Northern Rock plc Compensation Scheme Order 2008

rose to move, That the draft order laid before the House on 22 February be approved. The noble Lord said: My Lords, the draft order is made under Section 5 of the Banking (Special Provisions) Act 2008, which was passed last month. Under the provisions of that Act and of the Northern Rock plc Transfer Order 2008, Northern Rock was brought into a period of temporary public ownership on 22 February this year, with shares transferred to the Treasury Solicitor as nominee for the Treasury. Section 5 of the Act requires the Treasury to establish a scheme to determine the amount of any compensation payable to shareholders or to holders of share options. The House will recognise the need for a fair and proper way of assessing the amount of any compensation that should be paid in those circumstances. The crucial point is that any compensation must be fair, which means that it should be based on a realistic assessment of the shares’ value without public support. Taxpayers should not be expected to pay compensation for value that would not exist without their support. The Act therefore makes it clear that, in the assessment of the amount of any compensation, two assumptions must be made: first, that all financial assistance provided by the Bank of England or the Treasury is withdrawn; and, secondly, that no further public assistance, beyond ordinary market assistance from the Bank of England, would be provided. In addition, and as provided for by Section 9 of the Act, the order that we are considering today specifies that it should also be assumed that Northern Rock would be unable to continue as a going concern and would be in administration. It is clear that, if it was not for the financial support from the Government and the Bank of England, not only would Northern Rock not have been able to continue as a going concern but it would have been placed in administration at best. As has been shown by the extensive search undertaken by Northern Rock’s management, with the support of the tripartite authorities, it was not possible to find a private sector solution that met our three principles, particularly that of protecting the taxpayer. If the financial assistance provided by the Government and the Bank of England had been withdrawn, it is clear that Northern Rock would not have been able to secure the substantial amount of alternative funding that would have been required. As a result, it is only fair to make the assumption, when determining the amount of any compensation, not only that public support has been withdrawn but that without that support Northern Rock plc would not be a going concern and would have been placed in administration. As well as those assumptions, the order sets out that the amount of any compensation payable will be determined by an independent valuer appointed by the Treasury. We intend to advertise for expressions of interest in that position shortly, if the House agrees to the order. The Treasury will then make an appointment in consultation with the Institute of Chartered Accountants in England and Wales. We will of course be looking for someone who is independent of all interested parties, with extensive company valuation skills and the ability to handle the range of relevant stakeholders. Once an independent valuer has been appointed, they will need to appoint staff and decide on the process to be followed. The valuer will then come to a decision on the amount of any compensation payable, based, of course, on the assumptions that I spoke about a moment ago. Once that assessment has been made, anybody who is affected will be able to ask the valuer to reconsider his or her determination and a revised assessment will then be made. Anyone affected who is dissatisfied with that revised assessment will then be able to refer the matter to the Financial Services and Markets Tribunal. I hope that I have explained clearly the background to the order and its purpose. As I said, it is right that we should establish a fair way of assessing the amount of any compensation payable to people who have lost their shares or had their share options or certain other rights extinguished as a result of the transfer. Any compensation must be fair and must not overvalue Northern Rock on the basis of public support. Without that support, Northern Rock would not be able to continue as a going concern and would be in administration. If it had not been for the Government’s support since September, that would have been the case long ago and it would certainly have been the case when the transfer was made. I therefore believe that this order is the fairest way forward. It is fair that the value of any compensation should be determined by an independent valuer, but only on the assumption that public support was no longer available. This order allows for that to happen in a clear way, with opportunities to seek review of the valuer’s decision, and I hope that the House will support it. I beg to move. Moved, That the draft order laid before the House on 22 February be approved. 12th Report from the Joint Committee on Statutory Instruments, 11th Report from the Merits Committee.—(Lord Davies of Oldham.)