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It is important to remember, in the context of London being a global financial services centre, that pictures of those queues were beamed right across the world. It could have a long-term impact on London’s standing if prompt and decisive action is not taken following this crisis.
The strength of our regulatory regime has hitherto been one of the key factors in London’s success and is one of the arguments that we have been able to use to counter the pressure for greater regulation from Europe. It is vital that this crisis does not erode that standing, and the Treasury will need to work much harder in Europe to defend the strengths of the regulatory regime and put in place the right reforms to make regulatory supervision more effective.
It is also important to recognise—and why the Chancellor’s competence is now in question—that while the prospect of a run had been contemplated by the tripartite authorities, no plans were in place to reassure depositors. It appears that no plans were discussed until the queues formed. We know that over the weekend of 15 and 16 September there were discussions about whether retail deposits should be guaranteed to reassure depositors and stem the flow of withdrawals. Again, we know that the Governor had recommended that on the Sunday morning, but again the Government dithered. Remarkably, even on the very day that the guarantee was announced, No. 10 briefed at lunchtime that no guarantee would be on offer. By 6 o’clock, the Chancellor had decided to go for it. Again, there was dither and delay while an indecisive Chancellor made up his mind.
As the Governor made clear in his interview with Robert Peston, the scope of the guarantee was not clear when it was announced. It was only in a radio interview the following day that the Chancellor announced that he had extended the guarantee beyond retail depositors. Having given the guarantee, the Government are now consulting on reform of the existing arrangements to find a permanent solution to the problem. If only they had responded to the advice of the Governor and the chairman of the Financial Services Authority earlier in the year. Even the reform and consultation have caused confusion. When the plans were first announced in The Times, the Chancellor appeared to suggest that he wanted a scheme to cover deposits of up to £100,000. Now he is trying to back away from that figure, which shows yet more confusion in trying to deal with the aftermath of the problem.
We must also recognise that any guarantee scheme is a backstop, and is not a substitute for improving the regulatory framework—whether through the tripartite arrangements or the monitoring of solvency. We need to ensure that the regulatory system seeks to reduce the risk of future banking failure rather than focusing on merely mitigating any failure.
There are various estimates of the amount that the authorities have lent by acting as a lender of last resort. The hon. Member for Twickenham suggested £30 billion, while other reports have suggested £24 billion. The Minister said that she will not provide a running commentary on that analysis. However, can she clarify for the House and the taxpayer the assets on which the loans are secured? We understand that one tranche—about £11 billion—is secured on high quality mortgages of
the type that the Bank would accept as collateral from other institutions. A second tranche has been secured on a more general pool of assets that the Bank of England would not have accepted as collateral had the Treasury not stepped in.
Will the Minister confirm that there are two separate lines of credit—one from the Bank and the other, in effect, from the Treasury? How are those reflected in the Government’s accounts? The House and the taxpayer demand answers to those questions. We demand clarity where there is currently uncertainty and confusion from the Government.
We know—albeit only through the media and the Chancellor’s later acknowledgment rather than because he said anything up front—that an element of the interest over and above the commercial rate has been rolled up, and that Northern Rock owes that to the Treasury. Will the Minister tell us how much that loan stands at? The taxpayer demands the answer to that question.
When the money was lent, the Government were certain that it would be repaid and that the taxpayer was not at risk. The Chancellor said in his evidence to the Treasury Committee that the facility
“is secured against collateral. We have also guaranteed various deposits...we fully expect to...get that money back.”
If that was not clear enough, the Prime Minister said to the House of Commons on 14 November:
“Secured lending is being given in relation to Northern Rock, guaranteed against Northern Rock assets.”—[ Official Report, 14 November 2007; Vol. 467, c. 660.]
However, in his statement on 19 November, in words that were echoed by the Economic Secretary this afternoon, the Chancellor appeared to back away from the original cast-iron guarantee. He said:
“Substantial sums have been lent, and that money has to be repaid at an appropriate time and rate. The Government will consider proposals with a view to reaching the best outcome for the public purse.”—[ Official Report, 19 November 2007; Vol. 467, c. 961.]
That is certainly not the guarantee we were given when he gave evidence to the Select Committee.
We might ask why the Chancellor is much less certain now than he was in September. It is clear from the press reports about the two remaining bidders for Northern Rock that although a tranche of the debt will be repaid immediately the balance will be repaid over time. The timing and likelihood of repayment will depend on the new management’s ability to rebuild Northern Rock’s depositor base and their management of the mortgage book.
Even the sale process has been mired in chaos and confusion. Last week, to keep the pressure up on the bidders, the Treasury was briefing the papers that the Conservatives had agreed to co-operate on the nationalisation of Northern Rock. That is to do with a Bill that is apparently not even drafted by the Treasury. However, we were not approached on that. We even wrote to the Chancellor of the Exchequer in September to offer to facilitate the passage of a deposit insurance scheme and the reform of the banking and insolvency rules. We have not had a response from the Chancellor of the Exchequer to that offer of support.
Kitty Ussher: Will the hon. Gentleman give way?
Mr. Hoban: I shall happily give way. Perhaps the Minister will reply to some of the questions about the assets that are being used as a charge to cover the Government lending.
Kitty Ussher: On that specific point, the hon. Gentleman is aware, I am sure, that we are consulting on the reform of depositor protection and the insolvency regime for banks. That was, of course, mentioned in the Queen’s Speech. Will he confirm now that he will therefore support any legislation that we introduce?
Mr. Hoban: We said that we would facilitate the passage of any such legislation, but we need to see it first so that we can examine the reforms that the Government propose. We have offered that support but have had no response from the Government.
I turn now to the speech by the hon. Member for Twickenham, who is no longer in his place. He did not say how he thinks that nationalisation would improve matters, or set out what he would do if the situation did not improve. He did not detail what his strategy for running the bank would be. Would he want to continue to accept deposits? In his speech today and in previous statements to the House and the media, he has been very critical of Northern Rock’s lending practices. Would he want to continue to offer mortgages, or would he close down that aspect of the business? How would he manage the existing book of mortgages? Would he encourage prepayments, or would he roll them over? How much more money is he prepared to put at risk while Northern Rock is in public ownership? Those are all decisions that a nationalised bank and its owners—the Government—would need to make. The hon. Gentleman failed to set out a clear strategy for a nationalised bank. He may have captured the headline, but there is no substance to the soundbite.
One thing is crystal clear—it would be a sign of monumental failure if the Government had to nationalise Northern Rock. It would be an indictment of their handling of the crisis. At every step of the way, the Government have demonstrated incompetence. The Prime Minister ignored the proposal from the Governor of the Bank of England for reforming the rules to do with early intervention and deposit insurance. The Chancellor failed to display leadership by not having a plan when it was announced that the Bank of England was acting as the lender of last resort. That triggered a run on Northern Rock, in the face of which the Chancellor dithered over whether to issue a guarantee to depositors. Even when he announced it, he was not sure what he had guaranteed. The Chancellor and his aides have sown doubt and confusion in the sale process, keeping options open but remaining unclear about what they are.
Rob Marris: I infer from the hon. Gentleman’s remarks that his party thinks that nationalisation is not the way forward. Would he then be content for Northern Rock to go into administration, if the other options, including nationalisation, were ruled out or were not available?
Mr. Hoban:
The problem is that we have not heard from the Minister—and certainly not from the Liberal Democrats—what the strategy should be if the private
sale fails. We want there to be a proper discussion of the options, but we would much prefer a private sale to go ahead. It is time for the Government to be much more straightforward about the options that they are considering, so that we can debate them. The House needs to know the Government’s plan B if a private sale does not go ahead.
No one is proposing nationalisation as a solution in itself. It can be no more than the route to a final solution, and anyone who proposes it must be able to justify the solution that it leads to.
Julia Goldsworthy: The Minister said that all options were on the table. Is the hon. Gentleman ruling out nationalisation at any point, even if it turned out to be the least bad consequence of the crisis?
Mr. Hoban: I repeat what I have just said—that nationalisation would be a monumental failure and an indictment of Government policy. It would demonstrate that the Government had failed to manage the crisis properly. We hope that there will be a proper sale that will protect consumers and the interests of taxpayers. We hope that such a sale will maintain the financial stability of the system and preserve Northern Rock as a viable bank in the future.
No one expected flashes of brilliance from the Chancellor, but the Northern Rock crisis—let alone the loss of half the nation’s personal details and the botched capital gains tax reforms—has destroyed even his reputation as a safe pair of hands. For the past few months, we have seen dither and delay, chaos and confusion. When we needed leadership, he was indecisive; when we needed clarity, he was confused; when we need certainty about the safety of taxpayers’ money, he is full of caveats and qualifications.
Today’s motion from the Liberals shows that all we have is a headline in need of a story, an argument that is half made, and an opportunism masked as the wisdom of age. We expect that from the Liberal party, but we expect something more from the Government. We are entitled to expect them to protect taxpayers’ money, and to know how much of that money is at risk. Above all, we are entitled to know how the Government plan to resolve the crisis. Today, we are left with plenty of questions, but we are still to hear any answers.
Mr. Deputy Speaker (Sir Alan Haselhurst): Order. I remind the House that there is a 10-minute limit on Back-Bench speeches.
5.44 pm
Mr. Doug Henderson (Newcastle upon Tyne, North) (Lab): I start with the Conservatives. The idea that if Northern Rock is forced into administration or nationalisation it is a disaster for Government policy is absolute nonsense. That is not an indictment of the Government; it is a market failure in dealing with a difficult situation in our banking system arising from weaknesses and faults in the American banking system. Let us have none of that nonsense. A real problem has to be faced and I expect a sensible Opposition to look at the real options and back them rather than try to make party politics from them.
On the subject of party politics, the Liberal motion says that
“the Chancellor chose not to recognise the importance of Northern Rock as a large employer in the North East amongst his principles for assessing Northern Rock proposals”.
That is absolute nonsense—absolute rubbish—and it is not just me saying that, as I shall explain.
If the Chancellor had no commitment to the future of Northern Rock and its vital importance to the economy of the north-east and jobs in the north-east, why did he give the depositors guarantees and almost immediately provide loans for the business to keep it from insolvency in September?
John Thurso: Will the hon. Gentleman give way?
Mr. Henderson: In a little while, but not at the moment—
Steve Webb: The hon. Gentleman has no answers.
Mr. Henderson: I have plenty of answers and the north-east has plenty of answers for the Liberal Democrats—I can tell them that. I want to engage with one of those answers.
The Newcastle Journal is not renowned in the north-east as an anti-Liberal Democrat newspaper. On 20 November, which was well into the events at Northern Rock, the editorial in the Journal—speaking on behalf of the people of the north-east—said:
“The Chancellor did the right thing yesterday when he held true to the path he has taken since crisis engulfed Northern Rock...Of course, the approach has its critics, such as the hapless Vince Cable, whose posturing must embarrass Lib Dems in the region.”
It is unfortunate that the hon. Member for Twickenham (Dr. Cable) is not in the Chamber to hear what people in the north-east are saying. The hon. Gentleman has a reasonably measured demeanour when he is in the Chamber, but when he is in a television or radio studio, we hear headline grabbing, without a thought about his party’s policy, or the consequences of his posturing not only on his party’s effectiveness in the north-east but, far more important, on the economy of the north-east and the people of the north-east.
The hon. Gentleman gave the game away during the debate, so it will be interesting to read the Official Report tomorrow—I took a note. He was asked what would happen after nationalisation and his reply was clear. He said that none of us knows exactly what would happen. That was this afternoon—not half an hour ago. If the Liberal Democrats want to be a serious political party with serious policies about serious issues affecting people in the north-east, what sort of strategy is that? Not today, but at least four or five weeks ago, the Liberal Democrats made the main plank of their policy that the business should be nationalised. When the hon. Gentleman said that, he knew he could grab a cheap headline, as the Conservative spokesman pointed out, yet he does not know what the consequences of his policy would be.
Mr. Beith:
In that case, the hon. Gentleman owes it to the House to set out what will happen with a private bidder—presumably he knows. Will a private bidder be
able to repay the whole of the debt to the taxpayer and ensure the continuance of a Newcastle-based Northern Rock?
Mr. Henderson: That is an important question. I am not evading it and I shall come back to it.
The hon. Member for Twickenham said he did not know what would happen if Northern Rock was nationalised. The small shareholders who live in my constituency know what would happen: they would be left high and dry with nothing, and there would be interminable arguments in the House about whether the Government should subsidise someone who takes a risk. I have spoken regularly to the workpeople over the past three months. The workpeople in my constituency—4,000 of them—want the business to be kept intact and they believe that the best way of doing so is to find a private bidder to work in partnership with the Government to secure the business’s future.
The other issue about nationalisation, rather than administration, is that under administration the Government’s liability and the taxpayers’ liability might be about £25 billion or £30 billion, but under nationalisation—I have looked at the figures carefully with people from the City—the Government’s liability would be about £115 billion, and much of it would not be secured. That would be a disastrous policy to adopt.
The Liberal Democrats have another issue to address. If a private bidder is not prepared to become involved in the business at this time, with the necessary banking support from the Royal Bank of Scotland, Deutsche Bank and Citibank, why should we expect that they would be after a period of nationalisation? I do not know what short term is in this context, but why should we expect that, after three months, six months, three years, or six years, the private sector is going to be any more prepared than it is now? That makes a nonsense of the position, as the workpeople and the shareholders have already recognised.
The right hon. Member for Berwick-upon-Tweed (Mr. Beith) asked me about the way forward. There are no easy ways forward on an issue such as this. I have spent a lot of time talking to all the bidders about the detail of their options. I have spoken to the board of Northern Rock and other stakeholders. Realistically, all that can be done is for the Government to protect their back as well as they can with the loan finance that has been made available, to make sure that the depositors are safe—otherwise there is no chance of ever getting any more deposits in the business, either now or following restructuring—and to move forward gradually to try to reach a solution. I am told that that probably will not happen until January.
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