What strategic business objectives he has set for Northern Rock.

The new board is developing a strategic plan, and once that is completed, we will be able to tell the House and the public more.

Will the bank continue to take deposits in Guernsey—deposits that will benefit from the Government's guarantee, but the interest on which will not be liable to United Kingdom tax?

As I said, we will have to wait and see what the board proposes. The board will look at all the products that Northern Rock currently sells. It is acutely aware of its responsibilities, and of the fact that it is trading with the benefit of Government support at the moment. As I said, it will publish its plan fairly shortly and everyone will then have an opportunity to see what it proposes.

I welcome the appointment of Ron Sandler to his new post. One of the first initiatives that he undertook was to abolish the Together mortgage—the 125 per cent. loan to value. That was a good move, because I considered that mortgage an example of irresponsible lending. However, does the Chancellor appreciate that there are genuine issues of competition at stake? A number of banks and others have been on to me, and at the moment the spread between the inter-bank rate—the LIBOR rate—and base rates is considerable. That may be causing problems for companies. In advance of Ron Sandler's appearance before the Treasury Committee, would the Chancellor discuss those issues with him so that he can put our minds at ease on that competitive advantage, which others in the market have seen?

My right hon. Friend raises two matters. First, with regard to Northern Rock's competitive position, he is absolutely right that Ron Sandler and the board will want to look at what it is selling and offering. I understand that the board is looking at that now with a view to ensuring that whatever products it has on the market are priced appropriately. Everyone recognises that it would be unfair for the bank to rely on those guarantees for anything like a short period, and it would not be possible in terms of the Government's objectives of reducing and removing their guarantees in due course. On his second point, the Bank of England keeps the spread of interest rates and the LIBOR rate under constant review.

Based on 2006 accounts, the inclusion of Northern Rock in the national accounts would add £90.7 billion to public sector net debt and increase the debt-to-GDP ratio by 6.7 per cent. In view of suggestions that the Chancellor of the Exchequer may be seeking to airbrush Northern Rock out of the national accounts, will he explain how he intends to deal with Northern Rock in the financial statements accompanying his Budget?

The hon. Gentleman will see that next week, but I cannot believe that he is seriously suggesting that, because Northern Rock is temporarily on the Government's books, we should slash public spending to take account of that fact. That would be absolutely ridiculous.

Does my right hon. Friend agree that, given that Northern Rock had a very rapid expansion, it is likely that there will be a quick contraction of the business? Will he say how he is going to set about explaining that to the public, or ensuring that it is explained to the public, so that people do not get into a panic and think that there is a crisis, but understand that the process is part of an orderly management of the business?

The whole point of asking the board to produce a business plan is to plot a course for the future to enable the bank to continue to trade. Our objective has always been twofold: to ensure that we obtain value for the taxpayers on repayment of the Bank of England loan and to secure financial stability. Both elements have been met. We have been consistent in our objective throughout, and that will continue.

Given that the national statistician has ruled that Northern Rock, as a public company, should count as part of the public sector net debt, surely excluding it from the sustainable investment rule is nothing other than a straightforward political fiddle. Nobody is suggesting cutting public spending, only that the figures should be accurate.

The figures will be accurate. As the hon. Gentleman said, the national statistician has classified Northern Rock as part of the public sector. That is hardly surprising in view of the legislation that we passed a couple of weeks ago. However, the proposition that I put to Peter Viggers is that the Conservatives appear to argue that, because it is now on the books, we should take account of it in ensuring that we meet our fiscal rules. The code for fiscal stability, which is underpinned by legislation, makes it clear that we can accommodate a period of temporary public ownership, and that would be properly accounted for. To suggest that, by extension, we should take action that would be bad for the economy is ridiculous.

Does my right hon. Friend agree that when Northern Rock got into difficulties the primary responsibility of Government was to ensure that the banking system as a whole would not be undermined? Have not the Government achieved a great deal by restricting the difficulty to Northern Rock and resolving the position through the course that they have taken?

My hon. Friend is right. The justification for our intervening to provide facilities for Northern Rock was the genuine risk of the problems affecting it spreading to other financial institutions. That is why we took the decision. As I said a moment ago, one of our central objectives is to maintain the financial stability of the system. I expect that if we had not intervened the terms of the debate in the past few months would have been different. I remind the House that the decision that we made last September had all-party support at that time, precisely because it was the right thing to do.

What discussions have taken place between the Government and the Northern Rock board about the number of staff employed by the bank in future?

The hon. Gentleman is right to raise the matter, which is, of course, of concern to Northern Rock employees. The issue must be tackled as part of the bank's overall business plan as it moves from where it is today to a more viable position in future. I know that Ron Sandler and his colleagues are considering all the options and that they will want to discuss them with their staff and staff representatives. All those matters will be considered in the business plan. They need to be resolved relatively soon—the state aid approvals run out on 17 March and we must therefore submit a new application, although some of the details will take longer to be fully worked out. I will keep the House informed.

Since the Government are so keen at present on European treaties, may I draw the Chancellor's attention to the fact that his proposals are a clear breach of the budget deficit procedure imposed on Britain by the Maastricht treaty? I opposed it at the time on the precise ground that he is now using: the inflexible rules that Europe lays down often have to be broken in unforeseen circumstances.

I know, as does the House, about the hon. Gentleman's difficulties with many matters European, but the fiscal rules that we operate are designed precisely to allow the flexibility that we need, not only for long-term investment, which is important, but for exceptional circumstances, such as the temporary ownership of Northern Rock. The rules were designed to take account of that possibility. However, it would be plain daft, having acquired Northern Rock, to take action that would be wholly inappropriate and damaging to the British economy.

What is an appropriate mortgage lending policy for a state-owned bank, bearing in mind that house prices are falling at 10 per cent. a year on the Nationwide index and 13 per cent. in the forward market, so that even the 90 per cent. mortgage would produce negative equity in a year, let alone the 95 per cent. mortgage, which the Government's Post Office is promoting?

It is for the board to devise a strategy to enable the bank to get out of its current difficulties. The hon. Gentleman will simply have to wait until then. It is true that house prices are slowing down, but on the back of many years when house prices were growing at 10 per cent., or even more in some parts of the country. Although the housing market in this country will slow down, I believe that it is fundamentally strong, but all lenders will want to price their products at what they regard an appropriate level now and at any time in the future.

What is the Chancellor's plan B if the European Commission rules that the Treasury's loan to Northern Rock is illegal state aid?

I believe that we can meet the European state aid rules. We have had many discussions with the Commission and I remain confident that we can resolve the situation, just as I was always confident that we could resolve the situation with regard to Northern Rock. The hon. Gentleman might be better employed trying to find a credible policy on Northern Rock—something that the Conservatives have singularly failed to do in the past six months.