Banking (Special Provisions) Bill

I have only eight minutes left, and I want to put my views on record. If I have time at the end of my speech, I will give way to the hon. Gentleman. On the second criterion of financial stability, the Treasury Committee concluded that the Chancellor's decision to make public support available to Northern Rock was the right one. For a time at least, there was political consensus on that decision. I have heard no convincing argument as to how, having embarked on providing taxpayer support, the Government could extricate themselves from their commitment without jeopardising financial stability. Under existing insolvency law, administration would mean deposits being frozen, and the expensive guarantees offered by the Government would be invoked. In modern circumstances, the difficulties of individuals with no access to their bank accounts, even for a short while, would undermine confidence in the whole banking system and jeopardise financial stability, and there would be multiple runs on banks. At least until there is a new legislative framework for handling failing banks, administration is not a realistic option. The third interest on which we must focus is that of consumers. It must be made clear that the consumers who matter are all consumers, not just those who have accounts or mortgages with Northern Rock. In the long run, the interests of all consumers will be best served by a competitive and properly regulated banking system. We must be alert, as I am sure the European Commission will be, to the danger that Northern Rock will distort the financial markets. Such a distortion would jeopardise the long-term interests of consumers and the financial system. At times of economic uncertainty other financial institutions do not need a new heavyweight competitor, numbed to the pain of competition by the anaesthetic of state aid. As has been mentioned, Northern Rock is a high loan-to-value lender. I believe that its average loan to value is more than 60 per cent., compared with percentages in the low 50s in the rest of the industry. That makes Northern Rock more risky. Probably a gratuitous request to the new management is for it to ensure that the together mortgage, with a 125 per cent. loan to value, is no part of the company in the future. A statement to that effect from the management would reassure the rest of the market. To satisfy myself and others that a nationalised bank will not distort competition, four conditions must be met. First, as the Chancellor has acknowledged, the terms of the agreement between the Government and the new management must meet the Commission's state aid rules. I trust that the way in which that is done will be made public. Secondly, given the state guarantee, a nationalised Northern Rock must continue to pay a penalty for attracting new depositors, as the private Northern Rock has done since last October under the terms of guarantee in paragraph 303 of the 9 October extension document. I hope that, when she replies to the debate, my right hon. Friend the Chief Secretary of the Treasury will confirm that the penalty charge will continue when the bank is in public ownership. Thirdly, there must be proper accountability and transparency of the new management's business decisions. When it is a public entity operating in the private sector, the Treasury Committee and the House will want to be assured that Northern Rock's business plan is good for the bank, its employees and its customers and for the taxpayer, the consumer and the wider financial services market. I welcome the appointment of Ron Sandler as chief executive. As I have said, he has form in the financial services sector: he was called in by Lloyds in the mid-1990s when there was chaos there, and served the interests of Lloyds and the financial community well. However, it is important that his incentive plan is examined. The incentives should focus on the appropriate size of the company rather than on growth objectives. It was the incentives and growth objectives in the old Northern Rock that led it into such trouble with its extreme business model. Another question is, what is the disclosure regime for Northern Rock? There must be a focused retention package for Northern Rock employees, particularly those in IT and product design. I well remember the comments of the Governor of the Bank of England telling the Select Committee that Northern Rock's middle management had done its job in exemplary fashion, and that if the senior management—the board—had followed the lead of middle management and the rest of the work force the company would not have found itself in this position. There must be a commitment to the principle that state ownership is temporary. The decision to nationalise must have been difficult, but the judgment of when to privatise will be just as difficult, and of crucial importance.