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Northern Rock

My Lords, I am grateful to both noble Lords, although I am slightly more grateful to the noble Lord, Lord Newby, than to the noble Lord, Lord De Mauley, who I understand of course is substituting for the noble Baroness, Lady Noakes, who we all regret cannot be with us today, due to injury. The noble Lord, Lord De Mauley, substituted for detailed analysis a huge amount of rhetoric, which ill befits the situation. After all, some of the rhetoric could have been devoted to identifying just what the Conservative Party thinks its policy should be on Northern Rock, rather than taking every opportunity to be critical without at any stage advancing a position other than what seems to be the very worst of all—that the Government should allow Northern Rock to go into administration. That result would mean that the shareholders had absolutely nothing in return and, for taxpayers, would mean much less security with regard to the contributions made and undertakings given to Northern Rock that need to be safeguarded. That is the burden of the Government’s position. Let me be absolutely clear about this legislation. I understand that the noble Lord has had only a limited time to consider the legislation and that this is a problem in terms of analysis. I assure the House that the legislation extends beyond Northern Rock because otherwise it would involve a private Bill procedure; it would be a hybrid Bill and we all know the length of time required in parliamentary procedure to deal with that. It would be totally ill-suited to this situation. So the Government have produced a Bill that covers the whole banking sector, while making absolutely clear in the Bill principles that activate provisions obtaining to Northern Rock and are unlikely to—and will not—apply to any other financial institution during the 12 months of the operation of those provisions. The Government also have a sunset clause in that part of the Bill to close these extensive powers down after 12 months. We think—and there have been calls from many sides on this—that the Government need to look at the question of the security that they give to banking institutions and the necessity for adequate legislation to safeguard the public interest against the dangers of runs on banks. Within that framework, we intend to produce legislation that will be considered during this coming year and laid before both Houses in due course. However, this legislation is directed towards the particular circumstances of Northern Rock, while necessarily having a more general application than that. The noble Lord asked whether we have taken into account the European Community’s position. We have taken into account not only the requirements of the European Union, but our own laws on competition that will clearly circumscribe the actions with regard to the Northern Rock bank in the coming months. There will be a guarantee that there will be no unfair advantage for this bank. It will operate under commercial principles at arm’s length from government and under reputable leadership which the House will recognise can give proper securities on those terms. Of course we were working within the framework that by 17 March it would be necessary to submit to the European Community the provisions under which we would continue to support the bank. That is necessary under the state aid rules of the Community. We are meeting those requirements. That has been an enormously significant constraint in considering the bids. I also emphasise the obvious fact that the delay was because the Government hoped that the bank could remain within the private sector. That is why bids were solicited and hoped for and why work was done to provide the necessary analysis of those bids. The problem is straightforward: neither of the bids that eventually materialised gave the essential security to taxpayers which temporary public ownership guarantees. The noble Lord, Lord De Mauley, asked about the shareholders. There will be an independent evaluation, which will be carried out against the background of the bank operating without the public guarantees because the true valuation of the bank is the bank operating in the private sector. That is what the shareholders are entitled to. The noble Lord, Lord Newby, asked about contraction. Both bids looked at a contraction of Northern Rock's business. The executive chairman has gone to Newcastle to discuss the bank's future with the staff and the trade unions. There are problems with regard to the extent of the bank's business which will have to be discussed and there will, no doubt, be an element of limited contraction. Nevertheless, from the bids that came in, it was clear that that contraction could have been very significant indeed. The noble Lord, Lord Newby, asked about the Northern Rock Foundation. The Government have guaranteed that for the next three years the Northern Rock Foundation—the charity—will receive a significant sum of money. It will be a figure that it received from the bank at times in the past—not in the best years of the bank because it is a percentage of profits, but a figure that the bank was prepared to pay in the past.