Category: Debates

Mr. John Redwood (Wokingham) (Con): I welcome a Bill on this subject, and I am glad that my right hon. and hon. Friends on the Front Bench are in a collaborative spirit because this is a case where working together might improve the Bill, but it needs a lot of improvement because the main things that have gone wrong in the past 11 years stem from the grave weakening of the Bank of England that occurred in 1997.

I would like the Bill to go much further than the current draft in giving back to the Bank of England the powers that it had before 1997. I would like the Bill to make it clear that the Bank of England needs to see and understand all of the business in the money markets. The Bank needs to have powers and duties so that it is the prime driver of the money markets. I would like to see the Bank have those powers back so that it is a better judge of the amount of cash and liquidity that we need in the system at any given time, and so that it is more able to enforce its interest rates in the marketplace, which it has been unable to do during the recent, extraordinary breakdown of the markets.

Like my hon. Friend the Member for Stratford-on-Avon (Mr. Maples) and others, I believe that this is not just a story of big banking error—although it is clearly such a story—but a story of massive regulatory failure. I would highlight three regulatory failures, in a different way from my hon. Friends so as not to bore Members or repeat things that have already been stated. The first failure is the regulatory failure of the Monetary Policy Committee of the Bank of England. In the early part of the decade, the committee kept interest rates far too low. It seemed unaware of the power of low interest rates to drive ever more credit, lending and borrowing in the system, and it ignored all the warning signs in the asset markets and the credit bubble that was emerging in the banking figures. Worse than that, the committee is now making exactly the same mistake in reverse. Now that there is a need to fight the problem of recession and deflation, the MPC is driving the car by looking in the rear-view mirror. It is shocked at how much inflation has got out of control, so it is keeping interest rates far too high for current conditions, and way out of line with those in the United States of America, for example.

David Taylor (North-West Leicestershire) (Lab/Co-op): The right hon. Gentleman talked about restoring powers to the Bank of England. Is he about to make the point that monetary policy decisions on interest rates should be taken away from it, almost as a quid pro quo? In the example that he gave of interest rates being set far too low in the early years of this Government, to which I infer he refers, surely the Bank was in pursuit of the target that it was given by the Chancellor of the Exchequer on inflation.

Mr. Redwood: It clearly was not because the target was to keep inflation to 2 per cent. Inflation is currently 5 per cent., so it is 150 per cent. over the target. I am afraid we have to judge that the MPC got it comprehensively
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wrong. I am not suggesting taking the ability away, or putting the matter back under ministerial control; I am making a plea for a much stronger Bank of England that sees all the market activity and Government debt, which was taken away from it and nationalised into the Treasury, and which sees all the day-to-day transactions of the banks because it is regulating them. It would then understand the money markets, and if bankers, alongside academic economists, were trying to produce a total package on how we intervene, how much money we supply and at what price we supply money, the institution would have a better chance of making those independent judgments in the interests of the whole economy. I do not think that anyone in this House can allege that the MPC has been a success because inflation stands at two and a half times the target, the money markets are in meltdown, and interest rates are now far too high for most borrowers. That increases the likelihood of default on loans and further undermines the asset base of the banking system, which is in a very fragile condition.

The second set of errors that were made by the regulators relate to money market liquidity. Perhaps things were too integrated on this occasion, but in the early part of the decade the Bank of England reinforced the message of the MPC by making large amounts of cash available—the markets were too liquid. More recently, the Bank started to withdraw liquidity and every time it did so in 2007, and even in 2008, it exposed more financial institutions to difficult pressures, which we have seen bubble up from time to time. The lesson has been learned there, and while I regard the MPC as still making the same old mistakes, the Bank is now doing exactly the right thing, with Government help, by making huge amounts of liquidity available. There have been statements that it intends to carry on doing so while the fragility continues, and I am pleased we have got to that point, but if we look at the record of the previous seven years, we see—because the Bank did not have the knowledge and powers it used to have—that it was too easy in the easy times and that it withdrew too much liquidity at times of stress and difficulty.

The third set of problems has arisen in the way that banking capital and banking caution have been regulated, as my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) and my hon. Friend the Member for Stratford-on-Avon said. There is no doubt that, again, we had pro-cyclical regulation. In the easy money times, the regulator did not seem too worried about banking capital and the gearing. Indeed, we saw the gearing of institutions massively increase over the levels of the ’80s and ’90s. I am afraid that those Members who say that such problems date back to the ’80s do not understand the situation. The gearing in banks is far higher today than it was allowed to be under the system in the ’80s and ’90s.

Now we see, at this rather late stage, the regulatory pressures towards having more banking capital relative to the stock of debt, at exactly the point where the system is extremely fragile. I urge the Government to be careful not to go in for more pro-cyclical regulation, so that they do not increase the deflationary forces at exactly the wrong time, just as the regulatory system seemed to increase the inflationary forces during the days when money was far too easy.

I would like the Bank of England to be reconnected, by being the agent for Government debt, by being the
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supervisor of the banks, so that it sees all the money market transactions, and by being given more opportunity to manage not just the price but the quantity of money, so that we can have a smoother progression. We have lurched from boom to bust and from unacceptably high inflation to what I think will prove to be a lot of disinflation, as we see the impact of the credit implosion come through in prices.

When I was first invited into government, I was given the job of insurance regulator for the then Secretary of State for Trade and Industry. The two main duties of the insurance regulator, which was then a ministerial role, were to ensure that the insurance companies were solvent and to ensure that they were run by fit and proper people. That regime was rather similar to the kind of regime that applies in broad outline to banks and it was perfectly sensible. Coming from a financial background, I had a great fear that conditions would get tough in the early ’90s and that there could be a casualty or two in the list, so I asked for proper information from my regulatory team. It took me a little while to get it in the form that I wanted, but we had the powers to procure it.

Once I had on my desk the balance sheet and the profit-and-loss risk, as we saw it, of those institutions, I managed it. If I saw an institution that I thought might be short of cash or in some other difficulty in six months or a year, I would get on the phone to the chairman of that company privately and say, “I am your friendly regulator. I do not have a power to instruct you to raise money, but it seems to me that it would be very helpful if you did raise some money.” In each case the chairman was very obliging and said, “Actually, it’s a good idea,” or, “Yes, we’re going to do it.” In each case they raised money and those institutions got through what was a fairly unpleasant insurance downturn with no problem.

It is not that difficult for a regulator to do that, because they have access to the information, but it is most important to follow this fundamental principle: they must always act in private. They must never name the institution or seek any credit at the time, because we are talking about incredibly price-sensitive information. If any wind or whiff gets out of the office that the regulator has even a scintilla of doubt about an institution, there could be a run on it and a lot of negative journalism about it. The regulator’s task will then be 10 times greater, because the institution will be on the slippery slope downwards and it will be damaged.

I therefore urge the Government to ensure that there are no leaks or running commentary to us and the public as such difficult and sensitive discussions are under way. Those occasions are ones when it is best if things are done in private and as speedily as possible, and if we are told only when the decision has been made and the proper authorities can be notified.
Apart from greater powers for the Bank and whatever powers the regulator needs to regulate intelligently in the way that I have described, I would also like to see some kind of control in the Bill of the ability of the Government and the Bank to use the special powers of acquisition. I strongly believe that in practically every case, if not in every case, it should be possible to solve such problems with private sector solutions, such as
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through private sector fundraising or by cancelling the dividend, cutting costs, shedding some assets, having some disposals or ensuring that capital can be found from sources outside over a reasonable time period.

Those are some of the panoply of ways a business can try to get its capital ratios into shape and get the cash that it needs to continue its business. It should be in the interests of all well-meaning people in the House to keep those things in the private sector, to make businesses accept the disciplines of the private sector, to blame those in charge of them when they get it wrong and to ensure that the new management sort things out as quickly as possible.

However, my worry about the proposals before us is that the taxpayer is being asked to take on too much risk. The three banks to which public capital might be subscribed—I say “might” because a number of votes have to take place and there are still opportunities for private shareholders to come forward with money—have, in aggregate, balance sheets of almost £3 trillion. That is twice the country’s national income and around five times its annual tax revenue. If something went wrong and just 1 per cent. of those assets had to be written off, the owners of those banks would collectively lose £30 billion.

Thirty billion pounds is a very large sum of money, even for the British taxpayer. It is 5 per cent. of tax revenue in a single year. Are we sure that there could not be a 1 per cent. loss on the assets of those banks when they come into public ownership? I know that some of those assets are as risk free as one can get, and include Treasury bills and that sort of thing, but some of them are not. Some of them are the mortgages and the loans to companies that we have been worrying about. We are being asked to absorb those assets as we go into recession, when it will not be just the mortgage book that deteriorates in quality, but the loan book to companies, as I fear that we are about to enter a period when companies will find it difficult to keep going. In some cases they will find it difficult to earn a profit or generate cash and will look to their bankers for more support. In some cases, businesses will stumble and be incapable of keeping the payments going.

I would therefore like a reminder in the legislation, and perhaps a requirement to come back to the House in an emergency, that there must be some limit. Just as we are now preaching to the private sector that banks should not get over-geared and over-borrowed, should we not be preaching to ourselves that the Government and the public sector should not get too over-borrowed and over-extended? I hope that the Government will go away over the next two or three weeks, work with those banks that have given an indication that they might like public capital, go through the figures again and ask, “How can you get the demand down? How can you generate more cash for yourself? How can you get more private sector capital coming into your bank to cut the taxpayer risk?” Otherwise, the British state will be left in a weakened condition, which is not what we want at this juncture.

The full text of John Redwood’s speech and interventions in yesterday’s cost of living debate now follows:

(1) Mr. Redwood: The hon. Lady is making some good points about the impact of food prices on her constituents. Can she explain why no other Labour Members want to hear about that? Do they not understand it?

Mr. Graham Stuart: Where are they?

Ms Keeble: They probably decided to leave it to me, in the sure knowledge that I would make a good job of it. This issue of is of concern to me because it is of profound concern to my constituents, and I think it right for questions about it to be dealt with. There is also the impact on family households of the credit crunch, which, although it may not be immediately apparent to some of them, is felt through pressures on house prices and house building.

I have to say that I disagree with the detailed analysis presented by the right hon. Member for Wokingham. Having sat in the Select Committee and listened to explanations from the Governor of the Bank of England and others, I have not heard them blame the restructuring of the Bank in 1997 for the credit crunch, although there have been arguments about the tripartite arrangements. Most of my constituents probably realise that whatever mistakes were made in that regard, much more profound mistakes were made by the board of Northern Rock and much more substantial problems arose in the sub-prime market in the United States, which continue to affect our lives and those of our constituents.
What my constituents probably want to know, much more than they want to hear tit-for-tat arguments between the political parties, is what will happen in the years to come, and which party has the policies to take them through what everyone knows, and what the Governor of the Bank of England has said, will be a difficult time for quite a while. He said it would be difficult until next March or April, and I am sure he is right. This has to do not just with how much the cost of living goes up but with what happens to family incomes, and ours is the party that provided a safety net for family incomes through the minimum wage.
(2) Mr. John Redwood (Wokingham) (Con): The Chief Secretary to the Treasury and the Government make a pathetic case. They say that the rising inflation rate is entirely down to world events that they cannot control, although occasionally the Prime Minister, in his Canute-like mode, goes into embarrassing overseas meetings fatuously to lecture people who are not as guilty as he is over the price of petrol and diesel at the pump. The Government also seem to resent the fact that many millions of formerly very poor Asians—Indians, Chinese and others—are at last able to get some purchasing power in the world so that they can have a greater fraction of the standard of living that we take for granted, by buying more energy and better food products.

We are saying to the Government that it was eminently forecastable over the past 11 years that there would be a big increase in demand for food and energy from Asian sources. That is very welcome. We were all extremely grateful that the Asian economies did so well in supplying us with an ever-increasing volume of very competitively priced goods, which kept our inflation rate down despite the errors being made in inflation policy in this country. Now, however, the Government are saying that it is all the Asians’ fault for daring to buy all these other things with the money that they have earned buy selling us those cheaper goods, even though the Government did absolutely nothing for 10 years to increase our capacity in agriculture or energy, when they should have been making a contribution to the world situation.

Mr. Simon: The right hon. Gentleman is noted for being an intelligent and erudite Member of the House. If he has a case to make, surely he can do better than to use Aunt Sallies and say that the Government are blaming everything on the Indians and the Chinese. That is ridiculous. If he has a case, why does he not put forward a proper argument instead of all that sort of nonsense?

Mr. Redwood: If the hon. Gentleman had been here for the Chief Secretary’s speech, he would have heard her say that the increase in demand was all down to world circumstances, and that it had come not from Europe but from India and China and other much more successful, faster-growing economies in Asia. The hon. Gentleman has failed to make his case.

Over the past decade, the Government could have made the decision to allow the private sector to develop the marginal fields in the North sea instead of taxing it to the hilt and putting it off. They could also have made decisions on renewable energy, nuclear energy or other kinds of energy that do not require carbon. Instead of having to have the great debate now on new power, we could have had new power stations already up and running. We have had 10 wasted years under this Government, and we now have higher energy prices as a result.

On agriculture, instead of constantly agreeing with everything that comes from Brussels, the Government could have put some substance behind their rhetoric of reforming the common agricultural policy. Instead of having years and years of big subsidies for set-aside to prevent farmers from growing the grain that the world needs, we could have had a policy that actually promoted the growing of grain in order to make a contribution to the world scarcity of grain, both for direct eating by human beings and for eating via the animals that are increasingly in demand in the Asian countries.

That is where the Government have gone wrong, but they wish to take every credit for the cheap goods coming out of Asia, which they say is down to their economic management. Now, they wish to take no blame for the scarcity of basics that is driving prices up, and with which they have singularly failed to help.

John Hemming: The hon. Member for Edinburgh, South (Nigel Griffiths) did not seem concerned about the fact that families on lower incomes were more dependent on basics, or the fact that, while the consumer prices index shows a 10p in the pound spend on food and non-alcoholic beverages, and 12p in the pound on housing, water, gas, electricity and other fuels, it also shows a 14p in the pound spend on restaurants and hotels. Does the right hon. Gentleman share my view that we should examine how families on low incomes are affected by Government policy?

Mr. Redwood: That is what I and my party have been saying, and it is one of the reasons behind this debate. The hon. Member for Edinburgh, South (Nigel Griffiths) is as remote from the reality of modern Britain as those on his Front Bench clearly were during the Crewe by-election. They seemed to have no idea that the retail prices index basket—let alone the consumer prices index basket—does not reflect the reality of low-income households, which are spending a much bigger proportion of their income on food, energy, heating their homes and trying to get some transport. The Minister admitted that those costs had shot up, and those are the people whose incomes are being most tightly squeezed.

Nigel Griffiths: If the right hon. Gentleman is so sure of his case, why has he not persuaded those on his Front Bench to make a statement saying that they are going to cut duty on fuel?

Mr. Redwood: I am well known for believing that because there is such a rip-off at the pumps in this country and a rip-off on North sea production, we should be reducing the rates in order to keep the amount of tax coming in at the forecast level rather than over it. I suggest that the hon. Member for Edinburgh, South (Nigel Griffiths) contain himself; who knows, my Front Benchers may well come up with such a proposal in due course, but we are interested in the Government’s proposals. It is their problem; they created it. They have the power to say to the House today, “We are very sorry. We are collecting far more revenue at the pumps and from the North sea fields than we forecast we would in the Budget. This is a rip-off. We will give some of it back to the public.”

About £500 million of extra revenue came in from oil and petrol in the first six weeks of the financial year, but what are the Government doing with it? They have not told us how they are wasting that £500 million, but we know that they have wasted billions on computerisation, unneeded regional government in England, ID cards, too many officials and administrators and too many external consultants coming in to do the jobs that officials do not seem to be able to do so that we are paying twice for everything that goes on in the Government. That amounts to massive waste, which the Government’s own Gershon review admitted, as confirmed by Conservative party work.

At the core of the debate there should, I think, be a serious examination of one of the most misleading soundbites of the past 11 years—the soundbite that the Government created an independent Bank of England, which dealt with the inflation problem and gave us economic stability. The House should remember that the Government almost lost their Governor of the Bank of England when they shoved through their bodged reforms of the Bank in 1997-98. Far from making the Bank independent, they stripped it of its responsibility to manage public debt and its responsibility to have day-to-day supervision of the clearing banks.

When the credit crunch and the crisis hit, the Bank of England was blind and deaf to its own money markets and did not know minute by minute what the Government’s debt position was—crucial to the functioning of the money markets—and it did not know minute by minute what the clearing banks’ position was, when they were clearly extremely short of funds. That meant that at the crucial point where the Bank needed to be expert at running the money markets to enforce the rates laid down by the Monetary Policy Committee, it was not able to do so. There was a complete collapse of monetary control across the August through to October period as they lurched from boom to bust in their handling of the economy. It was a failure of the Treasury, as well as the Bank of England; it was the tripartite system, led by the Chancellor, that led to the run on the Bank—a disgrace in an advanced economy that makes its living primarily out of financial services through export markets. It was a disgrace that this Government presided over such an embarrassing situation when all previous Governments had been able to keep the banking system just about liquid enough, even in bad times, so that there was never a run on the banks for more than 100 years.

All that happened because of those bodged reforms. The Monetary Policy Committee is alleged to be independent. The Government’s best case is that the MPC was made a bit more independent; clearly, the Bank of England was very badly damaged by being made less independent, as it lost big functions. Even the MPC was not really made independent, however. Let us remember the record. Before the 2005 election, the Government clearly wanted lower interest rates, so they fiddled the target. They replaced the retail prices index target—the RPI is used in all the index contracts; the RPI is used for wages and indexed debt—and substituted the consumer prices index. Why did they do that? They did it because they knew it would go up less quickly, which would mean easier money and lower interest rates. I see the Economic Secretary shaking her head, but she is an intelligent woman and she knows that that is why they did it, and the adjustment to the target rate was not sufficient to take into account how big the gap was between the more truthful RPI and the less truthful CPI in respect of the prices that people were having to pay in our economy. We had that damage.

There is also the problem that we were never told why some members of the independent MPC were reappointed and others were not. I tabled questions asking about the criteria for reappointment. I asked whether there was some external test for reappointment, whether the voting record was examined and whether only the dovish ones who would vote for lower rates before elections were reappointed. No answer was forthcoming from the Treasury. This Government, who introduced the Freedom of Information Act 2000, will not even tell a Member of this House of Commons why they reappointed some MPC members but not others. They will not even tell me what the criteria were for trying to create some independence for that committee.

When the crisis struck in August and September, the MPC was as much use as a bunch of people having a tea party but no control over the financial markets. There is no point in setting independent bank rates if we cannot enforce them in the market. The Bank needs to have enough control over the money markets and enough knowledge and skill within those markets that its rate is the crucial rate. It lost control and the damage was there for all to see.

We have a Government who mis-sold the proposition that they created an independent Bank. They have mis-sold the proposition that they created stability as they created instability. They have still not got a grip on this situation. We had the big lurch from too much liquidity and low interest rates between 2003 and 2006 to interest rates being too high and too little liquidity in 2007. We had the run on the Rock. We then had a welcome reduction in that illiquidity. Money was belatedly injected into the markets and interest rates were lowered a bit, because the Government suddenly realised that fighting slowdown or recession was more important than fighting the inflation that they had already created.

More recently, we have had a lurch the other way. The Bank and the Treasury seem to be worried again about the inflation, which they cannot control because it relates to their past mistakes. This lurch is happening at exactly the point where the housing market is in collapse, the property market is in collapse, there is a second phase to the credit crunch and there are problems with mortgage banks and others because of the extreme squeeze that the Government are putting through. The price of that lamentable failure of monetary policy, the botched reform of the Bank of England and the lurch from boom to bust and from boom to bust again in credit and money markets will be severe for people in this country to pay.

My hon. Friend the Member for Runnymede and Weybridge (Mr. Hammond), the shadow Chief Secretary, valiantly tried to get the Chief Secretary to say something true from the Dispatch Box. He said to her that the adjustment to the credit crisis and the inflation crisis triggered by the Government must surely come through lower living standards. That is what the Chancellor’s policy is all about when he says that people cannot have RPI-matching pay awards. He has said that public sector pay should go up by considerably less than RPI and is now trying to talk the private sector into exactly the same position. Perhaps he has not realised that a lot of the private sector came to that conclusion a long time ago because it is struggling to remain competitive in an extremely competitive and difficult world.

I hope that the Economic Secretary will remedy the defect created by the Chief Secretary and admit to the House that, yes, it is now Government policy to squeeze individuals and families for at least a year to try to deal with the excesses that the Government have put into our economy. Looking at what the Government have been doing for the last couple of months, it is quite obvious that they have no intention whatever of the public sector making any contribution to reducing the excess spending and credit in our economy, which desperately needs to be sorted out after the boom years—the years of neglect, the years in which the Bank and the Treasury so singularly failed to stay married to prudence and to keep things under control.

I have often pointed it out in the House that I believe that the Government balance sheet—the nation’s balance sheet—has under this Administration seen a ballooning of debt, but not of £550 billion or £700 billion. If the unfunded pension liabilities, which would be on any company balance sheet, the private finance initiative, the public-private partnerships, Northern Rock and all the other promissory notes that they have issued, as well as all the debt that they are now adding to the balance sheet were all added in, the true figure would be about £1.5 trillion.

I am beginning to feel that I have underdone it, because on no occasion has a Minister rushed to the Dispatch Box to say, “The right hon. Gentleman is over the top. The actual figure is so and so.” The Government have never put out a press release countering my blog’s exposition of this. The Economic Secretary looks downwards, so I suspect she is saying, “Gosh, we’ve got away with it. He thinks it’s only £1.5 trillion.”

Let us say that the figure is about £1.5 trillion. That is colossal. It means that the IOU cupboard will be full to bursting by the time the new Conservative Government get in and try to sort things out. It means that we have no room for manoeuvre because the Government have been so wanton over the past few years, yet in the past few weeks they have found £2.7 billion of extra borrowing to try to impress the voters of Crewe. Didn’t they do well? They have found a lot of extra borrowing for transport systems in Manchester and the north-west, presumably because they are worried about their position in that region. They have found a lot of extra money to win the 42-day vote, and might have to find a lot more to win that vote all over again, assuming that their lordships disagree.

This Government are now on a rake’s progress—they have not merely divorced prudence but fallen in love with a much wilder lady who clearly believes that the public sector must have everything, however much has to be borrowed, putting more and more pressure on the individuals and families whom we all represent.

The charge against the Government today is that their reforms of the banks failed; their monetary policy failed desperately badly in ’07 and is still wobbly today; they do not have a grip on the money markets and the interest rate structure, let alone the inflationary consequences; they have absolutely no grip on public spending, which is why all the pressure will be on individuals and families; and they do not seem to care about the way in which our constituents are having to suffer.

If the Government want to solve the long-term problems, as they always say in their rhetoric, will they please make some decisions, even at this late stage, to get some transport capacity and energy capacity in, and to move away from such a strong dependence on inefficient carbon-burning machinery in both sectors? That is the way to do something about energy costs. Will they please go to Brussels and get some change to the common agricultural policy, because we need a policy that promotes and generates much more agricultural activity? We need to see the plough moving up the hillsides out of the valley beds. We need much more land brought back into use. The world needs food, and we need to make our contribution; it is no good blaming the Chinese and the Indians.

(3) Mr. Redwood: Was the hon. Gentleman asleep when the Conservatives produced endless proposals for getting better value for money and having fewer administrators, fewer targets, fewer quangos, fewer ID cards and all the other claptrap that has wasted billions?

Dr. Cable: I was not asleep: I was assiduously reading “The Cost of Living Under Labour” and I shall address the seven-point plan that the Conservatives propose to deal with the situation. It is possible plausibly, and perhaps wisely, to argue for fiscal austerity and for crowd-pleasing tax cuts and spending measures, but to advance them at the same time completely lacks credibility. I will proceed through the seven points, and I hope that my argument will begin to stack up.

(4) Mr. Redwood: If people could still get petrol at £1.15 a litre, 70p of that would be Government taxes, which have been going up this year when the Government claim to be worried about the plight of the motorist. Why do they not simply get their tax down, because that is the dominant part of the price at the pump?

Yvette Cooper: As the right hon. Gentleman knows, we have delayed the fuel duty increase, and fuel duty has fallen in real terms over many years as a result of the decisions that we have taken. The issue that faces people at the petrol pump is not fuel duty, but the fact that we have seen such substantial increases in the price of oil, which is affecting countries right across the world.

(5) Mr. John Redwood (Wokingham) (Con): Does my hon. Friend remember that, far from creating an independent Bank of England, the Chancellor gutted and filleted it, taking away debt management and nationalising it into the Treasury, and taking away day-to-day banking supervision, so that the Bank was blind and deaf in the money markets when the credit crunch hit? Is not that a major problem?

Mr. Hammond: My right hon. Friend is absolutely right. As he will know, we have been arguing for some time that the responsibility for rescuing a failed bank under the proposed new system must lie with the Bank of England, not the regulator. We are delighted that the Chancellor appears at last to have come round to accepting the logic of that position.

The former Chancellor’s reputation is unravelling before his eyes. The man who rode the Asian tiger of imported deflation bleats that what is happening in Britain today is all someone else’s fault—from the credit crunch, to the fuel price at the pumps, to the soaring cost of food and spiralling home heating bills. He was the lucky Chancellor whose good fortune was to preside over the greater part of what the Governor of the Bank of England has called the NICE—non-inflationary, consistently expansionary—years, and whose misfortune is now to have his legacy exposed as a sham, because when the wind blew the economic house that Gordon built turned out to be made of straw.

Mr. John Redwood (Wokingham) (Con): I rise to support the opposition to the programme motion. It is another travesty of democracy that we should be expected to be allocated time on a range of sensitive and important constitutional matters about how something as crucial as planning should be decided. It may be that there are provisions for which the time allocated by Ministers is too great. However, there will undoubtedly be occasions on which the issue is so important that many more Members would like to join in and to have the opportunity to be here, if only a more sensible time had been chosen for considering such matters.

I urge Ministers to think again, even now. It may be that we can consider the Bill in the total amount of time that they have made available, but they should allow the House to decide how that time is best spent and how the priorities should be reflected in that debate. Often, when we give people greater freedom, they show greater responsibility, and we get a better quality of debate that concentrates more on the issues that matter.

My hon. Friend the Member for Beckenham (Mrs. Lait) powerfully made the case that the Bill will set up an unelected quango to make extremely important decisions, whereas I and many of my constituents believe that there should be a stronger democratic input. I would add that many of my constituents feel that there should be more influence from the locality, not less. They do not feel that their local views are properly considered under the current process, because there is so much centralising, railroading and regional, overarching influence. The situation will be even worse if we have an unelected national quango making important decisions and forcing consequential decisions on local authorities once the main decision has been taken. We need proper time to debate safeguards and guarantees for local empowerment and influence over such decisions.

I am not one who wishes to stop every new development, and I certainly am not one who thinks that we need to resist all the important infrastructure and energy projects that this country is crying out for. The reason why such projects have been delayed in the past decade is not so much the planning system, but the Government, who have singularly failed to have a positive energy or transport policy. They have singularly failed to provide a framework in which the private sector can operate, or to make public funding available for public projects, so that that infrastructure can be put in place. They have wasted 11 years, and now come forward with this fig leaf of a Bill, saying that it was the planning system that was wrong. Eleven years into a Labour Government—somewhere near their end, we hope—they have decided that they can reform the planning permission system to try to accelerate the projects that they have prevented by chopping and changing, dithering and delaying and going to endless consultation on all the infrastructure issues to do with energy and transport.

EDM 1481

MULTILATERAL ACTION AGAINST CLIMATE CHANGE AND WORLD HUNGER

06.05.2008

Redwood, John

That this House notes that China is the fastest growing major economy in the world and India the second fastest; further notes that China will soon overtake the United States as the world’s single biggest source of carbon emissions; expresses its concern at the role played by the growing demand for biofuels in world food price increases; is alarmed at the World Bank’s prediction that food price inflation could set the fight against Third World hunger back by seven years; urges the Government to do all it can to help tackle global food poverty; recommends that the UK leads change to regulations to drop any requirement to divert crops to fuel, as arable land is needed for food; further recommends that the Government uses its leverage to persuade the US, China and India to proceed on a multilateral basis to tackle climate change; and recognises that if the UK proceeded unilaterally it could drive fuel-intensive industries into jurisdictions with less stringent regulatory and fiscal regimes, which would cost British jobs whilst failing to reduce the world’s total carbon output.

On the overtaxing of small businesses

Mr. Redwood: I am a company director and a shareholder in companies, as I have declared in the register, but not, I think, of a company that will be paying this particular tax in the current year.

I rise to support the idea that the tax should be 20 and not 21 per cent. and that it should not go up to 22 per cent. subsequently, and I ask the Government to think again about their extraordinary U-turn in their policy towards lower tax rates for people on lower income and for smaller and start-up companies that earn less profit than more mature companies that have gone on to grow for longer and perhaps more successfully.

The Government produced an attractive package when they decided to encourage incorporation by having a zero tax rate on small profits for companies that had recently incorporated, and when they decided to have a 10p capital gains tax charge on people who set up companies, who took founder shareholdings in companies or who decided to buy into companies that were small and growing and could take advantage of that privileged capital gains tax regime.
We saw a response to that favourable tax regime in the improvement in the rate of new company formation. A lot of people in the small business groups around the country were saying to Opposition representatives, as well as to Government representatives, that the Government had got something right and that that part of the tax regime was favourable. It was an encouragement that those people very much welcomed, so it is strange and extremely disappointing that the Government should have backtracked on both elements of that attractive regime and that they have not learned the lesson from a country such as Ireland, which has persevered with a much more favourable tax regime for business across the board—businesses large and small—and has had the phenomenal success that we see in the Irish growth rate, the development of Irish business within the Republic and the collection of so much more tax revenue in general by the Irish Treasury.

As more people have got better jobs and taken more income out of smaller and larger companies, and as more smaller and larger companies have grown, been successful and produced capital gains, dividends, income and good jobs for people, so the economy as a whole has benefited from that process, and so the Irish Treasury has benefited, having more money to spend per head on public services as a result of that growth than has been available from the British Treasury’s attempts to find ever more stealth taxes to sustain more rapid growth in spending per head on public services here.

Mr. Brooks Newmark (Braintree) (Con): I appreciate my right hon. Friend’s comments about the Laffer curve, which I have gone on and on about in the three years that I have been a Member of Parliament. However, what bothers many small businesses—with which, like me, my right hon. Friend has been involved—is the timing of the tax increase. At a time when we should be supporting small businesses, it appears that we are attempting to undermine what they are trying to achieve in extremely difficult times by increasing taxes while, across the pond, the United States is doing everything it can to lower them.

Mr. Redwood: My hon. Friend is right. Ministers must know from their conversations, as he and I know from our conversations with the British Chambers of Commerce and the bodies representing small businesses in Britain, that it is becoming much more difficult to be a successful competitor from a British base. Smaller companies are feeling the increase in taxation and the growing weight of regulatory cost even more than the larger ones, but that population of small businesses must be allowed to grow more rapidly so that we can experience success in the future.

All the studies show that if there is to be sustained rapid growth in employment in private-sector activities, a lively and growing small business sector is essential. New jobs are much more likely to come from that sector than from the larger companies that have the money to automate, to mechanise and to take their labour-intensive activities offshore. They do not generate the same pace of business growth and job growth as small companies.
As the hon. Member for Taunton (Mr. Browne) observed, although we unfortunately often hear of very large casualties in the corporate world—factories closing, or large numbers of people being made redundant by the larger companies—we never hear of redundancies of the same scale in the smaller companies. They do not employ as many people to start with and, when conditions are reasonably benign, they do not sack people. As a whole, they are a growing sector, adding jobs as they find better ways of doing things and creating new activities that the public wish to buy into. The danger is that the Government will take small businesses to tipping point with too much tax and regulation, so that, largely unseen, many jobs will be removed or new jobs will not be created and we will have a worse problem with unemployment.
Mr. Jeremy Browne: It should also be borne in mind that nearly every large business that employs vast numbers of people started off as a small business. We are not only potentially compromising the small business sector of the economy, but running the risk that tomorrow’s big businesses will never be able to get off the ground.

Mr. Redwood: The hon. Gentleman is right, and it can be deduced from his argument that we need to lower tax and regulation on all populations of business if we want a really successful economy like the Irish economy. That is especially important in the incubator world of small business. Among the mighty population of small businesses in a vibrant economy will be a limited number that will go on to become the mega-corporations of the future. As Silicon valley demonstrates, businesses can grow from very small to very big in the space of a decade, with stunning implications for the success of the economy and the success of tax-raising on those populations of businesses, and job generation.

Mr. Newmark: We might quip that the way in which to create a small business under new Labour is to start with a big business. However, on a more serious note, let me say that my right hon. Friend has not touched on another important issue. One of the hallmarks of new Labour has been the chopping and changing, but what businesses like is consistency. Only through consistency of policy, particularly tax policy, can they thrive.
Mr. Redwood: I am grateful to my hon. Friend, although the number of interruptions makes developing the argument as quickly as he would like a little more difficult. He is giving me friendly help and assistance to make sure that I do not forget the important arguments. I am genuinely grateful to him and he is absolutely right that consistency is important. Being able to forecast the tax rate to be paid not just this year but next year and the year after is extremely important when it comes to drawing up a business plan. Any small business that wishes to grow relatively quickly will need access to outside finance; a bank loan, other investors, business angels or another way of raising capital. Any of those would immediately want a business plan, not just for one year but for, say, three.

An important element of that business plan would be to know what the net profitability would be after three years, after the start-up costs and losses. The net profitability obviously requires an assumption about the Government’s tax rate. If the tax rate is changing every year—or goes up every year—it makes forecasting accurately more difficult. It also means that net profits will be less at the three-year stage, or at the five-year stage in a five-year business plan. That makes it more difficult to raise external capital; the banks and others living through the credit squeeze may say that they are unable to help because the net returns are not sufficiently good. Altruistic as many financiers are, they are not normally interested in how much money a business generates to pay the tax man; they are interested in how much money a business generates to pay the shareholders and other private stakeholders, which is why the tax rate is so important.

I am delighted that my Conservative Front-Bench colleagues are strongly in favour of simplicity and lower taxes and they are right to want a 20p tax ceiling on small businesses. I hope that they will also want—I am sure they will—to bring down the rate of corporation tax on larger companies closer to the 20p band. That is very important to the enhanced competitiveness of Britain that we will wish to see after the damage being done to it by higher taxes and more regulation.

I trust also that Governments will start to look at the idea, revolutionary for current political times, that we can perhaps save some of the waste and unnecessary expenditure in Governments so that we do not always have to pay for these tax reductions by finding other ways of increasing taxes. It was exactly that route of tax reform that got the Government into such difficulty on the 10p band.

Mr. Browne: I am grateful to the right hon. Gentleman for giving way to me a second time. Does he share my unease that the Conservative party is committed to taxing at exactly the same overall rate as the Labour party at the next general election? The total amount of Government spending as a percentage of GDP will be identical, if the Conservative party wins the election, to the level it would be were Labour to win. That sounds like mimicking the Government, rather than providing an alternative to them. Does he think that that is a wise approach for his party?

Mr. Redwood: The hon. Gentleman must have forgotten that I am a Conservative MP, so I do not share his unease at all, nor do I accept his premise. I am quite sure that the shadow Chancellor and his senior colleagues are serious when they say that they wish to have a lower-tax Britain than we would have under Labour. I am quite sure that we would have a lower-tax Britain than we would have under a Lib-Lab pact, because we know that Liberals are very liberal with other people’s money. Normally in the House they do not make the wonderful case for lower taxes as the hon. Gentleman seemed to be doing this afternoon. Normally they make the case for spending all sorts of sums of public money on things that may not even be desirable and are very often quite wasteful.

There is only one party that seriously believes in lower taxation for the whole of the UK and has a chance of winning a national general election in this country and that is the Conservative party. The Scottish National party now seems to believe in lower business taxation, but it is not in a position to do very much about it because most of the powers on these matters rest in the UK Parliament.

I say to my hon. Friends on the Front Bench that it is a privilege to be able to support this very sensible proposal for a 20p tax on business. It would be to the benefit of the small business community, and the Government’s relations with it if the Government listened, in the way that we hear the Prime Minister is now listening on the 10p tax band. It is another example of how dangerous the Government’s tax reform can be, particularly now they are destroying the only good tax ideas that they ever had. I was with them on the 10p income tax band and on zero tax on smaller businesses and they are throwing it all away.

Speaking about the payment of redundancy money tax free to a former Mayor of London.:

Mr. John Redwood (Wokingham) (Con): I do not wish to use this opportunity to refer to the present Mayor and to try to have last-minute influence over an election in which many of our colleagues are probably participating on the streets as we speak. I wish to raise the issue of principle. We face a public expenditure crisis in this country; the Government have overspent, and they are borrowing too much, taxing too much and spending too much money on purposes with which the public do not agree. The proposal before us today is another small example; it is an extension of payment in tax relief to former Mayors should they lose office, one way or another. It legislates not only for one Mayor or one particular payment, but for all future Mayors of London.

I do see the mayoralty of London as a mayoralty; it is the mayoralty of by far and away the biggest city in the United Kingdom. However, the Mayor of London is only one of many mayors of London, because there is a mayor of the City of London and a mayor of the city of Westminster, and there are many borough mayors. Most important local government in London is still carried out by the boroughs, rather than by the rather grand Mayor that was created more recently. It is difficult to see how one can sustain the argument that if it is fair to have severance payment for the grand Mayor of London, no severance payment is offered to the mayors of the individual cities in London, who are, in many ways, responsible for bigger budgets and more important services; they are responsible for education and social services, unlike the overall Mayor of London. As my hon. Friend the Member for Runnymede and Weybridge (Mr. Hammond) has said from the Front Bench, it would be difficult to say that the mayor of Manchester or the mayor of Birmingham should not be given something similar.
I have a challenge for the Government: why do they think that, in the middle of this crisis of over-taxing, overspending and over-borrowing, this is a worthy clause on which to spend more public money? Why do they think that they can hold the line at saying yes to the Mayor of London, but no to the other mayors in London and to the mayors of other great UK cities? They will find it extremely difficult to hold that line.

Let us examine the question of justice and the contrast with the arrangements for Members of Parliament. We live in world in which people often come into the House of Commons at a much earlier age than they would expect to become an elected mayor, and they might be a Member of Parliament for 20 or 30 years. If they suddenly and abruptly lose their seat—perhaps in circumstances outwith the control of individual Back Benchers, because of the performance of their party or Government—one can see how that could prove a dreadful disruption to their lives. They may not be especially well known or have alternative skills, because they have put everything into their life as politicians. That is why that rule, which is unpopular with the public, was introduced, and people stood for election knowing that it was the rule.

It is very different with the Mayor of London. Again, I do not wish to personalise the debate, but I point out that anyone who stood last time round knew that that was not the rule. Why is it fair to change the rules after the election? If such a rule were thought necessary, it should have been introduced at the time that the mayoralty was established and before we had any idea of who would be the first or subsequent Mayor of London.

The other difference is that the mayoralty of London has turned into a celebrity activity, certainly as conducted by the first Mayor. We have already heard from the current Mayor that were he to lose, he thinks that he could have a good life appearing on chat shows and writing articles. I do not think that anyone who has an exciting enough personality to become Mayor of London would be short of a penny or two, should the electorate terminate their contract. They would become famous—

Mr. Jeremy Browne: Is not the right hon. Gentleman focusing too narrowly on the Labour and Conservative candidates, who I acknowledge are driven entirely by a love of being on television and the celebrity culture, and overlooking the Liberal Democrat candidate, who has a powerful and persuasive record of reducing crime and tackling the serious threat of criminal behaviour in our capital city?

Mr. Redwood: I do not think that we need to have such petty political debate when I am trying to discuss the principles of the matter. However, if I may be slightly partisan for a minute, I would say that in the totally unreal world in which there could be a Liberal Democrat Mayor—that is not what the polls and the public are saying—he too would become a celebrity and would, in due course, be in exactly the same position as the existing Mayor. Should the electorate tire of such a Mayor, he would be able to command good fees on the speaking circuit.

Given that the length of time that someone is Mayor is likely to be rather different from the length of time for which people may have the privilege of being a Member of Parliament, and because an ex-Mayor would be far better known and have more earning power when the job leaves them or they leave the job, I do not think that the same case can be made as is made even for Members of Parliament. The proposal also has to be set in the context that any payment to any politician is questionable and unpopular. We should not extend such privileges, but seek to cut them back.

On the issue of carbon zero homes:

Mr. Redwood: I rise to support my hon. Friend the Member for Putney (Justine Greening). Her amendment makes a lot of sense, and I hope that the Minister will simply concede that. I am sure that the Government intend the tax exemption to be available only on the first sale-and-purchase transaction. The drafting in my hon. Friend’s amendment would ensure that rather more accurately than the drafting in the Bill, so it would make sense to accept it.

Like the hon. Member for Wolverhampton, South-West (Rob Marris), I wish to concentrate more on amendment No. 20 and what constitutes a zero-carbon home. I approach the issue from the proposition that it is better to try to change people’s conduct using tax incentives than through tax impositions or compulsion. The principle in the amendment is therefore welcome. It is right that the Government should try to address emissions related to the home environment as well as transport emissions. We well know why that is important: many more of the typical family’s emissions come from the family home. The problem is a difficult one, but it can be addressed using a series of incentives and proposals, of which this would be just one.

I understand my hon. Friend the Member for Putney’s worry that the measure will have a small impact. Part of the reason it will have a small impact is to do with the definition, which lacks clarity about what is a zero-carbon home. There might be a feeling out there in the marketplace that zero-carbon homes are unachievable, and that we should move our targets to what might better be called low-carbon homes as technology develops and the marketplace responds. That is what we do with motor vehicle manufacturing, the regulation of which is tightened progressively over the years, so that each generation of cars is successively better. As a result, exhausts have been cleaned up, and there have been changes regarding the production of fuel to give a certain level of performance. We could have a similar trajectory with housing and the improved performance of our homes, preferably through an incentive scheme.

The hon. Member for Wolverhampton, South-West rightly said that the zero-carbon home of the Government’s imaginings is not truly zero-carbon because the construction process will entail a certain level of carbon dioxide emission. He could add to his list the emissions of vehicles used on a site to dig the ground and move the earth, as well as any pile-driving and concrete mixing required to provide the foundations and a stable platform on which to build.

Another aspect of all building processes that causes, perhaps, even more carbon emissions is the manufacture of building materials. Most of the building materials going into a typical British house have been produced using energy-intensive processes. The cement industry is a big energy user, as is the brick industry. That consideration needs to be fashioned into a policy. Although it will be good news for those who wish to cut carbon emissions if homes can be constructed that emit few or no carbon emissions, it will not be such good news if the building materials used to achieve that degree of insulation and that carbon-free standard were produced using energy-intensive methods or if they had to be transported quite far. Such homes would take many years to break even on the carbon account.

These issues are difficult. Carbon accounting is a rudimentary science at the moment, and all too many people considering it think that there are silver bullets and easy answers. They think, for example, that stopping people driving would make the problem go away, but it would not. The issue is more complicated than that. All sorts of processes and circumstances involve carbon dioxide emissions, and a sophisticated carbon account is needed before sensible policy conclusions can be reached. I hope that the Minister will produce rather more sophisticated research—perhaps not today but in the months ahead, as this policy develops—so that we can have a better idea of what the true carbon account would be on a so-called zero-carbon home. I hope that the Minister will be able to provide a little more definition today, as my hon. Friend the Member for Putney requested. If the policy is to have any chance of working, the wider world, interested in building new homes, needs a clearer idea of what is required, and we need a clearer idea of whether it is achievable.

I would regard as a failure a policy under which only 10 homes qualified in more than half a year, and, if I were a Minister, I would regard it as my important duty to tweak and change it until I had a decent number of homes coming forward, so that I could claim that the policy was some kind of success. I put it to the Minister either that it is a problem of persuading the market that what she has in mind can be done—the Government are meant to be good at putting out messages through the media—or that perhaps more work needs to be done on the sort of home that is envisaged, working in conjunction with the industry, so that we can roll out a policy for the hundreds and thousands rather than the one and twos as we seem to have at the moment.
I think that a stamp duty tax break is a very attractive tax break, as stamp duty is very high on the more expensive houses and still a lot of money on the relatively cheap houses because house prices have increased so much. We would expect to have something for the expenditure of tax revenue forgone; we do not seem to be getting it at the moment, so I hope that the Minister will use amendment No. 20 as an opportunity to clarify and improve the definition so that it delivers on the carbon front, taking into account the production of carbon in building the house as well as in subsequently living in it, as well as delivering the number of homes needed to fulfil the targets.

Speaking about the increase in vehicle excise duty on old vehicles:

Mr. Redwood: I am glad that my party tabled the amendment. It is important to see whether there would be a reduction in carbon emissions from the rather large further increase in taxation on motorists. I cannot see how such a proposal can change behaviour when it applies to cars that people have already bought, because by definition they cannot change their behaviour—they have already bought their cars—unless it is the Government’s intention to have all those cars scrapped prematurely, in which case one needs to do proper carbon accounting to see how much carbon would be emitted in the manufacture of the replacement vehicles, which should be taken into account. That would have to be amortised over their shortened life, if one is to continue the practice of ratcheting up the vehicle excise duty on vehicles already purchased and out there in the vehicle park.

If the main aim of the Government’s policy is to reduce emissions from vehicles, surely tax should be placed on use of vehicle and on fuel, which the Government are doing in huge measure anyway. They recently increased that greatly by stealth as a result of the increase in petrol and diesel prices at the pumps, rather than putting the tax on ownership of the vehicle. There is nothing environmentally unfriendly about owning a vehicle once it has been made and purchased, whereas using the vehicle can be environmentally unfriendly.

I hope the Government will think again and will understand that this is another rather difficult equation where we need better carbon accounting in order to know what the true impact of the policy is. We should not let the debate go by without somebody saying that motorists have been clobbered time and again by the Government, who do not seem to understand that many people need working vehicles, and that many people have to go by car because there is no public transport alternative. The provision is just another sign that the Government regard the motorist as a source of massive revenue and are hitting them for owning a car, buying a car and using a car—

Robert Key (Salisbury) (Con): Does my right hon. Friend agree that there is another group of poorly paid workers who are hit doubly? I am referring to community nurses, for example, in large rural areas such as mine. The HMRC tax-free allowance on mileages has not risen in line. When I pursued the matter with Treasury Ministers, the answer came back that they were trying to change people’s behaviour and encourage them to get out of their cars. Try selling that to the district nurse in Tisbury.

Mr. Redwood: My hon. Friend is right. There are other low-paid workers who work antisocial hours and clearly need their car to get to and from work. People often have to take their children to school by car because there is no alternative. I hope that Ministers will think again about the overall magnitude of tax. After all, Ministers must have some spare money to play with, because we know that far more will be collected from diesel and petrol than was in the original Budget forecast. I tabled a question elsewhere to try to get at that figure. Why cannot some of that money be used to abate some of the severity of the proposal?

7.45 pm

The Chief Secretary to the Treasury (Yvette Cooper): I beg to move, That this House disagrees with the Lords in the said amendment.

Mr. Speaker: With this it will be convenient to take Lords amendments Nos. 2 and 3, and Government motions to disagree thereto, and Lords amendments Nos. 4 to 8.

Yvette Cooper: I thank the Lords for their consideration of the Bill, which has been brought forward in exceptional circumstances. As a result of the consideration by the Delegated Powers and Regulatory Reform Committee, the Government put forward in the Lords a series of amendments to change several orders so that they will be subject to the affirmative resolution procedure. We think that that is the right approach and we therefore accept those Lords amendments.
The Lords passed three amendments with which we wish to disagree and I shall take each in turn. Lords amendment No. 3 is on competition and the role of Office of Fair Trading and—as a result of the consideration both in the Lords and this place—we have had further discussions with the OFT. It may be helpful to inform the House about those discussions.

As we made clear in earlier debates, the Government recognise that we need to ensure that Northern Rock does not enjoy inappropriate or unfair advantages in competition with other banks and building societies. We need to ensure that we are operating in the interests of the taxpayer, but also that we have appropriate competition in the markets.

At EU level, we have been clear that we will need to ensure that the business plan satisfies the EU state aid rules and support for Northern Rock needs to be fully consistent with those guidelines. As we told the House on Second Reading, we will also hold discussions with the British Bankers Association, the Building Societies Association and the Council of Mortgage Lenders before final plans are submitted to the European Commission for state aid approval.

We agreed yesterday that the OFT will publish an annual report assessing any competitive implications of the public support for Northern Rock and, of course, the OFT also has the powers to step in at any time. The OFT is an effective watchdog, overseeing competitiveness in the UK markets. It has wide powers, including powers to investigate whether any market in the UK is distorted by unfair competition. It does not need specific new powers to report on the competitiveness of the banking market.

Therefore, there is no need for Lords amendment No. 3, which would be an unnecessary duplication of the OFT’s powers under the Competition Act 1998 and the Enterprise Act 2002, and the European Commission’s powers under the EU treaties. The amendment is inappropriate and I hope that the House will disagree with it.

Mr. John Redwood (Wokingham) (Con): Does that mean that the Chief Secretary envisages limiting the attractiveness of the rates that can be offered and charged by Northern Rock by reference to the average of its competitors?

Yvette Cooper: As we have repeatedly made clear, it would not be appropriate for Ministers to take decisions about individual products offered by Northern Rock. It is right that Ron Sandler should put forward his business plan, and that will obviously need to be approved by the Government as the shareholder in Northern Rock. Equally, as part of that process, we need to ensure, as we approve that business plan and have discussions with the EU, that we do not have unfair competition. It may well be that the European Commission will set out particular conditions on Northern Rock’s operation, and, of course, we will have to ensure that Northern Rock complies with them.

Bob Spink (Castle Point) (Con): If the British Bankers Association eventually concludes that the arrangements lead to unfair competition, what redress will it have?

Yvette Cooper: Clearly, the issue will be what the OFT concludes and what the EU concludes. Obviously, we will have discussions with the British Bankers Association, but Northern Rock will need to operate in compliance with UK competition law. It will obviously also have to comply with the EU state aid rules.

We have to remember the underpinning purpose of this intervention, which was to secure the financial stability of the banking system. As we have said previously, it would obviously not be in the interests of other banks or consumers for there to be unfair competition. Equally, it would not have been in the interests of other banks or consumers if Northern Rock had gone under in the autumn and there had been a spread of instability across the banking system. Sometimes I think that hon. Members who raise concerns about this are in fact raising concerns about the fact that Government guarantees have been introduced at all.
We think that it was right to introduce those Government guarantees, because we need to safeguard the stability of the wider banking system as part of the need to promote stability across the board. Therefore, I hope that the House will agree to disagree with Lords amendment No. 3.
I turn next to Lords amendment No. 1, which concerns the independent audit. Clearly, there should be an independent audit of Northern Rock. Indeed, an independent audit is currently under way. Northern Rock’s audited annual accounts will be published, after independent audit, by the end of March. That should give the House and the public information on Northern Rock’s assets and liabilities as part of its balance sheet. Northern Rock will continue to be subject to the requirements of the Companies Act 1985 and the Companies Act 2006. That means that the annual reports and accounts must be independently audited and filed with the registrar of companies for public access. We think that that is the appropriate way to conduct the audit.

Mr. Philip Dunne (Ludlow) (Con): Is the Chief Secretary therefore telling us that the audited accounts, which will be published at the end of March, will include the consolidation of the assets and liabilities held within the series of Granite subsidiaries of Northern Rock? If that is the case, will she clarify what she was signally unable to clarify last Tuesday? Will the Government have a call on the assets in the Granite subsidiaries in the event of defaults on its liabilities?

Yvette Cooper: We have set that out repeatedly. Clearly, the accounts will need to be set out in the normal way. The accounts of Northern Rock will need to meet all the ordinary accounting practices. It is right that that should be so. We have also repeatedly made it clear that the Government guarantees apply to Northern Rock and not to Granite. Again, it is right that that should be the case and that is the arrangement that has been set in place.

It is right to think that the appropriate way to conduct the audit is the method I mentioned. To ask the Bank of England to conduct a separate audit would not be appropriate. That is not the Bank’s area of expertise; it is not a professional independent auditor but a central bank. Interestingly, the amendment would not require an independent audit of Northern Rock within three months because it applies to clause 6, whereas the draft order that we have published would be made under clause 3. The amendment would therefore not achieve the intentions of the drafters.

Mr. Alan Beith (Berwick-upon-Tweed) (LD): Does the right hon. Lady recognise that it is the very opacity of conventional accounting that worries people when they are confronted by the existence of operations such as Granite, which did not come to the notice of even quite experienced observers of Northern Rock until a relatively late stage in its life and remains the subject of considerable uncertainty? That is one of the reasons why other forms of audit are being sought.

Yvette Cooper: Many people have raised and discussed issues about Granite on many occasions. If the right hon. Gentleman is pointing to the fact that several people had clearly misunderstood the nature of Granite and changed their understanding yesterday, that is obviously a matter for them. There has been a lot of discussion about the arrangements for Granite; it is a special purpose vehicle—the kind of arrangement that many banks set up—and it is important that its accounting treatment is properly dealt with and is properly transparent in the normal way. The matter has been discussed repeatedly.

Mr. Chris Mullin (Sunderland, South) (Lab) rose—

Jim Cousins (Newcastle upon Tyne, Central) (Lab) rose—

Miss Anne McIntosh (Vale of York) (Con) rose—

Yvette Cooper: I give way to my hon. Friend the Member for Sunderland, South (Mr. Mullin).

Mr. Mullin: I have not yet changed my understanding about Granite, and I put it to my right hon. Friend that at some stage a clear explanation will be needed of the company and its accounting arrangements, and the allegation that it will apparently be allowed to go on sucking assets from Northern Rock even after it is nationalised. That will have to be explained at some point—[Hon. Members: “Now.”] I hope that my right hon. Friend will do so at some point this evening.

Yvette Cooper: Can we be clear? That is not an accurate description of the relationship between Granite and Northern Rock; it is simply not true to say that Granite has a call on the assets of Northern Rock in that way and is, as my hon. Friend put it, sucking out mortgages from the bank. That is not the structural or the contractual relationship between Granite and Northern Rock. I draw the attention of Members to the letter that has been circulated, which my right hon. Friend the Chancellor has put in the Library, and which provides greater clarity on that detail.

I am conscious of the fact that many issues need to be raised. There is an important question about freedom of information that I need to cover as part of this debate.

Adam Price (Carmarthen, East and Dinefwr) (PC): Does the Chief Secretary accept that in this case, given the amount of public money we are talking about, the ordinary requirements for reporting under company law are not sufficient, especially because, as she is aware, there are serious doubts about the robustness of the interim report produced by the company in June? Within a few weeks, the company was running to the Bank of England for a massive loan. That is why we need the extra level of independent auditing.

Yvette Cooper: Let us be clear about the events, including the credit crunch in the summer, which triggered Northern Rock’s particular difficulties. I agree that there is a wider question about the sustainability of the approach that Northern Rock took and its aggressive strategy. As part of our consultation paper about wider reforms to the banking system, we have also discussed the need to look more widely at issues around liquidity, not simply solvency, as part of the regulatory structure. There is obviously a wide series of issues.

The Government have already stepped in to intervene with regard to Northern Rock. The Bank of England has already stepped in to intervene by providing additional loans to Northern Rock at an appropriate point and the Government have provided guarantees. It was right that the Government should do so; it was about protecting the financial stability of the banking system as a whole, as well as dealing with depositors’ interests in Northern Rock. Of course, assessments and analysis have been carried out as part of the lending and guarantees, but the exposure remains the same, as a result of taking Northern Rock into temporary public ownership. The intention at all stages is to be able to try to return the company to the private sector as rapidly as possible. We are talking simply about a temporary arrangement, and that bears on the third amendment.

Mr. George Osborne (Tatton) (Con): Before the right hon. Lady moves off that point, I point out that it has emerged that Northern Rock has a subsidiary based in the Channel Islands that takes offshore deposits. Are we to own a nationalised bank that operates in the Channel Islands and takes offshore deposits?

Yvette Cooper: As we have repeatedly made clear to the hon. Gentleman, we are not taking ownership of Granite. Throughout the process—

Mr. Osborne rose—

Yvette Cooper: Let me finish this point. The hon. Gentleman has repeatedly made completely inaccurate, nonsense points, not simply about Granite but about the overall relationship to Northern Rock, so much so that today’s Financial Times said:

“The argument…put forward by the Conservatives” on Granite“was roundly dismissed on Wednesday by City experts…Analysts said this showed a basic misunderstanding of how securitisations worked.”

The hon. Gentleman has today made a series of completely incorrect claims about the legal status of Northern Rock, which suggests a misunderstanding not simply of securitisations but of UK law.

Mr. Osborne: I would be happy to read out a year’s worth of Financial Times articles about the performance of the Chancellor of the Exchequer, but I want to press the right hon. Lady on the point about the subsidiary of Northern Rock that operates and takes offshore deposits in the Channel Islands; it is not Granite but a subsidiary of the bank. If we nationalise the bank this evening, will the Northern Rock subsidiary in the Channel Islands operate as a Government-owned nationalised bank? After all, I remember that when the Prime Minister was the shadow Chancellor, he made a great point of noting the offshore tax evasion that took place in some parts of the world.

Yvette Cooper: We are clear that we are taking over the legal entity that is Northern Rock—the totality of Northern Rock—and it will pass into the hands of the new board. Ron Sandler will now draw up the business plan and arrangements for the new bank. It is right that he should do so and that it should operate on a commercial basis. Let us be clear about why we have done what we have done: it is in order to save—

[Interruption.]

Mr. Speaker: Order. The right hon. Lady must be allowed to speak.

Yvette Cooper: Thank you, Mr. Speaker. The implication of all the points that Opposition Members have raised is that fundamentally they do not like the fact that Government guarantees were provided for an organisation that continues to operate. They simply want to make opportunist points, providing no serious alternative for the future of Northern Rock or the future of the banking system.

Mr. William Cash (Stone) (Con): Will the Minister give way?

Yvette Cooper: I need to get on to the next amendment.

Mr. Cash: The Minister has an obligation to answer the questions.
Mr. Speaker: Order. The Minister does not have an obligation to answer the hon. Gentleman. She has an obligation to speak to the House, and that is what she is doing.

Yvette Cooper: Thank you, Mr. Speaker. I need to get on to Lords amendment No. 2, which is about the Freedom of Information Act 2000. Again, we do not believe that the amendment would be appropriate. It is important that the public and the House have information about Northern Rock, and as I have made clear, the full, audited annual accounts will be published by the end of March.

Mr. Richard Shepherd (Aldridge-Brownhills) (Con): Will the right hon. Lady give way?

Yvette Cooper: I shall make some progress and set out the points first, if I may, and then I will give way.

Mr. Shepherd rose—

Yvette Cooper: If the hon. Gentleman will take his seat, I will make a little progress with the arguments about freedom of information, and if I have time, I will give way to him later.

Mr. Mark Harper (Forest of Dean) (Con): On a point of order, Mr. Speaker.

Mr. Speaker: I am sure that it is not a point of order, but I will hear it.

Mr. Harper: I have heard the Minister make lots of references to how little time we have. Surely that is governed by the Minister’s business motion, so it is rather pointless for her to complain.

Mr. Speaker: I knew that the hon. Gentleman’s comment would not be a point of order. I call Yvette Cooper.

Yvette Cooper: I appreciate that Opposition Members do not want to hear the points that we are making; they simply want to play games with what we should all recognise is an extremely serious issue concerning the future stability of the banking system and the future of Northern Rock.

In addition to the full, audited annual accounts and the annual report, other information about Northern Rock will be provided. In addition, we have said that we will shortly publish the framework document, which will set out the appropriate operating arrangements between Northern Rock and the Government. We will also—

Mr. Shepherd: Will the Minister give way?

Yvette Cooper: No, I will not until I have made some progress. [Interruption.] The hon. Gentleman will let me make some progress on the points about freedom of information— [Interruption.]

Mr. Speaker: Order. The hon. Member for Aldridge-Brownhills (Mr. Shepherd) is usually a very calm individual. I plead with him to calm himself.

Yvette Cooper: I worry about the hon. Gentleman’s blood pressure. He is getting himself into such an agitated state.

In due course, Ron Sandler will publish his strategic business plan, which will include the overarching strategic aims for Northern Rock. The House will recognise that it would not be appropriate to publish detailed commercially sensitive information and it is right—

Mr. Cash: On a point of order, Mr. Speaker. The Minister has just said that it would not be appropriate for information to be made available that was commercially sensitive. I was in the other House earlier this afternoon where I heard the Minister saying that that was not a matter that he would follow through—

Mr. Speaker: Order. The hon. Gentleman must know that I have enough to do dealing with what is said in this House, without worrying about what is said down the Corridor.

Mr. John Grogan (Selby) (Lab): Will my right hon. Friend give way?

Yvette Cooper: I will give way to my hon. Friend in a moment, but as I have said repeatedly to hon. Members on both sides of the House, I am keen to make a couple of points about freedom of information before taking interventions on it. I hope hon. Members will let me make a little progress.

We believe that it would not be appropriate, however, to apply the provisions of the Freedom of Information Act 2000 to the institution. The bank will not be performing a public function that would make it appropriate to apply the Freedom of Information Act to it.

Mr. Gerald Howarth (Aldershot) (Con): Will the right hon. Lady give way?

Yvette Cooper: In a moment.

We have been clear that we are taking the bank into public ownership not because we believe there is a public function that we need it to fulfil, but in order to safeguard the stability of the financial system and the interests of the taxpayer. I should inform the House that the Bank of England also has an exemption from the Act on the information that it holds in relation to the provision of private banking services and relations services. That is included in schedule 1 in part VI of the Freedom of Information Act, so it is written into the Act. That is important.

Mr. Shepherd: On a point of order, Mr. Speaker. I am sure you will make a judgment on this. It is absurd that a Minister declaims an interpretation of an Act of Parliament that the Government introduced and denies the very content of it.

Mr. Speaker: Order. We must be careful not to abuse the system of points of order. The right hon. Lady is perfectly in order. If she were out of order, I would say so. Believe me, I would be the first to say so. She is in order.

Yvette Cooper: Thank you, Mr. Speaker.

I shall make one more point about the importance of the freedom of information issue, then I shall be happy to take interventions from hon. Members. Let us be clear. We do not want Northern Rock to have to reveal commercially sensitive information that might undermine its position with regard to its competitors. [Interruption.] We do not want it to be in a situation where there is uncertainty about whether particular pieces of information will be protected by commercial confidentiality, or will alternatively be judged to be in the public interest—

Several hon. Members rose —

Yvette Cooper: The lack of certainty could undermine the bank’s position when it is operating against competitors—

Mr. Cash: Will the Minister give way?

Yvette Cooper: —and would not put the taxpayer in a sensible position when it comes to dealing with the need to sell the institution on to the private sector at an appropriate moment.

Several hon. Members rose —

Yvette Cooper: If hon. Members will just calm down and stop—

Mr. Speaker: Order. Two hon. Gentlemen are getting to the stage of beginning to defy the Chair. Once they do that, there will be problems. The hon. Member for Stone (Mr. Cash) has had a good innings this week; he has spoken more than the Minister. He should calm down and listen to the Minister. That will give the official Opposition spokesman the opportunity to speak.

Yvette Cooper: I am happy to give way to hon. Members capable of asking a calm question.

Mr. Tim Boswell (Daventry) (Con): I have not been a regular follower of this issue. Can the Minister explain to me how she can possibly justify saying that the bank is not performing a public function when the whole point of the state intervention that we are sanctioning tonight is—allegedly, and on her own account—to safeguard the stability of the banking system?

Yvette Cooper: We are taking the bank into public ownership for a reason that is in the public interest—that is rather different from the ongoing function that the bank performs. That is a different, private banking function, and we want to get the bank into the private sector as rapidly as possible.

Mr. Grogan: May I tempt my right hon. Friend to see some possible advantages of applying freedom of information to Northern Rock in respect of increasing public confidence in the process? Is it not a fact that section 43 of the Freedom of Information Act specifically exempts commercially sensitive information from the need for disclosure? Does that not deal with the point that worries her?

Yvette Cooper: My hon. Friend makes an important point, but he will recognise that there is a public interest test at the heart of the Freedom of Information Act—and it is right that there should be. It is important that an organisation that needs to function in the commercial markets has some certainty about what the status of different pieces of information will be.

We see the bank as something that is staying in the public sector only on a temporary basis. This is not about a long-term public institution; if it were about such an institution with a long-term history in the public sector and if our intention were to keep it indefinitely in the public sector, that would be a completely different matter and my hon. Friend’s point would be exactly right. However, this is about an institution that we want to get out of the public sector and into the private sector as rapidly as possible. We want to be able to sell it on; we do not want the taxpayer’s interest to be undermined by the fact that the bank might have had to reveal commercially sensitive information or information that could weaken its position when it comes to getting the sale deal agreed.

This is a temporary arrangement, therefore there is a temporary position with regard to the Freedom of Information Act. When the original discussions about the 2000 Act took place, and given all the deep principles rightly embedded in the Act by this Government, we provided for an exemption for the Bank of England precisely around the provision of private banking and related services. The legislation is in the spirit of the Freedom of Information Act; it is not about changing the approach to it. There are the additional interests of taxpayers, so it is right that we do this now to get the operation working effectively and to get the bank back into the private sector.

Mr. Gerald Howarth: I am extremely grateful to the Minister for giving way. I quite understand what she is saying, but it is extremely important that the public should understand one aspect of this issue. In the technical note that the Chancellor of the Exchequer sent to the hon. Member for Twickenham (Dr. Cable), it is mentioned that Northern Rock sold about half of its mortgage assets to Granite between 1999 and 2007. The note explains that Northern Rock will have an obligation to top up in the event that some of those assets are redeemed. Are the public not entitled to know whether some of the best assets of Northern Rock can be siphoned out of the company into Granite, thereby diminishing the value of the taxpayer’s investment?

Yvette Cooper: The hon. Gentleman cites the technical note, but has not read the subsequent sentence, which clearly states:

“There remain high quality assets on Northern Rock’s balance sheet, as well as Granite’s.”

It also states:

“It is a commercial decision for Northern Rock whether to provide new mortgage assets to the Granite financing vehicle or whether to allow the vehicle to run-off in an orderly way.”

Rob Marris (Wolverhampton, South-West) (Lab): Lords amendment No. 2 is basically the same as new clause 2, which was put forward but not reached when the Commons last debated this legislation. Amendment No. 14 was also put forward by the Opposition at that time, and that was discussed. That amendment mentioned provisions to ensure the independent day-to-day management of the business.

Does my right hon. Friend agree that it appears that, first, some right hon. and hon. Members do not realise that the Freedom of Information Act does not cover the private sector and that, secondly, to put forward an amendment asking for independent day-to-day business and then say that freedom of information should cover the bank is a contradictory and silly position?

Yvette Cooper: My hon. Friend makes an important point. There is also, as I understand it, a curious consequence of the way in which the amendment has been drafted. Under the amendment, even after Northern Rock was sent back into the private sector and sold, it would still be subject to the Freedom of Information Act. That is clearly bonkers and shows that it is simply a wrecking amendment designed to prevent it being viable to operate Northern Rock effectively in the public sector in order to be able then to sell it on to the private sector to get the best possible return for the taxpayer.

In the end, this is all about us getting the best return for the taxpayer and getting a proper arrangement that supports the stability of the financial services and banking system. We think that those are important objectives. Opposition Members are simply playing opportunistic games. They are making nonsense claims about Northern Rock, about how the securitisation system works, and about how the legal system works. It is right that we should have a proper debate about this, but it is also right that we should come up with a proper solution to the problems of Northern Rock, which Opposition Members have continually and singularly failed to do.

Mr. Philip Hammond (Runnymede and Weybridge) (Con): We have listened to 30 minutes of rubbish and waffle from the Minister, and we now have precisely 29 minutes left to scrutinise the House of Lords amendments and to consider the very significant points that were raised in the other place. There is clearly no prospect of this measure receiving proper scrutiny in this House. Indeed, the one part of the Bill that has been properly scrutinised is the bit that the Delegated Powers and Regulatory Reform Committee looked at in the House of Lords. The Government have tabled five amendments of their own in recognition of the weakness of the original drafting—testimony to the value of proper scrutiny.

There was no reason at all to impose the farcical timetable that we have had for this Bill. We could have sat through the night tonight; we could have sat tomorrow. The only possible reason was to prevent proper debate and to obscure the extraordinary powers that the Government are taking, not only for Northern Rock but on a wider basis. We are witnessing a shocking abuse of this House’s willingness to expedite legislation in an emergency, with many of the powers in the Bill simply not necessary to resolve the situation of Northern Rock.

The amendments that have come back to us from the Lords fall into three groups: those dealing with transparency, the one dealing with fairness, and those dealing with procedure. Amendments Nos. 1 and 2 deal, respectively, with audit and freedom of information. There is a clear need for an audit of the situation in Northern Rock, including an analysis of the quality of the loan book, which would not necessarily be undertaken in depth in the course of the ordinary statutory audit that the Minister talked about. The public are being asked to buy a pig in a poke. No one is sure what we are getting, how much we are paying, or what we are buying it for.

An additional complication has come to light—that of Granite—and I want to take a minute to touch on that. We are all agreed that some of the best of Northern Rock’s assets are included in Granite, but Granite also includes a Northern Rock seller’s share worth about £5 billion to Northern Rock, which would be an early casualty of a default on the covenants in the Granite documentation, quickly undermining the solvency of Northern Rock. One of the requirements of an auditor would be to look at any impairment to the value of that seller’s share as a result of the change in Northern Rock’s situation. Specifically, Northern Rock must feed Granite with new mortgages; if it fails to do so, the Granite entities will collapse and go into wind-up with all the cash flows diverted to the bondholders, putting the seller’s share, which belongs to Northern Rock, at risk. To try to avoid that, Northern Rock may be forced, if it is not originating new business, to take the good-quality assets that it has within its own portfolio and feed them into Granite. That is the way in which Granite can become a sponge sucking the high-quality assets out of Northern Rock. That is why an audit is so important, and that is why we have consistently argued for an alternative method of dealing with Northern Rock that puts the taxpayer at the top of the pecking order, not at the bottom, which the Chief Secretary’s solution would do.

Lords amendment No. 2 would be unremarkable anywhere but in the wonderland that this Government inhabit. It says that what is a publicly owned company shall be deemed to be a publicly owned company for the purposes of freedom of information. But we know from the draft order that the Government intend to ordain by statute that this particular publicly owned company is not a publicly owned company. We have heard a new definition from the Chief Secretary this evening; she says that it is not a “public purpose company”. The order talks about a “publicly owned company”. At this rate, next week we can anticipate a piece of legislation allowing the Government to designate by order that black is white.
If Granite’s loan book is as good as the Chancellor and the Prime Minister claim, and if, as the Prime Minister said at his press conference on Monday, they have “made at all times the right decisions”, what do they have to fear from an audit? What do they have to fear from a freedom of information request?

Frank Dobson (Holborn and St. Pancras) (Lab): Would the hon. Gentleman accept that the freedom of information request would not be made of Ministers, but of people who, in a competitive market, are trying to run Northern Rock to the advantage of the taxpayer? It might well be to the disadvantage of the taxpayer for information to be disclosed. I suggest that the Tories could come up with a compromise in this case. If this House and the House of Lords insist on freedom of information applying to Northern Rock for the sake of protecting taxpayers, will they agree to apply freedom of information to all the institutions with which Northern Rock would have to compete?
Mr. Hammond: I say to the right hon. Gentleman that there are other companies in the public sector that are subject to the Freedom of Information Act. The concern that he has will not arise because there is an exclusion from freedom of information provisions for commercially sensitive information. Let us be clear: what the Government are seeking to protect is not the commercial secrets of Northern Rock, but the cock-up that they have made of this whole fiasco since last September, which would be in danger of coming out if we got access to Northern Rock’s information through the Freedom of Information Act.

Mr. Cash: Will my hon. Friend give way?

Mr. Hammond: I am going to make some progress because I do not want to do what the Chief Secretary did and take up all the remaining time.

Lords amendment No. 3 would include in the Bill a statutory role for the Office of Fair Trading, which would address a key concern in the City of London and the financial services industry about fairness and competition. The state aid rules are a constraint, but the Government have acknowledged that they are not in themselves a significant constraint. We have had a significant concession from the Government on that issue in the House of Lords, and I am grateful to the Chief Secretary for that. The Government made it clear during the debate in the House of Lords that Northern Rock will not be allowed to abuse its privileged position to act anti-competitively in the marketplace. That is a great victory for us, and for common sense. We would have preferred to see that clarification in the Bill, because when the chips are down and Granite needs topping up, there will be a great temptation to interpret this self-made and self-policed regime flexibly, but it is, none the less, something that we are pleased to acknowledge, and I thank the Chief Secretary for that.
Finally, the Government amendments to clause 13 represent a partial response to the concerns expressed by the Delegated Powers and Regulatory Reform Committee in the House of Lords, but they do not go nearly far enough. The negative resolution procedure is simply not satisfactory for the approval of orders made under this Bill. Where the purpose of the order is to transfer assets, it is no good us coming back to the order and negating it 30 or 40 days after it has come into effect and the damage has been done. The effect of using the negative procedure would be, in practice, to remove all effective parliamentary scrutiny from the process. It would allow the Government to make a transfer of assets by order that Parliament can do nothing about.

There is absolutely no need for the measure. The Government argued in the House of Lords that they may, in an emergency, need to transfer an asset urgently, but they do not need to act immediately in the case of Northern Rock. The shares are suspended and depositors still have access to their accounts. Life goes on. Mortgage holders are paying off their monthly payments and there is no risk to the system. We on the Conservative Benches maintain that this emergency legislation must relate precisely to the emergency situation—if we can call it that—of Northern Rock, not a wider, general purpose that the Government are seeking.
To fail fully to accept the DPRRC recommendations is, I understand, unprecedented without cross-party support. The DPRRC is not some partisan sniping party; it is a highly respected procedural Committee of the House of Lords. The Government’s behaviour on the matter shows up as cynical, hollow rhetoric the Prime Minister’s words back in June about respect for Parliament and the returning of powers to it.

The Government’s rejection of proper scrutiny not only of the Bill, through their timetabling motion, but of Northern Rock, the company that we are buying, through their refusal to accept the amendments, and their steamrollering of order-making powers in the face of the recommendations of a respected independent Committee of the House of Lords speak volumes about this rotten, incompetent and arrogant Government. I urge my hon. Friends to vote against the Government motions in respect of Lords amendments Nos. 1 and 2, and to support the Lords in their decision.
Sir Stuart Bell (Middlesbrough) (Lab): We have had one blessing in disguise, which is that the hon. Member for Runnymede and Weybridge (Mr. Hammond) did not pray in aid the copy of the Financial Times that is on the Dispatch Box before him. I was waiting for him to tell us that he would quote from the Financial Times; indeed, one Opposition Member—I think it may even have been one on the Front Bench—quoted many Financial Times articles. It is a great pity that the Opposition spend so much time reading the Financial Times, but learning so little from it. I am reminded of a saying that Winston Churchill used during the second world war. He quoted Dean Inge, who said, “I’ve had a great many worries; most of them never happened.” The hon. Gentleman’s doomsday scenario bears no relationship to reality.

I followed the Third Reading debate on the Bill, when the House was seriously misled by the hon. Member for Twickenham (Dr. Cable), whose comments on Granite come from another world. The Chief Secretary to the Treasury—

Mr. Deputy Speaker (Sir Michael Lord): Order. The House is very particular about the words that we should not use and “misleading” is one of them, so perhaps the hon. Gentleman would care to withdraw that remark.

Sir Stuart Bell: I am not entirely sure what I am supposed to withdraw. I am not entirely sure what I said— [ Laughter. ]

Mr. Deputy Speaker: Order. It is helpful to the House if hon. Members can remember what they have just said. There was some suggestion of misleading the House and I am sure that that is not what the hon. Gentleman meant.

Sir Stuart Bell: I am grateful, Mr. Deputy Speaker. If I may quote Winston Churchill again, he said, “The best speeches come from the heart.” But if I have unintentionally misled the House, I am happy to—

Mr. Deputy Speaker: Order. It is obviously taking me some time to explain this. Perhaps the hon. Gentleman would like to withdraw the word “misleading”.

Sir Stuart Bell: I am very sorry if I used the word “misleading” in relation to the speech by the hon. Member for Twickenham and of course I withdraw the remark.

I have followed the Opposition most of the evening. They have consistently refused to look any of the arguments in the face when responding to the Chief Secretary. What they are showing is a total misunderstanding of any kind of use of special purpose vehicles in the City of London and any concept of global securitisation. They read the Financial Times, and I can tell them that the City of London will be very disconcerted by their lack of knowledge about what actually happens in the City.

Mr. Dunne: It is revealing to learn that the hon. Gentleman is an expert not only on matters of faith but on global securitisation. As he has criticised the hon. Member for Twickenham (Dr. Cable) for raising the subject of Granite, perhaps he will expand on the final sentence of the technical note from the Treasury which states:
“Northern Rock is not liable for the Granite bonds and bondholders have no access to Northern Rock’s assets.”

If that is the case, why is it that Northern Rock not only controls all the cash flowing into Granite, but has an obligation to top up assets and the seller’s share that it holds in Granite?

Hon. Members: Answer!

Sir Stuart Bell: I am very happy to answer, because the hon. Gentleman has shown his total ignorance of economics as they apply to securitisation. [Interruption.] Yes, he has. That is the nature of a securitisation, and that is the nature of a bond. The hon. Gentleman’s failure to understand that demonstrates the Opposition’s failure to understand anything about the taking of Northern Rock into public ownership, the reasons why it is happening, and the reasons why it is temporary. The hon. Gentleman must understand—although he seems not to wish to understand—that Granite is an independent legal entity. That is a fact from Northern Rock. Granite is owned by its shareholders; Northern Rock owns no shares in Granite. This is a normal procedure.

Angela Browning (Tiverton and Honiton) (Con): I too was present for the Third Reading debate. Can the hon. Gentleman explain this? The technical note states, under the heading “Control of Granite”:
“The contractual structure of Granite is such that it is effectively controlled by Northern Rock as it continues to service the mortgages in Granite and to provide cash management and other administrative services.”

Hon. Members: Answer!

Sir Stuart Bell: That is the principle of securitisation. Securitisation has been here for 20 years. If the House wants a lesson on the concept, let me explain that it began with General Motors. Opposition Members have no understanding of what securitisation means, but everything that the hon. Lady has said is right: that is what securitisation is about. The Opposition’s inability to understand securitisation reveals that they do not understand the City of London, do not understand the financial markets, and do not understand why we are in this position.
Mr. Philip Hammond: Can the hon. Gentleman explain why the Granite entities are consolidated in Northern Rock’s accounts?

Sir Stuart Bell: I understand that at least 40 per cent. of Northern Rock’s mortgages are going across to Granite. Again, we are talking about a concept: the concept of balance sheets and accountability. I must tell Opposition Members that each time they open their mouths they show that they do not understand the City of London, they do not understand accountancy— [Interruption.]

Mr. Deputy Speaker: Order. This is an important matter. The House must listen. [Interruption.] Order. The House must listen to the hon. Member who is addressing it.

Mr. Redwood rose—

Rob Marris (Wolverhampton, South-West) (Lab) rose—

Sir Stuart Bell: I give way to my hon. Friend the Member for Wolverhampton, South-West (Rob Marris).

Rob Marris: I am sure that my hon. Friend will move away from the Granite topic shortly because of the time constraint. I wonder whether he will let us know his opinion of the freedom of information aspect of all this. [Laughter.]

Mr. Deputy Speaker: Order.

Sir Stuart Bell: I am not an expert on witches’ brew. If I were an expert on witches’ brew, I would be an expert on the Freedom of Information Act.

The point is—and the Financial Secretary has already made it—that Northern Rock will not be a public body. Freedom of information legislation requires that sensitive information be defended. The Bank of England has an exemption from the Freedom of Information Act in regard to the provision of private banking and related services. There is no reason why Northern Rock should fall within the purview of the Freedom of Information Act.

Mr. Redwood: The hon. Gentleman is right to say that some securitisation schemes get the obligation off the balance sheet of the company engineering it and into other hands. His problem is that, in this case, that is not what Northern Rock happens to have done. Will he answer the question about the contractual relationship between Northern Rock and Granite which requires the supply of good-quality mortgages where others are paid off, or else become bad-quality mortgages?

Sir Stuart Bell: Again, the right hon. Gentleman does not understand what the Chief Secretary said. Of course there is a top-up principle in the securitisation, because the securitisation is backed by a bond, the bond is bought by the investor, and the bond has an interest—a coupon; of course, it has to be topped up. What the Chief Secretary clearly said is that there are other prime assets within Northern Rock that are not required to be used as that top-up.

I am grateful to my hon. Friend the Member for Wolverhampton, South-West for his comments, because I shall now move on from the Freedom of Information Act 2000 to the question of competition. The Conservatives are not helped by the fact that they have an anti-European attitude and yet they have to fall back on the EU to defend the competition policies that will be enacted in respect of Northern Rock. The point has been made many times—

Mr. Cash: On a point of order, Mr. Deputy Speaker. Does this debate not provide a good illustration of the fact that the entire Bill has been constructed in order to avoid hybrid instruments and the Hybrid Instruments Committee procedure, under which all these matters could be discussed in the proper manner? Is this not the true problem, and it will come out in the hybrid instruments—

Mr. Deputy Speaker: Order. That is not a matter for the Chair.

Sir Stuart Bell: A robust statutory framework is in place at European level to prevent the unfair distortion of competition through Government subsidies, and the Government support of Northern Rock will need to be fully consistent with those guidelines. That should be sufficient assurance for anyone in the City of London to understand that Northern Rock will not have a competitive advantage over other organisations in the banking sector.

Mr. Iain Duncan Smith (Chingford and Woodford Green) (Con): The hon. Gentleman has been a Member of this House for a long time and he has argued endlessly that there should be freedom of information and that we should be open. Does he not feel even the slightest bit ashamed of his Government, as they have driven through this Bill when it is clearly not an emergency? With all his Back-Bench experience and given all the Governments he has seen, does he not feel even a little bit ashamed? Can I tempt him to give his personal opinion of the procedures that his Government have embarked on? Are they not disgraceful?

Sir Stuart Bell: The right hon. Gentleman puts temptation in the way of an hon. Member. It is not for me to yield to the forbidden fruit of Parliament and to be contrary to my Whips Office and my business managers. I would like to say a few additional words, however.

Mr. Beith: Does not what the hon. Gentleman is doing run the risk of ensuring that a party that supports this Bill and that moved the amendment will not contribute to the debate?

Sir Stuart Bell: I have noticed over the years that interventions can take up an enormous amount of time and that many Members make their comments through interventions. As I have been interrupted and I shall continue to be so, I hope that I may make the points that I wish to make before the debate comes to an end.
Miss McIntosh: Perhaps I should draw the House’s attention to my diminishing interest in Northern Rock as a former shareholder. Will the hon. Gentleman answer one question? He is much better versed in the procedures of this House than many Members. Why on this occasion does he choose to rule out the use of a hybrid instrument, which I think would be particularly appropriate to apply?

Sir Stuart Bell: It is not for me to rule that in or out; that is a question for our Front Bench. I have, however, been quietly asked to allow the Liberal spokesman to make an intervention, and I will be happy to do so. Let me simply say that if the Lords spend so much time—two days—on producing amendments such as those we are discussing in this House now, then us having more time would have made very little difference.

Mr. Patrick McLoughlin (West Derbyshire) (Con): On a point of order, Mr. Deputy Speaker. The hon. Gentleman has just informed the House that he has been asked to allow the Liberal Democrats to intervene in this debate, which is very good of the Government. Bearing in mind that it was the Deputy Leader of the House who did that, can you, Mr. Deputy Speaker, enable us to have extra time so these matters can be discussed properly?

Mr. Deputy Speaker: Unfortunately, the answer is no. I am bound by the rules of the House, and interventions such as this simply take up more time.

Mr. Jeremy Browne (Taunton) (LD): What a build up to what will be a great six-minute speech!

The Chief Secretary to the Treasury accused the Liberal Democrats of playing opportunistic games with this Bill. That was a mistake, because if anything we have given the Government guidance throughout on the course of action that they should take. If only they had listened to us a bit earlier, the public purse would be in a lot better condition. As for the hon. Member for Middlesbrough (Sir Stuart Bell), he will have to learn to stand on his own two feet without the guidance of my hon. Friend the Member for Twickenham (Dr. Cable).

Mr. Redwood: What is the Liberal Democrats’ forecast of the first year total cost to the taxpayer of the nationalisation that the hon. Member for Taunton (Mr. Browne) envisages?

Mr. Browne: Let me see whether I can get to that once I have concluded the two substantive points that I wish to discuss, the first of which is on the independent audit and the second of which is on freedom of information.

The Liberal Democrat position is that an independent audit is appropriate, and it is strengthened by the arguments that we have heard about Granite in this House and in the other place. There has been an extremely worrying development, because there still is no feasible alternative to nationalisation, but that does not mean that the Government can sweep the Granite issue under the carpet. Some £8 billion of unsecured loans are on Northern Rock’s balance sheet, but none is on Granite’s, so there is an imbalance that is potentially highly damaging to the taxpayer. We need a new valuation that gives taxpayers confidence that when we undertake to buy this company, we are buying a proposition that offers us a reasonable deal.

Commercial confidentiality is specifically excluded from the freedom of information provisions. The suspicion must be that the Government think that there is something to hide and that they would rather not be exposed by freedom of information. Northern Rock would have benefited from more rather than less scrutiny over the past few years. Some companies in the public sector that have commercial rivals are subject to freedom of information provisions. The Royal Mail is a case in point—it competes with independent, private courier companies—and National Savings and Investments is another example of the phenomenon.
Northern Rock is looking to engage very expensive consultants and it might well pay bonuses to staff, so it seems only reasonable that we are in a position to know the scale of the undertaking being made by its management. The Minister says that the problem is that as this is only a transitory condition and the company will be sold back to the private sector—she was not specific on the precise time scale—it would not be appropriate to subject these measures to freedom of information. Of course there is nothing to prevent the Government from reintroducing provisions to exclude Northern Rock from freedom of information measures when it is sold back into the private sector. We have no assurance of when that will be, and it is surely much better to act on the precautionary principle and for the Government to support the relevant amendment.

In conclusion, the Government are taking an extremely high-handed approach on this matter. The Liberal Democrats have sought to be a wise counsel and good friend to the Government throughout their difficulties over the past five months. That is entirely the spirit in which, in the other place, we supported the amendments before us this evening. We are not seeking to play opportunistic games. We seek to make the legislation, which is being introduced in short order, better than it would otherwise be. Rather than setting their face against good advice from my party and the Conservative party, the Government would do well to be less stubborn and to heed the warnings that we have given them in the past and are putting before the House this evening.

Mr. Duncan Smith: Very little time is left, so I just want to make one particular point. We ought to put the amendments in context. They probe the reality of what the Government are doing. This is not aimed simply at safeguarding commercial interests or the interests of the taxpayer. The main priority of all this secrecy and all this rush is to safeguard the political interests of this Government. They know very well that if freedom of information was allowed, we would find out exactly what had gone on over the past few months. We would know how incompetent and disgraceful their behaviour has been. We would learn something else over the next few months. The Government have set this so that it will go—

It being one hour after the commencement of proceedings on the Lords amendments, Mr. Deputy Speaker put forthwith the Question, pursuant to Order [19 February].