---

Let me be absolutely clear about this legislation. I understand that the noble Lord has had only a limited time to consider the legislation and that this is a problem in terms of analysis. I assure the House that the legislation extends beyond Northern Rock because otherwise it would involve a private Bill procedure; it would be a hybrid Bill and we all know the length of time required in parliamentary procedure to deal with that. It would be totally ill-suited to this situation. So the Government have produced a Bill that covers the whole banking sector, while making absolutely clear in the Bill principles that activate provisions obtaining to Northern Rock and are unlikely to—and will not—apply to any other financial institution during the 12 months of the operation of those provisions. The Government also have a sunset clause in that part of the Bill to close these extensive powers down after 12 months.

We think—and there have been calls from many sides on this—that the Government need to look at the question of the security that they give to banking institutions and the necessity for adequate legislation to safeguard the public interest against the dangers of runs on banks. Within that framework, we intend to produce legislation that will be considered during this coming year and laid before both Houses in due course. However, this legislation is directed towards the particular circumstances of Northern Rock, while necessarily having a more general application than that.

The noble Lord asked whether we have taken into account the European Community’s position. We have taken into account not only the requirements of the European Union, but our own laws on competition that will clearly circumscribe the actions with regard to the Northern Rock bank in the coming months. There will be a guarantee that there will be no unfair advantage for this bank. It will operate under commercial principles at arm’s length from government and under

18 Feb 2008 : Column 31

reputable leadership which the House will recognise can give proper securities on those terms. Of course we were working within the framework that by 17 March it would be necessary to submit to the European Community the provisions under which we would continue to support the bank. That is necessary under the state aid rules of the Community. We are meeting those requirements. That has been an enormously significant constraint in considering the bids.

I also emphasise the obvious fact that the delay was because the Government hoped that the bank could remain within the private sector. That is why bids were solicited and hoped for and why work was done to provide the necessary analysis of those bids. The problem is straightforward: neither of the bids that eventually materialised gave the essential security to taxpayers which temporary public ownership guarantees.

The noble Lord, Lord De Mauley, asked about the shareholders. There will be an independent evaluation, which will be carried out against the background of the bank operating without the public guarantees because the true valuation of the bank is the bank operating in the private sector. That is what the shareholders are entitled to.

The noble Lord, Lord Newby, asked about contraction. Both bids looked at a contraction of Northern Rock's business. The executive chairman has gone to Newcastle to discuss the bank's future with the staff and the trade unions. There are problems with regard to the extent of the bank's business which will have to be discussed and there will, no doubt, be an element of limited contraction. Nevertheless, from the bids that came in, it was clear that that contraction could have been very significant indeed.

The noble Lord, Lord Newby, asked about the Northern Rock Foundation. The Government have guaranteed that for the next three years the Northern Rock Foundation—the charity—will receive a significant sum of money. It will be a figure that it received from the bank at times in the past—not in the best years of the bank because it is a percentage of profits, but a figure that the bank was prepared to pay in the past.

4.17 pm

Lord McIntosh of Haringey: My Lords, I repeat the declaration of interest which I made when this issue was considered before. I owe Northern Rock quite a lot of money. If the bank owed me money I would not consider it proper to intervene in this debate.

Will the Minister accept that many of us believe that this is not only the right decision for the right reason, but also at the right time? I disagree with the noble Lord, Lord Newby. We had to give the chancers in the City, and the chancers who bought into Northern Rock in the expectation of making a windfall profit at the expense of taxpayers, the chance to expose themselves and they have. Now we need an assurance from the Minister that when Northern Rock goes back into the private sector, there will be no element of compensation, consideration or guarantees from taxpayers, but that it will be purely a private sector business.

18 Feb 2008 : Column 32

Lord Davies of Oldham: My Lords, I am grateful to my noble friend who is well versed in such issues. I can of course give him that assurance that the return of the bank to the private sector will mean that all guarantees will end at that point. Before that occurs, the Government will seek to ensure that the returns to taxpayers are guaranteed so that taxpayers will not make a loss, and that there will be a return on the loan that was made by the Bank of England to Northern Rock.

I would not have put matters in quite the way my noble friend did. He is noted for his challenging approach at times to such issues. It was necessary that the Government explored every possibility of solving this issue within the private sector. It did not prove possible to get the necessary guarantees on the public money that has been underwriting the bank and, therefore, within that framework it is now necessary for us to continue limited public ownership.

Lord Lawson of Blaby: My Lords, the Minister is rightly held in high affection by this House. However, even he cannot disguise the fact that this has been the biggest saga of incompetence in any bank failure in our history—there have been a few. Speed is of the essence in this matter. Is the Minister not aware that in 1984, when I was Chancellor and Johnson Matthey Bankers got into serious difficulties, after a few unsuccessful days of talks to try to get a private sector solution I authorised the Bank of England forthwith to acquire the bank, which it did? Is the Minister also not aware that, having taken all this time—at great cost and great cost to the reputation of the City of London—to grasp this nettle, the Chancellor has done the wrong thing? Is he not aware that there is no public interest whatever in perpetuating the life of this failed institution? Indeed, there is a considerable public interest in not doing so.

Is the Minister not aware that the bank should be closed for business forthwith and the loan book—much of which, I fear, is not nearly of such good quality as either the Financial Services Authority or the Government make out—should be sold off in an orderly way to maximise value? Finally, will he give the House an undertaking that there will be no question of any compensation whatever for the shareholders, whoever they may be, until the taxpayer has received back in full the massive loan that has been made to this bank?

Lord Davies of Oldham: My Lords, on the noble Lord’s final point, I certainly assure him that that is to be the case. However, when he says that there ought to be an orderly sell-off, he means a fire sale of the assets at the worst possible time, and therefore very significant losses indeed.

I hear what the noble Lord says about the ease and facility with which Johnson Matthey was tackled some 20 years ago. That was rather a different situation from a bank occupying this position, particularly as the issue confronting the Chancellor and the Government in the middle of last year was the anxiety of depositors about their deposits, to the extent that there was a developing run on the bank

18 Feb 2008 : Column 33

with a capacity for the contagion to spread more widely than that. Immediate government action was necessary and taken at that time. If the noble Lord suggests that a fire sale of the assets at that time, the sacking of 6,500 workers and the destruction of a great deal of the economy of the north-east of England would have had no consequences in the difficult times of last year, he is living in a different economic circumstance from the rest of us.

The simple fact of the matter is that what was happening in the United States at that time was subsequently to affect France, Germany and elsewhere. There were real threats to the banking system, in which there were major catastrophes and casualties. The Government had a bounden duty to limit that contagion to one institution. That is what we set out to do, and we are setting out to guarantee that the sums which the Government have put into the bank are returned to the taxpayer in due course.

Lord Oakeshott of Seagrove Bay: My Lords, I am sure that when he reads Hansard, the Minister will want to revisit the answer he has just given to the noble Lord, Lord Lawson, on the question of compensation. It appeared to be at odds with the Statement. I am happy to give the Minister a chance to think about that now, if he wants.

I was much taken with the suggestion of the noble Lord, Lord McIntosh, that the chancers should have had a chance to expose themselves in the City. In that context, I ask the Minister what fee the taxpayer is paying to Sir Richard Branson for his efforts.

The most important issue now is clearly that the nationalised bank should be run on proper prudent and commercial lines. I ask the Minister to accept that we on these Benches will not support wrecking amendments from the Conservatives. It is clearly important that the Bill goes through as soon as possible, but we need proper assurances about how the bank will be run, preferably in the Bill or in the order that will immediately follow it. Only today, my noble friends and I met the Chancellor and challenged him about why pernicious 125 per cent together mortgages are still being offered by the bank. We have raised the issue in this House and in the other place. Now that it is taxpayers’ money, can that nonsense stop?

Lord Davies of Oldham: My Lords, I am grateful to the noble Lord for offering to let me reconsider what I said to the noble Lord, Lord Lawson. As I indicated in the Statement, there will be an independent evaluation of the bank’s value and, therefore, of what is owed to shareholders. As the Statement also makes clear, the valuation will be stripped of the essential public moneys that have gone in to support the bank. It will be a valuation of the bank as it stood as an asset at that time. That money will be paid as and when it falls due. That is a separate issue from the long-running position of the bank.

I heard what the noble Lord has said again about irresponsible lending by Northern Rock, but the bank’s current operation is consistent with that of other banks. He quoted some exceedingly limited

18 Feb 2008 : Column 34

figures. As I indicated in a previous answer on this question, some borrowers are inevitably better risks than others, and will therefore get more favourable treatment. However, the bank is currently operating pretty consistently with any other bank in the market and I do not accept his point that the bank is stretching its position beyond that.

I do recognise that the noble Lord and the House have the right to understand fully how the bank will be managed in future, and we will have time to extensively discuss those issues during the Bill’s passage. If the Bill is cleared by the Commons tomorrow, we hope to introduce it in this House on Wednesday. We will have time to go through these issues in more detail then.

Lord Tebbit: My Lords, does the noble Lord not understand that he has just heard the first but not the last request for political interference by the Government in the management of this soon-to-be nationalised business? Does he not understand—all of us who have experience in these matters do understand—that whatever the legislation states, Ministers can interfere with the running of a nationalised industry? The lunchtime directive is about to be reinvented, it seems to me. Does he not agree that the £15 million a year that is to be paid by the Northern Rock nationalised bank will be paid not out of the bank’s profits but out of taxpayers’ money, predominantly taxpayers in the south of the country who pay most taxes, to special interests in the north of the country where the Government have a political interest in maintaining them? Can he say why the Government need powers to amend all banking legislation without primary legislation? What is the reason for that, which I understand is in the Bill?

Lord Davies of Oldham: My Lords, I had hoped, on the latter point, that I had assured the House that the legislation extends beyond Northern Rock to the whole of the banking sector because—

Lord Lawson of Blaby: My Lords, that is not the question.

Lord Davies of Oldham: My Lords, the Government’s clear intent—this is why there is the 12-month clause—is to limit the activity beyond anything other than Northern Rock. The noble Lord said that we have heard from the Liberal Benches the first siren call for intervention in and political direction of the bank. He must recognise that I did my inadequate best to resist that siren call and said that I did not accept the contention from the Liberal Benches. The bank must be managed at arm's length from Ministers to meet the requirements. If the noble Lord is saying, “Yes, but we already have in the proposals an indication of concern about the Northern Rock Foundation”, all I can say is that of course the Government and the public are concerned about the foundation. After all, it is a charity that the bank has supported for many years. It has an important role to play in the north-east. I resist the noble Lord’s contention that no one in the

18 Feb 2008 : Column 35

country is prepared to see that foundation supported apart from direct beneficiaries from it who live in the north-east. It ill becomes him to suggest that. In that one area, the Government have been concerned to safeguard what is widely regarded as an asset that the public values.

On the more general issues raised by the noble Lord, we will have the opportunity to discuss the question of how the bank is to be managed. We will therefore be able to demonstrate the extent to which we will keep Ministers at arm's length and ensure that the business is conducted by reputable individuals who know the banking business and would not accept the degree of interference that the noble Lord suggests.

Lord Clinton-Davis: My Lords, did not the former Chancellor, the noble Lord, Lord Lawson, illustrate perfectly well why the previous, Tory Government failed? Would not the Conservatives have been the first to complain if the Government had not explored every possibility before coming down in favour of public ownership? Have not the Conservative Opposition forfeited any constructive ideas about the issue; rather, they have opted to put them on the shelf?

Lord Davies of Oldham: My Lords, I have been over-lengthy in my replies. I agree with my noble friend.

Lord Naseby: My Lords, how can it possibly be business as usual if the Government are subsidising the marketing and the whole business plan of Northern Rock? As we know that Ron Sandler actually believes in reducing overheads and producing cut-price products, what is to prevent Northern Rock undercutting every other bank and building society in the United Kingdom with taxpayers' money?

Secondly, Ron Sandler is being paid a pretty good wage for what I understand to be 12 months’ work. Will the Minister confirm that there is no bonus, no other perks associated with payment to Ron Sandler over and above his monthly salary?

Lord Davies of Oldham: My Lords, I have not gone into the detail of Ron Sandler's travelling expenses or anything such as that, but I can assure noble Lords that the remuneration that has been cited is intended to be the remuneration for the job that he is being asked to do. On the noble Lord’s more general question, we have to present a position to the European Community; we have also to follow and work within the framework of the competition laws of this country. Both put very effective constraints on what the noble Lord is suggesting: that a bank in temporary public ownership will be able to take advantage of that to have preferred business over its competitors.

Lord Elystan-Morgan: My Lords, the noble Lord, Lord De Mauley, condemns public ownership in all its forms and in all its works. Given that, and particularly given the references made to the practices of Labour Governments in the 1970s, will the

18 Feb 2008 : Column 36

Minister confirm that the development of industries Act of 1971 gave the Government sweeping powers to take over any industrial or commercial concern? This happened during a sudden downturn in the economy. Nevertheless, the Government put those powers into legislation. Whether they did so as an act of premeditated apostasy or indeed out of panic matters not—they were the most sweeping general powers over public ownership that have ever appeared on the statute books of this country. In the circumstances, does it not ill behove the noble Lord to dress himself in the white sheet of purity in these matters?

Lord Davies of Oldham: My Lords, the noble Lord has quoted the Industry Act 1971. He may also recall that Rolls-Royce was nationalised in a day and at a time when the then Conservative Government had a totally unquestioning and compliant upper House to ensure that there was no problem for the lower House in that respect.

Lord Hunt of Wirral: My Lords, is the Minister aware that he is embarking on a tortuous and difficult road as he seeks to steer this legislation between the rules affecting hybridity in this noble House and the rules affecting state aid in the European Union? After all these months of dithering and delay, do he and his colleagues have any plan at all for the future of Northern Rock beyond the immediate rescue announcement? The Government have told the European Union that a detailed business plan will be in the hands of the European Union in a few weeks. Has it even been drafted? If it has, when will we see it?

Lord Davies of Oldham: My Lords, I thought that Ministers were paid to deal with difficult legislation. The noble Lord had enough experience of that, and I have no doubt that I will enjoy it as much as he did.

On the more obvious point about the European Commission, the chairman and chief executive are now charged with developing the business plan. The European Commission will want to be reassured about the nature of this plan to ensure that it meets all necessary competitive requirements and does not infringe the limitations on state aid. No one is pretending that this is easy, but it might help if for a moment the other side indicated that the difficulties with Northern Rock did not occur because the Government acted. It was not particular legislation that produced problems for Northern Rock but an aggressive banking system. I am talking not only about Northern Rock but about a number of other banks that lent unwisely and not well. The consequences, as ever, are borne by the wider society.

Business

4.38 pm

Baroness Royall of Blaisdon: My Lords, with the permission of the House, I shall make a short business statement on the Banking (Special Provisions) Bill. The Bill is expected to arrive from the Commons late on Tuesday. The Lords’ print of the Bill will be available on Wednesday morning. The usual channels have agreed that the Bill should receive its Second Reading on

18 Feb 2008 : Column 37

Wednesday after Oral Questions. A provisional speakers list for the Second Reading will be opened in the Government Whips’ Office today after I have finished speaking. The remaining stages of the Bill will be taken on Thursday; the Committee stage will start immediately after Oral Questions. The Public Bill Office has said that it is willing to receive provisional Committee amendments from Tuesday morning onwards, as soon as the Commons’ print of the Bill is available.

A Business of the House Motion will be tabled tonight for consideration tomorrow, after Oral Questions, to allow the Bill to be taken on these days. I regret that other business on Wednesday, and especially on Thursday, will have to be postponed. On Thursday, it will be necessary to postpone the debates in the names of the noble and right reverend Lord, Lord Harries of Pentregarth, and the noble Lord, Lord Patel, and the Committee stage of the Private Member’s Bill of the noble Lord, Lord Mitchell. The statutory instruments scheduled for that day will remain as last business and the Grand Committee will run as scheduled. On Wednesday, the Committee stage of the Criminal Justice and Immigration Bill will resume after Second Reading of the banking Bill. I am afraid that the Question for Short Debate proposed by the noble Viscount, Lord Falkland, will have to be postponed.

I apologise for the inconvenience to all noble Lords who had intended to take part in those items of business. We will seek suitable alternative dates for everything that has been displaced and advertise them as soon as possible.

---