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Banking (Special Provisions) Bill
Postponed proceedings resumed.
Bill immediately considered in Committee, pursuant to Order [this day] .
[Sir Michael Lord in the Chair]
The Second Deputy Chairman of Ways and Means (Sir Michael Lord): I must inform the Committee that an informal list of proposed amendments is available from the Vote Office and a provisional revised selection has been circulated. The amendments are technically manuscript amendments. I will refer to them by the numbers given on the informal paper.
Clause 1 ordered to stand part of the Bill.
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Mr. Mark Hoban (Fareham) (Con): I beg to move amendment No. 13, page 1, line 14, after ‘if (and only if)’—insert ‘(i)’.
The Second Deputy Chairman: With this it will be convenient to discuss amendment No. 14, line 16, at end insert ‘and
(ii) the Treasury has laid before both Houses of Parliament a Minute setting out a scheme for the management of the authorised UK deposit-taker following the exercise of this power, including provisions setting out the strategic objectives for the business as determined by the Treasury and further provisions to ensure the independent day-to-day management of the business of the authorised UK deposit-taker to achieve these objectives.’.
Mr. Hoban: The hon. Member for South Derbyshire (Mr. Todd) highlighted in his Second Reading speech the problem that the Government face. He was concerned that the clarity of the objectives of nationalisation would be clouded by political pressures brought to bear on the Chancellor by others. The amendments, particularly amendment No. 14, try to create a proper framework in which Northern Rock and any other bank or building society nationalised under the Bill would be able to operate at arm’s length from the Treasury.
The past five months have been characterised by the Government’s focusing on the politics of Northern Rock and not on its resolution. During that time, not only has the taxpayers’ exposure risen from £25 billion to £55 billion and now to £110 billion, but the Chancellor and Prime Minister have cast around for a solution to avoid the political embarrassment of nationalising Northern Rock. A lack of clarity has been displayed about who was to make decisions about Northern Rock’s future. Was it the shareholders? Was it the Government, as the largest creditor? Was it the tripartite authorities acting collectively? That lack of clarity has made it very difficult for people to understand the extent of the Government’s involvement in the day-to-day running of Northern Rock.
Unless there is clarity in the division of responsibilities between Treasury and the management, I fear that we will see a continuation of micro-management. Such micro-management is a habit ingrained deep in the heart of this Government, and each difficult decision
that is made may be taken with an eye on the politics of the situation, rather than on the taxpayers’ interest. The hon. Member for South Derbyshire made that very point in his speech. If he had had a chance to read the amendments, perhaps he would have added his name to them, because they encapsulate his concern.
Today we have seen pressure put on the Government by their own Back Benchers about the future direction of Northern Rock; we have seen a sense of relief that nationalisation creates certainty about the future job prospects of its employees; and we have seen Unite, the biggest donor to the Labour party, ask for a Government guarantee that there will be no compulsory redundancies. Those are signs of the pressure that the Government will come under unless there is a clear distinction between a proper role of the Treasury in managing the relationship with Northern Rock and what Northern Rock has to offer.
We heard more words from the Chancellor of the Exchequer in his statement yesterday and during his Second Reading speech, but we have yet to see a framework agreement to set out the division of responsibilities between the Treasury and the management. Such an agreement is fundamental to ensuring a proper division of labour. It should not be an afterthought or something that is left until the politically difficult decisions have been taken. It should be on the table now for this Committee to see, so that this Committee can understand what the Government have set as priorities for the new management of Northern Rock and so that we can ensure that it is clearly left up to that management to take the day-to-day decisions that it needs to take.
We believe, as amendment No. 14 in particular sets out, that the scheme of management and the division of responsibilities between the strategic direction that the Treasury as guarantor of the taxpayers’ interests should take and the decisions that management should make should be set out at the same time that the order is made. Such matters should not be left. It is right that the Treasury is able to set the strategic objectives; it is responsible for securing the full recovery of the money that has been lent to Northern Rock, so that there is no liability to the taxpayer. Once the Treasury has set the framework, it is right that management will be free to manage the business to deliver the outcomes.
Mr. John Gummer (Suffolk, Coastal) (Con): Does my hon. Friend agree that before the framework is laid out the Government should give an absolute and direct answer to the pressures placed on them and say to Unite that there is no question of special arrangements for jobs in the bank? Unless the Government say that, it must be assumed that there is such special protection.
Mr. Hoban: My right hon. Friend makes an important point. There is a lack of clarity in the way in which the Government have chosen to manage their relationship with Northern Rock. As long as that clarity is lacking, the Government will be seen by some as potentially offering a special relationship or a special deal, or being open to pressure from and influence by sectional interests. It is in the interests of taxpayers that such an agreement is in place and we have that clarity. It may also be an insurance policy for the Chancellor, who is under some political pressure. He may want to feel insulated from those pressures by an agreement that means that he cannot bow to those demands. That is an important part of the provision.
Ms Dari Taylor (Stockton, South) (Lab): Does the hon. Gentleman think that the Chancellor was not telling the House the truth yesterday? He said:
“The new board and the bank will operate at arm’s length from the Government with commercial autonomy for their decisions.”—[ Official Report, 18 February 2008; Vol. 472, c. 21.]
Does that not satisfy the hon. Gentleman?
Mr. Hoban: The hon. Lady should remember that not long after the Chancellor made that statement to the House he appointed Tom Scholar to the board of Northern Rock—someone who was chief of staff to the Prime Minister. We need some clear and robust arrangements for the arm’s length agreement. We cannot rely on warm words. Businesses do not rely on warm words when it comes to agreements: they need legally watertight agreements, such as a memorandum of understanding or a shareholder agreement to set out the relationships clearly and precisely. The amendment would provide that clarity by requiring in law that the relationship be clearly set out.
Mr. Hoban: The hon. Lady looks desperate to intervene again, so I shall give way to her.
Ms Taylor: I am grateful, as I was disappointed not to be able to speak on Second Reading. I was in and out of the Chamber because of the demands of my diary.
The hon. Gentleman is right to say that we want clarity, but the Chancellor’s words yesterday provide it. The memorandum of understanding says that all operational decisions will be made by the board with no interference from the Government. The commitment that the hon. Gentleman seeks is already there.
Mr. Hoban: We want on paper, in black and white, a clear division of responsibility, not just warm words spoken in the Chamber. I would have thought that, given that the Government have apparently been working on nationalisation for some time, they would have had the memorandum of understanding in place, with a scheme of management. It should not have to be cobbled together in the hours after the Government made the announcement. I expected far better of the Government. They should have had those arrangements in place and been prepared to publish them. That is important in order to give confidence to the House and the business community, which is concerned about how Northern Rock will operate in future. The agreements should be public, not take the form of cosy side deals or warm words between the Chancellor and Ron Sandler. We need clarity, instead of leaving it to the interpretation of words in a statement to the House.
The hon. Lady and I perhaps agree that we need some clarity on this issue and to go further than the Chancellor went in his statement yesterday, to demonstrate to the wider world that there is a clear division of labour between the Treasury’s role of setting the strategic objectives for Northern Rock and the day-to-day responsibilities of management, so that taxpayers and the wider community know that
decisions will be taken in the interests of recovering the money that has been lent to Northern Rock and not for other purposes, such as shielding the bank from the pressures that may be placed on it by politicians, trade unionists and others. This is a simple amendment, but it would provide much more certainty and clarity. It would reassure us that decisions will be made for the right reasons, not for political reasons. The longer it takes the Government to produce such a framework, the more people will question whether decisions are being made in the long-term interests of the taxpayer or in a narrow, short-term, political interest.
It is an important amendment because it would set out clearly the respective responsibilities of the Treasury and management. It is also important that if other circumstances arise to which the Bill applies—and its powers continue for a year—such arrangements could be put in place sooner rather than later. If the Government decide to act under the powers in part 2, the agreement could be put on the table so that people could see exactly the terms under which the Government would work with the authorised deposit-taker.
Rob Marris (Wolverhampton, South-West) (Lab): Amendment No. 14 has two limbs. The first is in the fourth line, where it mentions
“provisions setting out the strategic objectives for the business”.
The second limb is in the sixth line, which mentions
“the independent day-to-day management of the business”.
On the first limb, the amendment is based on a misunderstanding of what the Bill will do, especially in clause 2(2)(a) and (b), which are the shorthand financial stability tests. That is the threshold beyond which Government action would be prompted. As the Chancellor said on Second Reading, that is a high threshold. There has to be a “serious threat” to the UK financial system and it is clear that any nationalisation under the Bill would be against that background. The strategic objective would be implicit, if not perhaps explicit—to avert any further instability.
That is precisely what the Government intervention in Northern Rock in September 2007 did: it stopped the spread of instability, and banks are carrying on business much as usual in the UK, although there are some liquidity problems. Record profits for banks were announced today and yesterday the FTSE was up, following the announcement about nationalisation. The strategic objective of stability has been met thus far by the Government’s prompt action on Northern Rock. The strategic objective called for in amendment No. 14 is at least implicit—to my mind, it is pretty explicit—in paragraphs (a) and (b) of clause 2(2), which are the thresholds for prompting Government action.
I quite understand the second limb of amendment No. 14, which concerns the independent day-to-day management of the business, but it does not match my understanding of how business very often works. Others in this Chamber have more experience of business than I do, but I have some. My experience is that any major shareholder will, in most cases, wish to have a say in the running of the business. Whether that
is a say in the day-to-day management of the business, to use the words of the amendment, is to some extent in the eye of the beholder.
8.30 pm
I am sure that some major shareholders in private business in this country and other capitalist countries simply put in the money and have no views and no take on how the business is run. I suspect—although I cannot produce evidence to prove it—that such shareholders, who might almost be described as altruistic, are the minority. Amendment No. 14 suggests that the Government, as a major shareholder in a nationalised financial institution, whether Northern Rock or anything else, would not be involved in the running of that business. I understand the motivation for that, and have some sympathy with it. Realistically, however, I do not want the Government—on behalf of the taxpayer and our electors—to have no say whatever in the running of Northern Rock, whether on a day-to-day basis or otherwise. The Government, as a major shareholder, ought to have an eye on that. The Chancellor said in his statement yesterday:
“The new board and the bank will operate at arm’s length from the Government with commercial autonomy for their decisions.”—[ Official Report, 18 February 2008; Vol. 472, c. 21.]
I stress the word “commercial” because in an era of corporate social responsibility a shareholder—whether they are the Government or any other shareholder—ought to be aware of what that business is doing in his, her or their name.
The first limb of the amendment, which concerns the strategic objective, is not needed because of a misunderstanding of the Bill. I would not support the second limb, overall, and particularly not in the way that it is worded.
Dr. Vincent Cable (Twickenham) (LD): I am normally sympathetic to the interventions of the hon. Member for Wolverhampton, South-West (Rob Marris), but I do not think that he has understood the purpose of the amendments. Simply, they are a rather modest means of strengthening parliamentary accountability and oversight. I was happy to support them. They are not suggesting anything very radical, such as that the Minister should come forward with statements and debates. We are just asking for a reporting mechanism, not on exactly how the Government intervene in the company but describing the process.
As the hon. Gentleman correctly pointed out, there are two distinct thoughts. The first relates to the business plan—the strategy that will drive the company. As emerged from our debate on Second Reading, that is the issue that most concerns hon. Members: whether the business is run down, built up or dealt with by any of the permutations between those two options. For quite proper political reasons, it is important that it is reported to us what course of action is pursued by this nationalised company, whatever it happens to be. There is no requirement, as I understand it, for the Chancellor to tell us anything that is going on, and experience while the Government have effectively been acting as a shadow director shows that they prefer to say nothing. The requirement that they simply tell us what the strategic business plan is
seems to be a modest but necessary improvement on what would happen otherwise.
All we know at the moment is that Ron Sandler is going to have a look at the company. He has to prepare a business plan, before, I think, the European Union competition policy determination. After that, the Government will adopt it. However, there is no obligation at the moment to tell us anything about it. The amendment would require the Government to report to Parliament on what that plan is.
A similar situation applies to the arm’s length relationship between Ministers and the company. I rather sympathise, because of course the Government cannot simply ignore what is happening entirely. We have had a problem over the past six months as the Government have stepped back from decisions that ought to have been made, the first of which was the decision to sack the old management. The Chancellor quite properly stood up and said, “There is nothing I can do about it.” Under the new arrangements, however, he will have that power of intervention. How it will be exercised is important.
It is not in the Chancellor’s interest to be involved in micro-management, regardless of whether he would want to be, because he would be blamed for all the repossessions, redundancies and so on. There is clearly a balance to be struck between the need to intervene on important issues and the need to avoid micro-management. I do not know how the Government will strike that balance, but we should know about the basic outlines and parameters. The amendment would merely establish a report-back mechanism that would explain how the arm’s length relationship will work.
For all those reasons, the amendment is very reasonable. It does not ask a great deal of the Government, and it is reasonably precise. I would have hoped that, in the spirit of reasonableness, the Government could have accepted it.
Mr. Kenneth Clarke (Rushcliffe) (Con): I strongly support amendment No. 14, and the arguments put forward by my hon. Friend the Member for Fareham (Mr. Hoban) and the hon. Member for Twickenham (Dr. Cable).
As has just been noted, it is very important that we have parliamentary accountability for the strategic objectives that the Government propose to give to the bank, which they now wholly own. However, I need to be persuaded that the Government know what those strategic objectives are. I took part in the exchanges with the Chancellor yesterday, and it seemed to me that he was not capable of answering the question in any but the most general terms.
I regret that I was not able to attend this afternoon’s Second Reading debate but, as sometimes happens, I was giving evidence before a Select Committee. I did hear the wind-up, however, and I was left none the wiser, even though it was obvious that the Minister was addressing the point that several hon. Members had raised about what objectives the Government are setting the new management of the bank that they have acquired.
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