Yesterday saw another successful government attempt to stifle debate and prevent serious consideration of an important billon bank nationalisation. I was left with just six minutes to try to discuss all the wide ranging issues involved during the Second Reading debate on the principles, whilst the perfunctory two and a quarter hour committee stage left completely inadequate time for all the amendments we needed to consider.
It was a pity. It was a pity for the North East, and for all who wish to see Northern Rock given a chance of a decent future. It was a tragedy for taxpayers, who will now be required to buy a mortgage bank by a government that seems to have no concern for what it is buying, and no idea of how much it will cost taxpayers over the next couple of years.
I would have liked to have spent more time discussing the importance of Northern Rock to the North East, and how the North Eastern economy could be encouraged to branch out more into the usually profitable and successful world of financial and business services. It is good news that Northern Rock took root there. It is bad news that it should be Northern Rock that got into so much financial trouble, and bad news that there are few other large financial institutions anchored in the North East.
We had no chance to look at the way the Bank and government last summer failed to keep markets liquid enough. The Fed in the USA and the ECB in Euroland did a much better job supplying cash to their markets, so no European or US bank got into the problems Northern Rock faced.
We had no chance to discuss the impact of Gordon Brownâ€™s decision to take banking supervision and government debt management away from the Bank of England. In the Conservative Economic Policy Review we warned that once times got more difficult in money markets the UK was uniquely vulnerable to a banking crisis because these reforms left the Bank of England unable to respond quickly in the way it could have done prior to the Brown changes.
Last August we stated in Freeing Britain to compete:
â€œWe are concerned about the division of responsibility between the FSA and the Bank over banking and market regulation. Fortunately, conditions in the last decade have been benign internationally, with no serious threats to banking liquidity. We think it would be safer if the Bank of England had responsibility for solvency regulation of UK based banks, as well as having an overall duty to keep the system solvent. Otherwise there could be dangerous delays if a banking crisis did hit, with information having to be exchanged between the two regulators; and there might be gaps in each regulatorâ€™s view of the banking sector at a crucial time, where early regulatory action might have spared a worse problemâ€
If the danger was obvious from Opposition, why couldnâ€™t the government see it? Why was the Chancellor lecturing the banking sector on how they had misbehaved, and telling them there would be no bail outs, on the eve of this crisis which triggered the biggest bail out ever mounted in the UK? Indeed, there were rumours about which bank was likely to get into difficulties first in the credit crunch; before the run on the Rock began. We did not repeat the rumours because we did not wish to make life more difficult for that institution.
At this late stage, I still urge the government to consider the serious alternative to nationalisation â€“ the Bank of England acting as Northernâ€™s bank manager, until Northern Rock can repay the state loans and refinance itself elsewhere. It removes all the hassle of a government having to take a public view on repossessions, new mortgage offers, staff numbers and pensions. It gives Northern Rock a better chance of a decent future, as it puts some real financial discipline into senior management that is usually lacking in a nationalised industry in the UK. It protects the taxpayer better, and gives more chance of saving and creating new jobs in the North East.
Nationalisation has proved a long and lingering run down for all too many businesses to fall under its spell. Last night there were no reassurances from Ministers about the future of Northern Rock jobs, and no statement of whether they will be running the Bank down or trying to build it up. I suspect they do not know, because so much rests on what the European Competition Commissioner will let a public sector Northern Rock do. It is a pity the government did not settle that first so they could tell Parliament and public, before committing us to such an expensive and a hazardous project as nationalisation.