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19 Feb 2008 : Column 197
5.53 pm

Jim Cousins (Newcastle upon Tyne, Central) (Lab): The House is confronted this afternoon with a new and rather interesting situation. In front of the House is the question—in a sense, it has been there to be debated and thought about since last September—of what sort of bank this will be in the future. The reason why I have been very sceptical about nationalisation as an option is that the people who put forward the case for nationalisation, as I think the hon. Member for Twickenham (Dr. Cable) will be honest enough to acknowledge, clearly saw it as a transitional move—a more decent option than bankruptcy. They saw it as a kind of state-organised wind-down, with some of the less attractive features of bankruptcy removed.

The nationalisation that has been offered to the House by Mr. Sandler in Newcastle over the last 24 hours and by my right hon. Friend the Chancellor in the House yesterday and today may prove to be a different beast. That prospect gives me some optimism about the outcome of the affair. The Conservative Front-Bench spokesman’s policy was clearly to have a rapidly managed run-down of the bank; I think that that was the phrase he used—“managed run-down”. As I have discovered in the past couple of days, one has to check Hansard very carefully for the words that people use. Rapidly managed run-down is just about the worst possible outcome of the affair for the taxpayer, who will get less value out of the bank; for the jobs in Newcastle and in Durham, which will all be lost; and for the human resources that have been built up in the bank, which have proved quite remarkable and have sustained the difficult experiences of the past few months. Such action would fire into the markets at one of the most difficult moments to dump assets and to undermine savings. It is the worst possible course of action that we could adopt at this moment.

Mr. John Maples (Stratford-on-Avon) (Con) rose—

Jim Cousins: I hope that the hon. Gentleman will understand my situation.

Mr. Maples: I completely understand the hon. Gentleman’s situation with his constituency; in his position, I might think the same thing. However, I do not think that he can argue that putting the bank into liquidation, for instance, and freezing the situation as it is now—we are told the loan book is good—would leave the taxpayer in a worse position than letting the bank go on, making more and more unsecured loans at 125 per cent. loan to value on mortgages. I do not see how that would put the taxpayer in a better position than they are in now.

Jim Cousins: At least the hon. Gentleman has clearly stated what was implicit, although not so clear, in the comments made by those on his Front Bench—that they were, in fact, advocating bankruptcy. That would destroy the assets and the ultimate value in the business. Let us be clear: that is not a good course of action for the people of Newcastle or for the markets.

Mr. Redwood: As a local Member for the business, has the hon. Gentleman been given any assurances by the Chancellor that he is going for the growth model and not the wind-down model?

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Jim Cousins: No, I have had no such assurance; nor, at this stage, would I necessarily look for one. We have had from Mr. Sandler clear comments that he sees the business as a going concern and is preserving the option of growing it on. Let us be fair about this. Northern Rock was trying to be a big bank based in the north-east that could take on the big boys of the banking sector. That prospect, from the north-east’s point of view, must be retained. It may not ultimately work out that way, but it must be retained.

My right hon. Friend the Chancellor has not ruled out that option, because 11,000 jobs in Newcastle now depend on the finance and business services sector. They are jobs that people were told were a modern economy into which they should put their aspirations and careers. Most of those jobs depend directly or indirectly on Northern Rock. Retaining the possibility that the good business that is still there in Northern Rock can be grown on is an important part of the proposals. It is clear that that option has not been ruled out. I did not quite understand the remarks made by the hon. Member for Twickenham on that issue. He was not clear. His phrase about whether this was the beginning of the end or the end of the beginning seemed to me to mean that the logic of what he went on to say was that this should be the beginning of the end. That is a matter that the House will have to consider in the future.

John Hemming: Will the hon. Gentleman give way?

Jim Cousins: I am sorry; I cannot give way.

I must also take issue with my right hon. Friend the Member for West Dunbartonshire (John McFall). I do not think that it would be sensible to insist on the continuation of the penalty arrangements imposed on the bank in September. I do not think it would be sensible for the target of repayment of outstanding obligations to the Treasury and the Bank of England to be sought to be achieved in one to three years, as was the apparent position of the Government only a fortnight ago. Those matters must be reconsidered.

I agree that the business plan is the next step, which the House must consider, but it is extremely important that the work force, who have proved to be so steady and stable in what have been very difficult circumstances, are actively involved in its preparation. I look to my right hon. Friends on the Front Bench to give me clear assurances about that issue before the end of this debate.

The House must understand that mortgages are now not long-term products. The life of a mortgage is less than five years. If a mortgage business does not grow, it dies. Saying that Northern Rock in its present form cannot take on new business will kill it off, and again I look for further reassurances from my right hon. Friends on the Front Bench that none of the proposals in the Bill is predicated on the assumption that Northern Rock will be unable to take on new business. As Northern Rock’s fixed-term mortgages become due, borrowers are already being directed back to the markets rather than to the bank’s own mortgage review provisions. That policy has been pursued for the past two months, but if it continues for any length of time, it will mean certain death for the bank. I look to my right hon. Friends on the Front Bench, and to Mr. Sandler, for very clear assurances that it will be discontinued, so that Northern Rock has the option to construct new business.

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Another important thing to understand is that there has been a significant change in the Liberal Democrats’ thinking about nationalisation. They began by saying that nationalisation would be an almost momentary interlude, merely a phase in the transition to private ownership. Over the past few days, however, it has become clearly recognised in all parts of the House that the problems at Northern Rock will not be solved in a moment or two, and perhaps not even in a year or two. The sensible framework for the House’s thinking is that we will have to deal with the situation at Northern Rock over a number of years. Moreover, in due course—I do not think that it would be reasonable for us to insist on their doing so this afternoon—the Government will have to consider how they discharge their obligations to Parliament in reporting on the management of a publicly owned bank that is likely to remain in public ownership for quite a significant period.

Another welcome aspect of the Bill is that it not limited to one line that deals with the specific problems posed by Northern Rock. Instead, it provides means of dealing with other problems that may exist and with which the House will have to deal. Northern Rock is not an isolated piece of rock in an otherwise quiet and calm sea. We are talking about a very turbulent market, and other unexpected things could happen. The Government have been right to use the Bill to provide a context for dealing with other matters if the need arises. In particular, I welcome the additional provisions that deal with problems that might affect building societies. They are especially helpful, as they will calm the markets and reassure borrowers and depositors until the Government can put longer-term legislation in place.

The Government have various other matters on their agenda at the moment. Affordable housing is one problem, and another is how higher levels of home ownership can be achieved among people whose incomes are neither great nor especially stable. Some of what Opposition Members have said about Northern Rock this afternoon leads us precisely to the debate about how the Government should deal with such matters, because the fact that there is a bank in public ownership means that they will be in the front line of providing housing finance.

Some of my other doubts centre around whether the Government, at this stage in their life, can take on such problems—

Mr. Deputy Speaker: Order. I call Mr. Stephen Dorrell.

6.6 pm

Mr. Stephen Dorrell (Charnwood) (Con): The matters that I want to cover in my remarks follow very directly from the comments made by the hon. Members for Twickenham (Dr. Cable) and for Newcastle upon Tyne, Central (Jim Cousins). However, I draw a conclusion that is almost precisely the opposite of the one drawn by the latter: my central concern about the Bill, and the reason why I believe that Opposition Front-Bench Members are right to say that it must be resisted, is that after virtually six months of indecision about Northern Rock’s future we are being offered a
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mechanism but no clarity about the objectives that it is being put in place to achieve.

We are told that nationalisation will be merely a short-term phase, but we are given no clarity at all as to the objectives that management should follow in that supposedly brief phase, nor about the shape of a business that the Government hope ultimately to be able to move back into the private sector. The hon. Member for Twickenham touched on the fact that Northern Rock’s new management have two alternative ways to discharge their responsibilities as a nationalised enterprise. In crude terms, he said that they had a build-up option or a realise-the-assets option.

The hon. Gentleman said that he could see arguments for both, but I find it rather more difficult than he appears to do to understand the arguments in favour of continuing to develop the business model that clearly failed very dramatically in the events of last September. Let us examine the two options that he rightly identified, starting with the build-up option, if I may use that shorthand.

In effect, the build-up option would involve using state support to back a business model that caused the bank to land up in the situation that it found itself in in September. The state would be used as a sort of turn-around venture capitalist, with Ron Sandler taking a business in trouble and making a success of the problem that he inherited. I am not a banker, and I would not try to second-guess bankers’ views about the realism of that option, but neither would I seek to second-guess the results of what actually happened. Moreover, I do not think that the addition of the state in the role of venture capitalist does anything to make it more likely that the option would be more successful the second time around than it was the first.

John Hemming: The right hon. Gentleman is right that there is no certainty about the situation, but does he accept that the biggest uncertainty has to do with the quality of the loan book, the organisation’s key asset? Markets sell uncertainty, so the faster one tries to solve the problem, the bigger are the losses that may arise, with the taxpayer picking up the ticket.

Mr. Dorrell: The hon. Gentleman makes a different point, if I may say so. I agree that there is a benefit, if we are going for the run-down option, in an orderly run-down. I understand that, and I think that he is right. However, it is a different argument from saying, as the hon. Member for Newcastle upon Tyne, Central apparently believes, that the way to deal with the situation is to put more money behind the business idea that landed us in the circumstances that we found last September.

In the circumstances that Northern Rock is in now, the Government should be clear that they are not proposing support for another attempt to make the failed model work. But that is what the hon. Member for Newcastle upon Tyne, Central apparently wants the Government to do. It is on exactly that question that the Government are being studiedly vague.

May I pick up a specific term used earlier in interventions on the Chancellor? He took some comfort from the proposition that Northern Rock in public ownership, as
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he calls it—a nationalised industry—would be run on a normal commercial basis, as if that was a term of art capable of independent analysis. The whole point about a commercial market is that commercial players look for new ways of exploiting markets. They look for competitive advantage. Northern Rock thought until last summer that it had found a new model from which it could derive commercial advantage. It was therefore being run on a normal commercial basis. It is just that that normal basis of seeking to exploit a new business model did not work. To attempt to confine the scope of the new corporation by saying simply that it will be run on a normal commercial basis begs all the difficult questions and gives absolutely no comfort to me on behalf of my constituents as taxpayers.

So I oppose the Bill not because I deny the benefit of providing a period for orderly management of the company’s affairs, but because the Bill fails to take advantage of the opportunity to clarify a series of objectives for new management, which in my view should clearly be the orderly realisation of the assets of Northern Rock. I believe that that is right from the point of view of taxpayers and of avoiding state-subsidised competition in the marketplace. I acknowledge that it will be difficult for those who have been employed in the building of a business model that ultimately did not work in the marketplace, but I believe that those people’s futures will be far better secured by re-employing them in a business model that works than by trying to offer them a second round in a business model that did not work.

John Hemming: Does the right hon. Gentleman accept that the business model that did not work was not covering the loan book by deposits and that, whatever happens tomorrow, the loan book is not going to be covered by deposits, so the same business model is being maintained?

Mr. Dorrell: It is a question of what the objectives are during an avowedly transitional stage. I do not want to repeat that point. If we are rejecting the option of building up the bank on the previous model, we also need to be clear what is the alternative set of objectives that we are holding out. I think that a period of orderly realisation of assets is required. The thing that gives me real concern in the statements that the Chancellor has been making is the apparent implication that the only form of orderly realisation that he envisages is the sale of a business called Northern Rock. It could very easily be—I hope that Mr. Sandler’s business plan will include this as one of the options that he will explore—that the best way of realising the assets of Northern Rock is to do so in parcels: to sell parts of Northern Rock to different purchasers.

The idea that success in this set of circumstances is creating a new, profitable enterprise does not seem to be self-evident from the facts. What is important is that there should be, as the hon. Member for Birmingham, Yardley (John Hemming) says, an orderly realisation of assets to secure the interests of taxpayers, to avoid subsidised competition in an already competitive market going through its own difficulties, as we all know, and to secure permanent, stable employment for the people who undoubtedly face uncertainty as a result of having secured employment in a business that ultimately, sadly, did not work.

19 Feb 2008 : Column 202
6.15 pm

Mr. Doug Henderson (Newcastle upon Tyne, North) (Lab): There really is only one issue before the House this evening, and that is the question whether nationalisation of Northern Rock is appropriate at this time. There is a secondary issue if a decision is taken to nationalise—although it would have arisen whether the bank was nationalised or not—of what happens to Northern Rock in business terms in the future.

If the Government had announced in September in response to the difficulties of which they were notified by Northern Rock that nationalisation had to take place immediately, there would have been an outcry from the Opposition. They would have said that the Government had not given time to think about what the issues were, that the Government’s action was ideologically driven and that it was a return not to the 1970s but to the 1940s. The Government were right to ask what were the issues before us.

The Government were clear, and they had the support of the British people—people in Newcastle, shareholders, workers and even the Conservative party—when they said that the issue was not only about Northern Rock. Northern Rock is an important issue—believe me, it is in my constituency—but it is also important for Britain’s financial markets. From the Government’s point of view—I say this coming from Newcastle—the key issue is the future of the financial markets in Britain. They are a massive employer, they make a massive contribution to our economic growth, and they are important to our reputation as a trading nation. The Government made the right decision, which was to say that if the problems of Northern Rock spilled over into other sections of the financial community there would be serious problems for everyone, including even worse problems for Northern Rock.

What the Government did then of course helped to bolster Northern Rock, and that was welcomed more by depositors than anyone else, as was shown by their response. I supported what the Government said then, which was that Northern Rock would not stay as it was. There were three ways forward: to close the business as quickly as possible and sell off any assets; to find a private sector solution that could lead the business forward; or to nationalise the bank, which is the third option that we are dealing with today. It was right to try to find a private sector solution, and that was supported by the trade unions in Newcastle because they know, as I know, that people who have experience of retail banking and the mortgage business realise the pitfalls and know what is necessary to make the business tick.

If we could have found as a nation a private bidder to take over Northern Rock in a sensible way, that would have been by far the most desirable outcome. I am pleased that we have the support of the Liberal Democrats today on nationalisation. They were somewhat premature in jumping to the conclusion that nationalisation was inevitable, but that in a sense is history; it is behind us now. I believe that today the House will be overwhelmingly in support of the nationalisation of Northern Rock because there is no alternative. If we do not nationalise, there will be immediate damaging consequences for Northern Rock and for the rest of the financial industry, even today. That is how we must go forward.

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I must say that I am still not clear what the Conservative position is. I do not want to wind this debate up into a big rhetorical battle between us and the Conservatives, but I have listened to what has been said on the radio and in some media outlets, and the message being sent clearly to the British people is that the Conservative party is against nationalisation, full stop, and that whatever happens to Northern Rock, its shareholders and its workers as a result of no nationalisation just happens. According to the Conservatives, if the consequence is that the business goes bust, people are laid off and the shareholders get nothing because Northern Rock is a business without value—the Conservative Front-Bench team has confirmed it today—we as a nation generally, and those of us in Newcastle, who have a special interest, must all live with that. If that is not the Conservative position, I would be extremely grateful if someone could tell me what it is.

Mr. George Osborne: I am not sure whether the hon. Gentleman is aware that what he will vote for tonight could lead to very substantial job losses at Northern Rock. What the Chancellor of the Exchequer said at the beginning of his speech implied that the bank would not be able to operate in an aggressively commercial way, as Ron Sandler suggested it should. The Chancellor’s view, by the way, is that the shareholders should get nothing. That is what the hon. Gentleman will be voting for tonight.

Mr. Henderson: I know what I am voting for tonight, and I think that my constituents will know, but even after the hon. Gentleman’s intervention, I am not sure that my constituents or even his will know what he is voting for. If he is not voting for nationalisation, what is he voting for? We cannot just leave Northern Rock in abeyance, floating through some land where no one knows the terrain. People want to know the terrain. The people who work in the business want to know what the different political parties are saying and what Parliament will do about their jobs.

Mr. Andrew Love (Edmonton) (Lab/Co-op): Will my hon. Friend give way?

Mr. Henderson: I am taking up other people’s time if I give way, but I will do so.

Mr. Love: My hon. Friend asked what the Conservatives propose. They propose the direct loss of 5,000 jobs in Newcastle, and probably 6,000 other associated jobs. I read in my newspapers that the Conservatives have set up a committee to try to make inroads in the midlands and the north of this country. As long as they have that cavalier attitude towards jobs, it is unlikely that they will make any progress.

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