Banking (Special Provisions) Bill

My Lords, I support the Bill before the House to enable the Government to take Northern Rock into temporary public ownership. I realise that is a bit of a minority interest in the House today, but I shall persevere. I very much regret that the Government find themselves in this position but, from the moment last autumn that my right honourable friend the Chancellor of the Exchequer provided guarantees for depositors in Northern Rock, I think we all understood that a temporary period of public ownership was always one of the options on the table. Indeed, my right honourable friend has always been explicit in his acknowledgement of that as an option. I do not recall too much opposition in September to the idea that Government should take action to protect depositors. In fact, I am pretty clear that there was cross-party support for the action taken at that time. But I do wonder whether, in retrospect, it was wise to have a guarantee that was so widely drawn and therefore, in the absence of viable alternatives, inexorably led the Government to the position where all of the liabilities of this bank, however temporarily, have now fallen on the public’s shoulders. The important aspect of the stability of the financial system had also to be considered, however. Letting Northern Rock go to the wall could have had significant consequences for the UK’s financial stability. I am perfectly well aware that some noble Lords have taken a different view today, but the plain fact is that with the capital markets in the febrile condition they were in last autumn—and I speak as someone who earns her living in the capital markets—I am not prepared to dispute the Chancellor’s judgment. He made a call that the right thing to do was to stop the run on the bank, not just in the interests of depositors but in the wider interests of UK financial stability. It was a call that, measured against that yardstick, has so far been seen to be correct. I am also clear that the Chancellor has always said that his preferred position was a market-based solution. I am afraid that I have to disagree with the noble Lord, Lord Bell; my right honourable friend has always said that such a solution would be the best option for the rescue of Northern Rock. I agree with my noble friend Lord Desai; it was right that my right honourable friend should take the time to explore whether such a solution could be found. It was quite right that, having decided to explore alternatives, those proposals that came forward should have been taken seriously and given proper and diligent consideration. Had that not been the case, the charge today would have been of precipitous action, or panic, or some such. I imagine that the Government are perfectly happy to plead guilty to the charge of taking enough time to consider this important issue really seriously. This crisis, as other noble Lords have said, was not of the Government’s making. The genesis of today’s problems lies in the business strategy pursued by the board of Northern Rock—as mentioned by many other noble Lords—and as supervised by the FSA. It was not my right honourable friend the Prime Minister who devised the strategy of borrowing short and lending long: nor was it my right honourable friend the Chancellor of the Exchequer who sat on the board of Northern Rock, responsible for exercising fiduciary responsibility and, frankly, signing up to a strategy that reinvented the concept of capital adequacy. It is a bit rich to suggest that the Government are somehow directly culpable for the actions of a publicly owned company that was independently regulated. To suggest that the perfectly sensible position now being taken by the Government in facilitating a temporary period of public ownership is somehow akin to the way in which nationalised companies used to operate in the 1960s and 1970s is a gross distortion. The Bill before us is the logical and appropriate solution at this time to give shareholders and management time to find a solution and an approach that meets the three objectives that the Chancellor has consistently set out since last year: to best protect the interests of taxpayers, to continue to support financial stability and to protect depositors’ money. When tested against those three objectives, neither of the other solutions on the table matched the option of taking Northern Rock into public ownership, so for those reasons it deserves the support of the House. There are important issues that have been raised today that need to be explored further in tomorrow’s deliberations. It is important to determine what exactly is coming into public ownership. Are the assets wrapped in the Granite SIV, which are consolidated on the balance sheet of Northern Rock, to be included or not? I listened carefully to the Third Reading debate last night in the other place and have now read the letter that was circulated, but it remains unclear to me how these assets are to be classified. I encourage my noble friend the Minister to set out more clearly tomorrow the difference between ownership and control; it might reassure some noble Lords if we were able to do that. We also need to explore what business model is to be pursued by the new management. Is it a growth plan, or are we really talking about an orderly sale of the loan book when conditions permit? Some clarity on that question would also go a long way to reassuring the concerns of some noble Lords. What is the likely reaction of the European Commission on the question of state aid? I know this is a difficult question—and my noble friend may not thank me for asking it—but how temporary is temporary? I hope that these issues can be explored in much more detail tomorrow because they are important issues and they have been raised in a singularly articulate way in the House tonight. In finishing, I would like to add one other point and, in so doing, echo a range of the comments made by other noble Lords. I, too, am dismayed that some aspects of the very business model that is now so widely discredited are still being pursued by Northern Rock. I refer to the practice of approving mortgages, at a loan-to-value ratio of 125 per cent, still being advertised by Northern Rock. I listened very carefully to my right honourable friend the Chief Secretary to the Treasury on ““Newsnight”” on Monday night and in the other place last night. She is of the opinion that it is for the new management of Northern Rock to determine its business practices. I really find myself disagreeing with her. On this occasion I am pretty clear that enough is enough. I really hope that Ron Sandler is paying attention.