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“may make different provision for different cases or circumstances”.
The Government are expecting us to vote for a pig in a poke, because the provisions are so wide and utterly undefined, and the secondary information that we need is simply not available.
We are certain that everything that should be done to preserve the integrity of the banking sector must be done, not least because of the 127,000 jobs in Scotland that depend on banking and finance. However, the Bill before us tonight should have been a Northern Rock emergency nationalisation Bill, containing only a few clauses. We have yet to determine whether we will support the provisions at the end of the day, and we will look at the amendments that have been tabled, but we are dreadfully disappointed by the generality of the Bill, by its extremely wide scope, and by the ability of the Government to do almost anything by order, when we should have had a much tighter and more focused emergency nationalisation Bill.
7.31 pm
Mr. Richard Spring (West Suffolk) (Con): This is called the Banking (Special Provisions) Bill, but it should really be called the Banking (Pig in a Poke) Bill. We do not know the price, or the cost, of the whole exercise. We do not know what we are buying into, or for how long.
The demise of Northern Rock arose out of the sub-prime mortgage crisis in the United States. However, it happened specifically in this country because of the national situation here. Of course there was managerial excess, but it was the asset-based, overspend economic policies pursued by this Government, and the regulatory system instituted by the Government, which failed. We did not see queues of people in Paris, New York, Sydney or Beijing concerned about their deposits. We were in a unique situation.
We have before us no clear business plan, either for our benefit or for that of the European Commission—it will have to wait another month—so we are being asked to sign a blank cheque. What on earth have Ministers been doing? Why did they not develop some sort of plan B over the past five months in case they had to go down the route of nationalisation, when such a huge sum of taxpayers’ money is clearly at risk? Now we understand that the very details of how the bank will be faring are to be denied to us through an exemption from the Freedom of Information Act 2000. That is an absolute disgrace.
The Chancellor has been tilting at City bonuses recently, yet a whole series of bankers and lawyers will be rejoicing at the opportunity that has now been presented to them. When will we know exactly when fees are being dispensed, and how much they will be?
My hon. Friend the Member for Tatton (Mr. Osborne) has dealt with the crucial element in the Bill, which is the right being given to the Government to nationalise other financial institutions. The excuse for this has been hybridity. On a moment’s reflection, however, does it not become clear that to keep the power to nationalise in reserve, even if for supposedly technical reasons, sends out a truly incredible message to the outside world? It is no wonder that the Chancellor finds it impossible to say the word “nationalisation”. Now that depositors are fully protected by the state, will Northern Rock draw savings away from other financial institutions? How will the Financial Services Authority monitor this? The consequences for other financial institutions could be dire. What will they be able to do about it?
We have come full circle because of the failure of the regulatory system. We have heard much about the arm’s length relationship between the Government and the new management of Northern Rock, but that has come from a Prime Minister whose micro-management is famous. We leave the debate today with myriad questions about how Northern Rock will be run, and about what information will be made available to Parliament, when the situation is at present beyond opacity. Despite the dithering and delay, the fiscal excesses, the regulatory failure and the massive risk to the taxpayer, we can only hope that Ron Sandler and his team will salvage something of the impaired reputation of this country, which has been so brutally and incompetently tarnished by this Government.
7.35 pm
Mr. Philip Dunne (Ludlow) (Con):
The reason we are here today is that, uniquely among any of the 192 countries in the world affected by the credit crisis, we
have suffered a run on a bank. The banking supervisory regime failed to spot the risks posed by the reckless business model of Northern Rock, and when the risks were finally spotted, the tripartite authorities failed to act decisively—mainly because no one was clearly in charge.
The reason for that is the failure of the present Prime Minister and Chancellor—when, as Chancellor and Chief Secretary, they introduced the new banking supervisory regime—to anticipate what might happen in a significant financial crisis. No stress testing was carried out for the possibility of a major bank getting into serious difficulty. That barely seems credible now, but that is what we established through the Treasury Select Committee.
We are now presented with a Bill that, according to the Chancellor, will give the Treasury the power to determine threats to the financial stability of individual institutions. As many Members have pointed out, this will apply not only to Northern Rock but across the banking and building society sectors. The Chancellor’s arguments for the Bill, and his recent actions, show that he is obviously confused. He says that the Bill is needed to provide for clear management accountability at Northern Rock, but he also says that he wants to consult in the coming months on the regime to improve the management of financial stability in the UK economy. Why, then, is he pre-empting his own review by using the Bill to give the Government wide-ranging powers that go way beyond the problems of Northern Rock and will extend to all deposit-takers?
The Chancellor is ignoring the recommendations of the Treasury Committee’s report—and pre-empting his own response to the report, which has not yet been published—by giving powers not to the Bank of England, as the Committee recommended, or to the Financial Services Authority, as he had flagged up in speeches last month, but to himself and the Treasury. What confidence can we have in the ability of Treasury Ministers to take the necessary decisions provided for in the Bill? One of the Ministers now sitting on the Treasury Bench appeared before the Treasury Committee the other day, and when she was asked what experience she had in financial matters, gave the extraordinary response that she had a big overdraft. It is barely conceivable that we should place responsibility in the hands of Ministers who have little, if any, experience of handling banking matters, rather than in those of the professionals whom they pay—through the Bank of England or the FSA—to take such responsibilities.
This nationalisation raises a host of questions about the role of banking supervision and the relationship between the FSA, the Bank of England and the Treasury. Given the way in which the Chancellor is taking such peremptory powers for himself, he owes it to us during the course of this debate to answer certain key questions. Is there any longer any credence in the independence of the Bank of England? What should the Bank of England be responsible for, operationally, if not for the provisions in the Bill? Can the UK regulatory structures cope with the complexities and rates of change in the modern financial world? What is the role for the Bank of England? And where is the experience among those in the Treasury to exercise the powers that they are giving themselves in the Bill?
7.39 pm
Mr. Philip Hammond (Runnymede and Weybridge) (Con): At the end of this debate, perhaps we could take a few moments to remind ourselves why we are here. We are here because of a failure of the banking regulation system that the Prime Minister introduced in 1997 to notice a bank with what the Chancellor has subsequently described as a “fundamentally unsound” business model expanding its market share to become the provider of one in five of Britain’s new mortgages; because of a dithering by the Government when they were presented with an opportunity to explore a private sector solution before the crisis broke in September; because of incompetence in handling the crisis between Thursday 13 September and Monday 17 September 2007, when the Government finally put guarantees in place, which stopped the run on the bank; and because of the rejection of what we now know was very expensive advice, telling the Government to act quickly and decisively in the days and weeks after 17 September.
At the end of that catalogue of mishandling, we have finally arrived at a Government decision—nationalisation, the solution that they have sought to avoid for five months, and with good reason. Nationalisation does not achieve anything that could not be achieved outside public ownership. It does not in itself provide a solution to the problems of Northern Rock’s flawed business model, as my right hon. Friend the Member for Charnwood (Mr. Dorrell) pointed out in his contribution. Nationalisation also comes with clear downside risks—risk to the reputation of the UK’s already battered reputation as an international financial centre; risk in extending the taxpayer’s liability to include instantly full responsibility for every penny of Northern Rock’s balance sheet; and the risk of political interference.
We have heard plenty of warm words from the Chancellor about the arm’s length management that Northern Rock will have. Forgive me for being a little cynical, Madam Deputy Speaker, but Conservative Members have seen nothing in our Prime Minister to lead us to believe he does “arm’s length”. I would have said that he was more a “fingertip” man, myself, and we have already seen the evidence with the appointment of his former chief of staff to the board of Northern Rock. I think that the hon. Member for Newcastle upon Tyne, Central (Jim Cousins) tonight unwittingly provided in the starkest possible terms a perspective on the kind of political pressure that the Chancellor will be under with regard to Northern Rock; he has conceded that the period of public ownership will not be temporary at all, but may last for many, many years.
As my hon. Friend the shadow Chancellor has pointed out, we are being asked to buy a pig in a poke. That was a new phrase when I wrote it down, but two people have used it in the last 10 minutes. We do not know the price that we, the taxpayers, will pay for this business. We do not know exactly what the assets and liabilities of the business are and we do not know how long the commitment will be made for, although we note the discrepancy between the Chancellor's “temporary” period and Ron Sandler’s “some years”. We do not know what they plan to do with the business—not even whether the plan is to double or
halve it in size. We are being asked to buy an unqualified liability for an unspecified price over an as yet undefined time period and for a completely undetermined purpose—and we will not find answers by looking in the Bill, because none of those issues is addressed by it and none of the Chancellor’s warm reassurances is enshrined in it.
The meat is in the order, and the order is unamendable, so let me try one more time to tempt the Chief Secretary to give us a commitment when she replies to provide at least one full day’s debate on the Floor of the House to debate those orders when they are laid. None of the assurances on arm’s length control or on competition are meaningful when even today 125 per cent. mortgages and best-in-class deposit rates are still available from Northern Rock.
What little we do know is not very promising. We know that we are buying a bank that wrote more mortgages at the top of the market than any other and that it is now repossessing more homes than any other. We know that the Prime Minister appointed his former chief of staff to the board and we know that the Government have spent nearly £100 million on advice, most of which they have clearly ignored. We know that the Government have appointed an executive chairman and a chief financial officer, both of whom, according to the BBC’s website this afternoon, are non-domiciled for tax purposes and will between them be paid £160,000 a month. I wonder how the champions of the people’s bank below the Gangway feel about that. This afternoon, Downing street could not even confirm that those payments would be made onshore in the UK—and that, Madam Deputy Speaker, is just week one of the Northern Rock in public ownership saga.
We will now have to try to amend this flawed Bill to give legislative muscle to the commitments that we heard the Chancellor give yesterday and today, but the situation is worse than that. Looking at the draft order, it is clear that the Government want to exempt Northern Rock from the freedom of information obligations of a publicly owned company. They want to allow Ministers and civil servants to act as shadow directors, but not to be liable to the risks and penalties that shadow directors face. Indeed, they want to exempt all directors of Northern Rock from any legal action whatsoever, putting them in a unique position. So we will have to seek not only to enshrine the shadow Chancellor’s warm words in primary legislation, but to amend the primary legislation to prevent these extraordinary measures from being slipped through in unamendable orders.
Rob Marris: Will the hon. Gentleman give way?
Mr. Hammond: No, I will not; I must complete my remarks.
So is it inevitable? No, it is not. There is a better way. Indeed, the Government have hinted at it in their own consultation document on the future of the banking regulatory system. They call it a special resolution regime. However, Conservative Members, contrary to the Chancellor’s repeated assertions, have been entirely consistent in our opposition to nationalisation and in our support for a private sector solution, if it were possible to find one—although it is increasingly obvious that the Government should have concluded
some time ago that it would not be. Before the Chancellor came out with his consultation document, we had proposed a regime of Bank of England-led protective administration—this was not dissimilar to the proposals in his consultation paper—to allow the resolution of a major business failure in a single banking institution.
I ask the Chief Secretary this question: if the Chancellor’s plans and proposals are good enough for a future failed bank, why are they not good enough for Northern Rock today? We could have used this legislative opportunity to pass an emergency amendment to the Enterprise Act 2002 to create a special protective administration regime for banks in difficulty—a regime that would allow the Bank of England to oversee a reconstruction of a bank first and foremost in the interests of maintaining the stability of the UK financial system, and then in accordance with the priorities laid down in the Insolvency Act 1986.
The Chancellor and the Prime Minister have been fond of repeating that any kind of administration or bank-led reconstruction would amount to a fire sale of assets, but the website of the Government Insolvency Service makes it absolutely clear that the first duty of an administrator is to try to salvage the business as a going concern and rescue it so that it can emerge from administration. If that is not possible, getting the best possible deal for creditors is important. In the case of Northern Rock, although the Chancellor, with his facile “business as usual” slogan, cannot bear to bring himself to say it, that almost certainly means a reduction in the size and scale of the business and an orderly realisation of some of the mortgage book in order to deliver a business based on a different and sounder business model—a financeable business model which may be capable of being made viable for the future and, ultimately, saleable back to the private sector.
Despite the five months that the Government have had to prepare for this moment, they have no answers to any of the important questions. Nationalisation is a mechanism—the wrong one, in our view—not a solution. This kind of non-specific and enduring nationalisation power is the worst of all outcomes, tarnishing Britain’s reputation as a financial centre for the year of its lifetime.
Perhaps this debate is best ended with the words of the hon. Member for Newcastle upon Tyne, Central, who may well be vindicated by history in his prediction a few days ago that nationalisation would deliver
“a slow lingering death for the jobs of the Northern Rock workers, its assets and Britain’s reputation as a major financial services centre”.—[ Official Report, 19 November 2007; Vol. 467, c. 968.]
I urge my right hon. and hon. Friends to deny the Bill a Second Reading.
7.50 pm
The Chief Secretary to the Treasury (Yvette Cooper): In general this has been a thoughtful debate, to which wide-ranging contributions have been made.
My right hon. Friend the Member for Holborn and St. Pancras (Frank Dobson) pointed out that the Government had to step in because of market failure,
because of the problems created by a global credit crunch and United States sub-prime lending, and because of Northern Rock’s particular business model, which put a United Kingdom bank at risk and posed a potential risk to the rest of the banking system. The Government acted in the autumn to keep Northern Rock running, in order to save the bank and also to prevent the risk from spreading.
I agree with the hon. Member for Stratford-on-Avon (Mr. Maples)—if it is possible to agree with him and with my right hon. Friend the Member for Holborn and St. Pancras at the same time—that the most important aspect is the wider stability of the banking system. That is why we were right to intervene, but it is also why we are right to decide to continue the guarantees and ongoing support for Northern Rock in a way that will secure the best possible deal for the taxpayer, safeguarding both the taxpayer’s interests and the wider interests of the financial system.
Mr. Hands: Will the Chief Secretary give way?
Yvette Cooper: I want to make some progress, as I have only a short time in which to speak. I shall be happy to take interventions later if there is enough time.
I pay tribute to my right hon. Friend the Member for West Dunbartonshire (John McFall) for his thoughtful speech, and for the work that he and his Committee have done in examining not just the position of Northern Rock but the possibility of wider reforms in the banking system. That has fed into our broader programme and our consultation on future reforms. My hon. Friends the Members for Sedgefield (Phil Wilson), for Newcastle upon Tyne, North (Mr. Henderson) and for Newcastle upon Tyne, Central (Jim Cousins) drew attention to the importance of Northern Rock in their constituencies, and also to the fact that Northern Rock would not be running now had it not been for the Government’s decisions.
Several Members raised concerns about the scope of the Bill, which extends beyond Northern Rock. It was suggested that we could have simply followed the model for Rolls-Royce. The Rolls-Royce (Purchase) Act 1971 is, obviously, several decades old and precedes my memory, but its purpose was to vote money to purchase a company from a liquidator. The present circumstances are completely different. Northern Rock is not in liquidation, and we do not want it to go into liquidation. That is the point of the kind of intervention that we have already put in place and will continue to put in place for the future.
Some Members seemed to be calling for a hybrid Bill. I do not consider that to be the right way to deal with the time pressures that we face, and the need to secure certainty for Northern Rock. The right hon. Member for Hitchin and Harpenden (Mr. Lilley), on the other hand, seemed to criticise the Bill for not covering all the wider issues connected with banking reform. We are deliberately not doing that in this Bill. We will do it as part of a consultation, and in a Bill that will deal much more broadly with the lessons we must learn and the action we must take in order to deal better in future with the kind of problems experienced by Northern Rock, which may include wider reforms.
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