Banking (Special Provisions) Bill

My Lords, I beg to move Motion A, that this House do not insist on its Amendment No. 1, to which the Commons have disagreed for their Reason 1A. I will of course speak to the other two amendments in the group. The first amendment revolves around audit. We have already confirmed our intention that Northern Rock should be subject to the requirements of the Companies Acts 1985 and 2006. This will mean that the company’s annual report and accounts must be independently audited by a professional firm and filed with the Registrar of Companies for public access. It may be helpful if I set out once again, and I hope for the last time with regard to this measure, how we propose to apply these requirements to Northern Rock’s 2007 accounts. Once the shares have been transferred, the board will confirm the appointment of the company’s independent auditors, who will then complete the audit of the accounts. The board will also review and approve them. The accounts will then be published at the latest by the end of March. I will of course ensure that a copy is placed in the Library of the House. I contend that these are far more appropriate arrangements than any alternative proposed, for the reasons that I gave earlier today and which have been agreed subsequently by the other place. In particular, it will be recognised that the Bank of England is not well qualified to take on the responsibility for auditing large and complex financial institutions. It is, to state the obvious, a central bank, not an auditing firm. Its expertise lies elsewhere. Independent professional auditing firms with experience of the City are far better placed to provide the necessary expertise and scrutiny. These arguments were also persuasive in the Commons and have led to this Motion. The second amendment, which also exercised this House to a great extent, dealt with issues revolving around the Freedom of Information Act. Our argument against applying the Act to companies transferred under the Bill has at its heart our principle, which I think is shared right across the House, that once the bank has been brought into temporary public ownership it should be run on a commercial basis at arm’s length from the Government. It was suggested that National Savings & Investments was an example of an organisation that falls within the Freedom of Information Act—it does—and was therefore a parallel for Northern Rock. It is not. National Savings & Investments is an executive agency of the Treasury, and has the public function of raising finance to provide the Exchequer with a source of funding—that is, public borrowing. No commercial bank is subject to the terms of the Freedom of Information Act, and a bank transferred under these powers should not be. That is our case on Northern Rock. The regime under that Act would be entirely inappropriate for any commercial bank, even one run at arm’s length from the Government, as Northern Rock will be. As was mentioned in this House and in the other place, the Bank of England also has an exemption from the Freedom of Information Act in relation to information that it holds on the provision of private banking services and related services. That seems to be a direct precedent for how we are tackling Northern Rock in public ownership. It has been observed that there are exemptions under Section 43 of the Freedom of Information Act for trade secrets and information likely to prejudice commercial interests. That is not, however, an absolute exemption. It would be the case—as I sought to put before the Committee earlier today—that Northern Rock would have to consider all freedom of information requests, and balance the public interest against its own commercial interests. That would be wholly inappropriate for a commercial company with no public function; as a result, it could conceivably be ordered to disclose information under that Act that other banks would not have to disclose, which would cause practical problems and hinder the bank’s ability to operate on a sound commercial basis by diverting resources to dealing with publication schemes and answering requests. In the interests of achieving a return to private ownership and repaying the taxpayer—the cardinal principles of this legislation—I want to avoid Northern Rock being disadvantaged by operating in temporary public ownership. As I also mentioned earlier today, in accordance with the Companies Act and other regulatory requirements, banks, including Northern Rock, have reporting and information requirements to publish company accounts and company reports and to undergo an audit by independent auditors, all on an annual basis. If we are to maintain the prospect that this bank may be returned to the private sector as soon as possible, it is vital that we do not apply inappropriate public sector requirements. We want the new management to be focused on producing a business plan that meets our objectives, not instituting a training programme for all staff in how to deal with freedom of information requests. As I explained earlier, under its framework document the Treasury intends to develop effective plans for appropriate publication of reporting information on Northern Rock. That will enable appropriate public scrutiny of Northern Rock, which is why—the Commons having agreed with the position put forward by the Government in this House earlier today—the amendment to which Motion B refers is not necessary. The Treasury is a public authority, subject to the Freedom of Information Act; information relating to the Treasury’s relationship with Northern Rock as shareholder and lender would therefore be covered by that Act. Those who wish to see the objectives of that Act met—and I pay due testimony to noble Lords opposite who were concerned to emphasise this in their representations today—should note that they can be met by requests to the Treasury about its relationship with Northern Rock. The Treasury would need to consider applications under the Freedom of Information Act in the normal way, including the relevant exemptions. I turn to the third and last amendment that is covered by the Commons Motion. The third issue revolves around the important aspect of competition. Under the amendment, Northern Rock should not be able to compete unfairly with other banks in the retail savings and banking market. I want to assure the House that there will be no adverse competition impacts, which was of course the argument sustained in the other place. The bank is in receipt of public support. This aid is subject to European Union state aid restrictions. Clearly, interpretation of these laws is a matter for the courts. But I 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 significant compensatory measures, are reasonable restrictions on its business activities. Such measures will need to be applied to Northern Rock. As has been explained during the course of the measure before the House, we intend to submit a restructuring aid plan to the Commission shortly. This will need to reassure the Commission that Northern Rock does not abuse its position. In addition, 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 2002. That provides a further important check on Northern Rock’s business model. As has been made clear to both Houses, the Government recognise that other banks and building societies will want to be reassured about the impact of taking Northern Rock into temporary public ownership on competition. I can assure the House that officials have been asked to have urgent meetings and discussions with the British Bankers’ Association, the Building Societies Association and others to reassure them of the position. I can offer three further points of reassurance to the House. First, Ron Sandler has already made it clear that he is acutely conscious of competition issues and has no intention of running the bank in a way which abuses its present temporary state ownership. Secondly, the clear strategic aim we have set for the management is to move the bank off all forms of government support. Thirdly, let me reassure the House on how the financing of Northern Rock will operate. At present, Northern Rock is subject to the same interest rate premium arrangements and to paying for government guarantees in precisely the same way as it paid for those facilities in the private sector. It has not had overnight access to a different sort of financing. There is another aspect with regard to competition which I am sure is of very real concern to the House and is a reassurance to all noble Lords. The Office of Fair Trading, under Clauses 3 to 6, will be required to conduct an annual report on the impact of competitiveness of Northern Rock’s activities. A report to Parliament as soon as it identifies a significant adverse impact on competition as a result of this is also necessary. The Office of Fair Trading is an effective watchdog that overseas competitiveness in the UK markets. It has wide powers, including powers to investigate when any market in the UK is distorted by unfair competition. There is no need therefore for the additional amendment which was passed earlier in the day by the House, which is why the Commons has rejected it. The amendment would be an unnecessary duplication of powers under the Competition Act and the Enterprise Act 2002, and the European Commission’s powers under the EC treaty. It does not need to specify new powers to report on the competitiveness of the banking market. We also agreed that the Office of Fair Trading would publish an annual report assessing any competitive implications of the public support to Northern Rock. My officials have spoken to the Office of Fair Trading and I can now report to the House that the OFT has proposed that it will publish an annual report assessing any implications of Northern Rock’s business on the banking market from the perspective of competitiveness. I hope that this reassures noble Lords on the third amendment. Moved, That the House do not insist on its Amendment No. 1, to which the Commons have disagreed.—(Lord Davies of Oldham.)