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The FSA is responsible for regulating Northern Rock and it judges the mortgage book that Northern Rock holds to be of good quality. On the business model, as I said earlier, Ron Sandler and his team will introduce a model after they have had a chance to consider the options available to them. That will have to be endorsed by the Government, because it has to be cleared by the Commission under the normal state aid rules. Once we have taken that action, assuming that Parliament agrees to it in the next day or so, I believe that there is a good chance that we can help Northern Rock to get through this period, and that seems infinitely better than the Tory options of either bankrupting it or finding some other pretty ill-defined destination for it, which make no sense to me whatsoever.

Mr. Doug Henderson (Newcastle upon Tyne, North) (Lab): Listening to media reports this morning, it seemed as though the Conservative party was dead set on destroying the great northern institution of Northern Rock, and was prepared to see its assassination in its bitter opposition to nationalisation. However, it now seems that we are hearing different things for different audiences. I can tell my right hon. Friend that people in the north-east, and particularly the bank’s staff, will welcome the announcement of the establishment of a framework agreement. He will understand the considerable anxiety among the population at large in the north-east, particularly those staff. May I press him to undertake early publication of a business plan so that stability is brought to the business at the earliest possible date?

Mr. Darling: I am grateful to my hon. Friend, who rightly sets out his concern for the future of Northern Rock and for the people who work there. I hope that the business plan can be produced as quickly as possible, but I want to give the management team time to work out a plan that actually stands up. It is better to take time to get these things right, rather than rush into something, which is what the Tories have been suggesting over the past few weeks. It is time to get a properly worked up business plan. I am grateful to my hon. Friend for his comments about the Northern Rock Foundation, which supports many organisations in the north-east. That is an important step.

Several hon. Members rose

Mr. Speaker: I call Ken Clarke. [Interruption.]

Hon. Members: That’s you!

Mr. Kenneth Clarke (Rushcliffe) (Con): The Chancellor will recall that I supported his guaranteeing deposits last autumn, although he did it three or four days too late. However, it seemed to me and most other people that the only case for nationalisation was through an orderly run-down of the bank, with the sale of the loan book, as and when the markets permitted, to get decent value for the taxpayer. If it is genuinely business as usual and if the bank is to remain open and take deposits, why should not every sane saver in this country rush to take their savings out of other banks and saving institutions to put them into the only institution that offers competitive rates of interest, fully backed up by
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the Bank of England? What would that do for the reputation of the financial services industry in this country? How much profit does the Chancellor expect to make eventually out of the extraordinary venture?

Mr. Darling: I knew who the right hon. and learned Gentleman was, even if he was taken aback. He appears to support precisely what I propose: that we give the bank time to reorganise and refocus. However, I do not agree with his proposition that the bank should simply be run down. The management team needs the opportunity to restructure and refocus the bank because the market conditions have changed. On its operation in the marketplace, the state aid rules exist to ensure that it cannot abuse its position, but it is in the general interest of stability and of taxpayers to have an opportunity to work things through. If we followed the course of action that the Conservative party advocates, the taxpayer would lose substantial amounts.

Jim Cousins (Newcastle upon Tyne, Central) (Lab): Is my right hon. Friend’s intention with nationalisation to grow on a successful business in the public sector or is it simply the beginning of a slow, lingering death for the business? The House is not even at the beginning of the affair. Does the statement mark a new beginning or the beginning of the end in many homes in my city of Newcastle?

Mr. Darling: Let me put it this way: we had a choice of accepting one of the two bids on the table from the Virgin consortium and from the board. However, when we examined those two bids and judged them against the option of public ownership for a temporary period, they did not stack up in value for money terms. It would have been wrong of me to make a proposal that involved significant subsidy and that, as the figures clearly showed, was not the best option. We must at all times look after three things: the financial stability of the system, security for depositors and savers, and value for taxpayers. That is why I reached the decision at the weekend that I have announced today.

I hope that Ron Sandler and the new management team can examine the bank, ascertain what needs to be done, especially given the market conditions that it now faces, and see what we can do to refocus and restructure the business. I cannot give my hon. Friend the answer today because, as I said, the management needs time to do that. However, the alternative of accepting a bid that was not good value would have been wrong, and the suggestion from the Conservative party simply to bankrupt the bank would have been a profound mistake.

Mr. Alan Beith (Berwick-upon-Tweed) (LD): I encourage the Chancellor to resist the calls from Conservative Members to run off the bank completely, and instead to keep it going as a business. I welcome his comments about the Northern Rock Foundation continuing to secure income. After all, if the north-east had been offered even a share of £50 billion in Government loans and guarantees, we could have used it to benefit the region. At least the foundation can give us some benefit.

Mr. Darling: The right hon. Gentleman is right: the Conservatives want the bank not to take any new business, which would involve it being run off. At least,
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that is one policy that they are advocating; it would not surprise me if they had another one by tomorrow. That sort of inconsistency would just compound the difficulties that Northern Rock faces. In relation to the action that we have taken, I am grateful for the right hon. Gentleman’s support.

Sir Stuart Bell (Middlesbrough) (Lab): The Chancellor is perfectly right to refer to the sub-prime mortgage crisis in the United States and the ongoing difficulties in the financial markets. Against that background over the past five months, has he not ensured financial stability, prevented contagion, defended the interests not only of the taxpayer but of Northern Rock’s depositors and savers, and provided guarantees that have not been called upon? Given that fact, will he ensure that temporary ownership is also prudent ownership and does not fall within the time scales of our 24-hour news media?

Mr. Darling: As I have told the House, if we had not intervened to save the bank last September and if it had gone down, there would have been a substantial risk of the problems that it had faced and the difficulties caused by its collapse affecting the rest of the banking system. We therefore intervened and we were right to do so, and as I have said, at that time we were supported in all parts of the House. I fully accept that the Conservative party moved from that position subsequently. In relation to the savers and depositors, we were right, too, to issue those guarantees, because we wanted to ensure that they would not lose their money. We have been successful in that, too. The third element is to ensure that we do the right thing by the taxpayers of this country. That is why I have made the proposals that I have made today—precisely to ensure that the taxpayer’s interests are protected.

Mr. Iain Duncan Smith (Chingford and Woodford Green) (Con): It is a long time since we have seen so many smiling faces below the Gangway in response to an announcement by the Chancellor—he has certainly pleased one big audience down there.

May I press the Chancellor on the issue of competitiveness? As he said, the bank is going to trade through. He talked about it trading responsibly and not abusing its position under state control, but how will he guarantee that it will be unable to abuse that position or to continue as it has, which is what got it into so many problems in the first place?

Mr. Darling: At the risk of upsetting the right hon. Gentleman, I say to him that I am afraid that the best guarantee is the European Union state aid rules.

Mr. Ronnie Campbell (Blyth Valley) (Lab): It is very important that we take notice of the work force in the business plan and ensure that their jobs in Northern Rock are assured. I can tell my right hon. Friend that they are worried about what is going to happen to their jobs. As far as the bank is concerned, tomorrow morning I will be opening an account in the people’s bank.

Mr. Darling: I am surprised that my hon. Friend does not have one already, but I am sure that the bank will be pleased to hear that.


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Adam Price (Carmarthen, East and Dinefwr) (PC): It is not just the people’s bank that people are concerned about; it is the people’s debt. We have heard the figure of £100 billion, but what is the Chancellor’s estimate of the total liability to the taxpayer, including the guarantees, the loans and any shareholder compensation? Will that amount now also include subordinated debt, which also runs to some billions? He said that the FSA regulates Northern Rock, but is he content with that? The FSA is required to produce a risk analysis of building societies every six months, but where was it? Did it tell the Treasury of its concerns about the massive over-reliance on the wholesale market? If it did not tell the Treasury, heads should roll at the FSA; if it did, perhaps Ministers should be considering their positions.

Mr. Darling: As has been well documented, the FSA accepts that it should have taken action last year when it became aware that there were problems in relation to the bank. However, I remind the House that, as the Treasury Committee found, the primary responsibility for running Northern Rock lay with the directors. They got themselves into a position from which they could carry on trading only by securing access to billions of pounds of funds from the financial markets. When that became difficult and then impossible in September, they had no alternative but to go to the Bank of England. The primary responsibility for Northern Rock, as for any other bank, must therefore lie with its directors.

On the hon. Gentleman’s earlier points, Northern Rock has a good quality mortgage book, the funds that have been advanced by the Bank of England are secured against Northern Rock’s assets, and as to the guarantees that I have given to depositors, and other guarantees, none of them has been called, so there has been no cost to the taxpayer.

Ms Dari Taylor (Stockton, South) (Lab): Maintaining banking stability is critical to all of us in the House. Does my right hon. Friend therefore accept that it would be valuable to have an all-party solution to the problems that Northern Rock is facing? With that in mind, will he tell us whether the Treasury has received and assessed any ideas from the Conservative Opposition, or has it in fact received no ideas from them?

Mr. Darling: I have to tell the House that, if we were going to assess the Conservative party’s policies on this matter, we would have to increase hugely the number of people whom we employ, simply because its policies seem to change every day.

Mr. Michael Fallon (Sevenoaks) (Con): Will the Chancellor confirm that clause 11 of his Bill will enable the Bank of England to offer financial assistance to any building society that might be in trouble? Is not the real signal from the nationalisation that he has announced today that from now on, any bank or building society that gets into trouble through its own incompetence can expect to be bailed out by the taxpayer?

Mr. Darling: No, that is not the position. There is provision in the Bill to allow for assistance to building societies, because that power does not exist at the moment; it seems to me prudent to include it in the
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provisions. The tests that have to be passed before a bank can be nationalised are quite high. There will have to be a substantial, serious threat to financial stability, or funding must have been given that has been underwritten by the Treasury, as with Northern Rock. The test that will be applied to any financial institution that is getting into difficulty is simply this: does it present a systemic risk to the system as a whole? If it does, there will be a case for Bank of England intervention; if it does not, that will not be the case. The tests that we shall apply have not changed, and they will not change as a result of the legislation.

Sir Gerald Kaufman (Manchester, Gorton) (Lab): Has my right hon. Friend noticed that The Daily Telegraph says today that he is doing the right thing in bringing Northern Rock into temporary public ownership, and that his action is likely to have considerable advantages for the taxpayer? Does not the view of that Tory newspaper contrast with the vacuous blather given from the Conservative Front Bench? That is the party that rushed the nationalisation of Rolls-Royce through the House.

Mr. Darling: I remember the nationalisation of Rolls- Royce; I was not here at the time, although I am pretty sure that my right hon. Friend was. I did indeed notice the remarks in The Daily Telegraph, although I must concede that it took me some time to get to the bit that said I was doing the right thing—it was a pleasure to read it. The problem for the Tories is that they do not actually have any coherent idea of what to do in this situation. Their position changes from day to day, and from week to week. Therefore, all that we see is cynical opportunism, because they have nothing else to offer.

Mr. Peter Lilley (Hitchin and Harpenden) (Con): A recent study shows that Northern Rock is already repossessing more homes than any other major bank. Does the Chancellor still stand by the assurance that he gave me and the House that Northern Rock has a high-quality loan book? If he does, and if he believes that it has a lower proportion of bad debts but is repossessing more of them, will he, as its owner, tell its managers to pursue a less aggressive repossession policy, or does he intend to wash his hands of what the managers do and be the Pontius Pilate of the repossession business?

Mr. Darling: This is an example of the Tories trying to have it both ways at once. Half of them say that we should not be interfering in the running of the bank, while the other half say that we should interest ourselves in every single transaction. I have made it very clear that the operational decisions and the day-to-day management of Northern Rock have to be a matter for its management. That is absolutely right. I would just say to the right hon. Gentleman, as he was a member of the last Conservative Government, that there are repossessions today, and that is extremely unfortunate, but they are at a fraction of the level they were when he was a Minister.

Mr. Chris Mullin (Sunderland, South) (Lab): My right hon. Friend should know that his statement will be widely welcomed, even though we are all aware that difficult decisions lie ahead. He was right to stress a few moments ago that the primary responsibility for this
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debacle lies with the former managers of Northern Rock. Given that that is so, does he consider it remarkable that the hon. Member for Tatton (Mr. Osborne) has uttered not one word of criticism of the previous management—they were Tories to a man, incidentally—but has instead reserved his indignation entirely for those who are trying to clear up the mess?

Mr. Speaker: Order. I ask the House to remember that we are supposed to be putting questions to the Chancellor of the Exchequer about his stewardship of these matters.

Mr. Darling: You are, of course, right, Mr. Speaker. So, too, is my hon. Friend in his observation that the primary responsibility for Northern Rock’s difficulties has to rest with those on the Northern Rock board: they were responsible for the business model and had no fall-back position once it became clear that they could not secure the funding that was needed.

Mr. John Maples (Stratford-on-Avon) (Con): The Chancellor does not really believe all this stuff about restructuring Northern Rock, returning it to the market and giving money to the Northern Rock Foundation. His responsibility is to get the taxpayer off the £100 billion hook that that they are on, so that should be first, second, third and fourth on his list. To that end—this is a genuinely honest inquiry—will he explain something that I do not understand? Why has he chosen nationalisation rather than administration? He said again today that administration would result in a fire sale, but that is not necessarily so; he could quite easily have appointed Mr. Sandler as the administrator to proceed with the policies that he wanted him to pursue. That would have given the Chancellor far greater flexibility. He would not have acquired all the other liabilities of nationalisation that he is now taking on or have had the problem of compensating shareholders. In an administration, they would simply have taken what was left, which would probably have been nothing, whereas he is now going to face endless litigation from what looks like a group of very aggressive hedge funds that are latecomers to this party.

Mr. Darling: I know that the hon. Gentleman was trying to be helpful to his party, but I have to remind him of what the shadow Chancellor said in November last year— [Interruption.] I am quite sure that Conservative Members do not want to hear this, Mr. Speaker. When administration was being discussed, the shadow Chancellor said:

I could not have put it better myself.

Mr. Geoffrey Robinson (Coventry, North-West) (Lab): Is my right hon. Friend aware that if the Opposition do not like hearing the good and sound words of The Daily Telegraph, they might care to read the leading article in today’s Financial Times, which described his decision as “sensible” and “non-ideological”, and likely to be very successful in achieving the purposes that were set out at the beginning? Is he aware that we wish the new management well in the job that it is about take on—ensuring that it will be a success for the taxpayer and others who have a stake in this business?


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Mr. Darling: I am grateful to my hon. Friend. I think that most people recognise that the action we have taken is right in the interests of wider stability and of the taxpayers of this country.

Mr. John Greenway (Ryedale) (Con): May I return the Chancellor to the questions put to him by my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) and my right hon. Friend the Member for Chingford and Woodford Green (Mr. Duncan Smith)? It is no good just saying that the state aid rules will deal with the issue of competition—they will not. The hon. Member for Blyth Valley (Mr. Campbell) has already named Northern Rock the people’s bank, so why should anybody retain support and deposits in building societies and other banks when this bank now has a Government guarantee? Will the Chancellor tell us what advice he has had from the Financial Services Authority about how to avoid any depositor thinking that all his deposit is guaranteed by the bank and not subject to the same financial services compensation scheme rules that apply to all other institutions?

Mr. Darling: Once again, half the Conservatives seem to want the bank to fail, while the other half are worried about its being too successful. I said in reply to the right hon. Member for Chingford and Woodford Green (Mr. Duncan Smith) that whatever business plan is approved has to meet the European state aid rules, which are there to ensure that there is not unfair competition when an institution has a degree of support from a Government. It is important for Northern Rock to have the opportunity to continue to trade in order to get through this difficult period—and I am sure that it will be painful for the company. However, if we take the opposite view of removing the guarantees and stopping it trading or offering products—I am not sure that the hon. Member for Ryedale (Mr. Greenway) was advocating that—we might as well put Northern Rock into administration, which would result in a significant loss to taxpayers. I cannot believe that that is his position.

Mr. Kevan Jones (North Durham) (Lab): Having many constituents who work for Northern Rock, I warmly welcome my right hon. Friend’s announcement. May I also add my welcome to that of the right hon. Member for Berwick-upon-Tweed (Mr. Beith) for the underwriting of the commitment to the foundation? Does my right hon. Friend agree, however, that the worst possible outcome for the work force, the shareholders, the Northern Rock Foundation and, more importantly, the north-east economy would be the nonsense proposed by the Conservatives of putting the bank into administration and having an asset sale?


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