Banking (Special Provisions) Bill

My Lords, nothing better characterises the drift, muddle and fudge of the Government’s economic and fiscal policy than this Bill. It is being rushed through both Houses as a panic measure after five months of dithering, during which the delay has done great damage to the high reputation of our financial services industry. This House—the upper House in our cherished bicameral parliamentary system—has endured a number of casual and ill-considered constitutional attacks in the past 10 years by a Government who get cross when they do not get their way. Even they have acknowledged in the past that our House does have importance as a revising Chamber. Yet this surprisingly complex and potentially wide-ranging Bill, shrouded as it is in secrecy and in unanswered questions, has been rushed through another place in all its stages in one day and we are expected to bow and send it back, preferably unamended, tomorrow. My first question to the Minister is: why? Are the Government trying to convey an image of dynamic resolution and purpose? Or do they just want to get the issue off the agenda and hope that it will soon be forgotten? I fear that on both counts they will be sadly disappointed. Of all the phrases used in recent days, the concept of ““business as usual”” and managing Northern Rock ““at arm’s length”” are the most inappropriate. The Government are nationalising it precisely because they want to control its future performance. Indeed, ownership imposes obligations. So, if they take ownership on behalf of taxpayers, they take on an obligation to pursue the taxpayers’ interests. ““Business as usual”” is impossible when that has happened and where the bank is uniquely protected by government guarantees; when more than £100 billion of taxpayers’ resources are tied up in it; and where shareholders will be litigating and other banks and EU regulators will be watching for any commercial move of any kind that might be seen to exploit its nationalised status and disadvantage its competitors. So it cannot compete; it will have to downsize; it will have to run down its mortgage book; and the Government want to reduce its exposure. In that situation, it seems to me that there can only be a fire sale of assets. Perhaps the Minister will tell the House when he replies to the debate how the Government propose to present this commitment of taxpayers’ funds in the public accounts, as public expenditure roars above 40 per cent of GDP and the Prime Minister’s golden rules are broken again. Will they change the rules? Will they announce a new cycle? Will they treat the matter as an off-balance sheet item? Perhaps the Prime Minister, when he next goes to watch Raith Rovers, will take note of the fact that it is the players who move around the pitch and not the goalposts. Nationalisation is not only wrong in principle, it is an unnatural solution in a commercial context such as this. It can be justified only in order to unwind as quickly as possible the truly massive commitment that the Chancellor has made on our behalf of more than £100 billion—more, by a large margin, than the total cost of every past nationalisation in our history, of steel, shipbuilding, coal, the motor industry and so on—and all for one not very large regional bank. It is right, I believe, to try to protect the interests of depositors, but nationalisation can only be understood here as a political act. It may save some jobs, but even if half the jobs are saved, the cost of £36 million per job seems a little on the high side. Socialism may have been roundly defeated in the battle of ideas, but clearly the old instinct lingers on in the bloodstream of Labour—the atavistic desire to control, to intervene, to centralise, to direct, to take into public ownership by big, high-spending government. We now see the concept of nationalisation mutating. We see a reversal of past experience. Then they nationalised the core heavy industries and, in Anthony Crosland’s immortal words, made them as efficient as the Co-op. Now they set out to seize the commanding depths of the economy—temporarily, of course, like Mr Pitt’s income tax—and promise not to hold it in perpetuity for the workers but to return it soon, restored and reinvigorated, to the capitalist world of free enterprise. I find that all a little hard to believe and a little counterintuitive. When disaster struck last autumn, the Government claimed that Northern Rock’s problems flowed from the American sub-prime mortgage crisis and the resultant credit crunch. There is some truth in that, but the underlying cause of the problem is, I submit, home-grown. It lies in the bloated housing market that the Government have encouraged for political reasons within the bloated macroeconomy that they have created—an economy floating on a toxic mixture of deficits and debt. With a budget deficit of 3 per cent of GDP and a current account deficit of nearly 6 per cent at the top of the cycle and with no fiscal reserve, we are immensely vulnerable to any downturn. If public borrowing is now heading for £40 billion, the private debt has been encouraged to follow the public example. The savings ratio has plunged and the household sector is breaking borrowing records at more than 100 per cent of GDP. It is not just Northern Rock’s borrowing policy that got it into trouble but its lending policy as well. Though it may be the worst case, too many lenders have been encouraged to lend money to house buyers on too easy terms; 100 per cent mortgages, even 125 per cent mortgages, we are told. And on what multiple of earnings? Five times, seven times or even more. With self-certification, buy-to-let, equity withdrawal, everyone gets a coconut. The housing market is a central part of the overall danger that our economy now faces. Where have the watchdogs been while this has gone on? They were triangulated 10 years ago with responsibilities split three ways. Everyone gets a whistle so nobody blows a whistle. Against that background, Northern Rock’s collapse was an accident waiting to happen, but where in the Treasury, if not in Government, has been the voice of authority and of sanity? Are they all so pulverised by a decade of political fudge and media spin that the fundamental principles of economic and fiscal integrity have been lost? In years to come, the history of the past few years will provide a textbook on how not to manage an economy as it approaches the top of a maturing economic cycle. It is in that context that we have to see the failure of Northern Rock. This Bill seeks to impose a political solution to part of a deep-rooted macroeconomic problem that should have been seen and tackled years ago. As such, it will fail and the blame will belong not in America but at Nos. 10 and 11 Downing Street.