Banking (Special Provisions) Bill

My Lords, I beg to move that this Bill be now read a second time. In the Chancellor’s Statement which I repeated in this House on Monday I set out the reasoning behind the Bill. Let me at the outset remind noble Lords why it is being introduced. It is a general Bill. However, it is being introduced now only because the powers it contains are necessary to take Northern Rock into a period of temporary public ownership. As I said on Monday, it is important for savers and depositors to be reassured that their money remains safe and secure. Northern Rock will continue to operate as a bank on a commercial basis. It has been open for business as usual since Monday. The Government guarantee arrangements which the Chancellor announced last year remain in place and will continue to do so. Let me also remind the House that, last September, there was almost universal agreement that the Government were right to intervene to save this bank to stop its problems spreading into the wider banking system. There is also agreement that the bank’s long-term future must lie ultimately in the private sector. Even those who advocated nationalisation in the autumn did so on the basis that it could be only a temporary step—a stepping stone to return it to the private sector when market conditions made that possible. Throughout last autumn, and from the start of this year, the Government wanted to test all the options and to give the shareholders and the management time to find a solution which was acceptable and met the three principles that we set out last year: to support financial stability, to protect depositors’ money, and to protect the interests of the taxpayer. The Government made it clear throughout that all options, including a temporary period of public ownership, remained on the table. The Government had two private sector bids to consider. Each of them was tested against the option of a temporary period of public ownership to see which met our objectives and decision principles, including the best value for the taxpayer. Both proposals involved a degree of risk for taxpayers and very significant implicit subsidy from the Treasury, involving a payment below the market rate to the Government for continuation of their guarantee arrangements and for the financing which we would be putting in place. A subsidy on the scale required would not provide best value for the taxpayer. The private sector rather than the taxpayer would secure the vast majority of the value created over the period ahead. That would be a poor reflection of the balance of risk borne by the two sides. By contrast, under public ownership the taxpayer will secure the entire proceeds from the future sale of the business in return for bearing the risk in this period of market uncertainty. We have therefore made the decision we have to protect taxpayers, after having weighed up all the various competing considerations. In deciding which option was best for the taxpayer, it was clear that a temporary period of public ownership was the better option. The Chancellor has appointed Ron Sandler as the chief executive for Northern Rock. The new board and the bank will operate at arm's length from the Government with commercial autonomy for their decisions. The Chancellor has said that he will publish shortly the framework agreement which will outline how the relationship between the Government and Northern Rock will work.