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21 Feb 2008 : Column 294

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 beg to test the opinion of the House.

12.49 pm

On Question, Whether the said amendment (No. 1) shall be agreed to?

Their Lordships divided: Contents, 91; Not-Contents, 176.

Division No. 1


Allenby of Megiddo, V.
Alton of Liverpool, L.
Ampthill, L.
Anelay of St Johns, B. [Teller]
Ashcroft, L.
Baker of Dorking, L.
Bilimoria, L.
Blackwell, L.
Bridgeman, V.
Brittan of Spennithorne, L.
Brooke of Sutton Mandeville, L.
Brougham and Vaux, L.
Byford, B.
Caithness, E.
Campbell of Alloway, L.
Cathcart, E.
Colwyn, L.
Craigavon, V.
Crathorne, L.
De Mauley, L.
Dean of Harptree, L.
Denham, L.
Dixon-Smith, L.
Dundee, E.
Eames, L.
Eccles, V.
Elliott of Morpeth, L.
Elton, L.
Ferrers, E.
Fookes, B.
Forsyth of Drumlean, L.
Fowler, L.
Fraser of Carmyllie, L.
Geddes, L.
Goodlad, L.
Greengross, B.
Hannay of Chiswick, L.
Hayhoe, L.
Henley, L.
Hodgson of Astley Abbotts, L.
Howe of Idlicote, B.
Howell of Guildford, L.
Hunt of Wirral, L.
Inglewood, L.
Kingsland, L.
Laird, L.
Lang of Monkton, L.
Lawson of Blaby, L.
Lucas, L.
Luke, L.
Lyell, L.
McAlpine of West Green, L.
McColl of Dulwich, L.
Mancroft, L.
Mar, C.
Marlesford, L.
Mayhew of Twysden, L.
Miller of Hendon, B.
Monson, L.
Morris of Bolton, B.
Murphy, B.
Neville-Jones, B.
Northbourne, L.
Northesk, E.
Norton of Louth, L.
Pilkington of Oxenford, L.
Plumb, L.
Ripon and Leeds, Bp.
Roberts of Conwy, L.
Ryder of Wensum, L.
St John of Fawsley, L.
Saltoun of Abernethy, Ly.
Seccombe, B. [Teller]
Selborne, E.
Selkirk of Douglas, L.
Selsdon, L.
Skelmersdale, L.
Slynn of Hadley, L.

21 Feb 2008 : Column 295

Stewartby, L.
Strathclyde, L.
Swinfen, L.
Taylor of Holbeach, L.
Tebbit, L.
Trenchard, V.
Trimble, L.
Trumpington, B.
Ullswater, V.
Verma, B.
Waddington, L.
Walpole, L.
Wilcox, B.


Acton, L.
Addington, L.
Adonis, L.
Afshar, B.
Ahmed, L.
Alderdice, L.
Alli, L.
Anderson of Swansea, L.
Andrews, B.
Archer of Sandwell, L.
Ashton of Upholland, B. [Lord President.]
Bach, L. [Teller]
Barker, B.
Bassam of Brighton, L.
Bernstein of Craigweil, L.
Bilston, L.
Boothroyd, B.
Borrie, L.
Boston of Faversham, L.
Boyd of Duncansby, L.
Brett, L.
Brooke of Alverthorpe, L.
Brookman, L.
Burlison, L.
Burnett, L.
Carey of Clifton, L.
Carter of Coles, L.
Chidgey, L.
Christopher, L.
Clarke of Hampstead, L.
Clement-Jones, L.
Clinton-Davis, L.
Cobbold, L.
Condon, L.
Corbett of Castle Vale, L.
Cotter, L.
Crawley, B.
Darzi of Denham, L.
Davies of Coity, L.
Davies of Oldham, L.
Dean of Thornton-le-Fylde, B.
Desai, L.
Dholakia, L.
Dixon, L.
D'Souza, B.
Dubs, L.
Dykes, L.
Eatwell, L.
Elder, L.
Elystan-Morgan, L.
Evans of Parkside, L.
Evans of Temple Guiting, L.
Falkner of Margravine, B.
Farrington of Ribbleton, B.
Foster of Bishop Auckland, L.
Gale, B.
Giddens, L.
Glasgow, E.
Golding, B.
Goldsmith, L.
Goodhart, L.
Goudie, B.
Gould of Potternewton, B.
Graham of Edmonton, L.
Griffiths of Burry Port, L.
Harris of Haringey, L.
Harris of Richmond, B.
Harrison, L.
Hart of Chilton, L.
Hattersley, L.
Haworth, L.
Henig, B.
Hollis of Heigham, B.
Howarth of Newport, L.
Howells of St. Davids, B.
Howie of Troon, L.
Hoyle, L.
Hughes of Woodside, L.
Hylton, L.
Irvine of Lairg, L.
Janner of Braunstone, L.
Jones, L.
Jones of Birmingham, L.
Jones of Cheltenham, L.
Jones of Whitchurch, B.
Jordan, L.
Judd, L.
King of West Bromwich, L.
Kingsmill, B.
Kinnock, L.
Kirkwood of Kirkhope, L.
Layard, L.
Lea of Crondall, L.
Lee of Trafford, L.
Lipsey, L.
Livsey of Talgarth, L.
Lockwood, B.
Lofthouse of Pontefract, L.
McDonagh, B.
Macdonald of Tradeston, L.
McIntosh of Hudnall, B.
MacKenzie of Culkein, L.
Mackenzie of Framwellgate, L.
McKenzie of Luton, L.
Malloch-Brown, L.
Mar and Kellie, E.
Marsh, L.
Maxton, L.
Mitchell, L.
Morgan, L.
Morgan of Drefelin, B.
Morgan of Huyton, B.
Morris of Aberavon, L.
Morris of Handsworth, L.
Moser, L.
Neuberger, B.
Newby, L.
Northover, B.
Oakeshott of Seagrove Bay, L.
Ouseley, L.
Patel of Bradford, L.
Paul, L.
Pendry, L.
Peston, L.
Plant of Highfield, L.
Prys-Davies, L.
Quin, B.
Radice, L.
Ramsay of Cartvale, B.
Rendell of Babergh, B.
Richard, L.

21 Feb 2008 : Column 296

Roberts of Llandudno, L.
Rooker, L.
Roper, L.
Rosser, L.
Rowlands, L.
Royall of Blaisdon, B. [Teller]
Sawyer, L.
Scotland of Asthal, B.
Scott of Needham Market, B.
Sharp of Guildford, B.
Shutt of Greetland, L.
Simon, V.
Snape, L.
Soley, L.
Stone of Blackheath, L.
Strabolgi, L.
Symons of Vernham Dean, B.
Taverne, L.
Taylor of Blackburn, L.
Tenby, V.
Teverson, L.
Thomas of Gresford, L.
Thornton, B.
Tomlinson, L.
Tordoff, L.
Truscott, L.
Tyler, L.
Vadera, B.
Wall of New Barnet, B.
Wallace of Saltaire, L.
Wallace of Tankerness, L.
Warner, L.
Warwick of Undercliffe, B.
Watson of Invergowrie, L.
Wedderburn of Charlton, L.
West of Spithead, L.
Whitaker, B.
Whitty, L.
Wilkins, B.
Williams of Crosby, B.
Williams of Elvel, L.
Williamson of Horton, L.
Woolmer of Leeds, L.
Young of Norwood Green, L.
Young of Old Scone, B.

Resolved in the negative, and amendment disagreed to accordingly.

Clause 2 agreed to.

Clauses 3 to 5 agreed to.

1 pm

Clause 6 [Transfer of property, rights and liabilities]:

[Amendment No. 2 not moved.]

Lord Newby moved Amendment No. 3:

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 Rock’s 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 Parliament—we suggest quarterly—on how Northern Rock’s 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

21 Feb 2008 : Column 297

Northern Rock has been conducted largely on the basis that we are talking about £100 billion of assets, which the Government were guaranteeing, whereas in fact we are not in the slightest talking about £100 billion but about only £60 billion, although that is still a large number. We therefore need to know and have regular reports on exactly how much the taxpayer is still in for. That is the very straightforward substance of Amendment No. 3.

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 option—the Sandler option, and presumably the government option—is 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 Government’s ability to resist a demand from, for example, UNITE—the biggest donor to the Labour Party—that 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 shareholder—in 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

21 Feb 2008 : Column 298

would give us a clear benchmark against which we could hold the Government to account, should they be tempted to micromanage any of Northern Rock’s day-to-day running in the future.

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 yesterday’s 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 bank’s 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 housing—housing 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 yesterday’s 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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not think that they should be inspired to do something that prudent banks should not do; they should certainly not start giving sub-prime mortgages just because the bank happens to have been nationalised. That would be a really bad thing.

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 size—a 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.

Lord Forsyth of Drumlean: Amendment No. 3 moved by the noble Lord, Lord Newby, makes provision for there to be,

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.

On Amendment No. 5, I have my doubts. Those are not about the sentiments, for it is clearly sensible that an,

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,

If I were the chief executive, I would take that provision to mean that I should go out and compete vigorously, making as much money as I possibly could, as that would,

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That would also maximise the uncompetitive behaviour subsidised by the taxpayer from the point of view of Northern Rock’s 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.

1.15 pm

Lord Elystan-Morgan: Amendment No. 5 covers a very wide range of possibilities in the area of the bank’s enterprise. I suspect, however, that the motivation behind the amendment was probably benign and proper—to 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 rock—albeit 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 decision—under the Administration of Justice Act 1970—lies 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—

Noble Lords: Amendment No. 4 is not in this group.

Lord Eatwell: I beg the Committee’s 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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business plan. It has absolutely nothing to do with that. It is all to do with ensuring what the noble Lord, Lord De Mauley, referred to as the independence of the operations of the management of Northern Rock. The Official Opposition should sort out what they really think the amendment is about.

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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