I beg to move amendment No. 13, page 1, line 14, after 'if (and only if)'—insert '(i)'.

The Second Deputy Chairman:

With this it will be convenient to discuss amendment No. 14, line 16, at end insert 'and

(ii) the Treasury has laid before both Houses of Parliament a Minute setting out a scheme for the management of the authorised UK deposit-taker following the exercise of this power, including provisions setting out the strategic objectives for the business as determined by the Treasury and further provisions to ensure the independent day-to-day management of the business of the authorised UK deposit-taker to achieve these objectives.'.

Mr. Todd highlighted in his Second Reading speech the problem that the Government face. He was concerned that the clarity of the objectives of nationalisation would be clouded by political pressures brought to bear on the Chancellor by others. The amendments, particularly amendment No. 14, try to create a proper framework in which Northern Rock and any other bank or building society nationalised under the Bill would be able to operate at arm's length from the Treasury.

The past five months have been characterised by the Government's focusing on the politics of Northern Rock and not on its resolution. During that time, not only has the taxpayers' exposure risen from £25 billion to £55 billion and now to £110 billion, but the Chancellor and Prime Minister have cast around for a solution to avoid the political embarrassment of nationalising Northern Rock. A lack of clarity has been displayed about who was to make decisions about Northern Rock's future. Was it the shareholders? Was it the Government, as the largest creditor? Was it the tripartite authorities acting collectively? That lack of clarity has made it very difficult for people to understand the extent of the Government's involvement in the day-to-day running of Northern Rock.

Unless there is clarity in the division of responsibilities between Treasury and the management, I fear that we will see a continuation of micro-management. Such micro-management is a habit ingrained deep in the heart of this Government, and each difficult decision that is made may be taken with an eye on the politics of the situation, rather than on the taxpayers' interest. The hon. Member for South Derbyshire made that very point in his speech. If he had had a chance to read the amendments, perhaps he would have added his name to them, because they encapsulate his concern.

Today we have seen pressure put on the Government by their own Back Benchers about the future direction of Northern Rock; we have seen a sense of relief that nationalisation creates certainty about the future job prospects of its employees; and we have seen Unite, the biggest donor to the Labour party, ask for a Government guarantee that there will be no compulsory redundancies. Those are signs of the pressure that the Government will come under unless there is a clear distinction between a proper role of the Treasury in managing the relationship with Northern Rock and what Northern Rock has to offer.

We heard more words from the Chancellor of the Exchequer in his statement yesterday and during his Second Reading speech, but we have yet to see a framework agreement to set out the division of responsibilities between the Treasury and the management. Such an agreement is fundamental to ensuring a proper division of labour. It should not be an afterthought or something that is left until the politically difficult decisions have been taken. It should be on the table now for this Committee to see, so that this Committee can understand what the Government have set as priorities for the new management of Northern Rock and so that we can ensure that it is clearly left up to that management to take the day-to-day decisions that it needs to take.

We believe, as amendment No. 14 in particular sets out, that the scheme of management and the division of responsibilities between the strategic direction that the Treasury as guarantor of the taxpayers' interests should take and the decisions that management should make should be set out at the same time that the order is made. Such matters should not be left. It is right that the Treasury is able to set the strategic objectives; it is responsible for securing the full recovery of the money that has been lent to Northern Rock, so that there is no liability to the taxpayer. Once the Treasury has set the framework, it is right that management will be free to manage the business to deliver the outcomes.

Does my hon. Friend agree that before the framework is laid out the Government should give an absolute and direct answer to the pressures placed on them and say to Unite that there is no question of special arrangements for jobs in the bank? Unless the Government say that, it must be assumed that there is such special protection.

My right hon. Friend makes an important point. There is a lack of clarity in the way in which the Government have chosen to manage their relationship with Northern Rock. As long as that clarity is lacking, the Government will be seen by some as potentially offering a special relationship or a special deal, or being open to pressure from and influence by sectional interests. It is in the interests of taxpayers that such an agreement is in place and we have that clarity. It may also be an insurance policy for the Chancellor, who is under some political pressure. He may want to feel insulated from those pressures by an agreement that means that he cannot bow to those demands. That is an important part of the provision.

Does the hon. Gentleman think that the Chancellor was not telling the House the truth yesterday? He said:

"The new board and the bank will operate at arm's length from the Government with commercial autonomy for their decisions."—[ Hansard, 18 February 2008; Vol. 472, c. 21.]

Does that not satisfy the hon. Gentleman?

The hon. Lady should remember that not long after the Chancellor made that statement to the House he appointed Tom Scholar to the board of Northern Rock—someone who was chief of staff to the Prime Minister. We need some clear and robust arrangements for the arm's length agreement. We cannot rely on warm words. Businesses do not rely on warm words when it comes to agreements: they need legally watertight agreements, such as a memorandum of understanding or a shareholder agreement to set out the relationships clearly and precisely. The amendment would provide that clarity by requiring in law that the relationship be clearly set out.

rose—

The hon. Lady looks desperate to intervene again, so I shall give way to her.

I am grateful, as I was disappointed not to be able to speak on Second Reading. I was in and out of the Chamber because of the demands of my diary.

The hon. Gentleman is right to say that we want clarity, but the Chancellor's words yesterday provide it. The memorandum of understanding says that all operational decisions will be made by the board with no interference from the Government. The commitment that the hon. Gentleman seeks is already there.

We want on paper, in black and white, a clear division of responsibility, not just warm words spoken in the Chamber. I would have thought that, given that the Government have apparently been working on nationalisation for some time, they would have had the memorandum of understanding in place, with a scheme of management. It should not have to be cobbled together in the hours after the Government made the announcement. I expected far better of the Government. They should have had those arrangements in place and been prepared to publish them. That is important in order to give confidence to the House and the business community, which is concerned about how Northern Rock will operate in future. The agreements should be public, not take the form of cosy side deals or warm words between the Chancellor and Ron Sandler. We need clarity, instead of leaving it to the interpretation of words in a statement to the House.

The hon. Lady and I perhaps agree that we need some clarity on this issue and to go further than the Chancellor went in his statement yesterday, to demonstrate to the wider world that there is a clear division of labour between the Treasury's role of setting the strategic objectives for Northern Rock and the day-to-day responsibilities of management, so that taxpayers and the wider community know that decisions will be taken in the interests of recovering the money that has been lent to Northern Rock and not for other purposes, such as shielding the bank from the pressures that may be placed on it by politicians, trade unionists and others. This is a simple amendment, but it would provide much more certainty and clarity. It would reassure us that decisions will be made for the right reasons, not for political reasons. The longer it takes the Government to produce such a framework, the more people will question whether decisions are being made in the long-term interests of the taxpayer or in a narrow, short-term, political interest.

It is an important amendment because it would set out clearly the respective responsibilities of the Treasury and management. It is also important that if other circumstances arise to which the Bill applies—and its powers continue for a year—such arrangements could be put in place sooner rather than later. If the Government decide to act under the powers in part 2, the agreement could be put on the table so that people could see exactly the terms under which the Government would work with the authorised deposit-taker.

Amendment No. 14 has two limbs. The first is in the fourth line, where it mentions

"provisions setting out the strategic objectives for the business".

The second limb is in the sixth line, which mentions

"the independent day-to-day management of the business".

On the first limb, the amendment is based on a misunderstanding of what the Bill will do, especially in clause 2(2)(a) and (b), which are the shorthand financial stability tests. That is the threshold beyond which Government action would be prompted. As the Chancellor said on Second Reading, that is a high threshold. There has to be a "serious threat" to the UK financial system and it is clear that any nationalisation under the Bill would be against that background. The strategic objective would be implicit, if not perhaps explicit—to avert any further instability.

That is precisely what the Government intervention in Northern Rock in September 2007 did: it stopped the spread of instability, and banks are carrying on business much as usual in the UK, although there are some liquidity problems. Record profits for banks were announced today and yesterday the FTSE was up, following the announcement about nationalisation. The strategic objective of stability has been met thus far by the Government's prompt action on Northern Rock. The strategic objective called for in amendment No. 14 is at least implicit—to my mind, it is pretty explicit—in paragraphs (a) and (b) of clause 2(2), which are the thresholds for prompting Government action.

I quite understand the second limb of amendment No. 14, which concerns the independent day-to-day management of the business, but it does not match my understanding of how business very often works. Others in this Chamber have more experience of business than I do, but I have some. My experience is that any major shareholder will, in most cases, wish to have a say in the running of the business. Whether that is a say in the day-to-day management of the business, to use the words of the amendment, is to some extent in the eye of the beholder.

I am sure that some major shareholders in private business in this country and other capitalist countries simply put in the money and have no views and no take on how the business is run. I suspect—although I cannot produce evidence to prove it—that such shareholders, who might almost be described as altruistic, are the minority. Amendment No. 14 suggests that the Government, as a major shareholder in a nationalised financial institution, whether Northern Rock or anything else, would not be involved in the running of that business. I understand the motivation for that, and have some sympathy with it. Realistically, however, I do not want the Government—on behalf of the taxpayer and our electors—to have no say whatever in the running of Northern Rock, whether on a day-to-day basis or otherwise. The Government, as a major shareholder, ought to have an eye on that. The Chancellor said in his statement yesterday:

"The new board and the bank will operate at arm's length from the Government with commercial autonomy for their decisions."—[ Hansard, 18 February 2008; Vol. 472, c. 21.]

I stress the word "commercial" because in an era of corporate social responsibility a shareholder—whether they are the Government or any other shareholder—ought to be aware of what that business is doing in his, her or their name.

The first limb of the amendment, which concerns the strategic objective, is not needed because of a misunderstanding of the Bill. I would not support the second limb, overall, and particularly not in the way that it is worded.

I am normally sympathetic to the interventions of Rob Marris, but I do not think that he has understood the purpose of the amendments. Simply, they are a rather modest means of strengthening parliamentary accountability and oversight. I was happy to support them. They are not suggesting anything very radical, such as that the Minister should come forward with statements and debates. We are just asking for a reporting mechanism, not on exactly how the Government intervene in the company but describing the process.

As the hon. Gentleman correctly pointed out, there are two distinct thoughts. The first relates to the business plan—the strategy that will drive the company. As emerged from our debate on Second Reading, that is the issue that most concerns hon. Members: whether the business is run down, built up or dealt with by any of the permutations between those two options. For quite proper political reasons, it is important that it is reported to us what course of action is pursued by this nationalised company, whatever it happens to be. There is no requirement, as I understand it, for the Chancellor to tell us anything that is going on, and experience while the Government have effectively been acting as a shadow director shows that they prefer to say nothing. The requirement that they simply tell us what the strategic business plan is seems to be a modest but necessary improvement on what would happen otherwise.

All we know at the moment is that Ron Sandler is going to have a look at the company. He has to prepare a business plan, before, I think, the European Union competition policy determination. After that, the Government will adopt it. However, there is no obligation at the moment to tell us anything about it. The amendment would require the Government to report to Parliament on what that plan is.

A similar situation applies to the arm's length relationship between Ministers and the company. I rather sympathise, because of course the Government cannot simply ignore what is happening entirely. We have had a problem over the past six months as the Government have stepped back from decisions that ought to have been made, the first of which was the decision to sack the old management. The Chancellor quite properly stood up and said, "There is nothing I can do about it." Under the new arrangements, however, he will have that power of intervention. How it will be exercised is important.

It is not in the Chancellor's interest to be involved in micro-management, regardless of whether he would want to be, because he would be blamed for all the repossessions, redundancies and so on. There is clearly a balance to be struck between the need to intervene on important issues and the need to avoid micro-management. I do not know how the Government will strike that balance, but we should know about the basic outlines and parameters. The amendment would merely establish a report-back mechanism that would explain how the arm's length relationship will work.

For all those reasons, the amendment is very reasonable. It does not ask a great deal of the Government, and it is reasonably precise. I would have hoped that, in the spirit of reasonableness, the Government could have accepted it.

I strongly support amendment No. 14, and the arguments put forward by my hon. Friend Mr. Hoban and Dr. Cable.

As has just been noted, it is very important that we have parliamentary accountability for the strategic objectives that the Government propose to give to the bank, which they now wholly own. However, I need to be persuaded that the Government know what those strategic objectives are. I took part in the exchanges with the Chancellor yesterday, and it seemed to me that he was not capable of answering the question in any but the most general terms.

I regret that I was not able to attend this afternoon's Second Reading debate but, as sometimes happens, I was giving evidence before a Select Committee. I did hear the wind-up, however, and I was left none the wiser, even though it was obvious that the Minister was addressing the point that several hon. Members had raised about what objectives the Government are setting the new management of the bank that they have acquired.

It seems to me that the bank is potentially in a very powerful position. The question is not how it is controlled day by day—we all accept that there must be a considerable amount of independence in its day-to-day management—but what objectives the Government are expecting it to pursue. We are virtually in the situation that, once again, every citizen could bank with the Bank of England, at least indirectly—something that has not been possible for many years.

I said yesterday that if the nationalised bank was going to be competitive and aggressive, the fact that it will be totally secured by the Bank of England means that it would be a very attractive option for any sensible saver with cash in savings deposits. At the moment, it is able to offer very attractive rates of interest, but much will depend on the strategic objectives that the Chancellor and his colleagues set for the people whom they have appointed to manage a bank that is in crisis but of which the Government are the 100 per cent. owners.

The owner of a business does not appoint a management team and say, "Now run it in a commercial way, as seems best to you." That would be an almost meaningless instruction. While I was doing other things this afternoon, I gather that the following question was pursued: "Is the Chancellor meant to be building up the business, so that it can be sold to the private sector, or running it down to prepare for the disposal of its assets?" There is a great deal of variation between those options.

If the idea is to build the bank up and prepare it for sale on the best possible terms, it is in a very powerful position. It probably has a greater ability to access the money markets than any other banking institution in the country, because it has behind it the full security of the Government and the Bank of England. It is able to underwrite its business in every conceivable way, so is it the strategic intention that it should go out into the market—at a time when its competitors are in difficulty—and offer the most attractive terms for mortgages that it can so as to increase its market share? Should it make sure that it finances itself as much as possible by enticing depositors in these nervous times with extremely attractive rates of interest?

The bank could be a glorious success. If we were investors from Kuwait or Qatar—if we were a sovereign fund—we would probably encourage the new management to use what amounts to guaranteed funding and head for a 70 per cent. share of this country's mortgage market.

Of course, the Chancellor realises that the prospect that the bank could do that is causing considerable concern, so I did not ignore his answers yesterday. He said that the European competition laws offer the best protection, but that was all that he said in that regard, and it is something about which I should like to press the Minister. Will she give the House some idea of how she thinks that the European competition laws will affect the bank's objectives? The current Competition Commissioner, Neelie Kroes, is very powerful and a formidable person, and she is quite rightly trying to strengthen European competition policy, but the policy takes a long time to enforce.

My suspicion is that the Government do not have the first idea how far European competition law will bear down on what the bank will do. I suspect that it will require quite a long process, with propositions going to the European Commission to determine the basis on which it will accept that the bank is not guilty of unfair competition. However, I do not think that the Government have thought through the constraints that they would expect the new management to place on itself to avoid the charge that it is competing very unfairly with other banks and savings institutions. That is a very great danger, as those other organisations are going through very difficult times in the current market.

Has it occurred to the right hon. and learned Gentleman that the pressures from the European Commission and the Commissioner might be considerably greater if amendment No. 14 was carried, with its wording:

"setting out the strategic objectives for the business as determined by the Treasury"?

Does he not think that those words in themselves would bring the European Commission down on the Government?

I doubt it. It is the Treasury's duty to all of us to have some strategic objectives and to tell Parliament what they are. The Treasury is effectively now acting on behalf of the owners, who are the citizens of this country, and we need to know what its strategy is. Then, presumably, the Minister can explain how the Government intend to sort out the European competition angle. Presumably, they will try out the strategic objectives on the Commission to see whether they are acceptable as a fair base for competition. I do not know, and yesterday I got the impression that the Chancellor did not know quite what the impact was going to be.

Will my right hon. and learned Friend give way?

I will in a second, but I do not want to go on too long. Let me just put the other side of the equation. Is the objective to run the bank down? I make it clear that I support nationalisation of whatever form the Government or Opposition put forward. It is defensible if one is going for an orderly run-down of the business. That means no fire sale now, in awful market conditions. It means holding the assets, particularly the loan book, for as long as is necessary to get the best reasonable return when market conditions return to normal.

If one is sailing on, trading, is the objective to run the bank down? I gather that the new management were giving guidance to the press that the bank would be smaller, preparing people for the fact that there might be redundancies and the bank might be scaled down. How is it supposed to do that? I do not understand how a publicly owned business sets out to run itself down. Does it decide to offer rather less attractive terms for mortgages? Does it tell its customers when they come back to renew their mortgages that it will refinance them only at a higher rate than the competition in order to drive them away? Does it reduce its savings rate after looking at what other people are advertising to make sure that it does not get too many people coming along to save?

If the idea is to slim the business down a bit, what is the Treasury guidance? How much should it be slimmed down? Will the Treasury tell the management, "Slim it down a lot. We are really trying to get rid of it, just like the Tories, but we don't want to admit to all those north-east MPs that that is what we are doing?" Or will the Treasury say, "Just slim it down a little bit. Make it look respectable. Just reduce the size of the business; get it trimmed down a little"? Of course the strategic plan will have to be on more formal terms than that, but there must be guidance from the Government. Anyone running the bank now must ask the Government, "Do you want us to build the business up as aggressively as possible or to run it down? If so, could you give a bit of an indication of how much either way?" My feeling—I trust that the Minister will correct it—is that neither the Chancellor nor the Minister has the faintest idea at the moment which of those directions they are going to give.

Did my right hon. Friend hear Professor Alan Riley, one of Britain's foremost experts on state aid, express the opinion that the European Union would certainly require the downsizing of the business as a precondition for clearing the state aid approval in this case? Does he think that Ministers are being just a little disingenuous, as we expect that they have access to equally clear and expert opinion and information?

I am sure that they have, but they are not sharing it with us at the moment. I need to be reminded what the European process is and of how far a process of negotiation can be opened with Miss Kroes. Can the Government try out on her a strategic plan involving a bit of running down and see what she says? Will she expect the strategic plan to be published and some indication to be given of how the bank will operate in the market and then rule on it? Yesterday, I did not think that the Chancellor knew, which was why he kept giving answers that were all about the Conservative party and not about what he proposed to do.

My right hon. and learned Friend is making a strong point about the need for the strategic objectives. Does he agree that one of the essential functions of the bank in public sector ownership would be properly to sort out the risk management of the bank? It is difficult to have proper risk management without the strategic objectives. Some of the worst banking scandals of the past 15 years have involved public sector banks. Credit Lyonnais ended up financing a large part of Hollywood in the early 1990s and most recently Bankgesellschaft Berlin in Germany was essentially making politically motivated loans.

I heard the speeches on that on Second Reading. I quite agree; risk management seems to me to be what banking is all about. That is the commodity in which banks trade, and throughout the history of banking, the most appalling errors have been made in risk management, as they were in the case of Northern Rock. If one looks back far enough, one begins to feel that there will always be extraordinary examples of risk management being suspended or not operating properly in banks' pursuit of higher than average returns. That is how banks get into such trouble. Presumably, the business plan presented and agreed by the Government will include details of how the nationalised bank proposes to have its risk management under control.

The day-to-day running of the business is also quite important. The Government have been saying all the right things, such as that they will not be involved in the day-to-day management but will use commercial management, to which they have given guidance. Can we rely on that? I am afraid that the history of nationalised industries reveals that the moment an industry is nationalised, most people think that it has been politicised, and one rapidly finds that it is under great pressure. How many employees should there be? How will redundancies be handled? How will the business operate?

The amendment would require Ministers not only to say now that the business will be free of political pressures but to maintain that position. Yesterday I saw delight among Members below the Gangway on the Labour Benches that the people's bank was being set up. It will not be too long before those who expressed that delight indicate clearly how they expect the bank's business to be conducted, in the interests of their constituents and their region, so we will have to hold to what the Government have said. I would prefer to see that objective set out in the Bill, as the amendment recommends, and I hope that the Chief Secretary to the Treasury will be able to accept it. If she does not, she must give us more clarity about what she expects the bank to do now that it is in public hands.

It is not unreasonable that more information should be available about the Government's strategic objectives in relation to Northern Rock. I say that particularly in the light of the debate earlier today. I sat through most of it, and two things are not clear to me. First, people are accustomed to talk about Northern Rock as though it were the hapless victim of international credit crunch storms. Actually, it was the victim of a flawed business model, and I have yet to hear Ministers from my own Front Bench take a view on that business model.

Secondly, colleagues representing seats from Newcastle and the north-east strongly stated the point of view that, in public ownership, the bank should both stick to the same business model and get bigger and better—to paraphrase a colleague, it should be a northern bank to vie with other great international financial institutions—yet many newspapers and commentators talk of an orderly run-down over time. Until we have some clarity about where the bank is going, the kind of robust accountability that we need from a nationalised bank will not be possible.

I understand the spirit of the amendment. I shall first address what it would do and why I think that it would be a problem, and then address some of the wider points raised that underlie it.

The amendment would require the Treasury to lay a minute setting out the company's strategic objectives and, effectively, a business plan for delivering those objectives before a transfer could be executed. That would cause problems given the Bill's purposes and overall aims, which are to deal with potential risks to financial stability and the kind of circumstances in which it might be appropriate for Government to act swiftly—perhaps in a matter of days. The different powers in clauses 3 and 6 will allow the Government to respond quickly to a difficult situation. Setting out the strategic objectives of the company and the business plan may take longer. The new board is coming into place and Ron Sandler is taking up his post. It is right that they should have at least a few weeks to consider their options, develop a business plan, look in some detail at the bank's overall position and set out the appropriate arrangements.

We know that for the past five months the Government's preference has been to sell the business as a going concern to a private sector buyer, but is the right hon. Lady telling the House that during those five months the Government have not done any preparatory work on establishing a business plan for the eventuality of a nationalisation, which the Chancellor noted was on the table as long ago as October?

As we have said many times, the Government carried out appropriate contingency planning, and it was right that we should do so. That goes to the heart of the concern about the amendment. First, there is the question of timing. Secondly, there is the question of who should do the work. The wording of the amendment would be counterproductive. Opposition Members have said that they want to reduce the level of intervention by Government Departments and Treasury officials. If they are asking for a plan that was drawn up in advance of any transfer order being put in place, they should recognise that such a plan could only have been drawn up by the civil servants and the Department.

It is right that a great deal of work should be done by the board—by Ron Sandler and his team in the case of Northern Rock, but bearing in mind that the Bill applies more widely, the provision should be applicable in other circumstances as well. We need to provide for the circumstances in which a new team might need to come in and look at the books in some detail before making more specific proposals.

I entirely agree that the new management should be given time to look at the books and that they must draw up the business plan, but does the right hon. Lady agree that they will need some strategic direction from the Government before they do so, including—to reduce the question to its most elementary, as several of us have been asking for the past two days—whether the team are supposed to grow the business, to make it as powerful a business as they can in the marketplace, or whether they are supposed to shrink it, a bit or a lot? I am sure the Minister accepts that as the new management are effectively being sat on the Consolidated Fund when they are put in their new position, they are in an extremely powerful position.

I appreciate the point that the right hon. and learned Gentleman is making, but he is asking questions that will depend in part on the business plan. The Government have already set out some key objectives about securing the ongoing stability of the financial system—which is why we have said that at this stage we believe that the Government guarantees need to continue—and about securing value for money and the best possible return for the taxpayer. As part of that we have already said in the Chancellor's remarks and in my earlier remarks that that includes being able to return the business to the private sector at the earliest opportunity, getting the loans paid back with interest to the Bank of England, and moving the business at the earliest opportunity to a point where the Government guarantees are no longer needed. Those objectives must all be kept in place, but we also have to make sure that we comply with the EU state aid rules and that we do not create unfair competition.

My hon. Friend Ms Abbott asked what views Ministers had taken of Northern Rock's business model. The Chancellor has made it clear that part of the problem that we have is due to the Northern Rock business model. When the global credit crunch occurred, which was triggered for all sorts of reasons including events in the US sub-prime market, because of Northern Rock's business model, which was unsustainable, it got into particular trouble. That is why action was needed and the Government had to step in. Earlier in the debate, it was said that no one would expect Northern Rock to operate the kind of strategy that it was operating last summer; that was clearly unsustainable. The new strategy should be drawn up by Ron Sandler, and it will then need to be approved by the Government.

In the arm's length arrangements that we are trying to establish, it is important that the detailed work should be done by Ron Sandler and his team. They have the expertise to do it and will put forward proposals that will need to be agreed by the Government and to comply with EU state aid requirements and other provisions to ensure that there is no unfair competition.

The problem with the Chief Secretary's argument is that the two objectives—financial stability on the one hand, and securing the Government's position on the other—might conflict. A profit-maximising strategy on the part of the bank, of the sort described by Mr. Clarke, might further destabilise the market by undermining competition. On the other hand, that exact strategy might well secure the Government's position in the short term. Surely the strategic direction needed is the balance between the two objectives.

The action that we have taken so far has made clear the priority that we give to the financial stability of the banking system as a whole; that has been evidenced. Any suggestion that as part of the process the Government will put maximising their income above the financial stability of the banking system would clearly be nonsense.

We have made it clear throughout that our key objectives are financial stability and returns for the taxpayer. We will publish two documents. The first is the business plan for Northern Rock, based on the work being done by Ron Sandler. The other is a framework document, which will set out the operating relationship between Northern Rock and the Government. The framework document will be published shortly.

Those two documents will provide hon. Members with the information that they understandably and rightly ask for. However, in respect of the amendment, it is inappropriate in principle to ask for those documents to be published before any transfer can be taken. In practice, the kind of financial stability issues with which we might have to deal may involve issues of timing and of who should take the decisions, who should do the work and who should put forward the proposals. The amendment would not allow those to be dealt with.

May I probe the Chief Secretary a bit more on the framework document and the timing of its publication? Will it be published before we debate the order to nationalise Northern Rock?

I cannot confirm the precise timing; I also do not know the precise timing of the debate on the order. However, I certainly assure the hon. Gentleman that we intend to publish the framework document shortly. A lot of work has been done on it, and we intend to publish it as soon as we can.

Earlier, my right hon. Friend said that until Ministers had a business plan, they would be unable to say whether their strategic intention was to grow Northern Rock or run it down. Is not the contrary the truth? Until we know whether the intention is to grow Northern Rock or run it down, we cannot draw up a proper business plan.

With respect, Ron Sandler and his team are considering the nature of the assets and liabilities and the detailed provisions that support Northern Rock at the moment. They will have questions about what a sustainable future for the bank will be. As I have made clear, no one expects Northern Rock to be able to operate the kind of strategy that it operated last summer. Equally, the bank's market share has already contracted significantly. However, rather than Ministers making precise judgments about strategy on individual products and other such things, it is right that we should have the further assessment on the strategic plan from Ron Sandler and his team before we confirm it and take the decisions on the right way forward.

The Minister keeps saying that of course there can be no question of going back to the business model that there was last summer, when Northern Rock failed because it could not access the money markets any more. However, the new management may say, "But we can access the money markets—we are about the only bank that can at the moment. Our spreads are considerably lower than the competition. Look at the state of the others given what we can offer with our access to markets. We can slay the Halifax, get rid of Alliance and Leicester, do a hell of a lot of harm to Bradford and Bingley, and give you a lot of market share." That would be a very attractive financial business plan. If the Kuwaitis had bought it, they would probably find it attractive. What will the Minister do if she gives the management no strategic guidance and leaves them to go away and do their best, and they come back with an aggressive plan showing that in the current market conditions, with the Bank of England behind them, they can move in and make this a very healthy business?

Once again, I point out that the approach in the business plan will need to be compliant with the new state aid rules. The European Commission is likely to propose particular conditions on the operating of the bank to ensure that it complies with state aid rules. We will need to have further discussions with it about what those conditions should be and what the appropriate arrangements will be. It would not be in the interests of the Government, the consumer or long-term financial stability to have a bank that abused its position in the public sector. That would not allow it to withdraw from the kind of public support that is currently there for it, and we would like to withdraw as rapidly as possible. A series of frameworks is in place.

Hon. Members are asking perfectly legitimate questions that will need to be answered. The difference between us is that I am setting out very clearly the fact that it is important for Ron Sandler and his team to do a programme of work before we fully answer all these questions. The amendment asks for them to be answered even before any transfer can be executed. Given the risks to financial stability that the Bill is designed to address, it would be irresponsible to tie Government's hands in terms of dealing with financial stability and potential risks to the banking system as a whole by requiring a programme of work to be done that cannot properly and effectively be done until after the transfer has taken place. On that basis, I ask Mr. Hoban to withdraw the amendment.

It almost beggars belief that the Minister made those comments about what is going to happen to Northern Rock. In most businesses that I know—I have been involved with businesses throughout my professional career—the starting point for a business plan is the business's objectives. What plans do the Government have for how Northern Rock should behave in future? Are they expecting it to get bigger or smaller? Those are important issues for the Treasury, as a guardian of taxpayers' money, in giving guidance to Northern Rock's new management. The Minister says that the business should be transferred back to the private sector at the earliest point. It would be easier for Ron Sandler to come up with his plans if the Minister were able to say that the Government would prefer it to happen in one year, three years or five years. That will affect how he runs the business—whether he shrinks it or grows it. That lack of strategic direction comes across in yesterday's statement, today's Second Reading debate and the Minister's response to the amendment.

As taxpayers, we need some clarity about the Government's objectives for Northern Rock—when they think that it should emerge from nationalisation and what shape of business they are expecting. It is ludicrous for them to have turned down two private sector offers and not to know what the outcome will be. The Minister should get a grip and demonstrate that the Government know what they expect Northern Rock to be like when it emerges from nationalisation, whether in one year, three years or five years. It is time for them to give much greater clarity about how they expect Northern Rock to develop over the next few years. That is why we tabled the amendment and, given that the Minister has not given a satisfactory response to the issues that affect not only this House but the business community and taxpayers, why we will press it to the vote.

Question put, That the amendment be made:—

The Committee divided: Ayes 222, Noes 299.

Question accordingly negatived.

I beg to move amendment No. 1, in page 2, line 2, leave out "Treasury consider" and insert "Bank of England considers".

This amendment is simple and does not require a lengthy explanation, but it is important and I alluded to it on Second Reading. The amendment proposes that the Bank of England rather than the Treasury should advise on whether there is a serious threat to the stability of the UK financial system. The Bank has a detailed knowledge of that system and can better judge it from inside than some civil servants at one end of Whitehall.

By replacing the Treasury with the Bank of England in that key role, we would also remove the Chancellor and his Ministers from any perception that they were making a political judgment when they decided to intervene. There have been scurrilous accusations that Ministers' intervention last September was perhaps designed to assist their friends in the north, or, indeed, to prepare the ground for a general election, which appeared imminent. It is essential to remove, as far as possible, any perception that the decision on whether systemic risk is present and how it is defined is being taken by Ministers.

The Treasury Committee gave this matter a lot of thought while looking into a special resolution procedure, and we recommended that the Bank's deputy governor for financial stability should become the Chancellor's principal adviser. Of course, the Chancellor has to take the final decision. He is the guardian of the taxpayer's interests, and the amendment is not attempting to evade that fact, but we need to put that position at one remove from any suspicion of political judgment. The best people to advise on whether there is a serious, systemic threat to the stability of the UK financial system are those in the Bank of England.

The powers in the Bill to transfer the shares or business of a deposit-taker are exercisable only for the purposes set out in the clause. The first of these purposes is to maintain the stability of the UK financial system in circumstances in which the Treasury considers that there would be a serious threat to its stability if the order were not made. It is right that the decision should be taken by Treasury Ministers, just as the decision to authorise exceptional financial support is a decision for the Chancellor, under the memorandum of understanding. Ministers are accountable for the exercise of these powers, so it is right that such a decision should be based on their assessment of the threat. They are accountable to the House for that decision. It would, of course, be based on the advice of the Bank of England and the FSA, as required by the memorandum of understanding. The memorandum of understanding is clear about that. That is what has happened for Northern Rock and it is what would happen in the future, should the powers in the Bill ever need to be exercised again. Given that, the amendment is unnecessary and inappropriate.

The Government are consulting on providing the Bank of England with a statutory basis for its role in financial stability under the banking reform Bill, which will be introduced later in the Session. That would be the appropriate vehicle for formalising the Bank of England's role. We have made it clear that we think that there is a stronger role for the Bank of England to play, but it would be more appropriate to provide for that in the banking reform Bill, rather than in the Banking (Special Provisions) Bill, as Mr. Fallon has suggested. His amendment would result in our not being clear about the accountability for decision making and assessment, or about accountability to the House. On that basis, I ask the hon. Gentleman to withdraw his amendment.

I am grateful to the Minister for the consideration that she has given to the amendment. I accept her point about accountability. Of course it is the Chancellor who is in charge and he must account to the House for his decisions to put taxpayers' money at risk—or not, as the case may be. I am not quite clear about the Minister's answer. First, she said that the amendment was unnecessary, then she said that under the new banking reform Bill she proposes to put the Bank of England's role as the Chancellor's principal adviser on a more statutory basis, so there might not be as much between us as I originally thought. I will certainly reflect on what she has said and, in the meantime, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

I beg to move amendment No. 10, in page 2, line 40, leave out 'year' and insert 'month'.

The amendment seeks to replace the provision in clause 2(8), which gives a limited period of one year for making an order under sections 3 and 6 of the legislation, with a provision for a limit of one month. I should say at the outset that this is not intended to be a wrecking amendment—far from it. We have already debated the overall principle of the Bill and we are now looking at its working realities.

The Bill was presented to the House as emergency legislation, designed specifically to deal with the problems of Northern Rock, and on that basis we are asked to expedite its passage. Whatever else we do, Sir Michael, I suggest that we cannot concede to this Government or to any Government—Mrs. Dunwoody made this point earlier—a standing power to nationalise banks and building societies. There are huge issues pertaining to our international reputation and about the propriety of a Bill going through the House according to a time scale that might be appropriate for dealing with an immediate—or what the Americans would call a "clear and present"—danger that needs to be addressed, but is certainly not appropriate for Bills with a longer period of application that might be used to deal with circumstances unforeseen and, perhaps at the present time, even unforeseeable.

Conservative Members feel strongly that if the Government find they have a need for such a Bill, as they have for Northern Rock, to deal with a specific problem in the immediate future, they should justify their need for further expedited legislation. In the fullness of time, we will have a properly debated, properly scrutinised and properly considered series of measures to reform the banking regulatory regime that the Prime Minister introduced in 1997, the failure of which is at the root of current problems that have given rise to the Bill that we are debating today.

The purpose of the amendment, however, is to focus on the fact that this measure is intended to deal with Northern Rock and Northern Rock alone. The Chancellor has said in terms that he has no plans to use the Bill for any other nationalisation and he has explained that it was drafted widely and with enduring application in order to avoid issues of hybridity and thus to facilitate the Bill's passage under an expedited procedure. The amendment is designed to narrow the scope of the Bill without creating any risk of hybridity. We believe that one month is long enough for the Government to lay and pass the required orders—or at least the transfer order under clause 3. Having laid that order, and assuming that it is approved, it will endure. It is designed to be enduring and to outlive the primary legislation powers. In any case, the order for compensation provisions is intended to be and can be introduced later.

In tandem with subsequent amendments designed to limit the Bill's scope to banks only—Northern Rock is not a building society, so an emergency measure targeted on Northern Rock does not need to deal with building societies—the amendment is designed to emphasise the focus on the specific problem of Northern Rock, sending out a signal that whatever the parliamentary manoeuvring necessary to avoid hybridity, this Bill has a narrow, specific focus on nationalising the Northern Rock bank.

As the Chief Secretary will know, there is considerable concern in the City about the potential damage to Britain's reputation that might result from a standing power to nationalise being on the statute book. Reputations are fragile things: they are easily destroyed, and much more difficult to rebuild. The Chief Secretary can give all the assurances she likes at the Dispatch Box that she has no intention of using the power, but—although she may consider this irrational—I assure her that narrowing the time scale one month to make clear the specific nature of the Government's intention will send the appropriate signal to those in the City and the international financial community who are concerned about the latest development.

We made plain our opposition to the principles of the Bill on Second Reading. What we are trying to do now is improve its workability. The Government do not need a year in which to carry out a Northern Rock nationalisation. They should not have a standing power without proper scrutiny for other nationalisations. I therefore hope that, in an attempt to make what is by definition a rather poorly scrutinised piece of legislation a little narrower and more focused, the Chief Secretary will either accept the amendment or give us an assurance that a similar period—perhaps two months, or three months—would be acceptable to the Government, and that they will introduce an amendment to that effect in the other place.

I did not subscribe to the amendment originally, as its objective was not clear. I suspected initially that it might be a wrecking amendment, which I would not have supported. Having heard the arguments, however, I feel that some perfectly sensible points have been made. For practical reasons, the Government are not able to limit the scope of the Bill, but at least they can limit the time scale for its implementation to an appropriate period. I understand that Royal Assent will have been sought and hopefully given by the end of the week, and that there is then a relatively short period in which statutory instruments can be implemented. There is no particular reason for the power to continue beyond that point, and it seems rather indulgent to let it go on for a year.

Mr. Hammond is right: we shall have to return with more extensive and far-reaching legislation covering the conditions in which Governments should intervene. Such issues should be properly considered, and not under emergency legislation of this kind.

I did not, however, agree with everything the hon. Gentleman said. I have not yet heard all the arguments, but I am not entirely persuaded in regard to the concern about building societies. I think there is a genuine issue—I am not sure why banks should have a lender of last resort and building societies should not—but it is an issue to be dealt with separately when we reach the intervention powers. I also think we should be a little sceptical about the rather precious sensitivities of the City. After all, the problems in the financial markets were caused by a breakdown of trust between financial institutions themselves, rather than by a fear of nationalisation. That apart, I think the hon. Gentleman made a sensible, practical case for limiting the Government's action to a one-off emergency intervention.

The Bill was deliberately designed to impose constraints. Clause 2(2) specifies some high-level tests in relation to the purposes of the power:

"maintaining the stability of the UK financial system in circumstances where... there would be a serious threat to its stability if the order were not made", and

"protecting the public interest in circumstances where financial assistance has been provided by the Treasury... for the purpose of maintaining the stability of the UK financial system."

As a later part of the clause makes clear, that does not apply to circumstances in which the Bank of England is simply providing financial assistance or playing its ordinary lender of last resort role. We have also made it clear that Northern Rock is the only institution that currently meets those high-level tests, and that we need to be able to deal with the specific problems that it has created. As Members have recognised, however, the Bill is drawn more widely. Therefore, it could in theory be used for other organisations in similar unusual circumstances to those of Northern Rock, but, as I have said, we have set the test high and put in place a sunset clause of one year. We intend to introduce a full Bill—which would, of course, go through the normal procedures—following on from the detailed consultation that we have conducted. It would look more widely at what further reforms are needed to the way in which problems in the financial system, particularly to do with banking, are dealt with. Those reforms would be made in a considered fashion, and in the normal way through this House, after full consultation and debate in this House. However, we need in the interim to be able to deal with the position of Northern Rock.

Under the Bill, there are other powers that can be used in the interim in the sunset period, until the full measures are put in place.

I am not sure that the right hon. Lady gives us a lot of confidence when she says that the Bill could be used for other organisations in similar circumstances. That is potentially market-sensitive information. Will she outline to the Committee why, if she does not believe that one month is appropriate, she believes that one year is?

It is hardly market sensitive: we have said this repeatedly, and I am merely describing what the scope of the Bill is and how it could apply. Under clause 6, as well as clause 3, it could be applied to circumstances that some people called for back in the autumn. People called for powers to be in place that would have enabled Northern Rock to be transferred directly to another bank or institution prepared to take it on. In fact, that opportunity was not available for Northern Rock at that time, but people did call for that power. That is contained in this Bill, again as a temporary measure for one year.

Will my right hon. Friend deal with the point of Dr. Cable? To turn his point against the argument he was making, there is some value in the provisions in clause 11; for the first time, a lender of last resort facility will be created for building societies, and a building society that gets into difficulties will not be imprisoned and made captive by the restrictive terms of the existing building societies legislation. I accept that that is only a temporary situation until matters can be looked at in more detail, but does she not think that it is an attractive feature?

My hon. Friend is right that clause 11 allows for the Bank of England to be able to provide greater assistance to building societies, should they need it given the circumstances of the current global credit crunch. The Bill provides for interim arrangements in advance of the full debate on banking reforms that we need to introduce.

For the sake of clarity, Jim Cousins said he recognised that that was only a temporary provision ahead of new arrangements coming in, but the sunset clause applies to clauses 3 and 6, and our concern about clause 11 is that it introduces wide and far-reaching new powers but is not subject to the sunset clause. Will the right hon. Lady confirm that?

I think that that is right as things stand, but we would expect this issue to be dealt with more widely as part of the banking reform provisions that we are consulting on. The current measures are about having interim arrangements in place in circumstances of unprecedented turbulence in world financial markets and a global credit crunch as a result of—or triggered by—events in the US sub-prime market, as a result of which banks are not lending to each other in the normal way. These are highly unusual circumstances, and they lie behind the introduction of the Bill. We have repeatedly made it clear that Northern Rock is the only institution that currently meets these high tests, and we are introducing this Bill at this time so that we can deal with the problems that Northern Rock has created.

The amendment would greatly shorten the period for completing the orders transferring the securities or business of an authorised UK deposit-taker. On that basis, we think that the tests and safeguards being introduced are significant, and having a sunset clause in place for a year should provide the House and the wider community with the reassurance that they need.

The Chief Secretary has just made the extraordinary assertion that reducing the period to a month would place the Government under an unreasonable constraint in terms of laying these orders. We were led to believe that this was a matter of great emergency that had to be dealt with today and that legislation had to be completed by the end of the week. If I have misunderstood, perhaps she will correct me. I was expecting that the order, a draft of which we have seen, would be laid within a matter of days, at the most, of the Bill completing its parliamentary passage. If that is wrong, hon. Members ought to be made aware of the fact. She has not made any case for providing for a period of longer than one month. She has certainly not made a case for providing for a year. Had she made a convincing case for providing for a three-month or two-month period, Conservative Members would have been prepared to listen to that and to any assurances that she wanted to offer us about introducing such proposals at a later stage.

Simply to clarify, may I say that we expect to introduce the order—we have done so in draft—dealing with Northern Rock? The hon. Gentleman will recognise the unusual circumstances that we face in dealing with Northern Rock. Further work will obviously need to be done after we have put in place the main transfer to ensure that any subsequent issues that might require powers to be provided under clauses 3 or 6 are dealt with to ensure that the business of Northern Rock is taken properly into temporary public ownership on the appropriate basis.

I am grateful to the Chief Secretary, but I think she will find—I am sure that she will receive a note telling her this in a minute—that once the initial order is made, the Government will be safe. They will be able to make subsequent orders without complying with the various conditions—that is how the legislation is drafted. She is now telling us that she does not need more than a month to get the order made. Once the first order is made, the Government will be safely home. I have not heard a convincing argument about why we should not agree this amendment, which would provide the Bill with much greater clarity and focus. Therefore, I must ask my right hon. and hon. Friends to vote in favour of the amendment, and I seek to press it to a Division.

Question put, That the amendment be made:—

The Committee divided: Ayes 222, Noes 302.

Question accordingly negatived.

Clause 2 ordered to stand part of the Bill.

Clauses 3 to 5 ordered to stand part of the Bill.