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As the shadow Chancellor said, we do not know about the quality of the assets we are buying. There is no analysis of the repossession rate, past and future, or evidence about the quality of the lending made. There is no evidence about how many of the loans are at the 125 per cent. rate and no analysis of the unsecured loans. Such things are the first things someone would ask about if they were thinking of buying such a business. We have no analysis of the properties and the branch network. We have no idea whether there is surplus property, or whether the business needs to carry on with its big capital programme to build new property. There is no environmental report on the state
of the properties and no report on the leases, or on the commitments to those property leases. Are they long leases? What would be the cost of paying some of them off if they are on inappropriate property?
There is no duty of due diligence on the people whom we will employ on behalf of the taxpayer. There is no human resource report, or report on the contracts of senior executives. We have no idea of the cancellation costs for senior executives if some proved not to be wanted in future by the new executive team. We have no idea of the number of write-offs and losses that the new executive team will want to record in the first set of accounts to clean everything up and make the task a bit easier. Somebody coming in on a salary of more than £1 million would be unlikely to want to accept everything as a given and to make no adjustments to the accounts.
We do not know from the Treasury what the impact on public borrowing will be. We do not know what the capital expenditure programme is and how much will have to go into public accounts because it cannot be funded out of the cash flows of the business. We know nothing about virtually anything that we are buying or about the risks that we are taking on.
There is no pensions report. We do not know the impact of the pension regulator’s latest idea that pension funds have been understating the longevity of the people in their funds and that the allowance made for that must be increased. The pensions liability, like contracts with the staff and any redundancy payments, will now rest with the taxpayer.
It is a disgrace that no normal financial and due diligence information is available on the business before we commit that huge sum of money. My hon. Friends have been generous in saying that the commitment is £110 billion. It could be more than that sum, which is the stated liability on the balance sheet, but does not include the pension, redundancy, property and environmental liabilities and all the other things that might come out of the woodwork. When one buys a business, one normally agrees a price in principle, fulfils due diligence requirements and either decides that the price is right or agrees a revised price in the light of what one has discovered.
Will Ministers please think again? Will they perform some due diligence duties for the taxpayer? If not, they will rue the day because they will lose us a huge sum of money and end up making unpleasant decisions, which will not suit the north-east.
7.11 pm
Mr. Mark Todd (South Derbyshire) (Lab): I support the Bill, but with considerable concerns. For me, the measure is emphatically the least bad option. I have listened carefully to the option that Conservative Members presented and it held some appeal for me. However, the Bill offers greater control over the process of realising the assets that we require to get back the loans that we have made to the business. Control makes the difference, enabling us to manage matters to achieve the outcome that we seek. I shall consider that outcome shortly.
First, I want to list some of the reasons for my considerable hesitation. Many have already been covered, so I shall deal with them in shorthand. We do not know whether we will survive a shareholder court
challenge. As has been said, the companies involved are well resourced and had thought their way into the outcome when they bought into the business. I am optimistic that we will survive, but there is nevertheless a risk.
Competition is a predictable concern in the marketplace and I have some sympathy with it. I expect dealing with challenges from competitors to occupy a significant amount of the business’s resources, if it is run in a particular way.
Staffing has been mentioned. The state will now be responsible for retaining staff and maintaining the morale of those employed in the business, as well as for some of the redundancies that are likely to befall under any business model.
We do not know the company’s asset base. The right hon. Member for Wokingham (Mr. Redwood) was accurate about that. We know neither the assets thoroughly enough to decide whether we are buying what we are told is as good as any mortgage-lending business in the land nor the liabilities that we are taking on. I doubt whether I have bought businesses on the scale that the right hon. Gentleman has handled but I have dealt with business acquisitions and I would expect to know a great deal more about a business that I was acquiring than the information that we have been offered to date.
We will have to take on running a bank at a time—though I have not followed the shares in the past couple of days—when banks’ values have been hit hard in the past month or so and I would expect competition to be vigorous. I cannot say with certainty that the business will thrive in that environment. We do not know.
We also have the task of clearly communicating our limited purpose. Nationalisation can suggest greater state engagement in the financial services sector than is perhaps intended by the move.
Accommodating the governance of a retail bank into a state system will be uncomfortable and provoke difficulties, such as dealing with repossessions and other matters that colleagues have mentioned. I have plenty of anxieties about what may lie ahead.
We desperately need clarity of purpose. My purpose is risk limitation. From a business perspective, we are taking on many unknowns. I therefore look to holding our risk to the absolute minimum. I am worried about how easy that will prove. The most obvious strategy for achieving that is, as several Opposition Members said, to pursue an ordered—or, I suspect in some instances, less ordered—run-down of the business and basically farm money from the existing loan book as far as possible and look for buyers at appropriate times. The debate has shown the difficulty of doing that—I put it gently—when the bank is in political hands.
My hon. Friend the Member for Newcastle upon Tyne, Central (Jim Cousins) spoke powerfully for his community and I suspect that many would have done the same. There will be challenges from those who perceive other perspectives and purposes in the state owning the bank. It will be difficult in a political context to maintain a focus on the narrow objective of returning to the state the assets that the bank has temporarily held. I am worried about that.
Some of the remarks made in the first few days conveyed inappropriate signals. Suggestions were made of the possibility of aggressive strategies by the bank as well as understandable assertions of support for the Northern Rock Foundation. Again, that is an indication of a wider purpose beyond the narrow issue of recovering our resources, and it should concern us. I am worried about the mixed messages and I want reassurance that we have a firm purpose of recovering the assets loaned to date as rapidly as is reasonably possible. The advantage of state ownership is that it at least allows us to dictate the timetable in a more ordered way, and more sensitively to the communities that are involved. I firmly believe that a clear statement of that purpose is required as early as possible.
I support the Bill, but the critical questions are why we are taking such action and how we intend to achieve the outcomes. Let us clearly express the answers as early as possible. That would be easier for the communities involved than maintaining perhaps an illusion that we will build some great financial institution in the north-east. I do not perceive that as a reasonable purpose for Government or a reasonable use of the risks that we have deployed today.
7.19 pm
Mr. Michael Fallon (Sevenoaks) (Con): That was easily the most realistic speech that we have heard from the Government Benches in this debate.
I have learned two things about temporary legislation introduced over the years. The first is that it is rarely temporary. In the end, it is usually extended or converted into a more permanent form, which is why we need to consider the Bill carefully. The second thing is that temporary legislation is usually bad legislation, drafted too quickly, scrutinised too little and with implications that are not easily understood. We already know that the Bill has a life beyond 12 months. We have been told by the Chancellor, quite openly, that some of its provisions may be translated into the major banking reform Bill, which will be presented to us after Easter. We know, too, just how loosely drafted the Bill is, thanks to the excellent speech by the shadow Chancellor. We see the wide-ranging powers that are being taken, not simply over banks, but over building societies.
The key to the Bill is clause 2(2), under which the Chancellor is taking formidable powers to nationalise any bank and prop up any building society, which can be exercised for two purposes. The first is for
“maintaining the stability of the UK financial system”
“a serious threat to its stability”,
“protecting the public interest in circumstances where financial assistance has been provided”.
We have spent too little time in the Chamber talking about this, because we have had so little time, but nowhere in the Bill are those terms defined. What do we mean by “financial stability”? How do we define a “serious threat to financial stability”?
That takes us back to the untested premise of the Government’s original authorisation of an operation of
lending of last resort. The Chancellor concluded that there was systemic risk. He did not show us what that risk was, he did not define it and he did not have it externally validated. Indeed, he did not do anything to allay the suspicion that some of the systemic risk was to the Government’s political stability in the run-up to a general election.
We have had endless discussion about systemic risk without any of us being clear about how we should measure the threat. We need that clarity; otherwise any bank with a significant number of UK customers or any building society will come hammering on the door, saying that there is a threat to the UK financial system. We need to be clear about what that threat is. Is it a series of bank failures—a domino effect through a range of building societies—or a threat to the integrity of the clearing system? We need to be much clearer.
We also need to be clear about who decides whether there is a systemic threat. Under the Bill, it is simply for the Chancellor to decide, all on his own. That is wrong. As the Treasury Committee concluded, the Bank of England should advise the Chancellor. Of course he has to authorise public money to support a particular operation, but he should have to do so on the advice of the Bank of England.
The other thing that I want to concentrate on is the extraordinary provisions in clause 11, which I asked the Chancellor about yesterday. I asked him what a clause enabling him to give any amount of money to any building society that might need financial assistance was doing in the Bill. He said that he thought it “prudent” to include such a clause. That was the only explanation that we had. He said that he would speak about clause 11 today, but he skipped it altogether. Clause 11 is the most extraordinary clause. It empowers the Chancellor to alter any enactment, without any restraint or definition of terms and conditions, and simply to apply public money to any building society that he deems ready to receive it. There is no explanation for that.
This is a bad Bill, for three reasons. First, it says that it is temporary, but it is not going to be temporary—on that, at least, I can agree with the hon. Member for Newcastle upon Tyne, Central (Jim Cousins). The Swedish had their banking crisis in 1991, when they nationalised the biggest bank in Sweden, which is still partly publicly owned today, 16 years later. British Leyland was publicly owned for 13 years. We are going to be stuck with Northern Rock for a great number of years, but we have seen no timetable either for the repayment of the money that we have lent or for managing the exit. Indeed, shareholders have seen no timetable for paying them the compensation that they look forward to.
Secondly, the Bill is not a specific measure—a fact that my hon. Friend the Member for Tatton (Mr. Osborne) brought out so clearly. It takes general powers, but I am not at all persuaded that hurrying to do that is a good thing. If there is a specific problem that has to be dealt with in an emergency, let us deal with it, rather than taking such sweeping general powers in such a rush.
The third reason I oppose the Bill is that it sends out the most appalling message from the British financial system, which is that any bank or building system, however incompetent its directors or however great the regulatory failure of its supervisors, will now come to the door of the Chancellor and ask to be bailed out. This is bad legislation.
7.25 pm
Stewart Hosie (Dundee, East) (SNP): I would like to make a couple of preliminary remarks. The first is that the Bill is intended to allow for the nationalisation of Northern Rock, which will then operate at arm’s length from the Government, with commercial autonomy for its decisions. However, that will be predicated on a framework agreement covering the relationship between Northern Rock and the Government that is yet to be published. My second remark is that the nationalisation expected to flow from the Bill has apparently been tested against the two private sector bids and deemed to represent the best value for taxpayers’ money. I would like briefly to test that assertion.
On 23 September last year, only a week or so after the Northern Rock crisis broke publicly, the BBC reported that at least 12 of the UK and Europe’s biggest banks had declined to buy the bank. It quoted The Sunday Times as saying that the
“banks have estimated that it would require...capital”
“as much as £20 billion...to successfully refinance Northern Rock.”
Given that that figure was likely to have been the maximum taxpayer liability, should everything have been sought from a private sector concern, and given that it may well have been lower, in loans and guarantees facilitating a private bid, I am curious to know how the Chancellor and those on the Treasury Bench can argue, five months down the line, that a £110 billion liability for the taxpayer represents better value for money than a rather more modest contribution in loans and guarantees last autumn.
I said that the framework agreement between Northern Rock and the Government has not been published. In addition, the new framework to regulate banking in the UK and protect depositors is out for consultation. The Chancellor said that that would take some months and require primary legislation. There are a number of questions about the Bill and the sweeping powers that it contains. Given that the bank will operate at arm’s length from the Government, why should we pass the Bill in the absence of the framework document?
There are other questions to do with why we should support the Bill, given that we are to have a nationalised bank, with £110 billion of taxpayers’ money, operating within a tripartite arrangement that many believe is not fit for purpose and which the Government intend to replace anyway. That tripartite arrangement not only is not fit for purpose, but may have been at least partly responsible for stopping or not facilitating a quick and early private sector takeover of Northern Rock last year, because of the confusion among the FSA, the Treasury and the Bank.
Clause 3(1), entitled “Transfer of securities”, says that the Treasury may by order transfer securities to
“(a) the Bank of England;
(b) a nominee of the Treasury;
(c) a company wholly owned by the Bank of England or the Treasury;
(d) any body corporate not within paragraph (c).”
However, clause 8 says that if securities have been transferred to a specific named person under clause 3(1)(a) to (c) following nationalisation, provision can be made for further transfers—that is, transfers back—to the private sector. However, clause 8 seems to exclude any reference—I will stand corrected if I have missed it—to a body corporate that is not a company owned by the Bank of England or the Treasury. If that is the case, primary transfers of assets can be made to that body, but on my reading of the Bill there is no ability to transfer them back to the private sector later.
Clause 4, on the “Extinguishment of subscription rights”, allows the Treasury, where it has made an order providing for the transfer of securities from a deposit-taker, to acquire the securities not only of the deposit-taker, but of any of its subsidiaries,
“whether the rights have been granted by the deposit-taker or otherwise.”
That provision seems extraordinarily wide, and I am concerned that it might preclude the breaking up of a group that is in trouble, where subsidiaries could be sold as going concerns to raise cash. It does not seem to place any restriction on securities from a subsidiary being acquired, even if they are worth more than the indebtedness of the principal deposit-taker, which could be the reason for the necessity for assistance in the first place. If that is the case, I suggest that this is a gaping hole in the Bill.
The Bill is also riddled with terms such as
“where the Treasury make...an order”
“may by order make provision for”.
In the absence of detailed orders or a framework agreement between the bank and the Government, however, it is difficult to know precisely what the Government intend the Bill to do.
The Bill is doubly confusing because clause 13(2)(a) states that orders and regulations
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