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Lord De Mauley: I am grateful to the Minister for battling through with his response, but I know that we are all grateful to my noble friend, Lord Forsyth, to my other noble friends and to the noble Lord, Lord Bilimoria, for the points that they made. No one should be under any misunderstanding about the strength of feeling on this whole matter. We are still unsatisfied. Given the contributions from all other noble Lords, further explanation by me is unnecessary. I say to the Liberal Democrats what Vince Cable said in the Commons on Tuesday in response to my honourable friend Philip Hammond on the same point. Vince Cable said:
I feel that some perfectly sensible points have been made. For practical reasons, the Government are not able to limit the scope of the Bill, but at least they can limit the time scale for its implementation to an appropriate period ... There is no particular reason for the power to continue beyond that point, and it seems rather indulgent to let it go on for a year.[Official Report, Commons,19/2/08; col. 256.]
( ) An order under this section shall also make provision for the Treasury to lay before Parliament a quarterly report setting out progress made in relation to a deposit-takers business plan and the amount of loans and guarantees from the taxpayer still outstanding, when such a deposit-taker has transferred its property, rights and liabilities to the Treasury as set out in subsection (1)(a).
The noble Lord said: I hope that we now move into slightly calmer water than we did in our discussion of the previous amendments. There are three amendments in the group. Two of them are Liberal Democrat amendments, and I shall confine my remarks to those.
All the amendments deal with twin issues. The first is the nature of Northern Rock; what kind of bank are we talking about? The second is the ongoing role of Parliament in scrutinising Northern Rocks activities. I think all noble Lords accept that in nationalising Northern Rock we are to a certain extent buying a pig in a poke. We are buying it because we want a live pig, whatever its exact state of health, rather than a dead one, but we would like regular reports on how its health is progressing.
Our two amendments are slightly different in substance and deal with slightly different areas. The first is very straightforward, and deals with reports being made regularly to Parliamentwe suggest quarterlyon how Northern Rocks business plans are getting on and on the amount of loans and guarantees that are still outstanding, so that Parliament and the taxpayer know exactly how much they are in for. The Minister will be pleased to know that I do not intend to discuss the affairs of Granite in great detail, but the debate on
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Amendment No. 5 deals with the character of Northern Rock. As we discussed yesterday, there are a number of options. One is the carry on as you were option, which would involve Northern Rock offering reckless products. I think there is agreement that this is not the way forward. The second option is the administration, or Lawson, option: to wind down the bank as quickly as possible. The third optionthe Sandler option, and presumably the government optionis that the bank should continue to take deposits and issue mortgages and try to trade itself out of the slough in which it finds itself.
Amendment No. 5 seeks to narrow down the options in a way that would, we hope, give maximum assurance to the country by saying that the bank should be managed prudently and in such a way as to minimise the risks to the taxpayer. I should have thought that everyone could agree with that, and I very much hope that the Minister will feel able to do so. I beg to move.
Lord De Mauley: I have listened with interest to the introduction by noble Lord, Lord Newby, of his amendments in the group, and I am pleased to note that we agree on so many of the points that I intended to make. My Amendment No. 6 seeks to ensure that what the Government have indicated is their intention will actually come to pass. We have heard from the Minister and the Chancellor in another place that directions to the management of Northern Rock will be broad brush, high level and strategic, as of course they should be. Unfortunately, good intentions are sometimes not enough to ensure good outcomes. We have already seen indications of the great pressure that will be put on the Government to use their power over Northern Rock for ends that cannot be considered acceptable for a bank that claims to be running business as usual.
I am afraid that I am pessimistic about the Governments ability to resist a demand from, for example, UNITEthe biggest donor to the Labour Partythat there will be no compulsory redundancies among current Northern Rock employees, and about the pressures that will come in future as the Government are held responsible for the foreclosures and repossessions that are an unfortunate but unavoidable consequence of offering mortgages. The last thing any of us wants is redundancies or repossessions, but such are sometimes the inevitable result of decisions of an unfettered management doing its best for the shareholderin this case, the taxpayer.
My amendment seeks to make more transparent exactly how the relationship between the Treasury and the board will be handled and what business strategy the bank will be expected to pursue. This
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Lord Whitty: It is difficult to argue with Amendment No. 5, the second amendment of the noble Lord, Lord Newby, but I have the worry that it would place too great a constraint on the Treasury and its future management of Northern Rock. I note that the noble Lord, Lord Tordoff, is no longer the room, so I might be straying slightly into Second Reading territory since I could not be here for the first part of yesterdays debate.
We have talked about the interests of the deposit holders in Northern Rock; indeed, that was the reason for the intervention. We have talked about, and largely dismissed, the interests of the shareholders. The noble Lord, Lord De Mauley, and the unions have referred to the interests of the staff. However, the real people who are likely to miss out in the whole of this catastrophe are those on the edge of being given a mortgage in the normal way. A lot of the broad-sweep condemnation of sub-prime mortgages here and in the United States will, if we are not careful, rule out an awful lot of decent, hardworking people who would be paying back their mortgage but happen to be on relatively low incomes, to be relatively young, or to be in rather different family circumstances. Those are the real losers in all this. Advancing mortgages to them undoubtedly carries risk, but the vast majority of them have actually repaid their mortgage.
We would certainly expect the management of the bank to be prudent and to take all risk into account, which the previous management of Northern Rock clearly did not do, but placing too great a constraint on the banks mortgage-giving arrangements has severe social repercussions, particularly in a situation in which owning your house is often the most obvious and desirable option in the housing market. Noble Lords will have heard me talking before about the absence of flexibility and available social housing and private rented housinghousing that in other circumstances would be the option. In a society in which owning your own house is vital and the best option for a lot of low-income families, we do not wish to see Northern Rock, or indeed the whole banking system, acting as an exemplar by excluding significant parts of the population from receiving mortgages. That point was not made strongly enough in yesterdays Second Reading debate. If the outcome of this crisis is that a significant proportion of the population can no longer get housing credit, then that is a problem. I fear that over-interpreting the words of the noble Lord, Lord Newby, in Amendment No. 5 could lead to that result.
Lord Desai: I am not quite sure that I agree with my noble friend Lord Whitty, which distresses me very much. The noble Lord, Lord Newby, has phrased his Amendment No. 5 with sufficient care in terms of risk minimising so as to leave the people in charge of Northern Rock with a broad guide, within which they can then do whatever they like. Yet I do
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In the debate on the gracious Speech I pointed out that we have created a housing sector that is a monster by giving it tax advantages and treating it unlike any other asset. We are then surprised that there is a housing shortage. We really have to wean ourselves off giving mortgages to people who do not have the capacity to service them. I do not think that it is the responsibility of Northern Rock to reform society or the housing sector. It has got into enough problems, so it has to behave itself. Within that, it can do either of these things: draw itself down, or, perhaps, maintain a constant sizea strategy that would be perfectly possible by granting a new mortgage only if it has retired another, or something like that. I like the amendment tabled by the noble Lord, Lord Newby, because it correctly formulates how the management should behave.
That is obviously a sensible proposal that I would happily support but I find it slightly difficult to understand why, given the emphasis of his remarks in moving that important amendment, he is happy to support the Bill when we have no business plan at the moment to look at. Therefore, Amendment No. 6 in the names of my noble friends Lord De Mauley and Lord Hunt is the key amendment in this group. It requires the provision of a proper business plan setting out how Northern Rock will be managed and its objectives. That is to be done before any order is made. It would have been courteous to the Committee to have had this business plan today. I understand that it will be made available to the European Union before 17 March. It would then have been much easier to form a view.
I would hardly expect it to be managed in an imprudent manner. Presumably, it will now, at least, be well and truly on the radar of the Financial Services Authority. I do not want to stray into Amendment No. 9, which is for a later stage of our consideration of these matters, but I wonder what Amendment No. 6 actually means if, as the management, you are told that you have to manage,
That would also maximise the uncompetitive behaviour subsidised by the taxpayer from the point of view of Northern Rocks competitors. With Amendment No. 5, then, we are trying to find a form of words to bridge an impossible gap. If the bank is to be run on a business as usual basis, as has been suggested by the chief executive, it will be impossible to achieve. It will not be business as usual, but a bank that is backed by a government guarantee and which has an advantaged position.
In short, I support Amendment No. 3. I am not sure about Amendment No. 5, which is whistling in the dark. I am sure that Amendment No. 6, setting out the need for a proper business plan, is the most important amendment. I hope that your Lordships will have the opportunity for a proper debate, with proper time made available, when the order is made in your Lordships House and when we have that business plan to hand.
Lord Elystan-Morgan: Amendment No. 5 covers a very wide range of possibilities in the area of the banks enterprise. I suspect, however, that the motivation behind the amendment was probably benign and properto try to safeguard the position of mortgagors who find themselves in difficulties with repayments under their mortgages. The amendment is really an appeal for guidance in those narrow and perilous waters that divide Scylla and Charybdis; I cannot now remember which was the rock and which the whirlpool, but there was a rockalbeit a southern rock. Therefore, it is a difficult situation if a mortgagee finds himself or herself having on the one hand to do that which is prudent and, on the other, that which is humane with regard to a debtor.
I would make an obvious point without apology. The ultimate determination does not, of course, lie with the bank or mortgagee itself, but with the courts. The question of whether one triggers the mechanism to commence an action in the courts for sale or for foreclosure is a decision for the mortgagee, but the ultimate decisionunder the Administration of Justice Act 1970lies with the courts. In practice, it lies with a district judge, who would have to decide whether the debtor has a reasonable prospect, within the total term of the mortgage, of making that repayment.
Lord Eatwell: I want to make a couple of comments on this group of amendments. First, Amendment No. 4, with which I have sympathy, is incorrectly drafted in that the Financial Services Authority has responsibility for the supervision and inspection
Lord Eatwell: I beg the Committees pardon. Anyhow, there is a warning: it should be the Financial Services Authority. However, I see considerable confusion on the Benches of the Official Opposition, as the noble Lord, Lord Forsyth, somehow believes that Amendment No. 6 has something to do with a
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Lord Davies of Oldham: I am grateful to the noble Lords who have spoken in this debate. I will first address Amendment No. 6. Amendments Nos. 3 and 5, in the name of the Liberal Party, are on issues which I take seriously and want to address in a moment. However, I want to assure the noble Lord and the Committee that we have given the management of Northern Rock a clear sense of what is expected of them. I take the point that my noble friend Lord Eatwell made; namely, it is not about a business plan, but about strategy.
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