Banking (Special Provisions) Bill

I am pleased to contribute to the debate on behalf of the Treasury Committee; our report, ““The run on the Rock””, is tagged to today's debate. As the House will know, the Treasury Committee has undertaken a five-month inquiry into financial stability and transparency, which began with the taking of evidence from the Governor of the Bank of England on 20 September—within days of the announcement of the support operation for Northern Rock. Our report of late January covered the events leading to that support operation and the subsequent run, guarantees and proposed reforms, which the Committee believe will prevent a recurrence of these problems. I do not propose to talk about those aspects of our report today; instead, I want to concentrate on the proposals for public ownership and how they relate to the analysis in the final chapter of our report on Northern Rock since September last year. The Bill allows a bank or building society to be taken into public ownership when there is a threat to financial stability or when state support has been provided. I realise that there are concerns that Northern Rock might set a precedent for other institutions, but it was clear during our inquiry that Northern Rock's excessive dependence on wholesale markets made it an extreme outlier among banks. Indeed, we were told by the European Central Bank in Frankfurt that no European bank had comparable exposure. I understand why the Bill is drafted so that it relates to deposit-takers in general and why there is no provision on the face of the Bill for a particular interest—thereby making it a public, not a hybrid Bill. I will confine my remarks to the case of Northern Rock. On 11 October, my right hon. Friend the Chancellor of the Exchequer told the House that any proposals on the future of Northern Rock would have to be considered in the context of how far they, first, protected taxpayers; secondly, promoted financial stability; and, thirdly, protected consumers. He subsequently confirmed in an answer to my question that he viewed those three criteria as being of equal importance. My own assessment of the proposals for Northern Rock arising from this Bill relates to those three criteria. On the first—the protection of taxpayers—I believe that the decision to nationalise Northern Rock is the right one. The taxpayer has been paying the piper since September and it is now rightly time for the taxpayer to call the tune. The Virgin offer seems to have been based on an optimistic view of the value that Virgin Money would bring to the table. I well remember the BBC reporting that Richard Branson was going to put in £200 million of his own money. When I spoke to people in the City, I discovered that Virgin Money was being sold to Northern Rock, and when I asked someone very close to Northern Rock what they thought the value of Virgin Money was, they said that it was not £100 million, but only £50 million. Hey presto—Richard Branson's personal contribution of £200 million from the sale of Virgin Money to Northern Rock! The £10 million to £11 million that was requested for the branding of the Virgin Money name did not strike me as a good investment. Any private takeover would have posed the threat of taxpayers continuing to bear all the risk, with the bulk of any profits going to a private owner. The scandal that that might have created in due course, particularly if the profits were realised in a tax haven, could have been far more damaging than any difficulties associated with nationalisation.