Cable speaks in Northern Rock debate

11.01.00am GMT Thu 13th Dec 2007

• [Dec 12, 4:29 pm] Vincent Cable (Twickenham, Liberal Democrat): I beg to move, That this House notes with dismay that the Chancellor of the Exchequer has presided over the first run on a UK bank for over one hundred years and that the taxpayer has now made approximately £30 billion worth of loans to Northern Rock without the Government providing evidence of either the exact amount or the security of the loan, . .

. . over and above deposit guarantees; further notes that the current search for a private purchaser for Northern Rock faces enormous difficulties in the face of the high costs of credit and the conflicting interests of different groups of shareholders; applauds the important role played by the Northern Rock Foundation in the North East and regrets the potentially negative consequences for jobs in the North East should Northern Rock go into administration; further regrets that the Chancellor chose not to recognise the importance of Northern Rock as a large employer in the North East amongst his principles for assessing Northern Rock proposals; calls upon the Financial Services Authority to suspend trading of shares in Northern Rock immediately to prevent insider trading; and calls upon the Government to introduce legislation to allow for Northern Rock to be placed immediately in temporary public ownership as the only action that will guarantee the loans are paid back in full as soon as possible at the lowest risk to taxpayers.

We are very much in the middle of a banking crisis that is without precedent- certainly in my lifetime and probably for most of the last century. I was always brought up to believe that banking runs occur in far-off countries and that the lender of last resort is an obscure academic construction that appears in monetary textbooks, not the real world. However, I suspect that when the dust has settled on the Northern Rock affair, future generations will think of it much as people think of the South Sea bubble: a major historical event when a speculative bubble in financial markets burst. If one were to be pessimistic by thinking that the crisis will continue unabated, one could well seek a historical precedent in the Creditanstalt in Austria in 1931. Those events had major financial and economic repercussions.

We are dealing with enormous sums: approximately £30 billion of Government loan, which excludes the deposit guarantees. To try to help Members get their heads around that, I point out that 30 billion is a "3" with 10 noughts. It is impossible to be precise about how much money is involved because the Government do not give the necessary information, and nor does the Bank of England. The information can only be inferred from the Bank's balance sheet, but the figure is approximately of that order of magnitude.

To put the amount in context so that we can make sense of such an enormous number, I simply equate it to a little bit less than the annual defence budget. Given that it is a one-off payment, we are talking about six Iraq wars. Such a sum would build a high-speed train route from London to Edinburgh, and enough money would be left to build another one to Glasgow. The sum is the equivalent of about £5 million for every Northern Rock employee.

That leads me to a key aspect of the argument: we are talking about not just money, but people. I have been to Newcastle several times in the past year to talk about its economic situation. Northern Rock is a major employer in north-east England. I understand that it has about 3,500 employees in Newcastle and about 1,500 in Sunderland. In addition to that employment, it has been an important part of the repositioning of the north-east of England from manufacturing towards financial services.

In addition, the Northern Rock Foundation makes an important charitable contribution. It has spent some £175 million over 10 years, but it does not just spend a lot of money. As I discovered when I walked along Hadrian's Wall last summer, an enormous number of local charities rely on the foundation for obtaining charitable money quickly and effectively. They receive the money from the foundation much more effectively than they do from the national lottery.

Before Ministers stand up and pose as angels of the north, it would be worth while for them and their Back-Bench colleagues- [ Interruption. ] I entirely understand why Labour Back Benchers will quite reasonably wish to speak up on behalf of their constituents and their constituents' jobs. If I was in their position, I would do exactly the same. However, if they have not already done so, I urge them to study the document on the principles for assessing Northern Rock proposals, which is the basis for the Government's sale. Those who have studied it will realise that it says absolutely nothing-not one word or one syllable-about either employment in north-east England or the Northern Rock Foundation.

• Jim Cousins (Newcastle upon Tyne Central, Labour): I have studied that document, too. Has the hon. Gentleman looked closely at the last part of it, which refers to a long-term recapitalisation of the business and a sound business plan in the medium term? Will he bear it in mind that that statement of principles was put out on behalf of not only the Government, but the Bank of England and the Financial Services Authority, which can hardly deal with the matters about which he is thinking?

• Vincent Cable : If the hon. Gentleman is basing his hopes on a sound business plan from the private bidders, I fear that he may well be disappointed. I will come to the details of the private bids in a moment. A couple of days ago, I had a long session with one of the bidders, who had just come back from a tour of Northern Rock's north-east facilities. He said that he did not know whether to laugh or cry. He had been round the call centre, where every single employee was reading books and magazines because there was no work to do. Any Labour Member who imagines that some of the vulture investors who are part of Mr. Branson's consortium have the slightest interest in preserving that employment are labouring under an illusion. I do not know whether they realise, for example, that one of his largest investors is a gentleman called Wilbur Ross, who made billions of pounds in the United States smashing trade unions and ripping away company pension schemes. My starting point is that the employees of Northern Rock and the people of north-east England deserve rather better than that, which is what is likely to come out of the private bidding process.

• Kevan Jones (North Durham, Labour): Is the hon. Gentleman at one with the leader of the Liberal Democrats on Newcastle city council who, along with the majority of elected politicians in the north-east, supports efforts to get a solution for Northern Rock? Is he not in danger today, with the emotive language that he uses, of running down the company and making matters worse?

• Vincent Cable : I am a strong fan of the leader of Newcastle city council. The Liberal Democrat group runs that city admirably. He has been endeavouring on an all-party basis both to honour the 100-year history of the bank and to find a solution to it. I have discussed it with him several times. He understands that the options are running out and that the solution that I am proposing-temporary public ownership-will probably serve the interests of the people who live in that region better than the hopeful venture being promoted by the Government.

• Kevan Jones (North Durham, Labour): One thing that Councillor John Shipley is not doing is talking the bank down or trying to talk the region down. He is trying to work with other people to support it. The Liberal Democrat council even gave the freedom of the city to Northern Rock a few weeks ago.

• Vincent Cable : The council did that on an all-party basis and was right to do so, given the bank's past contribution. I have never run down the employees of the bank, with the exception of the chief executive, whose role in all this I will come to shortly.

What amazes me is that had we not initiated this Opposition day debate, there would have been no discussion of this massive problem before Christmas. The Conservatives have had three Opposition days and have chosen not to take the subject on any of those occasions. They seemed to think it was more important to discuss a £950 gift to a third division Scottish politician called Wendy than to have a debate on what has happened to £30 billion of taxpayers' money.

I have been trying to establish what the leader of the Conservative party thinks about the matter. He followed me on the "Today" programme yesterday and denounced nationalisation as a matter of principle, but as far as I could establish, and no doubt we will hear more in a few minutes, his only solution seemed to be to follow the Government and keep an open cheque book.

• David Drew (Stroud, Labour): I, for one, congratulate the hon. Gentleman on calling the debate. Did he consider another option-the possibility of remutualising Northern Rock? Some of us feel strongly that one of the great problems of demutualisation is that it was predictable that some companies, because of the nature of the marketplace in which they operate, would overstretch themselves. Is it not time we looked at the strength of mutuals again?

• Vincent Cable : That is a helpful intervention, with which I have a great deal of sympathy. I used to be involved in an organisation called Save Our Building Societies, which campaigned against the original demutualisation of Northern Rock for precisely that reason. After a period of temporary public ownership, that might be one of the options that appear viable, but rushing into a sale now would preclude it. The hon. Gentleman is absolutely right.

• Steve Webb (Northavon, Liberal Democrat): Reflecting on the constructive contribution of the official Opposition, what conclusions has my hon. Friend drawn from the fact that they had no opinion on the Order Paper and tabled no amendment to the debate?

• Vincent Cable : My colleague reinforces my point. I am sure we shall hear what the official Opposition have to say. I imagine, by default, that they want to see the company put into administration, its total closure, and the wiping out of the company without any opportunity for it to be relaunched. I assume that that is their default position, but no doubt we will hear from them.

• Doug Henderson (Newcastle upon Tyne North, Labour): I understand theoretically some of the points that the hon. Gentleman is making, and I have read the motion. Is he aware that Northern Rock employees do not want nationalisation? If it is difficult now to sell the business as a going concern, they wonder how much more difficult it will be to do so in future. The small shareholders, some of whom I see in the Gallery, oppose nationalisation because they would lose any value that they have.

• Vincent Cable : I will come to those points. However, I should say in passing that there is an issue with the small shareholders; I understand that. Many of them, of course, acquired their shares free on demutualisation. Many of the people who call themselves "small investors" are not small; I believe that Lord Stevens is a large investor who bought into the company quite recently in order to make a killing from it. The key shareholders, of course, are the hedge funds, whose role I shall deal with shortly.

• John Redwood (Wokingham, Conservative): As one who has set out a positive alternative if the bids do not produce a satisfactory result, may I ask the hon. Gentleman how he can believe in the idiocy that taking on more than £100 billion of Northern Rock's liabilities-all its liabilities-would be good for the taxpayer? Why should the taxpayer have to pick up the bill for any losses, redundancy payments and other problems that nationalisation would bring?

• Vincent Cable : Taxpayers are already committed to the hilt; they have already advanced staggering sums. In normal circumstances, I would not dream of recommending my solution, but we are in an extremity-and in an extremity we have to look at the options. The one that I propose is the least undesirable; I shall come to the reasons for that.

• Peter Atkinson (Hexham, Conservative): The hon. Gentleman has been dreadfully dismissive of the small shareholders, of whom there are 140,000. Yes, some acquired their shares on demutualisation and have been counting them as their savings for retirement. Many others, including people in my constituency, bought small quantities of shares because they wanted to support a good local business. They are the ones who will suffer. They should not be dismissed and put out of the picture.

• Vincent Cable : I am not being in the least dismissive of small shareholders. However, when people buy shares, they take a risk. They understand that; it is in the nature of investing in risk equity. Is the hon. Gentleman seriously suggesting that taxpayers' money should rank behind risk investment by private individuals in the stock market? That is the implication of his remarks.

• Peter Atkinson (Hexham, Conservative): rose-

• Vincent Cable : May I move on? I have been generous with interventions. At this point, it will be useful to summarise why the Liberal Democrats have taken the position we have. I shall then develop in more detail comments on the financing of the company as it now is and discuss the options. Of course it would be desirable for us to start from somewhere else. The financial shock that hit the markets a few months ago was unprecedented and unexpected, but that does not excuse the Financial Services Authority, the regulator, which should surely have spotted the high risk associated with Northern Rock's reckless expansion. None the less, the event was unexpected. We reacted to it by supporting what the Government did to stop the run-that is, guarantee deposits. That was a sensible reaction.

At the time, I opposed an open-ended unconditional loan to bail out the banks. Ever since the Government made that decision, they have been digging a deeper and deeper hole for themselves. There is nothing wrong in principle with exploring the idea of trying to get a private bidder, and that is why I do not fundamentally quarrel with some of the interventions from Labour Members. However, it has become painfully and increasingly apparent that, with the money markets now largely closed, it is simply impossible for any of the bidders, however credible or reputable, to raise the amount required, including the money necessary to guarantee the full repayment of the taxpayer. That is our position now.

• Fraser Kemp (Houghton & Washington East, Labour): Presumably, the hon. Gentleman has done some calculations on his proposal for nationalisation. What is his best estimate of the potential liability for the taxpayer in the next two to five years?

• Vincent Cable : The taxpayer is already heavily implicated in the company. Its liabilities include the deposits, which are already guaranteed, and they would include the loans that are rolled over but are not being rolled over at present because the market will not do it. In practice, the taxpayer is 100 per cent. liable for all these liabilities as they come due. If it was a nationalised company, temporarily, the Government would have some control over the process instead of being an entirely passive spectator. Let me retrace the steps to some of the key decisions that the Government have made. In September, there was a key decision to provide what was said at the time to be unlimited support. The question that needs to be asked-it relates to the intervention by the hon. Member for Houghton and Washington, East (Mr. Kemp)-is what estimate was made of the likely deposit withdrawal and the extent to which commercial loans would have to be replaced? At about that time, Lloyds bank made a proposal that involved £30 billion-worth of Government loans. The Chancellor, as we understand from the records, personally rejected that option on the grounds that the commitment of Government money was too large. We now know that £30 billion has already been advanced in Government loans without resolving the problem, so somebody made a horrendous miscalculation about the sums that were going to be involved. We need to know how that happened.

A second basic question that I have been asking throughout is: why was this loan advanced in a completely open-ended and unconditional way? The Government, as the major creditor, could have said, "We will advance credit to the bank subject to the removal of the chief executive and others who were directly responsible for getting the bank into trouble in the first place." Any major creditor could reasonably insist on conditions, but the Government said, as did the Chancellor, rather pathetically, on several occasions in the Chamber, "We can't do anything about this because we don't own the bank." We now have an extraordinary situation whereby the chief executive of the bank, Mr. Applegarth, who drove the bank on to the rocks, is still sitting in the chief executive's chair driving the company and managing the Government's taxpayers' money. It is an extraordinary situation for the Government to have allowed to arise.

Another fundamental question that I have asked is: when the loan had been advanced, what security did the Treasury or the Bank of England, or both, insist on in return for the taxpayer's money? One would have thought that that was a reasonable, prudent provision to request. I have been writing letters to the Governor of the Bank of England to ask him what security was available, and he has written me a letter that is so shameless that even Sir Humphrey would have been embarrassed to sign it. There are no figures in it, nor an explanation of what happened to the rolled-up interest on the loan. It is completely and utterly uninformative and, frankly, borders on the impertinent, because the Bank of England and its Governor are saying that elected representatives have no right to know what happens to public money. That is a completely unacceptable position.

We can infer-we do not know it because it has never been confirmed-that roughly half the funding of the bank loan is secured pretty solidly against the assets of the bank, but the other half is not. Most of it is secured against what are called the free assets of the bank; in other words, it takes a secondary role to that of secured creditors such as Granite, which accounts for about half of the balance sheet. It is argued that that is fine because the money is secured against the bank's mortgage book. However, it has emerged that among the assets of the bank against which the Government loan is secured are £8 billion-worth of unsecured loans. It appears never to have occurred to anybody in the Treasury or the Bank of England to ask how secure those assets were.

The confidence of the Government and the Bank of England was based upon a belief that Northern Rock had a very good repayment record from its borrowers. On paper, that looks perfectly true. However, people have now started digging-notably Panmure Gordon, one of the brokers, which has established that a lot of bad debt is actually being hidden because the Northern Rock bank did not employ the sort of rigorous practices employed in other institutions such as Alliance and Leicester and Bradford and Bingley. However, whether or not that is the case, there was an underlying optimism, all based on the strength of the mortgage book and on the value of the domestic property that underlies those assets.

• John Thurso (Caithness, Sutherland & Easter Ross, Liberal Democrat): My hon. Friend has already highlighted the executive failings. Before he leaves the assessment of the debt, will he say whether he agrees that a major cause of the failure of Northern Rock was insufficient corporate governance by non-executives, and the failure of the audit committee and the risk committee to dig properly into these matters?

• Vincent Cable : The directors who were directly responsible for those functions have now been removed, but that was well into the process.

• Philip Dunne (Ludlow, Conservative): In relation to the risk committee and the audit committee, is the hon. Gentleman in a position to confirm whether the individual who had that responsibility was none other than Sir Derek Wanless?

• Vincent Cable : I believe that that was indeed the case. The optimism that I described rests upon the fact that the assets of the bank primarily consist of mortgages, many of which were obtained at the peak of the housing market in the earlier part of this year. There was an extraordinary explosion of growth in the Northern Rock bank-it grew by about 55 per cent. and took 20 per cent. of the market in the earlier part of this year. That growth was not backed up by deposits, and it accounted for the fact that the bank had to borrow heavily in the wholesale market, which then seized up. As I told the House a few weeks ago, it was possible then to go to the Northern Rock bank and obtain a mortgage of about 125 per cent. of the value of a property, and of four to five times a person's income. That was the sort of frenzied borrowing that took place at the peak of the market. I checked yesterday, and those loans are still on offer. This is a supposedly responsible lender in the middle of a banking crisis, dependent on loans from the Government.

• Kevan Jones (North Durham, Labour): I am very interested in what the hon. Gentleman is doing. He is continuing to run down the bank, which I do not think is a very clever thing to do. Anyone who has a mortgage with the Northern Rock bank or who has applied for one-in the north-east, traditionally-will know that it was a damned building society, then bank, to get a loan from. The traditional, old loans are quite secure.

• Vincent Cable : The hon. Gentleman will have to explain how the bank managed to expand its business so rapidly in the earlier part of this year. The question I have been asking throughout is a "what if" question. We do not know the answer to it in reality, but it is an important question. What if the property market were to crash? I ask that because for some years before I came to this House, I worked in the oil industry. The question that was always asked by my prudent managers was, "What if the oil price were to fall drastically? What would then happen to our profits and our company?" Because they were always asking that question, they always hedged, diversified and prepared, and they saved themselves in difficult periods. What is amazing about this episode is that nobody at the top of the bank, nobody in the Financial Services Authority and none of the clever double-firsts in the Treasury ever seemed to have asked this basic question: what would happen to the value of these mortgages and of domestic property if the market fell heavily?

• Rob Marris (PPS (Rt Hon Shaun Woodward, Secretary of State), Northern Ireland Office, Wolverhampton South West, Labour): May I turn the hon. Gentleman's "what if" question around? What would happen if there were such a property crash where there had been a nationalisation of Northern Rock? How many more nationalisations of banking institutions would the Liberal Democrats want in that "what if" disaster scenario?

• Vincent Cable : We are dealing with a very specific case where the Government have already advanced £30 billion, and I am concerned with how that enormous investment by the taxpayer should be protected. To pursue the argument-I am just raising a possibility; we do not know that it will happen, and we hope that it will not-let us suppose that property prices fall very substantially. Twice in my working lifetime, domestic property prices have fallen in real terms by more than 25 per cent. It could happen again. We have been at the peak of an unprecedented bubble, the largest in the developed world. If it were to happen again, the obvious question is: what would happen to the value of the security that the Government have been given by the bank?

One person understood this all along: Mr. Applegarth, the chief executive. He is still there, sitting in his chair at the bank. He understood all this and, at the peak of the market, he sold his shares. He was urging the small investors-to whom the hon. Member for Hexham (Mr. Atkinson) has rightly drawn our attention-to invest in his bank while he was selling up. We all know what happened. He invested his money in a very large country estate and bought a fleet of sports cars for his wife. That person is still at his desk at the Northern Rock bank; he is directing its affairs and is responsible for taxpayers' money. That is one of the unbelievable aspects of how this whole affair has been managed.

• Alan Beith (Berwick-upon-Tweed, Liberal Democrat): My hon. Friend is underlining the tragedy of Northern Rock. Traditionally, it was based on the relatively limited lending base of the borrowers in the region, which placed a constraint on what it could do, and on the housing market in the region, which is nothing like as volatile as that in the rest of the country, and into which Adam Applegarth took Northern Rock in his reckless expansion of the company.

• Vincent Cable : My right hon. Friend is absolutely right. His intervention underlines the reason why, historically speaking, Northern Rock was so highly regarded, particularly as a building society but later also as a bank. The chief executive exploited that reputation to run it into a very dangerous situation. I am not blaming him alone, however. The regulators should have seen the dangers. I want to turn now to the different options available, and to where things stand in regard to the proposed private sale. There seem to be two serious offers, although others come and go. There is the offer by Branson, and that by Luqman Arnold's Olivant group. They differ in that Branson's consortium wants a takeover and is willing to trade on the basis of the Virgin reputation as a way of attracting new deposits, while Luqman Arnold is not interested in a takeover. He wants a minority stake and to run the bank properly while restoring it to its purpose as a responsible bank.

In normal circumstances, I am sure that either of those proposals would be an interesting proposal to be treated with the market. This is an extraordinary situation, however, and it is becoming increasingly apparent that neither of those two, or any of the others, will be remotely able to raise the amount of money required to take over the bank as a going concern and give the Treasury the guarantees that it requires. Of course, they say that they can guarantee the first half, the £15 billion. What they cannot guarantee is the next £15 billion. That will be the difficult bit, because that is where the lack of security is.

Nor should we be under any illusions about the motives of the people who are bidding. I have never met Mr. Branson, but he seems to be an engaging character who has had some successful ventures. He is, however, a front man for a consortium of hedge funds and private equity operators whose aim is to make a killing. He is proposing to invest about £200 million in a company whose gross assets will be more than £100 billion, and he will be hoping to sell it on in due course and make a large capital gain which, as he is registered overseas, might well not attract UK taxation. So we are not talking about Mother Theresa here; we are talking about some very tough short-term financial investors.

As I talk about the bidders, it is coming back to me that the Government have made a bad mistake-even within their own policy-in giving preferential status to one of the bidders, the Branson group. The other bidders have discovered, as they enter the early stages of due diligence, that the Government-and the taxpayer-are paying the legal fees of the Branson consortium but they are not willing to pay theirs. Understandably, they are aware that they are not operating on a level playing field.

I do not want to run Mr. Branson down, but it is a matter of fact-of which I was previously unaware-that he has a criminal record for tax evasion. There is therefore good reason to believe that the people who have to stump up the money for his consortium may well not regard him as a fit and proper person to run a public company, let alone a bank, and let alone as someone responsible for £30 billion worth of taxpayers' money. So there are real questions about whether this private bid is ever going to succeed. In the context of the private bid, one must also ask-this goes back to the question about private shareholders-

• Doug Henderson (Newcastle upon Tyne North, Labour): I am not taking sides regarding which bidder is best- [ Interruption. ] I am not. However, does the hon. Gentleman not recognise that someone with the reputation of Sir Brian Pitman-the ex-chairman and chief executive of Lloyds bank, who is part of the Virgin Group's bid-is serious about what they are doing?

• Vincent Cable : I am sure that Sir Brian Pitman is absolutely admirable. He is a 75-year-old ex-banker with a formidable history and I am sure that he is serious. I have talked to some of those associated with both the people in question, and they are serious people. That is not the problem-the problem is how they are going to raise, in markets that are now almost closed, the staggering amounts of money that they need to realise their bid. That is the issue-it is not about their character or their history in running banks.

Because the private sale is becoming increasingly problematic, we effectively have two options. One is to put the bank into administration, which is probably what everybody would regard as the "nuclear" option. Under those circumstances, not only are the shareholders in the north-east wiped out, but there are question marks over what happens even to the guarantee deposit. It would take a long time for those guarantees to be fed back to the depositors, and there would be continuing questions about deposits in other banks because of the difficulties. How would the public loan be retrieved? It would be retrieved either by a very slow run-off as the mortgages were redeemed, or through a fire sale in what is currently a very depressed market. Administration thus presents enormous problems, which is why we Liberal Democrats are suggesting that a period of temporary nationalisation is the least worst of the three basic options available: nationalisation, private sale or administration.

Of course we recognise that, in practice, civil servants are not the best people to run a commercial bank. Professional management would have to be hired, and they would have to get to the root of what is going on at this bank. It might prove to be a very sound institution deep down, with a lot of very good assets; we do not know. However, if, having dug down, those managers establish that that is so, they can re-launch it in future years and there would be a substantial upside for the taxpayer that would not result from a private sale. On the other hand, they might discover that it is a can of worms-we do not know-and if so there will have to be a gradual run-off in what is a very difficult environment.

• Jim Cousins (Newcastle upon Tyne Central, Labour): Is the hon. Gentleman's purpose in advocating nationalisation to enable Northern Rock to survive as a growing business-a locally based, locally headquartered company in the north-east, of which we have very few in the growing sectors-or simply to put the Government at the head of the queue of creditors to get their money out?

• Vincent Cable : I very much hope that the first proposition is indeed realised. That would be the most desirable outcome, and it might well be possible to achieve it. Frankly, however, the Government have an overriding responsibility to protect the interests of taxpayers, who have put £30 billion into this bank already. These objectives are not fundamentally incompatible, but it will be difficult. There are precedents for such an approach succeeding, although not many. In the United States, the Federal Reserve took over Continental Illinois bank, which was in a comparable position. It was not done for ideological reasons; I think that a Republican Administration were in power. The bank was turned round and eventually sold, so there are precedents.

• Philip Dunne (Ludlow, Conservative): I recognise that the hon. Gentleman's preference, like ours, is for a private sale. However, in advancing his case for nationalisation over administration, what analysis has he done that leads him to suggest that taxpayers, whom he has just identified as the primary beneficiaries of either of these routes, would do better out of nationalisation-given that they would potentially be taking on all £110 billion of liabilities, plus redundancy liabilities that we have not even calculated yet-than administration, through which they are currently exposed only to £30 billion worth of liabilities?

• Vincent Cable : None of us knows exactly what would happen because none of us has been exposed to the details of the bank's position. The Bank of England will not tell us and we do not have the resources to carry out the due diligence on the company. There is, of course, the possibility, which I have just alluded to, of temporary nationalisation-as has happened historically and as occurred with a small national mortgage bank that was temporarily nationalised and resold very successfully under the Major Government. It was a small enterprise, but it did happen. The whole point is to provide some legal and institutional stability in the hope that, in the end, not only will the taxpayer be repaid but any increase in the value of the bank from its currently depressed market conditions will accrue to the taxpayer. That is the objective.

• John Redwood (Wokingham, Conservative): Why does the hon. Gentleman ignore the fourth option, which involves the Bank of England acting as a tough but fair bank manager with repayment schedules and proper cash-flow monitoring of the bank's progress? It would then be for the bank to work out whether it needed to put itself into a kind of voluntary run-off and do it in an orderly fashion or whether it could actually grow the business. Would that not be the best option?

• Vincent Cable : It is partly what the Bank of England has been trying to do, but not very successfully. If the Bank of England were good at running a commercial bank as opposed to a central bank, it would have taken some elementary precautions like insisting on conditions for its loan, but it has shown itself to be incapable of doing that.

My final point-I am conscious that other Members on both sides wish to speak-is that speed is of the essence. We are now in the position where the patient is in the operating theatre and, frankly, bleeding to death while the Government surgeon-general is sitting around saying that we need a full health check before anything can be done. That is not very sensible. Urgent action is required. I hope that I have made the case that public ownership is the least worst option. If it is, the Government will need to act very quickly and will need enabling legislation in order to do so. It is better that it is done now than in two months' time when the position may be infinitely worse.

• Roberta Blackman-Woods (PPS (Rt Hon Des Browne, Secretary of State), Ministry of Defence, Durham, City of, Labour): rose-

• Vincent Cable : I am rounding off. Finally, there is a strong additional reason for wanting to park the problem of Northern Rock in the solution that I have described. It may well be the case that there is much worse to come. We may well have had the first of a tsunami wave with others behind it. We know what they are; we can see them. One of the problems that arises is that other banks-even very sound banks-are running into serious difficulties in raising capital from the markets. We know that there may well be a very nasty shock in the domestic property market. It is absolutely essential that the Treasury and the Bank of England are totally focused on how to deal with these emerging problems. At the moment, they are totally preoccupied with the problem of the Northern Rock bank, getting the wider problem of the emerging financial crisis completely out of perspective. The Government have failed so far, so they should pick themselves up from the floor, act quickly, take the bank into temporary public ownership and, we hope, limit some of the damage that has already been caused. [ends]

Snagged from: http://www.theyworkforyou.com/debates/?id=2007-12-12a.371.0