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Kitty Ussher: I do not think it appropriate to embark on a running commentary on the number of assets on Northern Rocks balance sheet in relation to the lending that has already taken place. The crucial point is that the Bank of Englands lending is secured against Northern Rocks assets.
Mr. Kevan Jones: Does the Economic Secretary agree that one of the priorities now is to ensure that Northern Rock continues to trade and keeps going at this crucial time? Contributions such as that of the hon. Member for Twickenham (Dr. Cable), which resembled Private Frazers Were all doomed, do not help either Northern Rock itself or the large number of people in the north-east who depend on it for their employment.
Kitty Ussher: I entirely agree. As I listened to the contribution of the hon. Member for Twickenham, it occurred to me occasionally that he might want a disaster scenario because it would make a better headline.
I know that there has been much interest in the amount of support that the Bank is giving. The Bank publishes its balance sheet every week, butthis is importantin common with other central banks it does not provide details of any specific operations, because it believes that doing so would undermine its ability to provide such support. A running commentary on any operations would be likely to have adverse effects that none of us would wanteven, I hope, Liberal Democrat Members.
As the House will know, as well as the support provided by the Bank of England there are the Governments arrangements to guarantee all deposits in Northern Rock, which will remain in place during the current instability in the financial markets. There is therefore no need for savers to take their money out, although of course they are free to do so. Those arguments were necessary, as I hope everyone will agree, and the guarantee will not be removed without proper notice being given to depositors. The Treasury has made it clear that that notice will be not less than three months.
Together, the ongoing support of the Bank of England and the guarantee of deposits have given Northern Rock an opportunity to consider its strategic options for the future, and it has asked for expressions of interest in purchasing the business. As a major creditor the Government clearly have a direct interest in that process, and will therefore have to agree to any proposals for the future of Northern Rock. On 19 November, my right hon. Friend the Chancellor set out clearly to the House the principles against which such proposals will be considered.
First, we must consider the interests of the taxpayer. The money that has been lent must be returned at an appropriate time and rate, and the Government will consider all options with a view to reaching the best outcome for the public purse. Secondly, we want to protect depositors. It is essential for us to do all that we can both to safeguard their interests and to maintain the service given to them. Thirdly, we will of course maintain wider financial stability. As the Chancellor has said, any outcome must also meet European Union state aid rules. The Government are happy to talk to any bidder that satisfies those principles.
As Members will know, Northern Rock is taking part in accelerated discussions with the Virgin consortium, but says that it is not ruling out other bidders or alternative options. In answer to a specific question from the hon. Member for Twickenham, I can say that the Government are not paying the fees of the Virgin group. I understand that there is an arrangement between Virgin and the company to pay fees up to a specified cap.
The hon. Gentleman argued that rather than those options being pursued, Northern Rock should be nationalised. As the Chancellor has made clear, we do not intend to rule any option in or out at this stage. But when the hon. Gentleman speaks of public ownership of Northern Rock as a temporary solution, he means that we should use it to try to find a private buyer, and that is exactly what we are already trying to do. As the Chancellor has said, we will of course continue to keep the House informed of developments.
Susan Kramer: I thank the hon. Lady for giving way. Her last statement was almost too much. Does she not understand that in order to realise the full value of an asset, the timing and circumstances of the sale must be looked at, and that a fire sale is not the structure that realises the maximum for the taxpayer?
Kitty Ussher: I am not sure that we can make our position any clearer than we already have: we have set out three principles, the first of which is to protect the interests of the taxpayer and the public purse. That is what we seek to do, and we will look at all options in order to do it, as well as the other interests that we have expressed.
Mr. Grogan: But have the Government set a deadline to secure a private sale, given that the liabilities are mounting day by day? If that does not prove possible, would not temporary nationalisation be preferable to administration? Have civil servants prepared a draft Bill to take through the House, should that be necessary?
No, there is no specific deadline. We have asked the company to come back to us by February 2008; that was the date in the original discussions when we agreed to provide the stabilisation
period. In response to the second part of my hon. Friends question, we have not ruled any options in and we have not ruled any options out at this stage. As the Chancellor has said, we will continue to keep the House informed of developments.
Let me turn to the third part of my contribution. It is clear that there are lessons to be learned from what has happened over the past few months. As we look to learn them, we will be guided by three important principles. First, the primary responsibility for managing risk is and must remain with individual financial institutions and investors. Secondly, that needs to be backed up by strong national regulatory frameworks. Thirdly, regulatory authorities in different countries need to co-operate effectively across borders. With those principles in mind, my right hon. Friend the Chancellor has set out our proposals for the international response to what has clearly been an international set of events, and we will continue to work closely on them with the financial stability forum and the International Monetary Fund.
There are also lessons to learn at home, particularly from the fact that the existing financial services compensation scheme clearly did not have the desired effect of giving consumers the confidence they needed. As a first step, the Financial Services Authority has increased the coverage of the scheme to 100 per cent. of deposits up to £35,000, but over the past few months we have been asking whether further reforms to the scheme are required.
Julia Goldsworthy: The hon. Lady spoke earlier of the fact that the Treasury still had all options on the table. Can she confirm then that Treasury officials have drafted a Bill for the nationalisation of the bank, on the basis that that might happen?
I was talking about depositor protection. We have also been exploring possible options to reduce both the likelihood of bank failure and the impact of failure if it does nevertheless occur. Our initial discussion period on those issues closed last week, but we intend to consult on more detailed proposals in the new year and we will legislate on that matter next year, if necessary.
At home and abroad, we are learning the lessons of what has clearly been a testing time. We are also continuing to work to resolve the situation with regard to Northern Rock. As I have said today, we have set out clear principles that proposals for Northern Rocks future must meet, and we will continue to assess proposals against them so that we can protect the interests of taxpayers and depositors and the wider financial stability. I have also said once again today that we are not ruling any option in or out at this stage, but that our preference is for the company to find a private buyer.
Mr. Mark Hoban (Fareham) (Con): After all the headlines and hype of the last few days, I had expected the leader of the Liberal Democrats, the hon. Member for Twickenham (Dr. Cable), to come to the House with a clear, well thought-through plan demonstrating what the purpose of nationalisation was, what would happen when the bank was in state control and what his exit strategy would be. However, we heard little to demonstrate that the nationalisation idea was anything more than a gimmicky headlinebut we should, of course, have expected that from the Liberal Democrats. The hon. Gentleman is known to be nimble on his feet, but given todays performance, if he ever achieves his ambition of appearing on Strictly Come Dancing he would be all sequins and no steps.
I also expected more of the Economic Secretary to the Treasury. Unless the Chancellor makes a statement before Christmas, this debate is all that we shall hear about the Governments position on Northern Rock, which is why we welcome the fact that the Liberal Democrats have secured an Opposition day debate on this issue. We had expected to be given a more substantive statement from the Chancellor before Christmas.
My speech will make it clear that a number of unanswered questions remain. We know that taxpayers, Northern Rocks employees, the creditors, the bidders and the shareholders face uncertainty. The Economic Secretarys brief speech did little to clear up that uncertainty. She said little about how the sale was progressing. Equally worryingly, she said little about the Governments plans in the event that the sale falls through.
Let me be clear that Conservatives want a rapid private sale of Northern Rock. We want a sale that safeguards the interests of taxpayers, maintains financial stability, protects consumers and, we hope, results in a bank with a viable future preserving valuable jobs in the north-east. Although we all share those aims, we cannot forget that we are in this crisis because of the Governments incompetence and mismanagement. Every problem in this crisis has been compounded by their dither and delay, and by confusion and chaos. Everyone accepts that the problems in the credit market are a global phenomenon, yet only this Government appear to be mired in a crisis of the magnitude of Northern Rock.
Mr. Beith: The hon. Gentleman laudably expresses a wish that we should have a solution to this involving a private sale that satisfies all the concerns, including those of the north-east. Is he therefore arguing that the taxpayer should forgo some part of either the £30 billion that has been lent or the interest on that sum in order to make the sale possible if it proves difficult?
Mr. Hoban: The Government, and the Chancellor when he gave evidence to the Treasury CommitteeI shall come back to the words that he used in a minutemade it clear that we would get the money back. That is the commitment that the Chancellor made, and we want to hold him to account on satisfying it.
The problem has become so bad that nationalisation is being discussed as a potential solution, but Labour Members should be in no doubt that nationalisation would be a signal of the Governments failure, rather than a triumph. Nationalisation has become an option only because of the litany of mistakes made by the Government: they failed to prepare for the problems in the banking sector, despite the advice of the Governor and the Financial Services Authority; they lacked leadership when the Bank became the lender of last resort; they were indecisive over guarantees; and they mishandled the sale process. We must ask ourselves every step of the way what the Government have done to get us into this mess.
The first mistake that the Government made occurred when the Prime Ministerthe then Chancellorrejected the clear and unequivocal advice of the Governor of the Bank of England that reforms were needed to the rules on early intervention and deposit protection. During an interview with Robert Peston on last months File on 4 the Governor said:
I think we would have pressed even harder than we did, and we did press pretty hard, to inject some urgency into the need for new legislation to enable there to be a procedure for pre-emptive intervention in banks and the reform of deposit insurance.
we conducted a particular exercise with the Treasury and the Bank in February we had identified in particular the problem of having a means of dealing with banking problems and the need to deal with the question of bank insolvency problems and also the question of the compensation arrangements.
Will the Minister tell the House what was done in response to that? Did the then Chancellor and the Secretary of State for Children, Schools and Families, who was then Economic Secretary to the Treasury, ignore that advice because it undermined the arrangements that they had put in place? Is this another example of the then Chancellor ignoring advice from outside his inner circle of advisers? When it became apparent that the credit markets were becoming tighter, what actions did the Treasury team take to examine the problems highlighted in Februarys exercise? Did they simply stand by and wait for things to happen?
Rob Marris: May I caution the hon. Gentleman and the Conservatives to be a little careful about being wise after the event and backing away from the wholehearted support that they initially gave to the Governments position on Northern Rock?
The Conservatives economic competitiveness policy group...advocated....We see no need to continue to regulate the provision of mortgage finance, as it is the lending institutions rather than the client taking the risk.
That policy commissions findings were widely praised by the Leader of the Opposition and by the shadow Chancellor, so I caution the hon. Member for Fareham (Mr. Hoban) about resiling from his partys former position and trying to be wise after the event. I urge him instead to continue the wholehearted support for the Governments policy. That is what leadership is about; it is not about ducking out when the going gets tough.
Mr. Hoban: The hon. Gentleman misunderstands the nature of the report. It was a series of proposals for the party, not party policy. The party is on record at the time as saying that, so it is disingenuous of the hon. Gentleman to make that intervention.
The report from John Redwood and Simon Wolfson sets out how we liberate our economy to compete with the likes of India and China.
Cut government regulation, planning restriction and red tape.
On 20 August on the ITV1 lunchtime news, the Leader of the Opposition said that the report was the most impressive and comprehensive analysis of the state of the British economy produced by any political party and a great report. Is that not the case?
Mr. Hoban: At the time, we said clearly that it was a great analysis, but that we did not accept the policy recommendations it contained. My right hon. Friend the Member for Wokingham (Mr. Redwood) and Simon Wolfson made a good analysis of some of the problems in the British economy and they made some proposals for policy prescriptions. We did not adopt those prescriptions at the time, so they were not Conservative party policy.
Let me return to the situation before the run on Northern Rock. It is ironic, in retrospect, that the private sector solution on offer at the time, from Lloyds, was vetoed by the Government because it would have involved the Bank lending money to Lloyds to enable it to take over Northern Rock. However, here we are now, a few weeks later, in a situation in which taxpayers money will continue to fund Northern Rock once a private sector solution has been found.
The Chancellor rejected that bid for Northern Rock, and the wholesale market dried up, so he then agreed that facilities should be provided to Northern Rock with the Bank of England acting as lender of last resort. The leak of the announcement of that policy on 13 September and the formal announcement the following day triggered the queues of retail depositors. Those queues were a clear signal to the authorities that retail depositors did not understand what lender of last resort meant. An action that should have reassured depositors panicked them.
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