My Lords, it is six weeks since this statutory instrument was laid and nine months since the enabling powers went through at the time of the Banking (Special Provisions) Act, which dealt with Northern Rock. It seems timely that there should be a debate on the Bradford & Bingley order. It has been, in the nine-month history, a matter of some concern to the Delegated Powers and Regulatory Reform Committee and, latterly, to the Merits Committee, on both of which I sit. The views that I express are my own and not those of the committees, except to the extent that I quote what they say.
Before going into detail, I have a comment on the commonly used phrase "business plan not working". That is a description which applies to Bradford & Bingley; it has been freely said that its business plan did not work. What meaning can we attach to the phrase? Both the constituent parts of Bradford & Bingley were founded in 1851, and I think the meaning has probably been the same since 1851. It is risky to borrow short and to lend long. The reason why a mortgage finance company—probably a better description of Bradford & Bingley than a bank—does this is to try to achieve interest differentials which favour its profit and loss account. But the process is risky, and if the short-term market dries up, what then? Presumably, it is something along these lines that happened to Bradford & Bingley, although, as will become clear as I bring out other points, we are very short of information.
During the passage through the House in February of the Act dealing with Northern Rock, there was controversial discussion of Section 2(2)(a), on which the Treasury relies for the power to do what it has done to Bradford & Bingley. There were suggestions that the power was too wide and that it went on for too long, but there it is in the Act. It is under that section that the Treasury has taken the draconian action of confiscating the shares in Bradford & Bingley and simultaneously transferring property for £612 million to Abbey Santander. Into this story so far, the company itself, the board and the staff do not seem to have come. There has not been much in the public domain about discussions with the company, what the board thought about those discussions and what would happen to the staff. That is in sharp contrast to Northern Rock. Yet the Government have frequently said that they do not wish to manage banks. But they have sold off the continuing business and left themselves with the run-off of the existing book. That was all done on
What has been said since? There have been three Statements by the Chancellor, repeated in this House, on 6, 8 and
"10 days ago, we had to deal with the problems at Bradford and Bingley. We transferred the savings business, the branches and the related jobs"— the concept of transferring jobs and not people is interesting—
"to Abbey Santander, thus protecting savers, and took the rest of the company into public ownership. We acted decisively to protect savers and also to protect the interest of taxpayers, ensuring that the financial sector bears its share of the costs".—[Hansard, 6/10/08; cols. 23-24.]
There was no debate on Bradford & Bingley following that Statement. That is not surprising, because the Statement was about the full-scale banking crisis, bringing in the G7, the IMF, Washington and whatever else. So the Bradford & Bingley was a very minor issue in the Statement on
There was a second Statement on
The noble Lord, Lord Davies of Oldham, whom I am pleased to see in his place, said:
"I emphasise again that the powers that we are taking are triggered only in the most extreme circumstances".—[Hansard, 21/2/08; col. 293.]
"There must be a serious threat to the stability of the financial system before the powers are exercised. That is a high test to be met, and the action must be proportionate. The Treasury must consider alternatives. The circumstances go way beyond simply a threat to depositors".—[Hansard, Commons, 19/2/08; col. 175.]
That is the background.
I deal now with the concerns of the Delegated Powers Committee. The House will remember that the committee thought that an order such as this should be subject to the affirmative, and not to the negative, procedure. The chairman of the committee, the noble Lord, Lord Goodhart, made at Second Reading of the Banking (Special Provisions) Bill on
I turn to the Merits Committee. This is a long and complicated statutory instrument, considered on
"This Order is drawn to the special attention of the House on the ground that it gives rise to issues of public policy likely to be of interest to the House".
Otherwise, all that the committee could do was to describe what was set out in the statutory instrument, because the Explanatory Memorandum and the regulatory impact assessment were short and sketchy.
What did we learn from the two documents? We learnt basically that the Treasury considered that it had the power to do what it was doing under Section 2(2)(a) of the Banking (Special Provisions) Act and has done it. There were only three new things in the two documents. The first was the phrase in the Explanatory Memorandum, "temporary public ownership". We knew what that meant in relation to Northern Rock, because it was to be a continuing business, eventually to be sold back into the private sector. It is not the same with Bradford & Bingley. It would be interesting to know what the Minister thinks the phrase "temporary public ownership" means in current circumstances.
The second new thing was the appearance of the Financial Services Authority on the scene. The regulatory impact assessment states that,
"the Financial Services Authority has determined that a deposit taker is no longer meeting its threshold conditions for authorisation".
That no doubt referred to Northern Rock. There was no detail or argument as to how that was connected with the decision to take Bradford & Bingley into public ownership. I thank the Library for looking for the FSA's determination with the best of its ability, which is greater than mine—I looked for it, too. We eventually received an answer from the FSA which stated that, for commercial reasons, its determination was not available to the public, nor to Parliament.
The third new thing was the business plan. The RIA stated:
"The government will put in place arrangements for a business plan to be developed for the remainder of Bradford & Bingley plc's business".
That is a pretty conditional statement. A competent administration team for a run-off of a mortgage book would probably take about seven days, possibly 10, to work out a business plan, but, six weeks later, we have heard nothing but a short announcement that Sir Philip Hampton and Mr Kingman will get round to it later with the independent board of Bradford & Bingley, about which we know nothing.
Much was missing from the Explanatory Memorandum and the RIA. There was nothing much on Part 5; there was nothing at all on Parts 6, 7 and 8. Part 6 relates to the Financial Services Compensation Scheme, which is an important part of what is being done. There was no description of the potential cost. As we saw earlier, on
The Chancellor said also that it was the Treasury's duty to consider other options. All that the Treasury said to us about that was that the Government had considered a number of other options, including other expressions of interest from the private sector, and that it considered this to be the best solution. It gave no detail at all, not even a minimum description of what other options it had considered or a reason for its deciding that they were not suitable.
The two documents are unsigned and no Minister is named, which is completely outside all practice for the submission of statutory instruments to Parliament and through the Merits Committee. Was nobody willing to sign? The central issue is why the Treasury considered it right just to record its power under Section 2(2)(a), but saw no need to give evidence for its view. Even the Treasury can be wrong. Nor is it self-evident, given the facts, that it has the power.
Bradford & Bingley has a £42 billion book and about a 3.5 per cent share of the mortgage market. The book was surely not,
"a serious threat to the financial system of the UK".
If it was thought to be so, I ask how—of course, in some sense, it still is. Bradford & Bingley's £20 billion of retail deposits in the UK and the Isle of Man were held by 2.7 million retail depositors with an average deposit of £7,500. I repeat what the Chancellor said:
"The circumstances go way beyond simply a threat to depositors".—[Hansard, Commons, 19/2/08; col. 175.]
Were the depositors threatened anyway? How many of them had deposits of more than £35,000? After a wait of only three or four days, the figure increased to £50,000. It does not seem that the depositors were threatened, and there were no queues as far as I know at the Bradford & Bingley offices.
What was actually happening to Bradford & Bingley? By then, the banking crisis was in full view, which was not the case when the legislation was passed last February. Bradford & Bingley relied to too great an extent—unwisely, as it turned out—on wholesale money. But surely it was more a victim of the circumstances than a threat. Its size was small, and the problems of the banking system were very large. The sums of money being quoted and the whole scheme at the beginning of October for the bailout of the banks was in figures that were way beyond anything that Bradford & Bingley could bring to bear on the financial stability of the United Kingdom. We need an explanation of the judgment that on
"maintaining the stability of the UK financial system in circumstances where the Treasury consider that there would be a serious threat to its stability if the order were not made".
I beg to move.