise the business. I strongly believe that for most of the past six months he has been the person resisting nationalisation in any circumstances, for a variety of political motives. We shall never know which Treasury Ministers were allowed even to be involved in the tortuous process of decision making, but at last common sense has prevailed and the Government have taken control of events in that way.

We have discussed the best use that the Government could make of taking the bank into public ownership. I repeat, briefly, what I said before. The financial stability of the banking system was the main objective of intervention from the word go. The financial stability of the banking system now depends in part on having some understanding of what the Government’s strategic policy is and what strategic direction they have given the bank’s new management. The question throughout this debate has been: do they intend the bank to be grown, in order to maximise the proceeds when it is sold, or do they intend to wind it down and have an orderly sale of the assets?

The frank truth is that we have had no answer. Depending on whether north-east Labour MPs or people looking at the issue from the point of the view of the City are being addressed, slightly different answers come forward, but the matter will apparently be determined by the Commissioner for Competition in Brussels. I assume that that means that the negotiations will be conducted on the basis that the bank will be expanded as rapidly as possible, up to the limits that Miss Kroes will permit and which are still compatible with state aid rules.

The most extraordinary thing that has emerged—it did so clearly only really on Third Reading, although it was referred to yesterday—is that the Prime Minister is perhaps now as bemused as we all are about precisely what assets we are nationalising. It has become clear that we are not acquiring the assets in Granite. I think that my hon. Friend the Member for Ludlow (Mr. Dunne) is the only Member in the Chamber with a comprehensive knowledge of the arrangements, but the Minister could neither add nor subtract anything from what he said.

The best assets are in Granite—it looks as though there is a contract enabling more assets to be drawn in—and it is the rubbish in the assets that we are now nationalising. Where is all the constant assurance that we have had on the authority of the Financial Services Authority that this is a quality loan book? We have been reassured that it is an asset that is to be taken into public ownership and well managed, under the Government’s wise direction, by the new managers that they have put in place. I would advise the Minister—

It being Midnight, Mr. Deputy Speaker put forthwith the Question already proposed from the Chair, pursuant to order [this day].

Division 085
19/02/2008 00:00:00
The House divided:
Ayes: 293
Noes: 167
Bill read the Third time, and passed.

 Local Government

[Relevant document: The Eighth Report from the Joint Committee on Statutory Instruments of Session 2007-08, HC 38-viii.]

00:12:00

The Minister for Local Government (John Healey)
I beg to move,

That the draft Shropshire (Structural Change) Order 2008, which was laid before this House on 8th January, be approved.

Tonight, or rather this morning, we are to consider the draft order for the establishment of the new unitary Shropshire council. It is not prime time, but the business is important and it is right for it to be debated on the Floor of the House.

The order implements a proposal submitted to the Government by Shropshire county council, with the support of Oswestry borough council. It is a proposal presented to us by a democratically elected, locally accountable council, and drawn up for us by that council. It is a proposal that the council has presented after seeking local views, and it is the proposal that the council believes will produce the best governance in Shropshire in the coming years.

Having studied the proposal carefully and assessed it in the light of criteria that we published at the outset of this process in October 2006, we believe that its implementation would indeed establish a form of governance that would serve the people, businesses and communities of Shropshire well in the future. In reaching that view, we rigorously applied the five criteria that we had set out in our invitation to bid back in 2006. We had already set out the general case for unitaries in the White Paper that preceded it.

Our invitation and the White Paper reflected our belief that introducing unitary local government is a way of removing many of the weaknesses to be found in areas with a combination of county councils, district councils and parish councils. As we said in the White Paper, such structures often add to public confusion, and create a fragmented and sometimes complicated local leadership. They may also lead to duplication, inefficiency, difficulties with co-ordination and failures in service delivery.

Daniel Kawczynski (Shrewsbury and Atcham) (Con)
The Minister says that the Government rigorously followed the five criteria. One of those criteria was the support of the local people. He will know that in Shrewsbury we had a referendum of my constituents, and on what is a very technical matter more than 18,000 of them bothered to turn up and vote against a unitary authority. That represents almost 70 per cent. of those who voted. How can the Minister say he has followed the criterion of listening to the public when my constituents have voted overwhelmingly against these measures?

John Healey
Because the criterion on support is not about public support; it is about the broad cross-section of support. Let me quote from the invitation of October 2006 that I referred to. It states that the Government recognise

“that any proposal may not carry consensus from or within all sectors”

and that while no

“single council or body, or group of councils or bodies will have a veto”

it

“will be necessary for any proposal to have support from a range of key partners, stakeholders, and service users/citizens.”

The purpose of that is not to be able to demonstrate a majority of any particular group, including local citizens, who are in favour of a unitary council; rather, it is to allow us to make an assessment of whether support is strong and broad enough that if we decided to go ahead with implementing a proposal for a unitary council it would have a good chance of success. That was the basis on which we set out to make that judgment, and that is the basis on which we made it.

The hon. Gentleman talks about the survey that was done in his area. I recognise that his council, and two others, conducted such surveys, but I am sure that he would also recognise that the clarity of the questions and the balance and clarity of the supporting information that was provided to citizens as part of the surveys are relevant factors in assessing what weight to give to them. I could—although I do not particularly want to—quote from that supporting information, but let me simply say that an assessment of those exercises was done by Thrasher and Rallings, recognised independent academic experts in this sort of work, and we accepted their conclusion that there were reasons for treating the results of those surveys with some caution given the way in which they were framed and the context in which they were conducted.

Daniel Kawczynski
Regrettably, I feel that that is a patronising thing for the Minister to have said, because the referendum in Shrewsbury was carried out by the Electoral Commission and was conducted under the most professional auspices imaginable, with very clear questions. Therefore, I totally dissociate myself from what the Minister said.

The Minister says that he weighed the support. My understanding is that a total of only 45 letters of support were submitted by the county council from the thousands of people who live in Shropshire. Some of those people supply the county council with goods, so they have a vested interest and some of the people—

Mr. Deputy Speaker (Sir Alan Haselhurst)
Order. The hon. Gentleman might seek to catch my eye later in the debate, and I would not want him to use up all his ammunition.

John Healey
Thank you, Mr. Deputy Speaker. The hon. Gentleman has plenty of ammunition and I am sure that he will use it a little later. I am looking forward to hearing what he has to say, and I will be happy to respond to it as required, with the leave of the House.

Mr. Philip Dunne (Ludlow) (Con)
Unfortunately, the Minister does not have the benefit of having taken the legislation through Committee. I was privileged to serve on the Committee, and I asked the Minister for the Environment, as he is now, about consultation. It was made clear to us that the consultation would take into account the views of the public, because it was acknowledged that they constituted a stakeholder in the context of the invitation to bid. That concession was eventually squeezed out in Committee.

The Minister for Local Government rightly said that local ballots took place in three districts in Shropshire—two of them in my constituency—but they should have been given due weight. Although he says that some of the questions were not suitably balanced, I must tell him—

Mr. Deputy Speaker
Order. There must be a distinction in this House in debate between an intervention and a speech. Interventions should be very brief, because otherwise we lose the whole sense of the debate.

John Healey
Those ballots were given due weight, as the hon. Gentleman suggests they should have been. They were not given overwhelming weight. They were given weight in the context of making the judgment about whether there was a broad range of support sufficient to give us confidence that if we were to press ahead with implementing these reforms they would be likely to succeed.

Robert Neill (Bromley and Chislehurst) (Con)
The Minister makes a fundamental point about due weight, which we have rehearsed before. What is his definition of due weight? What criteria are applied in giving weight to anything? What is the basis of the balance to be decided between taking into account an element of local issues or otherwise? The fear is that this might have been a wholly subjective judgment.

John Healey
I do not accept that it was wholly subjective, although I accept that it was a judgment. As I have tried to explain to the House, the judgment was about whether there was sufficient support from a broad enough range of relevant parties, including local views, although not exclusively concentrating on them, to give us confidence that if we were to proceed with the change in this proposal it would have a good chance of success.

Dr. Andrew Murrison (Westbury) (Con)
Is it the Minister’s judgment that there was more or less support for this measure than there was for the Wiltshire measure that we discussed a few days ago?

John Healey
It is a bit difficult to make direct comparisons. I am not entirely certain that doing so is relevant to the assessment that we set out to make about the proposal that we received from Shropshire. We wanted to know first whether it was a proposal that could bring a good and successful form of future governance to the people and the county. Secondly, we wanted to know whether the conditions and the sufficient degree of support were in place to give it a fair wind and a good chance of success if we were to press ahead with it. I could start listing in much detail the relevant bodies that offered support, although I do not propose to do so. Suffice it to say that the views were mixed, particularly among members of the public who contributed to the consultation. Some people expressed support but others expressed concern, and that would probably surprise nobody.

In addition to the questions of whether there was a broad range of public support and whether the proposal was affordable within the quite strict limits and criteria we set down, the three other important criteria for us were about whether this proposal would produce a council and a form of governance that was fit for the future and better for the people in Shropshire. We wanted to know whether it would give the strategic leadership required, whether it would create genuine opportunities for empowerment, influence and flexibility at neighbourhood level, and whether it would deliver good value for money and good efficiency in the future delivery of public services.

Mark Pritchard (The Wrekin) (Con)
Many people in Shropshire are concerned that they, as taxpayers, and the county will be penalised for any efficiency savings that arise from the reconfiguration. Can the Minister assure the House, my constituents and other residents of Shropshire that any efficiency savings will not be top-sliced off any subsequent revenue support grant in 2009, if the order is passed tonight?

John Healey
Yes, if that is the hon. Gentleman’s concern I can say that over the next three years—a period for which we have made decisions about the distribution of the core grant from central Government to local authorities—efficiency savings, which we expect from all councils, will be entirely available to those councils that make them. Nothing will be clawed back to the centre and there will be no penalty incurred in any reduction of the core revenue support grant for councils that make efficiency savings. Those savings will be available for councils to use to improve services or to keep council tax pressures down.

Mark Pritchard
I would not want the Minister to misunderstand my point, although perhaps I did not communicate it as well as I could have done. I am not referring to efficiency savings in council services from within existing council budgets. I am referring to efficiency savings that arise from the reconfiguration into unitary status. Will there be any penalty applied to the revenue support grant as a result of unitary status?

John Healey
Let me be clear: no, there will be no such penalty. I shall go further. Part of the decision is a judgment about the affordability of the proposal. As in all such circumstances, various configurations of the figures are offered. We have recruited independent experts through the Chartered Institute of Public Finance and Accountancy, who have given me an independent assessment and advice on the financial case and how strong it is. They have looked at all the figures submitted by all the interested parties. Those experts judge that the affordability criteria are low risk. They confirm that, based on the figures submitted by the county, the expectation is that once the changes are made, the reforms will result in annual efficiency savings of some £9 million a year. It may be of interest to the hon. Gentleman’s constituents to know that that equates to a saving of some £93 per household in every band D council tax property. I hope that that is helpful.

Robert Neill
Can the Minister confirm two points? First, can he confirm that the figures that he mentioned, in relation to CIPFA and the other controls that have been put in place, are those that are already in the public domain? If not, will he ensure that they are? Secondly, if it is suggested that significant savings are to be made, on what criteria will they be assessed? We have some concern already about the criteria in relation to councils’ current expenditure and benchmark allocations. Can the Minister ensure that nothing is double counted? The concern is that many of the implementation savings are double counted already.

John Healey
That was the purpose of getting the independent financial experts to go over the figures to ensure that the assumptions that were being made were proven, that there was no question of double counting and that there were no areas where likely incurred costs had been overlooked. Based on that, I have the confidence to say that the proposal, if it goes ahead, will meet our affordability criterion, as it will meet the other four criteria. Let me make a final point on affordability. Not only are the annual savings likely more than to offset the transitional costs, but the payback period is well within the five years that we set at the outset.

I have dealt with the question of support, so let me turn now to the order. We prepared it following detailed discussions and consultation with all the councils that will be affected in the area. The main provisions are as follows: from 1 April 2009, there will be a single tier of local government in Shropshire; from that point, the district councils will be dissolved; and the county council will then be transformed into a new unitary council that will adopt the current district and county functions.

Let me make it clear to the House that this is not in any way a county council takeover. It is not just the county council carrying on in operation, whatever some might like to argue. We are creating a new start for an authority for which we will set wholly different expectations. It is possible that there will be new members of that authority—there will certainly be a refreshed senior management team.

Mr. Dunne
I am listening carefully to the Minister, and I hear his assurance about it not being a county council takeover and his reference to a refreshed senior management team. Will he kindly confirm to the House in which grades of senior management the roles will be subject to open competition and where there will not be automatic reappointment of a county council officer?

John Healey
I expect to be able to confirm that formally shortly, but my intention would be to see the appointment to every chief executive post subject to open competition. I would expect to be able to make that a requirement. It is right that we should set the expectation that other of the most senior officer posts will be open to re-recruitment and competition. In some councils, however, there may be good reasons why they may want to keep particular postholders in post. I also intend to set out arrangements for that shortly.

Mark Pritchard
Will the Minister give way?

Robert Neill
rose—

John Healey
I shall give way to the hon. Member for Bromley and Chislehurst (Robert Neill).

Robert Neill
Will the Minister be a little more specific about the terms and manner in which that requirement will be set out? Will it be in regulations, a guidance note or whatever else? We have a slight concern that, particularly in a place such as Shropshire, we will have a number of very small district councils in competition with one county council that is rather large by comparison. Many people would say that that is a pretty uneven contest. How will we ensure that the officers from the district councils have a fair crack of the whip? There must be an enormous suspicion that it will not work out that way.

John Healey
I quite understand that concern. The arrangements that we put in place need to deal with those concerns and to cater for the counter argument—in some places, and in some posts, blanket open competition might create difficulties. That is precisely the balance of factors that I am weighing up at the moment. I quite understand the interest in ensuring that the final decision is set out soon and in a clear manner. That is imperative, because councils will want to try to hold on to the best of their officers to get through the period of transition and implementation.

Mark Pritchard
I am grateful to the Minister for giving way again. He is being very generous indeed, but the problem goes beyond senior managers: it is also about the dedicated and hard-working staff at all levels in all the councils whose jobs will disappear as a result of the proposals. This is a Government initiative, so will the Minister assure the House that there will be no compulsory redundancies among Shropshire’s hard- working council staff?

John Healey
I recognise that employees in the affected authorities face a period of unsettled uncertainty, but the hon. Gentleman will surely accept that the detailed arrangements are for the local councils—the employers—to consider. The Government’s job is to put in place a framework that ensures that staff are treated fairly. We have made it clear that all staff employed immediately before 1 April 2009 by the authorities that are to be abolished will become employees of the new unitary authority, and that they will be protected according to the principles set out in the Transfer of Undertakings (Protection of Employment) Regulations 2006, as if those regulations applied.

I gave that commitment when I made the announcements on 5 December last year. It means that all staff transferred to a new unitary authority will remain under their current terms and conditions. It will then be for the new unitary councils to decide their new staffing structure, in accordance with TUPE and with the provisions of our employment legislation. That is the proper role for central Government to play: by putting in place that framework, we are giving people a degree of certainty and assurance that they will be treated fairly, but decisions about staffing arrangements will quite properly be left to the new unitary authorities that will be their employers. Those authorities will also set the terms on which they wish to employ—or cease to employ—people after 1 April 2009.

Mark Pritchard
Again, I am grateful to the Minister for giving way. I know that he wants to be seen to be generous, but he has just set out the Government’s legal responsibility. Therefore, I return to my central point: if any council workers in Shropshire suffer compulsory redundancies, the fault will lie entirely at the door of No. 10 and this Government. The Minister should not try to shift the blame onto the local authorities that will have to work out the details.

John Healey
I admire the hon. Gentleman’s determination to press his debating point again, but I am not setting out to be generous. My aim is to be fair, and to ensure that the framework that we expect and require the councils to adopt is in place so that employees are treated properly. That is what we shall do.

The order under consideration will also establish the implementation executive, which we discussed in detail with all the affected councils. That executive will be led by the county council and its membership will be drawn from the county council and all the district councils. The prescription that the Government have arrived at is based on the consensus that was reached, and we have reflected that consensus in the detail of the order before the House.

Daniel Kawczynski
The Minister says that there is a consensus. For the record, can he state that no communication was sent by his Department to Labour councillors on the county council or borough council directing them to vote for a unitary authority?

John Healey
I do not see every communication that goes out of the Department, so I cannot give him that absolute assurance without checking, but I would find it highly remarkable if my Department sent out specific communications to Labour members of councils urging them to take a particular course of action or a position. If my assumption is wrong, I will certainly tell the hon. Gentleman, but that is my initial strong response to the hon. Gentleman’s suggestion, which seems to me rather left-field and ridiculous.

The first election to Shropshire council will be in May 2009, and that will be in keeping with the normal electoral cycle. Once again, the relevant provision within the order reflects a broad consensus between the county and the districts that elections should be in May 2009 rather than in 2008. By that time, of course, we expect and understand that the Electoral Commission will have been able to undertake an electoral review and to put in place new electoral arrangements that reflect the new unitary authority and better reflect the new communities and neighbourhoods that it covers.

Robert Neill
Can the Minister help us with the time scale in which he thinks that those announcements might be made? We all know the importance of getting sensible candidates in place, and making sure that publicity is available across the piece, particularly in rural areas, where it is perhaps more difficult to make sure that people who represent the whole community are readily available to stand for election.

John Healey
The hon. Gentleman is right to make that particular point about an area such as Shropshire. The time scale will be a matter for the Electoral Commission, but I know that it has in mind the clear aim to complete the work in good time to enable candidates to be selected for any new ward boundaries, as appropriate. I know that it wishes to make sure that it has completed that work by around February next year.

The order also provides for the cancellation of district council elections that would otherwise have taken place in May 2008—that is to say in any district that elects in thirds. In Shropshire, that applies only to Shrewsbury and Atcham, where one third of the members would normally become due for re-election in May this year. As the House will know, the Joint Committee on Statutory Instruments has concluded that if the order was approved and made, there might be a doubt about whether its provisions cancelling the district council elections in 2008 would be intra vires. In our view, there is a powerful policy case for cancelling the district council elections. There are also powers under the Local Government and Public Involvement in Health Act 2007 that will allow us to do that. I have set that argument out in detail and explained it in our memorandum to the JCSI.

Our approach, as captured and set out in the order, provides for an effective transition that does its best to avoid disruption to services during that period, gives a good deal to the citizens and users of those services, is fair to council staff and puts in place the arrangements to create a council that will give the people, the communities and the businesses of Shropshire the local governance that they require for the future. I commend the order to the House.

00:44:00

Robert Neill (Bromley and Chislehurst) (Con)
I genuinely thank the Minister for the care and courtesy that he always shows the House when he presents statements. We are on the fourth or fifth of these orders, which form part of what is to be a rolling programme, but the repetition of the arguments does not entirely make up for the lack of substance on some issues. Shropshire raises particular problems: there is the nature of the county, its geographic diversity, and the fact that to me—a mere outsider from London—it seems that it has no natural centres. There is also a lack of one of the things that the Minister regarded as a prime mover—a groundswell of opinion behind the proposal. There is a lack of support, and that is fundamental.

I would not have an issue with a genuinely localist proposal, but I do not see any evidence to suggest that change in Shropshire is localist or driven by the people. The issue may be of considerable import to the county council, for which we have great respect, and which delivers well, but that is not to say that the proposal represents the views of all the people in the county.

There is an issue that the Minister may have to consider for the future. I shall not go into it in detail now, but if we go down the route of putting in place unitary authorities in large rural areas, what do we place beneath them? How do we make sure that there is proper representation locally, as well as at county level? That is largely unaddressed in the process that the Government are undertaking, because the change is being made piecemeal. They are picking off areas that may be advantageous—dare I say it, almost for political reasons. Mischievous is the word, I think. I took a night off and went to see “A Midsummer Night’s Dream” at the Royal Opera House the other night. The Minister occasionally behaves a bit like Puck, although he might not think of himself in those terms. He likes to sprinkle a little bit of mischievous dust on the local government spectrum and see what happens. What happens is not always what is intended, as we all know from the programme, the opera and the play.

Our local government structures frequently represent entrenched concerns and identities—that is particularly true in the counties, outside London, which is my part of the world—and that is precisely why we should be particularly careful about interfering with them. The Minister will have heard me say before that a very high standard of proof must always be required, and that the burden of proof must always fall on those who propose change. I do not think that the standard or the burden are met in this case. That is the issue for the Opposition. We do not want to be obstructive about good government—we are in favour of it—but the case for the proposal has not been made.

The Minister talks of the opinion-forming views that were taken, but he knows full well that the majority of the districts in Shropshire do not support the proposal. At least three or four of them have conducted well-researched polls, carefully constructed and controlled by the Electoral Reform Society. In our internal elections, that is good enough for his party, as it is for mine. The polls show that overwhelming majorities are against the proposal. We are not talking about a marginal majority, but about compelling evidence that points the other way; that is the point. As the Minister is a reasonable man, I might allow him a bit of subjective judgment where the situation is 50:50, but the evidence is overwhelmingly against making the change. I urge him to think about whether the measure will really help in Shropshire.

On the transitional costs and the long-term savings, neither of us have gone into the issue in great detail, but the Minister knows that academic experts have raised questions about how robust the county council’s costing methodology is. It may be right, or it may be wrong, but it has not been tested. No objective, independent values have been applied at all. I will give way to the Minister if he wants to intervene on me on that point. A series of subjective judgments have been made, one after the other. That is the picture for all the issues.

John Healey
Is the hon. Gentleman talking specifically about the work of Professor Chisholm?

Robert Neill
Professor Chisholm is one of the people who has done a great deal of work across the piece. No doubt the Minister will deal with that in his closing speech. Viewed in the context of all the other evidence, it is clear that the Department is making assertions with nothing to back them up, and that Professor Chisholm is more objective than people might think and is backed up by local evidence produced by local people. That is the key aspect. I would have more sympathy with the Minister on all the reorganisations if I thought that the Department was using some objective measure as a benchmark, but we have already discovered that there is no objective measure.

Dr. Murrison
Does my hon. Friend share my disgust at Government sham consultations? We are hearing about one this evening, we heard about the Wiltshire one a few days ago, and we hear it constantly about Government consultation on the national health service. It hardly encourages public engagement with policy. People are rightly becoming cynical about the whole thing.

Robert Neill
I have huge sympathy with my hon. Friend. He knows what happened in the past. In my constituency we have had what I consider to be sham consultations over post offices and hospitals. That is the part that the Minister does not seem to get. Ministers do not understand that local people want to have their views listened to. They do not want to be dictated to. The Government claim that their proposals are bottom-up, but they are not. They are produced from a skewed set of criteria and nobody has much faith in that.

Mr. Dunne
It will not have escaped my hon. Friend’s notice that the Act that allows the orders to be put in place is, by supreme irony, the Local Government and Public Involvement in Health Act 2007. Part of the Act tries to encourage the public to participate by becoming members of foundation trusts and so on, to engage the public with the public sector. In respect of the part of the Act dealing with local government, the Government blithely ignore the consultations that they have undertaken.

Robert Neill
My hon. Friend makes the point well. I know how much he has fought for his constituency in Ludlow, just as my hon. Friend the Member for Shrewsbury and Atcham (Daniel Kawczynski) has taken a great interest and fought valiantly for local interests.

If we are to have successful local government—I am not dogmatic about the form it should take—it must go with local consent. That has been missing. My two hon. Friends who represent Shropshire seats have fought for local consent. My hon. Friend the Member for Westbury (Dr. Murrison) has done the same in relation to Wiltshire.

A note of irritation creeps into my voice on behalf of my hon. Friends when a Government Department goes down a route blindly because that is set out in some sort of mantra. The Minister, who is a decent man, knows better than that. I ask him to reflect on whether we are pushing some centralised diktat that he may have inherited from some of his predecessors just a touch too far.

Daniel Kawczynski
Does my hon. Friend agree that the will of the people—the will of my constituents—is far more important than a few letters of support that the Minister may have received from organisations? I think there were a total of 47. With all respect, I do not think the Minister knows what those organisations are or their size or influence in my community. He should have paid far more attention to my constituents’ views than to the 47 letters.

Robert Neill
I am grateful, as ever, to my hon. Friend, who has made a valiant point. That is as good a note to end on as anything else, as other Members want to speak.

Of all the measures so far, this seems to have the least groundswell of support and opinion behind it. I hope that the Minister will listen to my hon. Friend, who represents his county and will speak shortly, and see that it is not necessary to go down this rather dirigiste route, which ill becomes him and his Department. He should think again.

00:55:00

Julia Goldsworthy (Falmouth and Camborne) (LD)
This is the fourth debate that we have had on this issue, and a common theme has emerged. The Conservatives’ opposition is described as being one of principle, but it seems to me that a lot of the difficulties that we describe on all these occasions turn out to be practical ones. The Conservatives speak of principles in this place, but they seem reluctant to point out that their councillors do not often all agree with those principles. 

There are a lot of fair points to be made about this matter being entirely a game for which the Government are setting the rules. However, it is a mistake to suggest that it is being forced on local government; clearly, there is support from the county council for the bid. It had to respond to the invitation and is leading on the issue. District councils may well be opposed, but it is not fair to say that the issue is being entirely forced at a local level.

Daniel Kawczynski
The hon. Lady says that the Government have not tried to force the measure on the people of Shropshire; she even implies that they have not tried to push the issue either way. I have to tell her that when the current Foreign Secretary was responsible for such issues as a Minister at the Department for Communities and Local Government, he came to Shropshire. He spent the day in Shrewsbury and tried very strongly to convince the county council to go ahead with the proposals. I have been the MP for Shrewsbury and Atcham for three years and can say that we hardly ever see Labour Ministers in Shropshire. I do not think that I have ever seen any, apart from the current Foreign Secretary. He was determined from the start to force the issue through; otherwise, why did he come to Shrewsbury?

Julia Goldsworthy
Even if the right hon. Gentleman had forced Labour councillors to support the measure, it would not have gone through without the support of other parties at county council level. That is my understanding.

As a principle, the Liberal Democrats have no objections to any authorities that want to explore whether it is possible to create a more efficient and transparent, less complicated, effective local government structure. I speak as one who represents a rural area with a strong identity and a dispersed population. For many people, the reality of local government is that it is very confusing, and confusions often arise from efforts to make processes more efficient.

I always refer to one example, in which pots of money travel from the county councils to the district councils and the parish councils in an effort to ensure that services are more responsive. However, when there is a problem, that often makes it more difficult to find out who is in charge of delivery. In principle, there is nothing wrong in councils presenting ways in which the issue could be simplified. It should be up to local councils to decide what shape the changes should take. Furthermore, local communities should have a strong say in how services should be shaped; ultimately, if they do not have a say, they will be just as unlikely to understand the new structure as they are the existing ones.

Mr. Dunne
I agree that local communities should have a say; that was precisely what was offered to the local community in my constituency, which has two districts. A ballot was undertaken for South Shropshire district council, and a majority—56 per cent.—of people were opposed to going unitary. The then leader of the district council, a Liberal Democrat, decided that that had been an example of the community voting with its heart and not its head, and tried to deny the validity of the ballot. Does the hon. Lady agree with that assessment?

Julia Goldsworthy
My understanding of what I have read about the polls undertaken in some of these council areas is that they were not referendums. The series of orders that we are discussing reveal a variety of degrees of warming to the principle of whether this could offer improvements at a local level, but we are seeing common themes in terms of practicalities. The Government should be doing certain things to try to improve the process.

Mark Pritchard
I do not wish to be too unkind so late at night, or early in the morning, but this also exposes the variety of Liberal Democrat policies. It is rather surprising that the hon. Lady is supporting the position of a Minister, yet in other parts of the country the Liberal Democrats are talking about localism and devolved powers.

Julia Goldsworthy
Perhaps because it is so late at night the hon. Gentleman was not listening to what I said earlier—that we do not have a dogmatic approach. Looking back to the debate on Northumberland, it is clear that the community held different views about what would serve them best. Instead of standing at a Dispatch Box and saying that one approach should govern everything and that we should oppose every single proposal to reorganise local government, we should listen to what people in the community are saying. If there is a problem with the way in which the Government have responded to worrying evidence from the polls, it is that they should have challenged that head on and undertaken a proper referendum of the whole area that was consistent and balanced and would have allowed people in the community to express that decision, as happened in other areas.

Robert Neill
On the basis that we have not yet been given a referendum by the Government, does the hon. Lady think that the evidence presented by the district council and everybody else in Shropshire shows pretty clearly that the local communities do not want this? What else would she like to happen?

Julia Goldsworthy
I can only refer back to what I have seen of the way in which the polls were conducted, which indicates that they were not consistent and therefore, in themselves, not valid. They may well be a cause for further exploration, but if there are questions about their validity and consistency—

Mr. Paul Keetch (Hereford) (LD)
I have been listening to the debate on television. In Herefordshire, where Conservatives supported a unitary authority without there being any referendum or ballot, and where we have a Conservative-controlled council that is spending £75,000 on bottled mineral water—

Madam Deputy Speaker (Sylvia Heal)
Order. I hope that the hon. Gentleman is not going wide of the debate.

Julia Goldsworthy
I think that my hon. Friend has made his point.

I am not saying that we should ignore the evidence of those polls but that it at least makes clear the need for much more rigorous and comprehensive testing.

Mr. John Hayes (South Holland and The Deepings) (Con)
I understand the hon. Lady’s point about dogmatic rigidity, but it is important that we deliver a degree of consistency when we are making public policy decisions of this kind. Consistent themes run through all these examples, the most fundamental of which is that local people’s views should be of paramount importance in respect of the shape of local government, and that is about not only its utility but its capacity to deliver a sense of allegiance, for it can have no political legitimacy if it cannot provide that.

Julia Goldsworthy
I agree with the hon. Gentleman. As I have said repeatedly, it is essential that there is community support and that it is demonstrated. If the county council wishes to pursue that, it has to confront these challenges head on, not try to argue its way out of them. That is not happening at the moment. As the hon. Member for Bromley and Chislehurst (Robert Neill) and the Minister will know, this has been a common theme in the orders we have debated during the past few weeks.

Another commonly expressed fear is that the changes are in danger of being perceived as a county takeover. Again, we return to the fact that perception is important; it influences people’s allegiance to any change. It was important that the Minister emphasised clearly that there will not be a county council takeover. The problem is, however, that the order does not abolish the county council, but it does abolish the district and borough councils. The orders do not provide clarity. The Minister can explain the need not to abolish all of the authorities and create a new one, but the view of the matter from the ground will not be positive.

Richard Younger-Ross (Teignbridge) (LD)
rose—

Daniel Kawczynski
Oh no!

Julia Goldsworthy
I shall give way very briefly to my hon. Friend. I am aware that other Members are waiting to speak.

Richard Younger-Ross
I am grateful to my hon. Friend for giving way. I note the comments from the Conservative Benches suggesting that she should not have given way, despite the fact that she gave way so generously to them.

Does my hon. Friend not think it rather ripe that the Conservatives keep intervening on her to suggest that democracy will not be served by this change, when it was the Conservative party of the 1980s that did the most to remove democracy from the UK?

Julia Goldsworthy
My hon. Friend makes a valid point, but I do not want to detain the House any longer because I want to ensure that all hon. Members get the opportunity to speak.

The hon. Member for Bromley and Chislehurst raised the issue of whether it was credible that the proposed unitary authority would be able to deliver the criteria against which the Government assessed their plan. It is important to ask how credible the plan is, but the key question for the Minister is what the Government are doing to assess the new authority’s delivery with regard to that plan. Of the five criteria, the key one that strikes me is neighbourhood empowerment. If we are to engage local communities, convince people that the change is not a county takeover and ensure that it has public support, what happens at neighbourhood level is important. The need for communities at neighbourhood level to understand what is going on is very important. What action will the Minister take if he is concerned that the new authority does not seem to be delivering against the plan it has been given? What steps will he take to respond to and deal with those concerns?

On the implementation executive, despite the serious reservations that have been raised, all parties are working to make the best of what they may consider, to varying degrees, to be a bad job. The Minister owes it to them to be prepared to be as flexible as they are in ensuring that the end result is the best one for the people in Shropshire.

01:07:00

Daniel Kawczynski (Shrewsbury and Atcham) (Con)
When the Minister opened this debate, he stated that there was no pressure from the Government on Shropshire either way and that they would listen to the people. I must state that the Foreign Secretary, when he was the Minister of Communities and Local Government, came to Shrewsbury and cleverly tried to court Shropshire county council to encourage it to try to put in a bid, which I alluded to earlier. This Government had their fingers burnt in the regional referendum in the north-east, so they came up with a very good ruse, which is to pitch one council against another, and to get one council to put in a submission. They can then say, “Oh well, it is you that have bid for this,” when that is simply not the case.

I asked the Prime Minister his very first question in the House of Commons, and it was about this issue. You always remember the first time that you do something, Madam Deputy Speaker, whether it is your first kiss, or the first time you get elected to Parliament. I very much hope that the Prime Minister will remember the first ever question that he took at Prime Minister’s Question Time. I asked him whether he would meet me to discuss my concerns about the conduct of the Government in this matter. He assured me in this House, at his first Prime Minister’s questions, that he would do that, and that the Secretary of State for Communities and Local Government would also take the opportunity to do so. Despite numerous written requests, I have not been allowed to have that meeting with the Prime Minister or the Secretary of State. That is different from the former Prime Minister. When I asked to see Mr. Blair, the meeting was arranged straight away and there was some accountability. To where have we descended when the Prime Minister promises to discuss a Member’s concerns about such an important issue, which will fundamentally affect my county, then reneges on the promise, and the Secretary of State repeatedly refuses, despite my written requests, to see me to talk about the matter? That is disgraceful.

Richard Younger-Ross
The hon. Gentleman may be disappointed that he has not had his first kiss with the Prime Minister. Will the hon. Gentleman say—whether he wanted the first kiss or not—whether—

Madam Deputy Speaker
Order.

Daniel Kawczynski
As the hon. Gentleman knows, I was not discussing kissing the Prime Minister; I certainly would not want to do that. The hon. Gentleman’s comment was rather flippant, but I was making a serious point.

Eighteen thousand of my constituents came to the ballot box in the referendum to vote against a unitary authority. It is sometimes difficult to get members of the public interested in and participating in what can be rather technical matters. Yet 18,000 men and women in my constituency turned up and voted. They did not want a unitary authority in Shropshire. Nearly 70 per cent. of those who voted voted against.

The Minister has received letters of support and he says that the Government have taken people’s views on board. As I tried to say earlier, some of the organisations that wrote the 47 letters of support are companies that supply the county council with services and goods and therefore have a vested interest. It is fascinating to read some of those letters of support. One said, “Well, we’ll have to work with whatever happens and whatever is the status quo.” Yet that counts as a letter of support. It is breathtaking. Some organisations—I do not want to embarrass them by mentioning them in the House—have told me that they regret submitting letters of support. Some were put under a certain amount of pressure to do that.

I passionately believe in local accountability. My accountability to my constituents drives me on a daily basis. That is why, when I was elected to Parliament, I decided to move to the village of Shawbury in Shropshire, which is only a few miles from my constituency office. People can hold me to account when I am in the local supermarket, walking down the street or in my office. That is part and parcel of local accountability.

We have some marvellous councillors in Shrewsbury, such as Mrs. Judith Williams, who has been a local borough councillor since 1982. Those councillors know every flagstone of every pavement in their ward. They are local Shrewsbury men and women, who know the town, feel passionately about it and are accountable to their constituents. They have done an excellent job in running the borough council. They are accountable because they live in their wards, so they are close to their constituents. Most importantly, they are accountable through the ballot box to the people of Shrewsbury.

I do not want to disparage other areas, but if we have a unitary authority, councillors—from Ludlow, which is 30 or 40 miles away, Whitchurch and places long distances away from Shrewsbury will make decisions on specific parochial issues that affect Shrewsbury. That is a tremendous threat to local democracy.

Let me give an example of a controversial issue. We recently considered the possibility of congestion charging in Shrewsbury. Voting for congestion charging in Shrewsbury is very easy for someone who lives 40 miles away and is not accountable to the people of Shrewsbury. Why? Because someone in that position can vote for something controversial for Shrewsbury knowing full well that their constituents 40 miles away do not really care and will not vote them out in an election. That bond and that accountability will be broken.

We face another important issue: the co-location of the sixth-form college with SCAT—Shrewsbury college of arts and technology—which is a major college. Again, I want local councillors in Shrewsbury, who understand transport issues and some of the infrastructure problems in Shrewsbury, and who are accountable to my constituents, to make those decisions, not people who live so far away from my community.

I want to give another example of why I feel so strongly about the issue. Over the past three years, I have said to many organisations in my constituency that I will give £100 to anybody who can name me the seven Members of the European Parliament who represent us in Brussels, but so far I have not lost a penny. Not a single constituent of mine can name all seven Members of the European Parliament. They are important people, and the Conservative ones are very good—[Interruption.] But the Liberal one is terrible.

Mark Pritchard
I would be delighted to relieve my hon. Friend of £100, but—

Madam Deputy Speaker
Order. The hon. Gentleman may well like to do that, but perhaps outside the Chamber.

Daniel Kawczynski
The reason why I make that point is that none of the MEPs lives in Shropshire and none of them works there. They work in Brussels, so nobody knows who they are, yet they make important decisions, on a daily basis, on issues affecting Shrewsbury and Shropshire. The reason why there are such low turnouts in elections to the European Parliament is that nobody really knows those people and they are not directly accountable to constituents. I fear that that will happen with a unitary authority. People will become disfranchised and uninterested in local politics, because they do not have that proximity to their elected officials.

I am a great believer in the saying, “If it ain’t broke, don’t fix it.” Shrewsbury and Atcham borough council has been rated as excellent. The Minister will know the extraordinary achievements of the council. He will know of the many times that my council has come to the House of Commons to receive various national awards. All those things have been achieved despite the fact that my council receives £80 less per household than neighbouring Telford and Wrekin council. Despite that, we still provide tremendous services, yet the Minister wants to abolish my excellent-rated borough council and amalgamate it with all the others. As a result of the Minister’s moves, we have lost our chief executive, Mr. Robin Hooper, an extraordinarily professional and dedicated man, who achieved an amazing amount for Shrewsbury and its infrastructure. However, he has left as a result of the Government’s push for a unitary authority.

What worries me now—I want to hear from the Minister about this—is the next 12 months. They will be critical, because many people are working hard at the borough council to provide good services, but they know that it is going to be abolished by April next year. There will obviously be a certain amount of tension among managers, as some of them look for other jobs, perhaps in the private sector. We are therefore in a difficult position. I do not want services in Shrewsbury to suffer as a result of the coming 12-month interregnum.

Mark Pritchard
Does my hon. Friend agree that the Government have failed to recognise the many years of dedicated service to local government that the council workers to whom he has referred have given Shropshire? Is not the clear message from this rushing through of the order that Labour has turned its back on local government officers throughout England?

Daniel Kawczynski
I absolutely agree with my hon. Friend on that point.

I want to make a few very brief final points, as I want to give my hon. Friend the Member for Ludlow (Mr. Dunne) a chance to speak. In Shropshire, the rural areas already have very large wards, because of the nature of rural villages. In the new unitary authority, the wards will be immense—they will often be much larger than whole geographical constituencies in parts of London—and it will be more difficult for the councillors to represent them. In my estimation, the work of the leader and cabinet members of the unitary authority will become full-time jobs, given the nature and power of the authority. The leader of my borough council is a local businessman, Mr. Peter Nutting, who is also a highly respected member of the local community. How is he going to be able to run a business if he has the equivalent of a full-time job on the council? How are we going to encourage young professionals and people with families, the very people whom we want to come into local government, to participate if we turn the positions into full-time posts? 

This should not have been a political matter, but every single Labour borough and county councillor voted in favour of this measure, against the wishes of my constituents. Almost every Conservative councillor voted against it. I very much regret that it has become a political matter, but the fact remains that every single Labour borough and county councillor rejected the views of my constituents and supported the Government in ramming through this unitary authority. That is an important point, and I wanted to place it on the record. My constituents have urged me to raise it. The county council has said that it will limit any council tax increase to 3.5 per cent. if we have a unitary authority. I look forward to seeing the rates capped at 3.5 per cent., and if they are not, I shall be asking why.

01:22:00

Mr. Philip Dunne (Ludlow) (Con)
Today is a dark day for democracy in Shropshire. According to the Government, Shropshire has an excellent council. It has just had its four-star rating confirmed for the second year running, and it is improving strongly. I do not know how it can do that if it is already top-rated, but apparently it can. I regret to say that this change is being proposed for no other reason than to put into effect a party political plan to reduce the number of Conservative councillors and, potentially, Lib Dem councillors—Opposition councillors—in Shropshire.

At present, the two-tier system provides representation close to the people. With one county council and five district councils, we have a total of 244 councillors in Shropshire. That will be reduced to 75 under the proposals. We shall go from having one county councillor representing approximately 4,000 people, and one or two district councillors representing between 1,000 and just over 2,000 people, to one unitary councillor representing 3,000 people. So most people will lose the opportunity to be represented by at least two—in some cases, three—councillors, and will instead be represented by only one.

My constituency, the eighth largest geographical constituency in England, will change from having 58 district councillors and 15 county councillors—a total of 73—to having about 20, depending on what comes out of the boundary committee proposals. Inevitably, by definition, there will be less local knowledge available to those councillors and therefore less local representation. That point was made forcefully by my hon. Friend the Member for Shrewsbury and Atcham (Daniel Kawczynski). The decisions will be taken remotely. The base for the new council will be in Shrewsbury, which is some distance from my constituency. Some people will have to travel for more than an hour just to attend a council meeting—[Interruption.] The hon. Member for Hereford (Mr. Keetch) suggests that that is already happening in Herefordshire, and I take it that he is not particularly happy about that.

Mr. Keetch
The old Hereford and Worcester.

Mr. Dunne
I have taken a position against unitary councils primarily because of the lack of democratic accountability, and not for any other reason. I am not opposing them simply for opposition’s sake. I believe that it is fundamentally wrong to remove decision making from a location close to the people and, to a degree, to centralise it in the county.

I have been encouraged in my position of principle by the response to the ballots across Shropshire. The Minister made the point that some independent assessment was made of the quality of questions and responses to the ballots. The ballots were on questions agreed with the Electoral Commission. The hon. Member for Falmouth and Camborne (Julia Goldsworthy) tried to argue that there was an unfairness in the way in which the questions were presented. South Shropshire district council, which was then Liberal Democrat-controlled, put out a 16-page booklet, “South Shropshire Matters”, along with the ballot paper. The council was in favour of unitary, so the opponents were given a total of two and a half pages to make their case, while the proponents—as it happens, the Liberal Democrat proponents—had 13 and a half pages. Where is the fairness in that? Despite the overwhelming information bias in favour of unitary, the people who bothered to vote—it was a high turnout of 57 per cent. rather than the 56 per cent. I mentioned earlier—voted against unitary. That makes me feel that I am in touch with what people in my constituency want.

The greatest support, as my hon. Friend the Member for Bromley and Chislehurst (Robert Neill) mentioned earlier, has come from stakeholders. The stakeholders obliged to be included in the consultation were by and large public sector bodies paid for out of the public purse, so it is no surprise that they came up with the answer that the Government wanted—they are paid to do so. The whole consultation exercise has been a complete sham.

As to democratic accountability, one of the arguments in favour of removing a tier of local government was that it would be more transparent, simple and clear for the people to understand to whom they should be talking about what. Yet under the proposals Shropshire is moving from a two-tier authority in some areas to a four-tier authority. Let me explain that to the Minister in case he has not understood how that will happen.

The unitary council will be at the top. The councils have decided that it will not be practical to run some of the committees on a unitary basis, particularly regulatory committees for planning and licensing, so they are going to set up three areas—north, central and south—underneath the unitary tier. As part of their submission, they had to say that there would be local area committees underneath that. We are to have 27 of those; we are to move from five district councils, which managed the regulatory function and everything else in the past, to the new system of three tiers in the unitary authority. In addition, because some areas with significant populations—Shrewsbury and Atcham is a case in point—did not have a town council, a new town council will be established underneath the three tiers of the unitary. Where is the simplicity in that? It fails that basic test of the Government’s own making.

I want to touch on some of the practical implications of what the Minister is proposing. He said that he understood the imperative—I think that that was the word he used—of setting out clear orders in respect of which officers’ jobs will be subject to open competition and that he would publish that shortly. I am afraid to say that here we have yet another example of the Government’s difficulties in introducing this legislation, which have arisen ever since the parent Act was first published.

I have already referred to the public involvement in health clauses, which were tacked on as an afterthought; they had nothing at all to do with local government reorganisation. That characterised the passage of the Bill. This has been a second-rate piece of legislation pushed through at the back end of all the other bits of legislation, partly because the Ministers responsible have been chopped and changed every six months—I think that we are on the third Secretary of State from the Department responsible. That is causing considerable concern among the very officers who, as the Minister rightly pointed out, need some clarity about their position. They have no knowledge from one week to the next of when the orders will be made.

The legislation was originally to be concluded before the election that never was—that pushed it back into the latter part of last year. Then it was pushed into the early part of this year. We were supposed to be debating these measures on 4 February and here we are on 19 February. The boundary committee has told the authorities in Shropshire that if the passage of the measures is not concluded by the end of this month, it will not be able to introduce the boundary changes in time for the elections in May 2009. It is saying—and the Government have endorsed this—that the unitary authority may have to be established on existing county council boundaries, with a doubling up of councillors, because that would be the easiest way to proceed. What a way to set about reorganising local government. It is completely shambolic, and it is a direct result of the way in which the legislation has been handled. The lack of clarity is causing considerable frustration among the officers who must deal with this.

Mr. Keetch
Will the hon. Gentleman give way?

Mr. Dunne
I hope the hon. Gentleman will excuse me if I do not. My time is very limited.

I want to raise again the point about officers’ grades being open to competition. I look forward to reading the proposals that the Minister will publish shortly. I understand his argument about the need for fairness to individuals and his view that the TUPE regulations should apply, but this is not unique territory. In the corporate world companies take over other companies of both similar and differing sizes, and TUPE applies in those cases, but in those cases the best person for the job gets it. In some cases none of the incumbents gets the job, and a replacement is recruited from outside. I see no reason why that should not apply to the most senior grades in this instance. The directors of each major service area, in particular, should undergo an open process, so that the population at large can feel  that it is not just a stitch-up by the county council—which, I am afraid, is the impression that they have had.

The council will continue to face challenges when it becomes unitary. It has been argued that this proposal is about financial resources and efficiency savings. Over the past 10 years, the Government have allocated funds to match their own priorities. As a result, the allocation of funds to areas such as education which are the responsibility of a unitary authority, and organisations such as the police which are funded through council tax, has been heavily skewed towards inner-city urban areas, which, by coincidence, happen by and large to be represented by Labour Members of Parliament. Such allocations have been justified by a plethora of data to do with deprivation, crime, social needs, health inequalities and so on. With much of that I have no argument—I think it appropriate to take such matters into account—but a degree of balance is needed.

Operating services in rural areas costs money. In those areas, it costs more to deliver many of the services for which local authorities are responsible than it does in urban areas. Waste collection, for example, is relatively straightforward if populations live within a few miles of each other, while school transport is obviously more expensive when people are having to be bussed long distances—many more of them, because fewer are able to walk.

The provision of elderly care is much more expensive in rural areas, particularly when efforts are being made to move care closer to the community—which I support—and to establish a network of district or other specialist nurses to provide services in people’s homes. That is much easier to do in an urban environment. Not only is it easier to recruit people to do the work, but they can use their time much more effectively if they can walk or drive short distances from one patient to the next. In some areas in my constituency, a district nurse can deal with only five appointments a day, because so much of her time is spent travelling from one person to the next. If the Government had taken those issues into account, much of the justification for the unitary proposal would not have been necessary.

Let me give the Minister a couple of examples of the splendid work done by councillors in my area who are fighting for their local communities. Many of them may well not wish to become councillors in a unitary authority, because of the time commitment that that would involve. I want to single out Joe Meredith, currently serving his third term as chairman of South Shropshire district council. He is fighting for the post office that is under threat in his village of Ashford Carbonnel, and for two schools that are under threat of amalgamation. His deputy leader, Councillor Jackie Williams of the Kemp Valley ward, is doing a valiant job while her chairman is indisposed, fighting for her post office and school at North Lydbury, which are threatened with closure.

Those stories could be repeated right across my constituency, and in other parts of Shropshire. Many of these valiant, public-spirited people might not continue their lives in public service because they do not wish to do so within a unitary environment, which would be a great loss to the fabric of public life in this country.

01:35:00

John Healey
This has been a sharply argued and useful debate, and I would like to respond to a number of points that were made.

The hon. Member for Bromley and Chislehurst (Robert Neill) made a speech in favour of the status quo that was worthy of a true Conservative. However, sometimes the potential gains oblige us to consider and take decisions that might be difficult and which change established arrangements. That is precisely the case with this order for Shropshire, but the measures it contains are based on proposals submitted from Shropshire by Shropshire county council, supported by one of the district councils and a number of other bodies and interests in the county; they are not a prescription produced or imposed by the centre.

Robert Neill
Please will the Minister quantify the gains?

John Healey
Well, let me move on to my second point. Purely in financial terms, after checking the figures, the quantifiable gains to the council tax payers of Shropshire will be about £9 million each year.

The hon. Gentleman confirmed at one point that he was talking about Professor Chisholm. Professor Chisholm’s modelling of the potential financial impact of this restructuring was based on the 1990s model of restructuring, which was entirely different as it was about breaking up large areas such as Humberside, Cleveland and Avon into smaller units. We are doing something different and the potential efficiency gains—for the council tax payers and the services that support them—are much greater and more significant.

The hon. Gentleman made an extraordinary argument, accusing me of running a dirigiste process, imposed from the centre. The hon. Member for Falmouth and Camborne (Julia Goldsworthy) was absolutely right: this is not being forced on councils. A minority of councils in England submitted proposals under this process, and the proposal we are discussing was submitted by a Conservative-led county council supported by a Conservative-led district council. A minority of councils submitted proposals as a result of the invitation we issued, and a minority of those that were submitted were accepted for implementation.

There was an interesting observation about the courtship of the county by the then Local Government Minister, my right hon. Friend the Member for South Shields (David Miliband), now the Foreign Secretary. Far from unitary solutions being forced on Shropshire, councils, business and some public service providers and users told him on his visit that the two-tier arrangement was not working and needed to be changed.

Mark Pritchard
Will the Minister give way?

Mr. Keetch
Will the Minister give way?

John Healey
I am short of time; I shall give way to the hon. Member for The Wrekin (Mark Pritchard), but not to the hon. Member for Hereford (Mr. Keetch).

Mark Pritchard
To put it politely, the Minister’s last remarks were at best disingenuous. The fact is that his Government have set their face against the current district council two-tier arrangement in Shropshire—and in other counties throughout England—and I hope that he will clarify his position.

John Healey
We are not setting our face against that arrangement, but we set out in the White Paper and in the context of the invitation why in many instances there were problems with the two-tier arrangements. My point is that we are not forcing solutions. In his former role, my right hon. Friend had similar discussions in Gloucestershire, East Sussex, Lincolnshire and Lancashire, and none of those authorities produced proposals for unitary status.

May I say to the hon. Member for Ludlow (Mr. Dunne) that he cannot argue that the arrangements will take decisions out of people’s reach and then criticise the detailed proposals for the area partnerships and the joint local committees, which are designed precisely to put decisions and budgets closer to the neighbourhoods and within reach of local people. I hope that he and his hon. Friends will work to strengthen those arrangements over the next year, because they are the basis for a sensible and important reform of the way in which local people can be involved in decisions.

Daniel Kawczynski
Will the Minister give way?

John Healey
No. I am going to come on to the hon. Gentleman’s point about the Prime Minister. The Prime Minister told him in response to a question:

“Of course we will listen…the Secretary of State for Communities and Local Government or I will be pleased to meet him after that action”

—the judicial action that his council is pursuing—

to discuss the next step forward.”—[Official Report, 4 July 2007; Vol. 462, c. 950.]

Of course, the hon. Gentleman’s local authority spent heavily in the courts and lost in the High Court. The appeal was heard at the end of January and we await that judgment. My right hon. Friend has not broken any of the commitments that he gave to the hon. Gentleman.

The Electoral Commission will examine the issue of large wards during the review before the May 2009 elections. I say to the hon. Member for Ludlow that if this were about simply reducing the number of Conservative councillors, why is this proposal being put forward by a Conservative-led council?

Richard Younger-Ross
rose—

John Healey
I will certainly not give way to the hon. Gentleman.

Conservative Members are right to press their arguments hard in debate, but if and when the order is passed, I hope that they will accept the decision that has been taken. I hope that they will accept that it has been properly approved by Parliament, and I hope that they will lend their weight to the efforts of those implementing it.

It being one and a half hours after the commencement of proceedings on the motion, Madam Deputy Speaker put the Question, pursuant to Standing Order No.16 (Proceedings under an Act or on European Documents).

Madam Deputy Speaker
I think the Ayes have it.

Hon. Members
No.

Division deferred till Wednesday 20 February, pursuant to Standing Order No. 41A (Deferred divisions).

Delegated Legislation

Madam Deputy Speaker (Sylvia Heal)
I propose to put together the Questions on the three motions.

Motion made, and Question put forthwith, pursuant to Standing Order No. 118(6) (Delegated Legislation Committees),

London Government

That the draft Greater London Authority Elections (Election Addresses) (Amendment) Order 2008, which was laid before this House on 9th January, be approved.

Government Trading Funds

That the draft FCO Services Trading Fund Order 2008, which was laid before this House on 14th January, be approved.

That the draft Defence Support Group Trading Fund Order 2008, which was laid before this House on 15th January, be approved.—[Mr. Michael Foster.]

Question agreed to.

Petition

Post Office Closures (Acton)

01:42:00

Mr. Andy Slaughter (Ealing, Acton and Shepherd's Bush) (Lab)
This petition was signed by 3,160 residents of the East Acton and Old Oak wards in my constituency who oppose the closure of the East Acton post office. It was presented to me outside the post office last week by Bill Davidson of The Acton Alliance, and John Keating, John Palmer and Paul Keegan of the Old Oak Tenants and Residents Association. They and a number of other signatories were so incensed by the proposal to destroy an essential part of their community that they wished to be here tonight to hear this, but I am glad that I persuaded them that they should not be.

May I finally say that this may be a rare example of a petition succeeding on the day that it is presented—or the day before it was presented, given the time—because on Tuesday morning the Post Office Ltd published plans to close 169 sub-post offices in London and gave East Acton post office as the alternative post office to a number that were closing? We deduced from that that it is to stay open. I am grateful for that, but as seven of the 16 sub-post offices in my constituency are due for closure, I may be back with petitions in the near future.

The petition states:

The Petition of East Acton Residents,

Declares that the Post Office in Old Oak Common Lane is an essential part of our community.

The Petitioners therefore request that the House of Commons urge the Department for Business, Enterprise and Regulatory Reform to intervene in keeping our Post Office at 71 Old Oak Common Lane, W3, open.

And the Petitioners remain, etc.

[P000125]

Homeopathic Hospitals

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Michael Foster.]

01:44:00

David Tredinnick (Bosworth) (Con)
It is unusual to start a debate at quarter to two in the morning these days, although a few years ago we were regularly here a lot later. I am pleased to have the opportunity to introduce this important debate about the threat to the homeopathic hospitals. Their very survival may be at stake and I look forward to hearing from the Minister.

This debate comes at a time when support for homeopathy is at an all-time high, including in the House, with one third of Members signing early-day motion 1240 in the last Session, in support of homeopathy. The Government claim to support choice in health care, but as far as homeopathy is concerned, they are reducing choice. It is not commonly known, but homeopathy has always been available on the health service because its founder, Nye Bevan, had a homeopathic doctor and insisted that that was the case.

In the UK we have four homeopathic hospitals, one in Scotland and three in England. I attended the opening of the beautiful new Glasgow homeopathic hospital before devolution, and it now of course comes under the purview of the Scottish Parliament. I understand that that hospital is protected since a successful campaign in 2004, but that is not the case for the three English hospitals—the Royal London, Bristol and Tunbridge Wells homeopathic hospitals.

The three hospitals are fully integrated into the NHS. They all form part of their local NHS trusts and are staffed by statutorily regulated health professionals with additional training in complementary medicine. All receive patient referrals through normal NHS routes. They have some of the highest patient satisfaction ratings in the NHS and the majority of patients report improvements to their lives across a range of chronic conditions. The treatments employed are clinically safe and cost-effective. They often avert multiple referrals and treatments that many patients find ineffective and the cause of side effects. In addition to homeopathy, the hospitals now offer a full range of complementary therapies.

The flagship hospital is the world-renowned Royal London Homeopathic hospital. I have been the chair of the parliamentary integrated health care group and I used to be the treasurer of the all-party parliamentary group for alternative and complementary medicine. For almost all of my 20 years in this place, I have been an officer of one or other group, so I have had a long association with the Royal London and I believe it to be a very valuable asset. It is the largest and best integrated public sector provider of complementary medicine in Europe. It is also part of the University College London Hospitals NHS Foundation Trust.

The Royal London provides some 25,000 new and follow-up out-patient appointments a year. Until recently, the number of referrals had been steadily increasing. What has gone wrong? Well, eight primary care trusts have withdrawn their contracts from the Royal London in the last 18 months and patient referrals are down by 20 per cent. on the same period last year. There is great uncertainty about the intentions of the host PCT Camden and its neighbour Islington. If they were to withdraw their support or substantially reduce it, the consequences for the hospital would be very serious. The reduction in referrals has meant that parts of the newly developed building—I attended its opening—are now being used for other services. Despite those problems, the hospital is in discussion with the trust about the proposed polyclinic; it is developing integrated care pathways, integrating complementary and conventional approaches; and, as always, it is pioneering this field of health care.

As for the other two hospitals, West Kent PCT is responsible for the Tunbridge Wells hospital and, sadly, it will withdraw its support from April 2008. That decision has been temporarily rescinded pending a legal challenge by patients. I urge the Minister to look closely at what happened at Tunbridge Wells, where the decision was very unwelcome. Bristol homeopathic hospital has also suffered considerable cuts.

So, why is there a problem? The Government claim that they are increasing choice, but the impact from the perspective of a homeopathic hospital is quite different. If the Minister reflects on the White Papers that have been published in recent years, he will see that they all suggest that choice will increase. “The NHS Improvement Plan”, published in 2004, states:

“By 2008, patients referred by their GP will be able to choose any provider able to meet NHS standards and to deliver care at tariff.”

That appears to guarantee the right to choose treatment at the homeopathic hospitals. The December 2003 document, “Building on the Best: Choice, Responsiveness and Equity in the NHS” stated that NHS services should be “more responsive” to patients. The January 2006 document, “Our health, our care, our say” states:

“We will give people a stronger voice”—

so that they can see a service improvement. The 2004 White Paper stated the intention to give the public more informed choices as regards their health. The Government are certainly failing to do that as far as the homeopathic hospitals are concerned.

Another issue is the introduction of evidence-based practice, which tries to specify the way in which professionals or other decision makers should make decisions. Naturally, as its name suggests, it places a greater emphasis on evidence. The practice guide, however, asks for evidence-based design and development decisions to be made after reviewing information from repeated rigorous data gathering. That militates against complementary and alternative medicine, where there may not be a huge number of rigorous or repeated databases to work from. There are not a vast number of studies and that has been used against complementary medicine as an excuse. The methodology of assessing CAM might also be unfamiliar to primary care trusts. It might also be difficult to record accurately exactly how homeopathy, for example, treats. It is always different for individual patients, and that can be difficult to record. Sometimes, the treatments require a combination of remedies.

My next point is that homeopathy does not fit normal—that is, orthodox—methods of assessment. For example, the scale of prescribing is in reverse so that the weaker the dose, the more powerful or effective it is. That subject has always been hotly disputed by many doctors, but homeopathic treatments have been operating on the reverse scale of prescribing for 200 years. Some of the most powerful—the constitutional remedies—are so diluted that they can hardly be detected. There are similar problems with acupuncture and its acceptance, as some doctors and commissioners do not necessarily believe in meridians. The same issue occurs with herbs that are unknown in this country.

Another simpler explanation of why complementary services, and the homeopathic commission in particular, have been cut recently is that they are the easiest therapy to cut. Just as advertising gets cut when times get hard in business, when the primary care trusts try to balance their budgets under the new devolved arrangements they often go for homeopathy and other complementary therapies as the soft target.

The most important point that I want to make to the Minister is that I believe that we need proper guidelines on commissioning for primary care trusts. I have said as much several times at Health questions. At present there are no proper guidelines, with the result that PCTs have little direction at a time when many are under financial pressure. Indeed, they often cite that financial pressure as one of the main reasons for not commissioning homeopathy.

Also, PCTs claim that there is not enough evidence to support the use of homeopathy. However, the Royal London Homeopathic hospital has conducted more than 130 randomised and controlled trials of homeopathic treatments that show very effective results, so surely it is in the Department’s interests to make sure that those results are publicised to PCTs.

The Smallwood report took a look at the cost-effectiveness of complementary medicine. Smallwood argued strongly that some complementary therapies were more effective and cost-effective than traditional treatments. He also wanted the National Institute for Health and Clinical Excellence to assess their cost-effectiveness, but that has never been done. I hope that the Minister will be able to help with that. I intend to write to the Public Accounts Committee to see whether it will undertake an assessment, and I have had discussions to that effect with my hon. Friend the Member for Gainsborough (Mr. Leigh), who is that Committee’s Chairman.

Another problem that homeopathic hospitals have had to face is ill-informed and hostile media coverage, as well as a dirty tricks campaign. The Minister may recall that in May 2007 some doctors issued a spurious document—printed on official paper, with the NHS logo—claiming that homeopathic services should be decommissioned. The Government have never written to PCTs to refute that document.

I want to allow the Minister time to reply, because the fate of the Royal London Homeopathic hospital is of great concern internationally. I shall illustrate that, and the importance of the treatment, by looking at the results that have been achieved in Africa by homeopaths who have been trained at the hospitals that I have mentioned. Those results are especially instructive, as the homeopaths involved are treating patients with AIDS, HIV or other serious diseases such as malaria, in countries where the problems are very great.

For example, at Kendu bay in Kenya’s Nyanza province, the Abha Light foundation is an organisation that partners mothers and orphans in the rural community who are suffering from AIDS, and it has had great success in returning those people to an active life. There has also been considerable success in the use of the local herb product called neem as a homeopathic medicine. It has produced what has been described as

“a convincing reduction in malaria attacks”

in a highly endemic area.

I shall close with a note about what is happening in Swaziland in southern Africa. I know a homeopath who has worked there well, and I asked her for a description of what was happening in the clinics there. Her letter to me states:

“Seven years ago I introduced Homeopathy to Swaziland, providing a community of 10,000 people with the only health care available to them. In addition I travelled around with a mobile clinic reaching other very remote areas. On an average day I could see up to 50 patients…Five years ago I built a homeopathic clinic...it was so successful that the people wanted to ensure my tenure which ensured their continued treatment on a daily basis.”

The letter goes on to say that other homeopaths were brought in to help, and that the clinic treated patients who came from as far as 300 miles away.

“Aside from the predominant treatment for HIV, TB and malaria, treatment is being given for many other common ailments such as urinary infections, diarrhoea, skin eruptions, diabetes, epilepsy, eye infections, intestinal parasites, treatment from pregnancy to childbirth, to more serious but locally common ailments like cancer, gangrene, toxaemia…and general injuries…In other words the list is endless.”

The letter states that the homeopathic treatments have achieved success rates of close to 100 per cent.

“As a result many lives have been saved, and pain and misery alleviated, in a community which can simply not afford orthodox treatment even if it were available.”

That is a very important issue for developing countries. Homeopathy is so inexpensive that it is available to everyone. When homeopathic services are introduced, they tend to increase in size very quickly. My acquaintance’s letter goes on to say:

“The low cost of the remedies and the relatively short dosage period, together with the positive results of the treatment are responsible for the expansion and ever increasing demand in a Country that is unable to give the majority of the population even the most basic of health care. Therefore, Homeopathy is excellent value and has saved countless lives as well as alleviating the suffering of the countless unemployed, elderly and orphaned in Swaziland.

We will of course continue with our work. At the end of a day, when we simply cannot see any more patients, the remaining untreated patients usually start fighting among each other as to who will be the last to be seen. A true vote of confidence!”

I hope that the Minister can reassure me on guidelines for primary care trusts so that we have more effective commissioning. I hope that he will refute those statements made in the name of his Department and that he will commission NICE to look at the cost-effectiveness of homeopathy in line with the request of the Smallwood report. I look forward to the Minister’s reply.

02:00:00

The Parliamentary Under-Secretary of State for Health (Mr. Ivan Lewis)
I congratulate the hon. Member for Bosworth (David Tredinnick) on securing this Adjournment debate and on his passionate advocacy of the case for complementary therapies over many years in this House. Whatever people’s opinions and differences of view and perception, it is impressive when an hon. Member feels so passionately about an individual cause. Clearly, the hon. Gentleman feels that homeopathy makes a massive difference to the quality of people’s lives both in his constituency and up and down the country. I pay genuine tribute to him for the work that he does in making the case.

I am also aware that there is a growing interest among patients in complementary therapies generally—for instance, as an adjunct to conventional medicine in palliative care, although I accept that it goes beyond that. Choice is absolutely fundamental to the delivery of a truly patient-centred national health service, and it gives providers the incentive to tailor services to the needs and preferences of patients. In turn, this leads to better outcomes and, over time we hope, a reduction in health inequalities. Primary care trusts are encouraged to provide access to complementary therapies where there is evidence to support the virtues of their use.

Of course, doctors are accountable for any treatment that they give their patients, and have to satisfy themselves of the safety and clinical and cost-effectiveness of the treatment, as well as the availability of suitably qualified practitioners. They have a range of options for treating different conditions, and they must advise on which treatment or combination of treatments will be most suitable for individual patients. Many GPs now give access to some form of complementary or alternative medicine, but if a doctor decides not to recommend a complementary therapy, it is likely that he or she will have a good reason.

We genuinely want people to have free choice about their health care, but we also want to make sure that the choice that they make is an informed one and gives assurance that treatments meet key standards of safety and quality. To achieve this, the Department and the NHS have been ensuring that as much quality information as possible is available and accessible to those who need it.

For example, the Department of Health commissioned the Prince’s Foundation for Integrated Health to produce a patient guide on popular forms of CAM, which was published in 2005. It is encouraging to know that several thousand copies have been downloaded from the website and multiple copies have been ordered by intermediary organisations such as hospices.

NHS Direct Online and the national electronic library for health are also authoritative sources of advice on all health topics. NHS Direct already includes some material on complementary and alternative therapies and in future the national electronic library for health will also have a separate section dedicated to research on such therapies. In June last year NHS Choices was launched—a new online health information service, which also includes information on homeopathy.

Of course I hear the dissent from those who oppose the NHS commissioning complementary medicine. Most, if not all, of that opposition is focused on treatments for which, in some people’s view, there is a lack of evidence of effectiveness. We know that there are strong views, which are sometimes articulated in the House. That is why the Government are investing in developing the evidence base for complementary therapies. We are supporting the research capacity for CAM through the £3.4 million CAM personal award scheme. The scheme was launched following publication of a House of Lords Select Committee report on CAM about eight years ago. As a result of two calls, we have successfully created a cohort of 18 CAM researchers at doctoral and post-doctoral level; as the hon. Gentleman will be aware, they are working on a broad range of research issues.

The National Co-ordinating Centre for Research Capacity Development is responsible for the personal award scheme. It also funds the CAM evidence online database, which is the result of collaboration between the Research Council for Complementary Medicine and the University of Westminster’s school of integrated health. It involves a detailed review and critical appraisal of the published research on specific complementary therapies, focusing on their use for NHS priority issues, such as cancer, mental ill health, heart disease, stroke, and chronic conditions.

We are actively addressing the important issue of appropriate regulation of the treatments and their practitioners. At present only two CAM professions are subject to statutory regulation in our country: chiropractic and osteopathy. Our first priority is to decide whether to put in place statutory regulation for herbal medicine, traditional Chinese medicine and acupuncture, which carry significant risk because they involve skin piercing and/or the ingestion of potentially harmful substances. Proposals for regulation of herbal medicine, traditional Chinese medicine and acupuncture were made in a report by the House of Lords Select Committee on Science and Technology in 2000. The Department of Health consulted on proposals in March 2004 and published an analysis of the results in February 2005. As a result, a steering group was established in June 2006 to recommend whether and how those professions should be statutorily regulated. The group, chaired by Professor Mike Pittilo of Robert Gordon university, has completed its work, as the hon. Gentleman will know. Its report will be submitted to Ministers shortly, and a decision will then be taken about whether legislation should be brought before the House, and if so, how soon.

We expect unregulated CAM professions to develop their own unified systems of voluntary self-regulation, and to support that process we have commissioned and funded the Prince’s Foundation for Integrated Health to develop voluntary self-regulation among a range of professions, including homoeopathy. The result of the work is a voluntary regulator called the complementary and natural healthcare council, which, as the hon. Gentleman will be aware, will be up and running from April.

In 2005, the Medicines and Healthcare products Regulatory Agency undertook a public consultation on proposals that would enable companies to market their products with indications. As the hon. Gentleman will know, indications are descriptions of diseases or conditions for which the product is intended to be used, but we are talking about minor, self-limiting conditions only—the types of conditions that people normally self-treat with over-the-counter products. Following widespread support for the proposals, the scheme was introduced in the United Kingdom in September 2006. Companies marketing homoeopathic medicinal products have the option of obtaining a full marketing authorisation for each product, provided they satisfy the requirements for demonstrating safety and efficacy set out in directive 2001/83/EC. However, at present no homoeopathic products are licensed with a marketing authorisation because of the difficulty of demonstrating efficacy under the rigorous conditions of controlled clinical trials.

The hon. Gentleman raised a number of issues to do with the future of specific services, and he referred to several hospitals. There is a constant tension in debate inside and outside the House about the balance between national command and control and devolution to local decision makers—the local people and organisations to whom we give the responsibility of making the best decisions for local communities.

The fascinating thing, as I have said in previous debates in the House, is that on the whole, politicians of all parties are united around the notion of maximum devolution and localism, until they find a decision that is made in their locality that they do not like very much. Then, the same politicians advocate national intervention and command and control from Westminster and Whitehall. That perpetual tension is evident in the House.

In this case we must maintain the principle that, based on patient choice, demand and a needs assessment of their local population, local commissioners are best placed to make commissioning decisions on behalf of their local populations. It is extremely important that we retain the integrity and credibility of that process if we are to move towards a world-class commissioning system in health care.

David Tredinnick
The debate is specifically about the problems of homeopathic hospitals. I am grateful to the Minister for his introduction, reviewing the other major issues. A fundamental problem is the lack of guidance about what is possible. Notwithstanding what he says about decisions being devolved, it is right that there should be some direction from the Department. When such direction palpably misrepresents the Department, something should be done about it. I hope the Minister will say that he will at least consider some form of general guidelines for commissioning of homeopathic hospital services.

Mr. Lewis
In my speech thus far, I have articulated clearly the Government and NHS position on complementary therapies, so I hope that any documents that have been circulated and that give a false or misleading perception will be corrected by the record. The hon. Gentleman may pray those comments in aid, if he so wishes. Beyond that, primary care trusts in every community and every part of the country have a clear set of priorities that the Government lay down for the outcomes that they are expected to achieve with regard to health and well-being in their local communities. A range of other choices are left to primary care trusts to decide in the best interests of their local communities.

The hon. Gentleman should be a little more frank in his contribution. Under any Government there are finite resources. There is no doubt that under the present Government an unprecedented level of resources have been invested in the national health service in the past eight or nine years. Beyond the clearly defined and understood priorities, any system will require commissioners to make difficult choices. Based on the needs of their local population, based on what patients and carers tell them about what matters most, and based on evidence and outcomes, commissioners will be required to make those choices. Beyond the clear national priorities and the NHS operating framework that we issue to chief executives of primary care trusts, it is not for Ministers sitting in offices in Westminster and Whitehall to tell PCTs how they ought to make those daily difficult decisions.

David Tredinnick
There is a misunderstanding of the capabilities. A general descriptive note would be helpful.

The motion having been made after Ten o’clock on Tuesday evening, and the debate having continued for half an hour, Madam Deputy Speaker adjourned the House without Question put, pursuant to the Standing Order.

Adjourned at fourteen minutes past Two o’clock.