Banking (Special Provisions) Bill

My Lords, this is a dangerous and damaging Bill. It will certainly not bring the Northern Rock saga to an end. Many aspects of it give grave cause for concern. In one way, what is of widest interest and concern is the fact that it is not a Northern Rock Bill. It goes far beyond what would be necessary merely to deal with the Northern Rock situation. It takes very wide powers to deal with any bank that gets into trouble under the various initial clauses in the Bill. The trouble with that is its effect on the reputation of the City of London. It will be thought that Britain needs a Bill to bail out failed banks. The implication is that this will happen because the regulatory system is not adequate to prevent it happening. That is of great concern. One understands why the Bill is so wide: the Government are clearly desperate to avoid the idea that it is a hybrid Bill. My noble and learned friend who has just spoken referred to that. If the report of the Statutory Instruments Committee is accepted with regard to making the orders under the Bill an affirmative resolution procedure, those orders will, anyway, be hybrid because our proceedings in this House are not the same as those in the other place. The Government are not going to avoid that problem anyway. I am desperately concerned about the implications of the wide powers in the Bill as it now stands. The Bill is also, effectively, a licence to take risks. Why should people be prudent if they are going to be bailed out by the Government? There is some qualification to this. If you are going to take risks and need bailing out, you need to do it in the next 12 months. These are matters that require detailed analysis. It is singularly stupid of the Government—if I may presume to say so—not to give adequate time for both Houses to look at the Bill in detail. They will live to regret pushing it through, quite unnecessarily, in the way that they are. We are taking over a bank with no prospectus, a suspect balance sheet and no due diligence. I presume that, in the course of carrying out their very expensive operation, Goldman Sachs showed some due diligence. Will its report be put in the Library? We are certainly entitled to know what we are buying. Again, however, the implication of going along the route the Government have chosen is that the assets of the bank do not match its liabilities plus the loans which the Government have made. The Government have said throughout that the taxpayer will be protected. If you want to protect the taxpayer and the loan book is worth what it is said to be, you can sell off the book on a commercial basis, pay off the liabilities and loans, and that is the end of the matter. Instead, what the Government appear to be hoping to do is run the operation so that it gradually makes a profit and eventually puts Northern Rock into a position where the taxpayer’s interest really is protected. But at the present time I have the gravest doubts as to whether that will be so. This also raises the question of unfair competition. It may be that the Government can do this because under its new ownership the bank will be in a stronger position than those with whom it is competing because it will be able to borrow at a better rate, and it is difficult to see how the Competition Commission will be able to force it to borrow at a higher rate. I want to say a few words about the difficult question of the Granite system, which I referred to an intervention to the Minister. He has now provided us with a document which sets out the situation. It reveals in the starkest form the sordid way in which a charitable trust was being used for financial gain, and that is something which can only be deplored. It also makes clear the complex situation we now face. I asked the Minister in my intervention whether it was true that the Granite arrangements appeared on the Northern Rock balance sheet. This document, which alas I am not sure was available to the House of Commons yesterday, shows that the Granite position is consolidated on the Northern Rock Foundation balance sheet. But the Minister then goes on to state that we are not nationalising Granite, for the want of a longer expression. If Granite is on the Northern Rock balance sheet and we are nationalising Northern Rock, I am puzzled as to how it is that we are not nationalising Granite. No doubt the Minister can explain to us how that is so. Perhaps we could also have some indication from the Government about the size of this interesting complex of companies. It is alleged that Granite amounts to something like £40 billion, a very substantial sum indeed, and has been operating on the basis of securitising the best quality assets in Northern Rock. We are constantly getting statements from the Government saying that the loan book is of very good quality, but it appears that best assets are in the Granite part, which is not going to be nationalised—or are we? At some stage, one becomes a little bemused by what is actually happening in this operation. However, I do think that we are entitled to know. I share in the sympathy that has been expressed generally for the Minister in this, and I can do so on a reasonably personal level since on occasion I am his parliamentary golf partner. None the less, I hope that he can provide us with answers, and indeed he was wise not to go through all the clauses one by one at the beginning of the debate. I turn finally to the report of the Joint Committee on Statutory Instruments. I doubt very much indeed whether there has been quite such a critical report for a long time. It considers in detail the memorandum provided by the Government setting out why they wish to have various points covered by the negative rather than the positive resolution procedure. They have put forward a series of spurious arguments which the joint committee knocks down totally because the real reason is the problem of hybridity. Why the Government were not upfront in saying, ““This is why we’re doing it””, I do not know, because it was not likely that the committee would not catch them out—and indeed it has. There are greater problems here because some of the committee’s other recommendations are very severe indeed, in particular with regard to the later clauses, such as Clause 12. It sets out a most extraordinary proposal of unusual delegation—we are grateful to the noble Lord, Lord Goodhart, for explaining it—to deal with an entire range of government legislation by way of the statutory instrument procedure. That is both dangerous and unnecessary. What is essential here is a very effective sunset clause. If the order goes ahead, we shall see how it works out in the case of Northern Rock, but we really ought not to allow the dangerous proposals set out in this legislation to remain on the statute book any longer than necessary. I believe that we should repeal the Bill at the earliest possible moment, but meanwhile we have most certainly got to tighten up the regulatory procedure generally because it is clear that the tripartite system has not worked. It ought to be possible to go back in rapid order to a situation where the Bank of England has sole responsibility and thus can effectively protect the interests of both the taxpayer and consumers.