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I am grateful to my hon. Friend. It is not just in the north that they will make no progress; they will make no progress elsewhere, because people throughout the country will see what is going on. There is plenty of spin and the suggestion that the Conservatives are now a new party and all the rest of it, but when it comes to policy positions on things that affect peoples lives, they do not make the tough
decisions. We do not get much advice from the Conservative party these days.
I move to the second question: the future of the business. The Chancellor said in his statement yesterday that a framework agreement would be published shortly, and that we would then know the parameters for the relationship between the Government and the new board of Northern Rock. That is very welcome, but of course it is not a business plan. It is a framework between the Government and the board. The business plan concerns what employs people, creates wealth and gives the business a future.
The business plan is the key issue. We as politicians have offered the country some advice in this debate, but I do not think that we are the best ones to judge what the business plan should be for Northern Rock. Others who are more qualified and know the details of running a businessthe risks, the responsibilities and the rewardsare far better placed to make recommendations about the future business plan for Northern Rock. I hope that when the board does so, it will hold close consultations with the workers and their trade unions. The workers have been remarkably loyal over the past five or six months, during a period of great uncertainty. The workers still have huge anxiety about their future, so I hope that there will be no great delay, and that we will move forward quickly on that issue.
I have said that I do not think that politicians should outline the business plan, so I will not do so, but one of the key questions that has to be taken up by the board is: what is the marketplace? There is no easy answer to that, because the board has to judge not the marketplace of the pastwhich it could look back onor that of today, next month or even next year. It has to take decisions on a much longer term. Mortgages last a long time, and they have to be financed. That is a key issue for the board, and there is no clear-cut plan.
The right hon. Member for Charnwood (Mr. Dorrell) said that there was not enough clarity, but I do not think that we can have that clarity. In some senses, we have to take it on trust that the board will come up with commercial thinking, balanced against the principles of accountabilityfor which, of course, the Government are responsible, as there are vast amounts of public money at stake. The board cannot even say, If we take out this mortgage book, this is how it will be financed. It cannot say whether such a book will be financed entirely from deposits, or from a mixture of deposits and other loan finance, because it does not know what the international wholesale money markets will be like in future. It will therefore have to plan conservatively, using an option that allows it to develop the business if the markets change. It will have to face up to that key issue. There is no certainty for the board in the decisions that it will have to reach.
The board will have to decide on the shape of the business, based on the long-term future. It will have to consider how many retail units it needs, whether high street retail banking will be the way forward or whether internet banking will take off to a greater extent, and
whether it wants to be in the internet banking sector. It will have to consider what sort of back room it needs. For example, will it need large numbers of people working in call centres, or are there other ways in which the business can be developed? Those are crucial decisions for the future of the business, and there are no clear-cut or certain answers at the moment.
The board will have to decide on the number of people whom it needs to employ. Again, that will be a difficult issue for it to face up to. Northern Rock has grown at a remarkable pace in employment terms; it has gone from 4,000-odd members of staff in 2003 to more than 6,000 today. That was during a period of growth. I discussed the issue with the trade unions at lunch time, and they are aware of all those considerations. The board will have to decide on its staffing requirements for the longer term.
Earlier in the debate, I raised with the Chancellor the issue of the repayment terms that the Government can expect, and the period over which repayments will be made. It is almost impossible to answer that question with great precision. One could make a political statement and say that the repayments would be made over a certain period, but if that was not in line with the commercial operation of the business, there would be severe consequences, so there has to be some flexibility. That is why the business is in the public sector at this stageso that the repayments that must be made, and made with interest, can be made over a period. That is vital, not only for the taxpayer, but for maintaining the business as a going concern. Hopefully, the business will go forward in a positive way, as was said by my hon. Friend the Member for Newcastle upon Tyne, Central (Jim Cousins), who represents a constituency that neighbours mine.
Mr. Peter Lilley (Hitchin and Harpenden) (Con): The Government spent five months or more in prevarication before putting a Bill before the House. In so doing, they were primarily driven by political considerations. They were determined to avoid the current outcome if possibleand not simply because they thought that it would be bad as far as managing Northern Rock was concerned. Above all, they thought that it would be bad for the Labour partys image to be associated with nationalisation, hence the fact that even now they try not to use the word. That is a bad reason for long delay, but the Government are making a virtue of the delay, saying that it was good to consider all options, and that essentially there was no hurry.
There was no hurry until Sunday. Suddenly, on Sunday, it was essential to do everything in a day. Why? Again, I suspect, it was not because of any need on the part of the company. No detailed indications have been given by Ministers as to why the rush is necessary. The real reason is political. Because of the huge embarrassment of a Labour Governmenta supposedly new Labour Governmentreverting to the mechanism of nationalisation, they have decided to ram the Bill through in a day and minimise any discussion that we can have and the ensuing publicity in the press.
Was that necessary? No, as we know from the experience of Rolls-Royce. The Rolls-Royce Bill was more specific, and although it did not take a hugely
long time to complete its passage through Parliament, it took longer than the Banking (Special Provisions) Bill will take. It was not necessary for the then Government to dress it up as a Bill to take over the whole of the aerospace industry; they made it a two-clause Bill to take over Rolls-Royce. There has been no explanation from Ministers about why a similar procedure has not been followed today.
Those were five wasted months because all that time Ministers could and should have been planning the tentative business model that would be adopted under nationalisation, administration or a Bank of England-led reconstruction. We are not told what the business model will be, not even in the broadest outlinewhether it is one of growth or contraction, consolidation or business as normal. Nor have the Government spelled out how they will deal with the problems of competition and competition law. So we have had five wasted months, then suddenly one shameful undemocratic day of ramming the Bill through Parliament.
I shall say a little about the lessons in prevention and regulation that emerge from the issue. The problem arose because of the marketing of sub-prime mortgages through special investment vehicles. That triggered the closing of the market on which Northern Rock relied, and raised fears about Northern Rock itself because it was thought to be involved to some degree in that business. When such problems arise, we ought always to look elsewhere and see where they have not arisen and why.
Spain is a notable exception. No Spanish banks have any of the problems that I described. No Spanish banks have reported losses from sub-prime loans. Despite the fact that the Spanish property market is overheated and will probably cause problems of its own, Spanish banks did not suffer from the problem. Why? It is because Spanish banking law, as a consequence of past problems of failure to consolidate off-balance sheet debt, insists that all such debts and obligations are consolidated and revealed. There is a lesson for us there, but nothing in the Bill learns from that and makes sure that we do not suffer from those problems in the future.
The regulatory approach adopted by the FSA appears to need to change. There are two possible approaches for a regulatory body. One is to be essentially routineto consider every case in the same way and adopt a box-ticking approach to regulation. That is what regulators will do if they are left to their own devices. What they ought to be doing, however, is focusing the bulk of their effort on areas where there is some reason for concern.
There was some reason for concern in Northern Rock. It was pursuing a very unusual policy. It increased its loan book by 50 per cent. in a year at the peak of the market. It offered the lowest mortgage rates and some of the highest interest rates. It offered 125 per cent. mortgages. It has, I believe, £1 billion of unsecured debt on its balance sheet. We are assured none the less, on the say-so of the FSA, but with the endorsement of the Chancellor, that it has a fine, high-quality loan book. I wonder whether he stands by that. In response to my question yesterday about why, if Northern Rock has a high-quality loan book, it is the
most active in the field of repossessions, he failed to restate his assurance that Northern Rock has a high-quality loan book.
We ought to be examining the regulatory procedures and learning from abroad. One of the lessons from the Continental Illinois problem was the diagnosis that the regulator had relied on the information and procedures supplied by the bank for auditing its loans. I rather suspect that the FSA did much the same and the Chancellor no better, but we ought to establish procedures that look for a problem, rather than ask for reassurance from the management.
Mr. Redwood: Was it not an international and global problem and was not the regulatory failure the failure of the Basel agreement, which said to every bank, Go for growth off-balance sheet. Go to growth by securitisation, in order to ensure less regulatory capital for that route?
We need to know more from the Government about the quality of the loan book and about the reason for the relatively high level of repossessions by Northern Rock compared with any other high street bank before we go ahead and authorise the public sector to take on huge obligations permanently through nationalisation.
The Conservative party is clearly opposed to nationalisation as the normal way of running large businesses. We are not absolutist about that. I revealed to the House the other day in another debate that I was probably the last Minister to nationalise anything. I had to do so after Saddam Hussein invaded Kuwait. I nationalised all the Iraqi Government-owned assets in this country. It took me five minutes to make the decision, not five months, and I was dealing with the problems created by the leader of an enemy Government rather than the leader of my own, which I appreciate is the problem that the Chancellor has had to put up with.
There is not a strong case for the nationalisation to which the Government have finally resorted, because it gives rise to inevitable conflicts. With ownership come responsibilities, and the Government as owner will not be able to escape those responsibilities. [Interruption.] My hon. Friend the Member for Tatton (Mr. Osborne) in an admirably clear and forensic speech spelled out what we would do and why we would not do what the Government are doing, and I support him.
I would be extremely reluctant to put myself in the position that the Chancellor will be in when it comes to the issue, for example, of repossessions. When he was in opposition and there was a serious level of repossessions in the 1990s, he urged institutions to exercise social responsibility. As owner of a bank that is most active in the field of repossessions, will he require his managers to exercise social responsibility? Yesterday he said nohe was going to take on the role of Pontius Pilate and tell the management to carry on.
Severe conflicts of interest are created. The Chancellor is paying Mr. Sandler £1.2 million a yearthe two top
people between them £2 million a yearand asking them none the less to get rid of that profitable way of life rapidly. Will they really have an incentive to bring the bank back to private ownership speedily? Unless they think that they will continue in their role when it is privatised, perhaps not. Many conflicts will arise from the decision, which the Government have not thought through, which they are not giving the House the opportunity to consider, and which will mean that in the long run Northern Rock moves from being Northern Rock to a national millstone.
Frank Dobson (Holborn and St. Pancras) (Lab): I support the Bill because there is clearly no sensible alternative. I shall address the principal Tory objection to it, which is their objection to the concept of nationalisation, and their assertions that it will damage Britains reputation for financial services, and that the fault for all that lies with the Government. Nothing is further from the truth.
The original mess at Northern Rock was caused by the irresponsible and stupid policies of its private sector bosses. When they got into that mess, they turned to other private sector banks and asked them for additional loans. Those banks refused to give Northern Rock those loans because it was such a bad risk. In other words, there was a market failure.
Northern Rock turned to the state and taxpayer to bail it out; to say that that was ironic would be an understatement. It was hypocritical as well. The bank was chaired by Matt Ridleyan old Etonian, like the leader of the Tory party. He is on record as saying
it is vital we reduce the power and scope of the state.
Frank Dobson: That may be the case. It brings to mind the time of the Oxford martyrs, when Cranmer, Latimer and Ridley were facing the Catholic experts. It was said at the time that in the arguments, Master Cranmer leant on Master Latimer, who leant on Master Ridley; Master Ridley leant on the singularity of his own wit. It is a pity that the Oxford fire snuffed out the wit in the Ridley family.
We need to come to the wider question of why the other banks turned down the request for help. The answer is that irresponsible banks in the United States, Britain, Switzerland, France and Germany had all lost fortunes on what they call sub-prime mortgages in the United States. Other people call that lending money to people who could not pay it back.
It was not just that the banks gambled and lost billions of dollars. None of them could trust what any other bank said about its potential losses. Some were making false statements and others refused to reveal what their losses were, so the banks cut down on their lending to each other, and none was in a position to bail out Northern Rock. The situation was not just the
result of a failure of a single bankit was due to the failure of the whole market. Those losses and that distrust have also stymied the Governments efforts in the past five months to get a private sector solution to the Northern Rock crisis. If the sub-prime mortgages crisis had not occurred, the chances are that there would have been a private sector solution to the problem, and everybody would have welcomed that.
On top of all that, the Tories and their friends in the news media go on and on about how nationalisation has damaged Britains financial reputation in the eyes of the world. However, it cannot do such damage in a substantial part of western Europe, where there are publicly owned commercial banks.
In whose eyes do the Tories and their friends believe that Britains reputation has been damaged? Is it in the eyes of Citigroup in the United States? It lost $24 billion in the sub-prime crisis. Merrill Lynch lost $22 billion, the Bank of America lost $5 billion and JPMorgan lost $3 billion. Has our reputation been damaged in the eyes of France, where Crédit Agricole lost $5 billion, Société Générale lost $3 billion and BNP Paribas lost $1 billion? Has it been damaged in the eyes of Germany, where Bayern LB lost $3 billion, Commerzbank lost $1 billion and Deutsche Bank lost $3 billion? Perhaps the Tories and their friends think that Britains reputation has been damaged in the eyes of the Swiss, but UBS lost $18 billion, Swiss Re lost $1 billion and it has been revealed today that Crédit Suisse lost $3 billion.
Goldman Sachs, which has been advising the Government, says that it is concerned about Britains reputation as well. Apparently, its representatives are patting themselves on the back because they lost only $1.5 billion in the sub-prime scandalthey were stupid, greedy and short-sighted. The right hon. Member for Hitchin and Harpenden (Mr. Lilley) would agree that the institution was not properly supervised by the regulatory authorities in its country.
This morning, I had the pleasure of listening to Howard Davies of the London School of Economics, formerly of the Financial Services Authorityone would have thought that he would have been on the ball as far as making sure that things are properly regulated. He is a director of Morgan Stanley, which lost $18 billion as a result of its stupidity over the sub-prime scandal. Such people say that there is something wrong with the Governmentit is an understatement to say that that is the pot calling the kettle black.
Who elses concern should we fear, according to the Tories? Should we fear the concern of the bond credit rating companiesincluding Standard and Poors, which gave triple-A ratings to sub-prime borrowing? The agency has been quoted with approbation by Tory Front Benchers this very day. Perhaps we should fear the concern of monoline insurers in the United States. Their normal business is, apparently, bordering on collapse because they have been insuring speculators who got their speculations wrong.
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