Banking (S.I., 2008, No. 432)

It was a great pity that the Chief Secretary decided to devote so much energy to rather silly and clumsy partisanship and to claiming that we do not have any better ideas about how to tackle the position, instead of doing what the House expected of her and telling us a little about the challenges and difficulties that lie ahead if the business stays in the public sector. It probably will if we are unsuccessful in persuading the Government otherwise. The Chief Secretary constantly asks, ““What was the other option?”” There was an easy other option, for which I have argued throughout the crisis, from when it broke in the summer. Of course, the Bank of England had to step in when there was a run and act as lender of last resort. However, the Bank of England—and, if necessary, the Treasury, working with it—should subsequently have been the intelligent bank manager of the business. It had a natural relationship with Northern Rock as its banker. As a banker, it could have taken all the collateral it needed to ensure that taxpayers' money would never be at risk. It could have guided and influenced the business plan so that it had an impact on phasing the repayments and the way in which they would be made. It did not have to take over the bank's ownership, with all the other liabilities and risks. It did not have to take responsibility for the staff or future trading. It should have concentrated on lending the least amount needed to get the bank through the immediate problem, and having the best possible security for the taxpayer and the best possible supervision and management overlooking the board, as a bank manager should do, to ensure that the money would be repaid in good time. That was the obvious thing to do. The problem with the current model is that the Government are trying to do two contradictory things. Of course, the Chief Secretary is right to tell the House that she views getting back the £24 billion—the remaining outstanding loan, we were told tonight—as an urgent priority. I suspect that she can do that and I wish her every success. We all represent taxpayers and it is important that we get the money back. It is also important that the Bank of England get its money back as quickly as possible because it is a small bank trying to deal with a large and complex system. All the time that it is so committed to Northern Rock, it does not have the firepower that it needs to deal with the obvious imperfections and difficulties in the money market. How can we get the money back? The Government and the bank's recently appointed management admit that the money will be repaid—we trust in reasonable time—by squeezing the business, perhaps halving it, getting people to repay their mortgages early because they remortgaged with someone else and making sure that new advances are not made through Northern Rock to replace advances that are maturing as people pay them off, so that business can be transferred to other organisations in the financial world, and some of the assets can perhaps be sold on, as appropriate. That is a perfectly good working model for getting the Treasury money back, but it is not what the owners of a bank would be doing if they were trying to sell it on to someone else for maximum value. Indeed, doing so will diminish the value of the assets under control, because the bank will have to battle constantly to cut its costs, by sacking its staff and reducing its administrative overheads, to bring it closer to the reality of the falling revenue. Instead of having one or two years of rising profits before returning the business to the private market, which would be best for securing a good price, we have been told tonight that it will definitely have three years of losses. We know, too, that it will have a much smaller business, so it will be quite difficult for it to explain how it can suddenly turn all that round.