Banking (Special Provisions) Bill

My Lords, I would really like to be able to acquit the Government of blame for the collapse of Northern Rock. These things happen. I am afraid that this debate has shown very clearly that the consequences of Mr Gordon Brown dismantling the protective mechanism which was in place to spot trouble before prices burst must have contributed to us being where we are now. I would like to say first, before I raise various questions, that we should look at the economic backdrop against which these events have unfolded here. I believe it makes the criticisms of the Bill which we have heard and the events leading up to it all the more serious. I have just returned from a three-day conference of American fund managers where there was a great deal of interest in Northern Rock. There is no doubt that the world economy is shuddering as what started as a credit-crunch storm seems to have uncovered a tide of unsound credit which could destroy much of the potential for economic progress, for years rather than just for months. The extent and the volume of toxic credit based on unsound lending has been far larger than was anticipated even a few weeks ago. It may well have been a tidal change which was neither recognised nor generally predicted, until the storm broke. While the scale of the problem may well push the western economies into recession, it is probable that a longer term result than the recession itself will be a reduction in the volume of credit with much tougher lending terms and higher rates to reflect risk. Inevitably, there is going to have to be more state control of the practices and techniques of financial institutions worldwide, since so many of the most glittering world-financial names have been shown to be disastrously incompetent at huge cost to themselves. One of the really serious things is the way in which consumer credit has overwhelmed the capacity for business credit. What capitalism essentially needs is business credit. That has been the case since Adam Smith, and Marshall, going on to Keynes. Business credit is what makes things tick. Consumer credit is now so large that it has dried up business credit, for the moment at least. That is what has caused the problem; the supply of business credit. Incidentally, I do not think that the central bankers are all free of criticism. There are two who I do not criticise: the governor of the Bank of England and Monsieur Trichet from the ECB. Both of them have done rather well. The esteemed Alan Greenspan has lost a certain amount of his reputation for having been a sound steward of the American economy. I do not know if any other noble Lords have read his autobiography, The Age of Turbulence. In it I found the most devastating quotation: "““I was aware that the loosening of mortgage credit terms for sub-prime borrowers increased financial risk. But I believed then, as now, that the benefits of broadened home ownership are worth the risk””." That book was published a few weeks before the storm broke. I suspect he regrets it was not published a little bit later. One effect of this is to erode the confidence in the world’s central bankers. The reputation for competence of politicians, as economic managers, has already eroded. Sadly, the high reputation for a while of our own finance Minister, Gordon Brown, has now been shown not to have been justified. As Prime Minister he has disappointed his supporters as much as he has astonished the wider public. Sadly, for him, his reach does seem to have been shown to be greater than his grasp. There are a number of specific points that I would like to raise which come in the Bill and in the consequences of the Bill. The first is on hybridity, which has been mentioned a number of times. We all realise that the Bill has been drafted in a way so as to avoid hybridity. On the other hand, there is a very clear procedure for testing hybridity and getting a ruling on it. I am not clear how this works in the case of a piece of legislation which is being rushed through like this. As I understand it, if there is a claim of hybridity, and therefore of hybrid procedures which enable applicants to challenge the Bill and to object to it, the Speaker has to give a ruling on whether the Bill is hybrid. I do not know whether that has actually happened, whether there is time for it to happen, or whether the Bill can get Royal Assent before it has happened. I think it is an important point that must be looked at. Then there is the question of Northern Rock in its publicly owned form and what it has to do. I am absolutely convinced—not just by my noble friend Lord Lawson who said it at the beginning, but by what has been said by everyone both in the House and outside—that there can be no question of the Northern Rock under public ownership continuing as though it were a commercial concern. One of the things that really astonished me was in the Statement that the Chancellor of the Exchequer made on 21 January in which he said it is to be owned and run in the private sector as a commercial bank, but with the Government providing backstop guarantee for private financing. That is a contradiction in terms. You cannot have a government backstop for private financing. It is then no longer private financing. That is perfectly obvious. We are in a slightly similar situation now, except that the bank is about to be taken over. It is absolutely crucial that we know what it intends to do. In my view, the right answer is to run it down, for it to cease to grant any further mortgages. I think it can continue to take deposits because it is basically now a government savings vehicle. It is therefore okay for it to take deposits, but it should not be allowed to extend its business and liabilities by giving out further mortgages. The mortgages that it has been giving out recently have themselves apparently been as unwise as those which the Government allowed it to give because of a failure of proper supervision. I also have a warning. I suspect that at some stage someone will say, ““Wouldn’t it be nice if we kept Northern Rock as a government supplier of housing finance? After all, the United States has had two very large government finance organisations, Fannie Mae and Freddie Mac, and they have done very well over the years””. The fact is that they, too, are now running into considerable difficulty. However, not only is it not a function of government to supply finance for home ownership; there is currently no way that the sort of resources which would be required would be available. I know that that has not yet been suggested, but it might be and I want to warn against it. The Bill goes far too far. Clause 12(1) states: "““The Treasury may by order make””." There is then a great list, one of which is, "““exempting directors of any relevant deposit-taker, or of any group undertaking of any relevant deposit-taker, from liability in connection with acts or omissions in relation to the deposit-taker or undertaking””." That is an astonishing proposal. Of course the Government will say, ““We don’t intend to use it””. But all of that makes the Bill thoroughly bogus. If I were challenging on the grounds of hybridity, I would say that as this Bill has clearly been designed, written and presented in a form purely to avoid being declared hybrid, and as the whole principle of hybridity is to give rights to individuals who are treated differently from others, the Bill should not be regarded as an obstacle to doing that.