John Redwood champions accountability in Northern Rock debate

<strong>‘Parliament, accountability and creating better legislation’ were championed by John Redwood in the House yesterday, in the face of yet another affront to Commons proceedings in the form of the ‘Northern Rock’ Bill. He urged the need for a gap between Second Reading of the Bill and the Committee stage, so that MPs from across the House, whether or not agreeing with the Bill in principle, could help the Government produce the best legislation possible, having had time to become sufficiently acquainted with the issues.</strong>

His speech in full, taken from Hansard, follows:

<strong>Mr. John Redwood (Wokingham) (Con):</strong> I rise to speak because I see a disturbing trend: the way in which this legislation is being handled is reminiscent of how European legislation is handled— [ Interruption. ] Labour Members should listen carefully to this, because it is about Parliament, accountability and creating better legislation.

I rise to speak in defence of the Committee stage. All Members with experience in the House will know that the Committee stage provides an opportunity for Members of all parties who are interested, have experience or have been well briefed by outside interests to come to the Committee and make their contribution in order to help the Government to get the legislation right in their own terms.

Obviously, I speak as someone who disagrees with what this legislation is trying to do. However, were there to be a proper Committee stage, I and people like me would be able to join in and to try to get the words and clauses right in order to do what the Government want to do, having vented our anger on Second Reading about what they want to do. In order to have proper Committee proceedings, there has to be a gap between Second Reading and the Committee. I appreciate that in this case, the gap might have to be rather short, for reasons that Ministers have set out, but there could have been a gap so that we could have heard first, on Second Reading, what the Government were trying to achieve, after which those interested could have tried to help the Government pick their way through in Committee.

When I was a Minister putting legislation before the House—I did so relatively infrequently, because I do not think that legislation is a very good idea on many occasions—I was always very grateful for the Committee stage, and for the contributions made by some serious-minded Labour Members. I did not think that I and the draftsmen and women working for me in the Department had a monopoly on all wisdom, so it was helpful to have interested and well-briefed people making suggestions in Committee and trying to get the measure right.

As the House knows, we get only an hour and a half in Committee to debate huge chunks of constitutional treaty, and we are going to get only two and a half hours this evening, if the motion goes through, on an extremely complicated Bill that has implications for the country’s whole banking sector. I urge the Government to think again. The Committee stage is crucial. Members of Parliament need a chance to talk to people outside the House who have real expertise in these areas, and Members with expertise in their own right need the chance to marshal amendments and bring them to the Government’s attention. We need to table probing amendments to see whether the Government have got it right and we need to table amendments to help them get it right. That has not been possible in this case. Will the Government please think again?

During the subsequent debate, John Redwood made a speech in which he reiterated concerns over the Government’s inexplicable rush to pass this legislation, asking why they could not do some due diligence on Northern Rock first – standard procedure for any business take-over – so that the House can know what it is buying. The entire process, in fact, seems to be a list of unknowns in terms of what is being bought, and therefore what the implications might be for the taxpayer. Certainly the £110billion figure currently talked of is probably an optimistic one.

<strong>The speech in full, taken from Hansard, follows.</strong>

<strong>Mr. John Redwood (Wokingham) (Con):</strong> I have declared my interests in the register.

I want to see this business survive, recover and flourish. I quite understand its importance to the north-east. I do not think that the nationalisation model on offer is the way to do that. Indeed, as those on my party’s Front Bench have made clear, it could well be that given the constraints on competition policy and the uncertainty of the Government over the business plan, nationalisation will mean substantial redundancies and a winding down and a scaling back of the business—the very opposite of what Members in the north-east want.

I propose, as I have consistently advised the Government, that the Government and the Bank of England should act as an intelligent and tough bank manager to this business. They are the bank manager, because they are the lender of last resort, and they gave a large loan to the bank when it was in difficulties. What they should have done was taken enough asset protection for the taxpayer so that there was no argument about getting our money back. They should now secure what assets they can, which they need to give us protection, and then agree a timetable for the repayment of the money. They should agree a timetable that makes sense for both parties. Of course, if the parties cannot agree it, they can dictate it because the Bank of England is the only bank that will lend to this business, but it is better to agree it. It should be tough; there should be exacting targets to get the money back.

Under such a course of action, Northern Rock has all sorts of options. It has the opportunity to get money back if the markets get freer and it can refinance. It has the opportunity to get money back through cash flow, profits and the success of its business. If it cannot do either of those things, it can always pay the money back—assuming that enough asset cover has been secured, as we were told originally—because it can sell assets. The pace of the sale and the cash generation should be agreed between the bank manager and the business. The bank manager should lean on the bank to go further and faster, should watch inappropriate spending and should ensure that the bank is not spending unnecessarily on capital expenditure, high wages or elaborate bonuses. People should not be earning bonuses in a business that is under this much pressure. I submit that that is a far better model than the nationalisation model, with all its uncertainties.

As someone who has spent time in business and has, from time to time, bought a company, what I find breathtaking about the business before the House is the lack of the information that a buyer of any size of business would wish to have, let alone the purchaser of the biggest business, in cash terms, ever bought on behalf of the taxpayer. But we do not know the price. We are told that the Government have decided to buy the business without negotiating the price with the sellers—or without deciding what price they are going to impose on the sellers. We are told that we have to rush the legislation through in a week, but the Chancellor cannot even tell us how long it will take the Government to work out the price to complete the deal. It is obvious that they cannot complete the deal until they know the terms of transfer for the shares. Why the rush? Why can we not do some due diligence on the business first, as they will have to, when trying to work out a price for the compensation, so that the House knows what it is buying?

As the shadow Chancellor said, we do not know about the quality of the assets we are buying. There is no analysis of the repossession rate, past and future, or evidence about the quality of the lending made. There is no evidence about how many of the loans are at the 125 per cent. rate and no analysis of the unsecured loans. Such things are the first things someone would ask about if they were thinking of buying such a business. We have no analysis of the properties and the branch network. We have no idea whether there is surplus property, or whether the business needs to carry on with its big capital programme to build new property. There is no environmental report on the state of the properties and no report on the leases, or on the commitments to those property leases. Are they long leases? What would be the cost of paying some of them off if they are on inappropriate property?

There is no duty of due diligence on the people whom we will employ on behalf of the taxpayer. There is no human resource report, or report on the contracts of senior executives. We have no idea of the cancellation costs for senior executives if some proved not to be wanted in future by the new executive team. We have no idea of the number of write-offs and losses that the new executive team will want to record in the first set of accounts to clean everything up and make the task a bit easier. Somebody coming in on a salary of more than £1 million would be unlikely to want to accept everything as a given and to make no adjustments to the accounts.

We do not know from the Treasury what the impact on public borrowing will be. We do not know what the capital expenditure programme is and how much will have to go into public accounts because it cannot be funded out of the cash flows of the business. We know nothing about virtually anything that we are buying or about the risks that we are taking on.

There is no pensions report. We do not know the impact of the pension regulator’s latest idea that pension funds have been understating the longevity of the people in their funds and that the allowance made for that must be increased. The pensions liability, like contracts with the staff and any redundancy payments, will now rest with the taxpayer.

It is a disgrace that no normal financial and due diligence information is available on the business before we commit that huge sum of money. My hon. Friends have been generous in saying that the commitment is £110 billion. It could be more than that sum, which is the stated liability on the balance sheet, but does not include the pension, redundancy, property and environmental liabilities and all the other things that might come out of the woodwork. When one buys a business, one normally agrees a price in principle, fulfils due diligence requirements and either decides that the price is right or agrees a revised price in the light of what one has discovered.

Will Ministers please think again? Will they perform some due diligence duties for the taxpayer? If not, they will rue the day because they will lose us a huge sum of money and end up making unpleasant decisions, which will not suit the north-east.

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  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, He graduated from Magdalen College Oxford, has a DPhil and is a fellow of All Souls College. A businessman by background, he has been a director of NM Rothschild merchant bank and chairman of a quoted industrial PLC.

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