Banking (Special Provisions) Bill

– in the House of Lords at 6:31 pm on 21st February 2008.

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Moved accordingly, and, on Question, Motion agreed to.

commons Reasons

Photo of Lord Davies of Oldham Lord Davies of Oldham Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

My Lords, I beg to move Motion A, that this House do not insist on its Amendment No. 1, to which the Commons have disagreed for their Reason 1A. I will of course speak to the other two amendments in the group.

The first amendment revolves around audit. We have already confirmed our intention that Northern Rock should be subject to the requirements of the Companies Acts 1985 and 2006. This will mean that the company's annual report and accounts must be independently audited by a professional firm and filed with the Registrar of Companies for public access.

It may be helpful if I set out once again, and I hope for the last time with regard to this measure, how we propose to apply these requirements to Northern Rock's 2007 accounts. Once the shares have been transferred, the board will confirm the appointment of the company's independent auditors, who will then complete the audit of the accounts. The board will also review and approve them. The accounts will then be published at the latest by the end of March. I will of course ensure that a copy is placed in the Library of the House.

I contend that these are far more appropriate arrangements than any alternative proposed, for the reasons that I gave earlier today and which have been agreed subsequently by the other place. In particular, it will be recognised that the Bank of England is not well qualified to take on the responsibility for auditing large and complex financial institutions. It is, to state the obvious, a central bank, not an auditing firm. Its expertise lies elsewhere. Independent professional auditing firms with experience of the City are far better placed to provide the necessary expertise and scrutiny. These arguments were also persuasive in the Commons and have led to this Motion.

The second amendment, which also exercised this House to a great extent, dealt with issues revolving around the Freedom of Information Act. Our argument against applying the Act to companies transferred under the Bill has at its heart our principle, which I think is shared right across the House, that once the bank has been brought into temporary public ownership it should be run on a commercial basis at arm's length from the Government. It was suggested that National Savings & Investments was an example of an organisation that falls within the Freedom of Information Act—it does—and was therefore a parallel for Northern Rock. It is not. National Savings & Investments is an executive agency of the Treasury, and has the public function of raising finance to provide the Exchequer with a source of funding—that is, public borrowing. No commercial bank is subject to the terms of the Freedom of Information Act, and a bank transferred under these powers should not be. That is our case on Northern Rock. The regime under that Act would be entirely inappropriate for any commercial bank, even one run at arm's length from the Government, as Northern Rock will be.

As was mentioned in this House and in the other place, the Bank of England also has an exemption from the Freedom of Information Act in relation to information that it holds on the provision of private banking services and related services. That seems to be a direct precedent for how we are tackling Northern Rock in public ownership. It has been observed that there are exemptions under Section 43 of the Freedom of Information Act for trade secrets and information likely to prejudice commercial interests. That is not, however, an absolute exemption.

It would be the case—as I sought to put before the Committee earlier today—that Northern Rock would have to consider all freedom of information requests, and balance the public interest against its own commercial interests. That would be wholly inappropriate for a commercial company with no public function; as a result, it could conceivably be ordered to disclose information under that Act that other banks would not have to disclose, which would cause practical problems and hinder the bank's ability to operate on a sound commercial basis by diverting resources to dealing with publication schemes and answering requests.

In the interests of achieving a return to private ownership and repaying the taxpayer—the cardinal principles of this legislation—I want to avoid Northern Rock being disadvantaged by operating in temporary public ownership. As I also mentioned earlier today, in accordance with the Companies Act and other regulatory requirements, banks, including Northern Rock, have reporting and information requirements to publish company accounts and company reports and to undergo an audit by independent auditors, all on an annual basis. If we are to maintain the prospect that this bank may be returned to the private sector as soon as possible, it is vital that we do not apply inappropriate public sector requirements. We want the new management to be focused on producing a business plan that meets our objectives, not instituting a training programme for all staff in how to deal with freedom of information requests.

As I explained earlier, under its framework document the Treasury intends to develop effective plans for appropriate publication of reporting information on Northern Rock. That will enable appropriate public scrutiny of Northern Rock, which is why—the Commons having agreed with the position put forward by the Government in this House earlier today—the amendment to which Motion B refers is not necessary. The Treasury is a public authority, subject to the Freedom of Information Act; information relating to the Treasury's relationship with Northern Rock as shareholder and lender would therefore be covered by that Act. Those who wish to see the objectives of that Act met—and I pay due testimony to noble Lords opposite who were concerned to emphasise this in their representations today—should note that they can be met by requests to the Treasury about its relationship with Northern Rock. The Treasury would need to consider applications under the Freedom of Information Act in the normal way, including the relevant exemptions.

I turn to the third and last amendment that is covered by the Commons Motion. The third issue revolves around the important aspect of competition. Under the amendment, Northern Rock should not be able to compete unfairly with other banks in the retail savings and banking market. I want to assure the House that there will be no adverse competition impacts, which was of course the argument sustained in the other place.

The bank is in receipt of public support. This aid is subject to European Union state aid restrictions. Clearly, interpretation of these laws is a matter for the courts. But I would be extremely surprised if the Commission interpreted those rules in such a way as to allow a bank to expand its business aggressively on the back of public support. The requirement for prior approval of the European Commission, and the Commission's ability to hold Northern Rock to significant compensatory measures, are reasonable restrictions on its business activities. Such measures will need to be applied to Northern Rock.

As has been explained during the course of the measure before the House, we intend to submit a restructuring aid plan to the Commission shortly. This will need to reassure the Commission that Northern Rock does not abuse its position. In addition, like any other company, Northern Rock will be subject to UK competition law in the normal way, including the Competition Act 1998 and the Enterprise Act 2002. That provides a further important check on Northern Rock's business model.

As has been made clear to both Houses, the Government recognise that other banks and building societies will want to be reassured about the impact of taking Northern Rock into temporary public ownership on competition. I can assure the House that officials have been asked to have urgent meetings and discussions with the British Bankers' Association, the Building Societies Association and others to reassure them of the position.

I can offer three further points of reassurance to the House. First, Ron Sandler has already made it clear that he is acutely conscious of competition issues and has no intention of running the bank in a way which abuses its present temporary state ownership. Secondly, the clear strategic aim we have set for the management is to move the bank off all forms of government support. Thirdly, let me reassure the House on how the financing of Northern Rock will operate. At present, Northern Rock is subject to the same interest rate premium arrangements and to paying for government guarantees in precisely the same way as it paid for those facilities in the private sector. It has not had overnight access to a different sort of financing.

There is another aspect with regard to competition which I am sure is of very real concern to the House and is a reassurance to all noble Lords. The Office of Fair Trading, under Clauses 3 to 6, will be required to conduct an annual report on the impact of competitiveness of Northern Rock's activities. A report to Parliament as soon as it identifies a significant adverse impact on competition as a result of this is also necessary. The Office of Fair Trading is an effective watchdog that overseas competitiveness in the UK markets. It has wide powers, including powers to investigate when any market in the UK is distorted by unfair competition. There is no need therefore for the additional amendment which was passed earlier in the day by the House, which is why the Commons has rejected it. The amendment would be an unnecessary duplication of powers under the Competition Act and the Enterprise Act 2002, and the European Commission's powers under the EC treaty. It does not need to specify new powers to report on the competitiveness of the banking market.

We also agreed that the Office of Fair Trading would publish an annual report assessing any competitive implications of the public support to Northern Rock. My officials have spoken to the Office of Fair Trading and I can now report to the House that the OFT has proposed that it will publish an annual report assessing any implications of Northern Rock's business on the banking market from the perspective of competitiveness. I hope that this reassures noble Lords on the third amendment.

Moved, That the House do not insist on its Amendment No. 1, to which the Commons have disagreed.—(Lord Davies of Oldham.)

Photo of Lord de Mauley Lord de Mauley Shadow Minister, Cabinet Office 10:30 pm, 21st February 2008

My Lords, it is with deep regret that I rise to make my observations on the amendments that have been made to the Bill since it left your Lordships' House just a few hours ago. It was clear during the debates at Report and Third Reading here that there was much about the Bill that we regretted we had not been able to change. It was unfortunate that we were unable to remove many of the provisions which the Government had shoehorned into what should have been a Bill with the sole purpose of nationalising Northern Rock. Some of the concessions that we were able to wring from the Government were also rather less than we might have hoped. There were long debates on the proper role of Parliament in the nationalisation of Northern Rock and of any other bank or building society that this Government might take it into their heads to nationalise within the next 12 months. We were, unfortunately, not as successful in persuading the Government as we would have liked. Although we are pleased that many of the orders will now be subject to proper parliamentary scrutiny, the most important powers in the Bill are left subject to no parliamentary scrutiny at all.

However, when the Bill left this House there was much to be celebrated. Your Lordships had succeeded in establishing in Committee that the framework agreement between the Government and the management of Northern Rock will be laid before Parliament "as rapidly as possible" and that the Government will report,

"on the future strategic direction of Northern Rock regularly".

Although I would have preferred to see those commitments on the face of the Bill, they are nevertheless significant victories for transparency and will I hope encourage the Government to maintain a genuinely arm's-length relationship with Northern Rock. We also won a notable concession from the Minister that the Office of Fair Trading will report annually on the competitive implications of Northern Rock's business on the banking market.

Of course, not all of our achievements in this House were conceded by the Government. We voted successfully three times, inserting useful provisions into the Bill, such as an independent audit and a statutory commitment on the watching brief for unfair competition, which we believe would have been absolutely feasible. But the most important vote was on freedom of information. The amendment was ably introduced by my noble friend Lord Hunt of Wirral, who whipped up the largest majority of the day and successfully ensured that Northern Rock would not enjoy an exemption from public scrutiny, but would instead be as open as any other government or public body, subject—as your Lordships made sure the Government knew—to an exemption for commercially sensitive information.

I opened this speech with a statement of regret. Before I get carried away with my enthusiasm in remembering how successful this House was at improving the Bill, I must bring myself back to earth by considering the Motions before us. It is deeply regrettable that the Government have decided to reject out of hand every one of the votes that your Lordships won on the Bill. It is most regrettable in the case of their rejection of our attempts to insist on the applicability of the Freedom of Information Act. It might seem cruel to put the Minister through the ordeal of defending his party's line on this matter again, but the Labour Government's inconsistency on this matter beggars belief.

Many of us remember the fine words of the Prime Minister as recently as 25 October 2007, in his speech grandly titled "Speech on Liberty" and published on the No. 10 website, where he stated quite clearly:

"Freedom of Information can be inconvenient, at times frustrating and indeed embarrassing for governments. But Freedom of Information is the right course because government belongs to the people, not the politicians".

I promise not to make a habit of saying this about the Prime Minister, but I agree with him. Very shortly Northern Rock will belong to the people, not the politicians, so freedom of information will also then be the right course here.

The inconvenience, frustration and embarrassment that the Prime Minister sounded so willing to face last year have now resurfaced to inspire all the Government's arguments against our amendment. We have heard from the Minister that Northern Rock would be put to some difficulty in resisting demands from its competitors to release commercially sensitive information. That this argument, originally suggested by the Prime Minister on Wednesday at Prime Minister's Question Time, is still being peddled by the Government despite the comprehensive dismembering it received today, both in this House and in another place, says a lot about how much attention the Government pay to your Lordships and to parliamentary procedure.

The alternative explanation is that, although Ministers are listening, they are so incapable of justifying the freedom of information exemption that they are resorting to ever more extreme arguments to avoid admitting defeat. This evening, the government Front Bench in another place even accused this amendment of being a wrecking amendment. That suggests that the Government are so scared of freedom of information that they would rather not go through with the nationalisation of Northern Rock at all than subject the running of it to public scrutiny.

The Government practice of resorting to extreme arguments in the face of opposition has unfortunately been a feature of this Bill's rapid progress through Parliament. Every time we have tried to impose a safeguard or to limit an unreasonable power, we have been told that we are threatening not only the nationalisation of Northern Rock but the entire stability of the United Kingdom financial sector. That we have managed to make what improvements and extract what concessions we have has been nothing short of a small miracle given the pressure of time that we, and particularly another place, have been put under. I can only congratulate noble Lords on showing the Government just how important proper scrutiny is and hope that we have given them reason to think again before they introduce such ill conceived provisions.

Photo of Lord Newby Lord Newby Spokesperson in the Lords, Treasury

My Lords, when I stood in this place in November with as much confidence as I could muster and said that there were only two options facing the Government and Northern Rock, one of which was nationalisation and the other administration, I did so with some trepidation. I was greatly cheered on that occasion because I had the immediate support of the noble Lord, Lord Forsyth, and several noble Lords on the Labour Back Benches. However, I was not surprised when on that occasion the noble Lord, Lord Davies, gave me a metaphorical pat on the head—the first of several—and said, "There, there. What would we expect from the Lib Dems? Don't worry, it'll be all right". Well, it obviously has not been all right.

In the intervening three months, the Government have clearly crept with extreme reluctance towards the option of nationalisation. However, I was reassured in my own mind that at least contingency planning was being undertaken and that no doubt a crack team of the finest minds at the Treasury was working night and day to ensure that, if the dread day in the Government's mind ever came to pass when nationalisation had to take place, a plan of Rolls-Royce smoothness would swing into action, enabling the Government to carry all the arguments before them on how they expected the nationalisation to take place.

We have had a lot of discussion about nationalisations over the past few days, and British Leyland was mentioned. It deserves a final mention because at times the Government's progress and ability to deal with some of the ascents and bumps on the road have matched those of some of the less impressive British Leyland models in that company's worst years. Far from being able to come out of this debate knowing, for example, exactly how Granite works and how the Government intend to deal with it, we are left with considerable confusion.

However, we have had robust and remarkably full debates within the time constraints and I think that, in their arguments and attempts to reach agreement where that was possible, the parties have reflected British parliamentary democracy as we know it not necessarily at its best but certainly very far from at its worst. We have made amendments that have improved the Bill, although we had hoped that the amendments that we sent back to the Commons would have been approved.

On the amendment that my noble friend Lord Oakeshott moved earlier today on an independent audit, it is rather sad that the Government produced a technical argument to rebut it when we know that that is not their real reason. Why do they not just say what the real reason is? We know that Mr Sandler, who is being consulted at every second by the Government, does not want the bother of independent auditors to upset what he is doing at this point. The amendment proposed that there should be an annual audit by the Bank of England, but the argument that that is defective because the Bank of England does not do audits does not stand up. The Bank of England could get other people in to carry out audits as its agents. There are arguments against the amendment but that one, frankly, is not valid. The same applies to the arguments about freedom of information. We have been back and forth over them and, much as I am tempted, I shall not go over them again, but we are equally unconvinced in that regard.

However, as noble Lords who sat through today's debates know, on several occasions, not least when talking about statutory instruments, I argued strongly that it was important that Northern Rock be nationalised tomorrow rather than at some time in the future. As we are very near tomorrow now, it would be inappropriate to test the opinion and the patience of the House by debating this further.

Photo of Lord Davies of Oldham Lord Davies of Oldham Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

My Lords, I am grateful to both noble Lords who have spoken in this short debate and I congratulate them on their powers of endurance over the hours in which we have been involved with the Bill. I congratulate particularly the noble Lord, Lord De Mauley, who has substituted for the Opposition's regular Front-Bench spokesperson, the noble Baroness, Lady Noakes, whom we wish well in her recovery. The noble Lord, Lord De Mauley, made his contributions to our debates and enlivened our side of the House from time to time by some rather strident claims. However, I must warn him at this point that the Government who introduced the Freedom of Information Act are not going to be lectured by the Conservative Party on how the Act should be implemented.

I greatly enjoyed the contribution of the noble Lord, Lord Newby. He said that we had promised a Bill of Rolls-Royce smoothness. In order to pass such a Bill through both Houses of Parliament, you need not only a determined Government but one with a majority of more than 600 in the upper House—which, of course, the Conservatives enjoyed when they nationalised Rolls-Royce in 1971.

Photo of Lord Bilimoria Lord Bilimoria Crossbench

My Lords, I thank the Minister for giving way, and I shall be brief. He mentioned determination. Progress on the Bill has taken a lot of determination since it started 30 hours ago; it seems a long time ago, but it was only 30 hours ago. I began my speech yesterday by referring to a losing of trust because of the whole Northern Rock situation. Now we are being asked to trust the Government with this Bill. I do not think that anyone would disagree that we are in a Hobson's choice situation. We have to back the Bill and we wish it every success. However, the Government have been determined to push it through in a hurry. My only question is: why the rush? That question has not been answered over the past 30 hours. Why has the Bill been rushed through? Haste makes waste.

Photo of Lord Davies of Oldham Lord Davies of Oldham Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

My Lords, I am grateful for that brief intervention from the noble Lord, Lord Bilimoria. The Cross Benches have made an important contribution to our debates over the past 13 hours, particularly the noble Lord. I therefore re-emphasise his recognition of the importance of getting Northern Rock properly established to engage confidence in its operations and to return it—as we intend to do, despite the contentions on the other side of the House about the extent to which we are bent upon nationalisation—to the private sector as soon as we are able. I am grateful for the noble Lord's contribution, which enables me to thank the Cross Benches and the other two parts of the House for the way in which the Government have been pressed and tested with regard to the Bill. But now it is time that we agreed with the Commons in its judgments on our work.

On Question, Motion agreed to.

Moved accordingly, and, on Question, Motion agreed to.

Moved accordingly, and, on Question, Motion agreed to.

Photo of Baroness Royall of Blaisdon Baroness Royall of Blaisdon Chief Whip (House of Lords), HM Household, Chief Whip (House of Lords)

My Lords, before we adjourn, on behalf of the whole House I thank our excellent staff for their service and support throughout the day. I realise that this has been a very long day and that we had an early start in the morning. We really do appreciate their help, and I promise that we will try not to extend our hours in future. I beg to move that the House do now adjourn during pleasure until 11.05 pm while we await the Royal Assent.

Moved accordingly, and, on Question, Motion agreed to.

[The Sitting was suspended from 10.46 to 11.05 pm.]