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Mark Hunter (Cheadle) (LD):
Will the Leader of the House consider making time available for an urgent debate on the worryingly high levels of personal debt, especially among students and graduates, which threatens to undermine future economic stability? Does she agree that such a debate would be especially
pertinent in view of the widely differing predictions in the Governments pre-Budget spending review, which the independent assessors published this week?
Ms Harman: The Government are concerned to protect people against unwise borrowing, which they are at risk of being unable to repay. However, I refer the hon. Gentleman to the statements of my right hon. Friend the Chancellor about his confidence in future economic stability.
David Taylor: There are persistent rumours in this place about an early prorogation, so there must be plenty of vacant slots into which debates can be inserted. Will the Leader of the House arrange a debate on a topic of concern to 15,000 people in my constituency, and, indeed, people in every constituency: the 9 million people who suffer from some form of arthritis, such as rheumatoid arthritis or osteoarthritis? Tomorrow is world arthritis day and it would be appropriate for a Minister in this place to make a statement next week on the steps that the Government are taking to tackle the problems that are associated with the distressing condition, which affects not only elderly people but those across the spectrum of society.
Ms Harman: My hon. Friend makes an important point, which I shall draw to the attention of my colleagues in the Department of Health. It may well be right to issue a written ministerial statement on national arthritis day.
Sir Patrick Cormack (South Staffordshire) (Con): May we have a clear, unequivocal statement next week on what is and is not allowed in Parliament square? The right hon. and learned Lady knows that her predecessor, the right hon. Member for Neath (Mr. Hain), informed the House and the Commissionas you will remember, Mr. Speakerthat the legislation that was passed would deal with the eyesores in Parliament square. Yet we now have more of an eyesore than ever.
Ms Harman: What is or is not allowed in Parliament square is a matter for the law that has been passed by the House and its independent enforcement by the police and the Crown Prosecution Service. If the hon. Gentleman believes that we should change the law, he should present proposals. The issue is raised in the Green Paper entitled The Governance of Britain, to which he could respond.
Mr. Alistair Carmichael (Orkney and Shetland) (LD): If the Leader of the House is having difficulty with the constitutional position on foot and mouth compensation, may I commend to her a concisesome might say elegantstatement of the law contained in my point of order at column 416 of yesterdays Hansard?
Will the Leader of the House ensure that, when we have the debate in Opposition time, the Secretary of State for Environment, Food and Rural Affairs will lead for the Government? On Monday, he gave the House the impression that he had no responsibility for Scotland. That is wrong and an error that is making the important topic a political football for the Scottish National party in Edinburgh. The farmers and crofters
in my constituency and throughout Scotland need answers before the economic and animal welfare crisis reaches a peak.
Ms Harman: We would all agree that all Departments, Government agencies, local government and the devolved Administrations should work to get the best possible deal to support farmers in that difficult situation and avoid its becoming what the hon. Gentleman describes as a party political football. He is right that there will be a debate next week. I am sure that the Secretary of State will be able to respond in the necessary way.
Mr. John Redwood (Wokingham) (Con): Does the Leader of the House think that it gives a good impression of this place if all the good ideas for debates and statements from Back Benchers in all parts of the House are turned down, so that the House can plan another holiday, shortly after a 10-week recess? Is the image of the House further enhanced by the proposal that MPs should be able to take precedence over other people in queues?
Ms Harman: The right hon. Gentleman raises two points. The first is about the availability of time for hon. Members to get topical debates. As he will know, members of the Modernisation Committee under the previous Leader of the House made some proposals, which will be brought forward, that will enable Back Benchers to have more topical questions and topical debates.
The right hon. Gentleman also raised the question of hon. Members and others who use the Palace of Westminsters facilities. I understand that it was the existing rules that were reissued. We would all agree that when it comes to running for a vote it is important that the lifts should be available to hon. Members. However, in the 21st century, if two human beings are standing next to each other queuing for a sandwich or cup of coffee, it cannot possibly be right that because one of those people is a Member of Parliament, they go first.
The Chancellor of the Exchequer (Mr. Alistair Darling): With permission, Mr. Speaker, I should like to make a statement on Northern Rock plc. Before I start, however, I draw the Houses attention to the fact that I have informed both the Register of Members Interests and the Treasurys permanent secretary that, like many others, my wife and I have a mortgage with Northern Rock, but no savings or deposits.
As I said in my written statement on Monday, Northern Rock got into difficulty following the problems triggered in the US mortgage market, which have gone on to affect the financial markets in countries all around the world. In early August, when the markets realised the extent of the problems in the US sub-prime market, they also began to have doubts about the value of other asset-backed securities. Uncertainty over which institutions were exposed and to what extent meant that institutions lent to each other at much higher rates, and in some cases stopped lending to each other altogether. The result was a large reduction of money in the market generally and an increase in the cost of borrowing, not just for those with exposure to the sub-prime market, but for all institutions.
Those developments have had a global impact, affecting major US mortgage lenders, a major French bank and banks in Germany. The availability of credit has increased over the past few weeks, so we can be more confident, but we cannot be certain when the current instability will end. Britain entered the global turbulence with a stable economy and a strong banking sector, which has experienced rapid growth, with well capitalised balance sheets. British institutions have less direct exposure to sub-prime assets and our sub-prime market share5 per cent.is much lower than that of the US. However, because of its business model, Northern Rock faced a particular problem. It has a large share of Britains mortgages, but they are primarily financed through the wholesale markets, including a significant proportion from securitisation. That meant that Northern Rock was particularly vulnerable to the virtual closing of that market over the summer.
On 14 August, the Financial Services Authority told the Bank of England and the Treasury about its concerns about Northern Rock and its vulnerability in the current market circumstances. During August it became increasingly clear that Northern Rock was having difficulty getting access to the financing that it needed and that the cost of doing so was increasing. The general situation and Northern Rocks position in particular were monitored on a daily basis. On 5 September, the Bank announced £4 billion of extra support to provide increased liquidity to the wider market. As Northern Rocks position deteriorated, it became clear that specific support was likely to be needed for it. On 13 September the Governor and the chairman of the FSA recommended that I authorise the Bank to provide special liquidity support. I agreed because I believed that that was justified.
There are clear principles governing such support, which are set out in the memorandum of understanding between the Treasury, the Bank and the FSA that was
first signed in 1997. Such support should be undertaken only when there is a genuine threat to the stability of the financial system and in order to avoid a serious disturbance in the wider economy. That was the case here. The provision of support was announced on 14 September. Although the FSA had assured the public that Northern Rock was solvent and that if depositors wanted to get their money out, they could do so, it became clear that further assurance was needed. Therefore, on 17 September, again on the advice and with the agreement of the FSA and the Bank of England, I announced that during the current instability in the financial markets, and should it prove necessary, I would put in place arrangements that would guarantee all the existing deposits in Northern Rock. That undertaking was extended on 20 and 21 September.
The Treasury, the Bank and the FSA continue to work intensively with Northern Rock with a view to helping it to resolve the situation. Any future solution must lie with the company, but the Government have provided appropriate help and will continue to do so. As I reported to the House on Tuesday, I have extended the Governments guarantee arrangements to all new retail deposits for which Northern Rock will pay a fee, while the Bank has provided an additional loan facility, which has replaced that of lender of last resort. I have today written to the Chairman of the Select Committee on the Treasury and the Select Committee on Public Accounts setting out more details. I am also publishing that letter and placing a copy in the Library of the House.
There are clearly lessons to be learned from what happened to Northern Rock and the wider instability across the world. The responsibility to minimise risks and prevent problems from happening in a particular bank lies first and foremost with the directors acting on behalf of its shareholders. That is their clear duty. It is the job of the financial authorities to set the policy and the regulatory framework in which institutions and markets work. Let me remind the House of those responsibilities. As the House knows, the Bank of England has complete independence in monetary policy. Its second core purpose is financial stability, a role that it discharges on a daily basis. The FSA, also independent, is responsible for the supervision of individual firms such as Northern Rock. Because of the importance of the financial system for the stability of the economy as a whole and because of the potential impact on the Exchequer in ensuring stability, the Government are rightly also involved. The Treasury is responsible for the overall legislative framework and I am accountable to Parliament.
It is right that the Bank and FSA should continue with those responsibilities. The model is one that others around the world are now following, but we need to review how the framework has operated and put in place whatever practical improvements are needed. As the FSA has said, it is reviewing its own lessons for itself. I look forward to its conclusions early next year. We need to make more reforms to prevent problems from happening internationally and in Britain. First, when the Financial Stability Forum reports to Finance Ministers at the G7 in Washington next week, I will urge faster rapid implementation of international agreements on solvency, accelerated work on international standards for regulating liquidity, more transparent
information on credit ratings and action to improve the transparency of off-balance sheet vehicles. Secondly, I will propose an International Monetary Fund and Financial Stability Forum early warning system to strengthen financial sector surveillance and to identify risks to stability and co-ordinated regulatory responses to them. Thirdly, I can report a European agreement this week to strengthen arrangements for ensuring financial stability in Europe and increase cross-border management.
It is important that regulators focus on liquidity as well solvency. Here at home, the FSA will shortly set out proposals for a review of the UK liquidity regime. As the Governor has said, all central banks face problems in providing support to banks in difficulty in a world where markets rightly expect high levels of disclosure and transparency. I can therefore confirm that if it proves necessary to clarify in Europe the legal and practical issues surrounding the way in which such support is provided and disclosed to protect financial stability, we will work with other European countries to provide that certainty. We will now review whether rules about swift takeovers of banks need to be changed.
When problems occur, however, we need to have a system in place that is clear and which reassures depositors. We will introduce legislation in the next Session to establish a new regime. With the FSA and the Bank, I am proposing the principles for the new regime in a discussion document published today. The new regime would mean that depositors would be insulated from a bank that had failed and would provide them with both greater compensation and certainty that their compensation could be paid out quickly. As a first stage, the FSA has decided that the financial services compensation scheme covers 100 per cent. of deposits up to £35,000, but I have made it clear that that is just an initial step towards a more comprehensive change.
We will continue to work closely with the banking industry, consumer groups and others to agree the new regime, and I hope that there will be cross-party consensus on it. We must all, internationally and domestically, consider what lessons there are to be learned from the summers events, and if needed I will take action. The changes that we will make will strengthen our reputation as the worlds leading international financial centre, and will be founded on our commitment to maintain a strong and stable economy. I commend this statement to the House.
Mr. George Osborne (Tatton) (Con): Let us be clear why the Chancellor is making this statement today. This country has seen its first run on a bank for 140 years, and while as he has pointed out the credit problems have been global, it is only in Britain that we have seen people queuing to withdraw their savings. That is because the system set up by the Prime Minister to prevent precisely such a crisis has failed its first serious test.
There are three accusations facing the Chancellor. The first is that he knew for more than a month that Northern Rock was in trouble and still failed to prevent the crisis. He said in his statement today that the companys business model had made it particularly vulnerable, but he was praising that model earlier this year when he was Secretary of State at the Department of Trade and Industry. The Bank Governor told the
Select Committee that a combination of four different pieces of legislation meant that the tripartite committee was powerless. Why did not the Government, with all the contingency planning that they have done over the past 10 years, realise that there was a gaping problem in their new financial oversight system? The director general of the CBI pointed out that
you dont wait for the cinema to catch fire before you check out whether the fire precautions are going to work.
Why did the Chancellor choose to give an interview to the press on 12 Septemberthe day before it emerged that Northern Rock was seeking emergency helpin which he attacked the banks and said that they should be more honest? Did he know that, within 48 hours, he would be trying to reassure the public about the honesty of the banking system? Was he not undermined by his own spin?
Will the Chancellor release the letters that he received from the Bank and the FSA? The Bank Governor has told the Select Committee that he is happy for them to be released, and I am surprised that they have not been released today. When the Chancellor was forced to offer the general guarantee to existing Northern Rock savers, he said that it would be unfair to other banks to extend it to new savers. Why has he changed his mind this week and done just that?
The second accusation facing the Chancellor is that, when the crunch came, no one knew who was in charge. The Bank Governor confirmed this in an answer to the Select Committee, which I praise for the work that it has done on this matter. When the Bank Governor was asked who was in charge, he answered:
What do you mean by in charge? Would you like to define that?
Is not the fundamental flaw in the tripartite system set up by the Prime Minister 10 years ago a flaw that the then Chancellor was warned about when the measures passed through the Housenamely that no one would know who was in charge?
For example, the FSA says that it saw its job as simply reporting Northern Rocks liquidity problems to the Bank. However, the Bank says that it sees its job as looking at the liquidity of the whole financial system rather than that of individual institutions. Frankly, it is a bit late for the Chancellor to stand at the Dispatch Box and say that we need to review the liquidity regime. Who is in charge? The answer is that the Chancellor of the Exchequer was supposed to be in charge, but he was not.
The third and final accusation against the Chancellor is that he does not yet seem prepared to take strong and decisive action to prevent such a disaster happening again. He says that he wants cross-party consensus. I wrote to him on 20 September offering the full co-operation of the Opposition in making the legislative changes necessary to protect depositors and to allow the Bank to do its job. He has not bothered to reply to me, but I can tell him that we will work with the Treasury on this to create an oversight system that works.
The proposals that the Chancellor has set out today, and those that he is consulting on, need to meet certain tests. We need to be clear about who is responsible for
monitoring liquidity and to ensure that regulation does not prevent us from dealing with a liquidity crisis when it arises. We need to be clear whether the regulation is European or has been gold-plated by the British Government. We need to reinforce the independence of the Bank so that there can never again be any suspicion of political pressure. We also need to insist that any new system, while protecting savers, does not stifle financial innovation or protect investors when that innovation goes wrong.
Will the Chancellor explain why he failed to mention the £100,000 figure that he gave to a newspaper in an interview three weeks ago as the sum that was likely to be covered by deposit insurance? It was not mentioned in his statement or in the consultation document, yet he chose to mention it to a newspaper. We also need to take steps now to tackle the growing personal and public debt that leaves Britains economy more exposed than others to financial turbulence, and we need to be clear about who is ultimately in charge.
It will take many years for the memory of the queues of panicked savers on our high streets to fade. The Governments boasts about stability and financial competence will now ring hollow. We will work with the Government on the changes that are needed, but the first thing that the Chancellor needs to do is to take responsibility for this mess. It is about time he provided the leadership and the decisive action that his high office demands.
As I told the House in my statement, it first became apparent to the FSA and the Bank in the middle of August that Northern Rock had difficulties. Between then and Northern Rock formally asking the Bank for facilities, a great deal of effort was made to try to help Northern Rock to resolve the position. The position was monitored on a daily basis, and Northern Rock was in close contact with the FSA, the Bank and the Treasury. During that period, a number of alternative courses of action were looked at, but unfortunately they did not work.
The problem that Northern Rock faced was that, because it had to get new financing facilities on a pretty regular basis and because the market could spot that fairly quickly, it became apparent that it was in difficulties. It could not therefore get access to funds, and the price that it was being charged was going up. I can tell the hon. Gentleman, however, that we did everything that we could to try to resolve the situation without special support becoming necessary. Eventually, however, it became obvious that unless special facilities were made available, the bank would be in very great difficulty indeed.
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