Banking (Special Provisions) Bill

The amendment seeks assurances that Northern Rock will not be able to compete unfairly with other banks in the retail, savings and banking market. In responding to this short but interesting and important debate, I propose to do two things. First, I hope to reassure noble Lords that this will not be so and that we will not approve a business plan that does so. Secondly, I will address the specific proposal made in the amendment that would require the Office of Fair Trading to produce an annual report and to notify Parliament if it identifies any problems. I will attempt to assure the Committee that there will be no adverse competition impacts. As explained elsewhere, the bank is in receipt of public support and aid is subject to EU state aid restrictions. Clearly, the interpretation of those laws is a matter for the Commission, but we would be extremely surprised if the Commission interpreted those rules in such a way as to allow a bank to expand its business aggressively on the back of public support. The requirement for prior approval of the European Commission and the Commission’s ability to hold Northern Rock to conditions imposed on approval is, we argue, an important and reasonable constraint on Northern Rock’s business plan. As has already been said, we intend to submit a restructuring plan to the Commission by 17 March. This will need to reassure the Commission that Northern Rock does not abuse its position. Moreover, like any other company, Northern Rock will be subject to UK competition law in the normal way, including the Competition Act 1998 and the Enterprise Act. That also provides an important check on Northern Rock’s business model. I want to reassure the Committee that my right honourable friend the Chancellor of the Exchequer has asked officials to have urgent meetings and discussions with the British Bankers’ Association, the Building Societies Association and others, to reassure them of the position. Even if all that was not the case, let me attempt to offer three further points of what I hope will be reassurance to the Committee. First, Ron Sandler, the executive chairman, has already made it clear that he is acutely conscious of competition issues and has no intention of running the bank in a way that abuses its present temporary state ownership. Secondly, the clear strategic aim which the Government have set for the management is to move the bank off all forms of government support, including government guarantees, as soon as possible. The bank’s business plan, which must be agreed with the Government, needs to be directed at that aim. A business plan that was built on abusing the present temporary government support, which in turn reflects the present distorted state of financial markets, would clearly not be consistent with the aims that we have set out for management, because it would not be sustainable. Thirdly, let me attempt to reassure the Committee on how the financing of Northern Rock will operate. At present, Northern Rock is subject to the same interest rate premium arrangements and is paying for government guarantees in precisely the same way as Northern Rock paid for those facilities in the private sector. It has not had overnight access to some different source of financing. In future, financing arrangements and fee arrangements for guarantees will need to be put in place that are consistent with the business plan and the requirements of the EU. It is too early to speculate sensibly on what those will be, but clearly we expect to be able to demonstrate both to competitors and to the European Union that the bank is operating in a way that does not distort the market. I have spent a little time attempting to explain to the Committee the safeguards that we have put in place. Let me move on to the amendment. It would, where an institution has been the subject of a transfer order under Clauses 3 and 6, require the Office of Fair Trading to conduct an annual report on the impact on competitiveness and, secondly, a report to Parliament as soon as it identifies a significant adverse impact on competition as a result. Largely for the reasons that I have already stated, we do not think that such an amendment is necessary, but again in an attempt to reassure the Committee, I will say that the Office of Fair Trading is an effective watchdog that oversees competitiveness in UK markets. It has wide powers, including powers to investigate whether any market in the UK is distorted by unfair competition. It does not need specific new powers to report on the competitiveness of the banking market; it can do so in any event. My officials have spoken to the Office of Fair Trading, and I can now say to the Committee that it has proposed that it will publish an annual report assessing any competitive implications of Northern Rock’s business on the banking market.