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The purpose of the amendment, however, is to focus on the fact that this measure is intended to deal with Northern Rock and Northern Rock alone. The Chancellor has said in terms that he has no plans to use the Bill for any other nationalisation and he has explained that it was drafted widely and with enduring application in order to avoid issues of hybridity and thus to facilitate the Bills passage under an expedited procedure. The amendment is designed to narrow the
scope of the Bill without creating any risk of hybridity. We believe that one month is long enough for the Government to lay and pass the required ordersor at least the transfer order under clause 3. Having laid that order, and assuming that it is approved, it will endure. It is designed to be enduring and to outlive the primary legislation powers. In any case, the order for compensation provisions is intended to be and can be introduced later.
In tandem with subsequent amendments designed to limit the Bills scope to banks onlyNorthern Rock is not a building society, so an emergency measure targeted on Northern Rock does not need to deal with building societiesthe amendment is designed to emphasise the focus on the specific problem of Northern Rock, sending out a signal that whatever the parliamentary manoeuvring necessary to avoid hybridity, this Bill has a narrow, specific focus on nationalising the Northern Rock bank.
As the Chief Secretary will know, there is considerable concern in the City about the potential damage to Britains reputation that might result from a standing power to nationalise being on the statute book. Reputations are fragile things: they are easily destroyed, and much more difficult to rebuild. The Chief Secretary can give all the assurances she likes at the Dispatch Box that she has no intention of using the power, butalthough she may consider this irrationalI assure her that narrowing the time scale one month to make clear the specific nature of the Governments intention will send the appropriate signal to those in the City and the international financial community who are concerned about the latest development.
We made plain our opposition to the principles of the Bill on Second Reading. What we are trying to do now is improve its workability. The Government do not need a year in which to carry out a Northern Rock nationalisation. They should not have a standing power without proper scrutiny for other nationalisations. I therefore hope that, in an attempt to make what is by definition a rather poorly scrutinised piece of legislation a little narrower and more focused, the Chief Secretary will either accept the amendment or give us an assurance that a similar periodperhaps two months, or three monthswould be acceptable to the Government, and that they will introduce an amendment to that effect in the other place.
Dr. Cable: I did not subscribe to the amendment originally, as its objective was not clear. I suspected initially that it might be a wrecking amendment, which I would not have supported. Having heard the arguments, however, I feel that some perfectly sensible points have been made. For practical reasons, the Government are not able to limit the scope of the Bill, but at least they can limit the time scale for its implementation to an appropriate period. I understand that Royal Assent will have been sought and hopefully given by the end of the week, and that there is then a relatively short period in which statutory instruments can be implemented. There is no particular reason for the power to continue beyond that point, and it seems rather indulgent to let it go on for a year.
The hon. Member for Runnymede and Weybridge (Mr. Hammond) is right: we shall have to return with
more extensive and far-reaching legislation covering the conditions in which Governments should intervene. Such issues should be properly considered, and not under emergency legislation of this kind.
I did not, however, agree with everything the hon. Gentleman said. I have not yet heard all the arguments, but I am not entirely persuaded in regard to the concern about building societies. I think there is a genuine issueI am not sure why banks should have a lender of last resort and building societies should notbut it is an issue to be dealt with separately when we reach the intervention powers. I also think we should be a little sceptical about the rather precious sensitivities of the City. After all, the problems in the financial markets were caused by a breakdown of trust between financial institutions themselves, rather than by a fear of nationalisation. That apart, I think the hon. Gentleman made a sensible, practical case for limiting the Governments action to a one-off emergency intervention.
maintaining the stability of the UK financial system in circumstances where... there would be a serious threat to its stability if the order were not made,
protecting the public interest in circumstances where financial assistance has been provided by the Treasury... for the purpose of maintaining the stability of the UK financial system.
As a later part of the clause makes clear, that does not apply to circumstances in which the Bank of England is simply providing financial assistance or playing its ordinary lender of last resort role. We have also made it clear that Northern Rock is the only institution that currently meets those high-level tests, and that we need to be able to deal with the specific problems that it has created. As Members have recognised, however, the Bill is drawn more widely. Therefore, it could in theory be used for other organisations in similar unusual circumstances to those of Northern Rock, but, as I have said, we have set the test high and put in place a sunset clause of one year. We intend to introduce a full Billwhich would, of course, go through the normal proceduresfollowing on from the detailed consultation that we have conducted. It would look more widely at what further reforms are needed to the way in which problems in the financial system, particularly to do with banking, are dealt with. Those reforms would be made in a considered fashion, and in the normal way through this House, after full consultation and debate in this House. However, we need in the interim to be able to deal with the position of Northern Rock.
Mr. Hands: I am not sure that the right hon. Lady gives us a lot of confidence when she says that the Bill could be used for other organisations in similar circumstances. That is potentially market-sensitive information. Will she outline to the Committee why, if she does not believe that one month is appropriate, she believes that one year is?
It is hardly market sensitive: we have said this repeatedly, and I am merely describing what
the scope of the Bill is and how it could apply. Under clause 6, as well as clause 3, it could be applied to circumstances that some people called for back in the autumn. People called for powers to be in place that would have enabled Northern Rock to be transferred directly to another bank or institution prepared to take it on. In fact, that opportunity was not available for Northern Rock at that time, but people did call for that power. That is contained in this Bill, again as a temporary measure for one year.
Jim Cousins: Will my right hon. Friend deal with the point of the hon. Member for Twickenham (Dr. Cable)? To turn his point against the argument he was making, there is some value in the provisions in clause 11; for the first time, a lender of last resort facility will be created for building societies, and a building society that gets into difficulties will not be imprisoned and made captive by the restrictive terms of the existing building societies legislation. I accept that that is only a temporary situation until matters can be looked at in more detail, but does she not think that it is an attractive feature?
Yvette Cooper: My hon. Friend is right that clause 11 allows for the Bank of England to be able to provide greater assistance to building societies, should they need it given the circumstances of the current global credit crunch. The Bill provides for interim arrangements in advance of the full debate on banking reforms that we need to introduce.
Mr. Philip Hammond: For the sake of clarity, the hon. Member for Newcastle upon Tyne, Central (Jim Cousins) said he recognised that that was only a temporary provision ahead of new arrangements coming in, but the sunset clause applies to clauses 3 and 6, and our concern about clause 11 is that it introduces wide and far-reaching new powers but is not subject to the sunset clause. Will the right hon. Lady confirm that?
Yvette Cooper: I think that that is right as things stand, but we would expect this issue to be dealt with more widely as part of the banking reform provisions that we are consulting on. The current measures are about having interim arrangements in place in circumstances of unprecedented turbulence in world financial markets and a global credit crunch as a result ofor triggered byevents in the US sub-prime market, as a result of which banks are not lending to each other in the normal way. These are highly unusual circumstances, and they lie behind the introduction of the Bill. We have repeatedly made it clear that Northern Rock is the only institution that currently meets these high tests, and we are introducing this Bill at this time so that we can deal with the problems that Northern Rock has created.
The amendment would greatly shorten the period for completing the orders transferring the securities or business of an authorised UK deposit-taker. On that basis, we think that the tests and safeguards being introduced are significant, and having a sunset clause in place for a year should provide the House and the wider community with the reassurance that they need.
Mr. Hammond: The Chief Secretary has just made the extraordinary assertion that reducing the period to a month would place the Government under an unreasonable constraint in terms of laying these orders. We were led to believe that this was a matter of great emergency that had to be dealt with today and that legislation had to be completed by the end of the week. If I have misunderstood, perhaps she will correct me. I was expecting that the order, a draft of which we have seen, would be laid within a matter of days, at the most, of the Bill completing its parliamentary passage. If that is wrong, hon. Members ought to be made aware of the fact. She has not made any case for providing for a period of longer than one month. She has certainly not made a case for providing for a year. Had she made a convincing case for providing for a three-month or two-month period, Conservative Members would have been prepared to listen to that and to any assurances that she wanted to offer us about introducing such proposals at a later stage.
Yvette Cooper: Simply to clarify, may I say that we expect to introduce the orderwe have done so in draftdealing with Northern Rock? The hon. Gentleman will recognise the unusual circumstances that we face in dealing with Northern Rock. Further work will obviously need to be done after we have put in place the main transfer to ensure that any subsequent issues that might require powers to be provided under clauses 3 or 6 are dealt with to ensure that the business of Northern Rock is taken properly into temporary public ownership on the appropriate basis.
Mr. Hammond: I am grateful to the Chief Secretary, but I think she will findI am sure that she will receive a note telling her this in a minutethat once the initial order is made, the Government will be safe. They will be able to make subsequent orders without complying with the various conditionsthat is how the legislation is drafted. She is now telling us that she does not need more than a month to get the order made. Once the first order is made, the Government will be safely home. I have not heard a convincing argument about why we should not agree this amendment, which would provide the Bill with much greater clarity and focus. Therefore, I must ask my right hon. and hon. Friends to vote in favour of the amendment, and I seek to press it to a Division.
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