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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.
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?
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