Banking: Northern Rock

Lord Sassoon Excerpts

Thursday 30th June 2011 Lords Chamber

[Baroness Turner of Camden]

To ask Her Majesty’s Government what are their plans for the future of Northern Rock, in view of its status as a major employer and provider of financial services in the North-East of England.

[The Commercial Secretary to the Treasury (Lord Sassoon)]

My Lords, on 15 June my right honourable friend the Chancellor of the Exchequer announced that a sales process for Northern Rock should commence, following a recommendation from UK Financial Investments. Prospective acquirers will be asked to provide a view on the impact of their acquisition on competition. UKFI also expects prospective acquirers to lay out their plans for the company’s headquarters and branches.

[Baroness Turner of Camden]

I thank the Minister for that response. Since tabling the Question, I have been visited in this House by representatives of the workforce, whose chairman and organiser came to see me. They are still very worried people, although they appreciate the sympathetic response that the Minister gave on 16 June when this question was originally raised. On the other hand, they are very concerned because of the employment situation there and very keen on mutualisation, which they believe would be much better from the point of view of employment and as far as the community is concerned. Would the Government give serious consideration to that?

[Lord Sassoon]

My Lords, the Government, through UKFI, will consider all options for the disposal process, including stand-alone remutualisation. However, it is important to recognise that the Chancellor believes that a sales process is most likely to generate the best value for the taxpayer, and that is why that is being explored as the lead option. Of course, the Government are committed to promoting mutuals and we very much welcome bids from mutuals as part of the sales process that is to start.

[Lord Shipley]

My Lords, does the Minister agree that the staff of Northern Rock have, in the past three and a half years, done a magnificent job to recover the status of the bank? Does he agree that maintaining a headquarters function for the bank in the north-east of England remains important? In that context, could it be a condition of sale that the Northern Rock Foundation, the largest charity in the north of England, should continue to have support from whoever buys the bank in order to maintain the good work of the Northern Rock Foundation?

[Lord Sassoon]

My Lords, first of all, it is right that Northern Rock is now a highly liquid and well capitalised strong bank, which is why UKFI has been able to recommend the start of a sales process to the Treasury. Incidentally, for all the very significant reductions in the number of employees that there have been, the bank still has a footprint of some 75 branches—little changed since before the collapse of the bank. As for its commitment to the foundation, the bank has a signed agreement with the foundation, signed in March 2011, under which Northern Rock plc agrees to donate 1 per cent of pre-tax profits to the foundation under a covenant with an initial expiry date of December 2012. It will be very much in the interest of prospective purchasers to make clear, if they want the support of people in the north-east, what their plans are for the headquarters, for their support for the foundation and for other matters.

[Lord Borrie]

I wonder whether the noble Lord could show a little more enthusiasm for mutualisation as a most desirable method of organising and purveying financial services. That would give the Government a chance to distance themselves from the sad period of the 1980s, when far too many building societies moved away from mutualisation, with a lot of risky business being pursued thereafter.

[Lord Sassoon]

I have made clear on this and previous occasions that the Government regard mutualisation as a desirable model. It would be wrong to say that it is the best model, as the noble Lord has suggested, but, indeed, we want to see variety of provision of financial services in this country by organisations with different models, of which mutualisation should be one.

[Lord Hamilton of Epsom]

Will the noble Lord explain how we can have mutualisation and the taxpayer get his money back at the same time?

[Lord Sassoon]

My Lords, the overarching aim of any sales process, as well as getting a clear exit, is to obtain best value for the taxpayer. There are of course tensions between that objective and certain methods of sale, and that is precisely what the experts conducting the sale will assess.

[Lord Myners]

Will the Minister confirm that best value will not have been achieved if Northern Rock is sold for less than the assets of the bank shown in its accounts?

[Lord Sassoon]

No, I will not confirm that to the noble Lord. The best value will be obtained for the taxpayer by conducting an exemplary sales process that explores all the options out there for the bidders. In the light of a transparent and competitive process, the best value will be obtained.

[Baroness McIntosh of Hudnall]

My Lords, going back to the question of the Northern Rock Foundation, I am certainly no expert on the sale of banks but I know how important the foundation is in the north-east. I was slightly troubled by what the Minister said about the commitment that has been made so far, because it appears to be a very short date. Could he perhaps be a little more enthusiastic, to use the word used by my noble friend Lord Borrie, about the importance of the foundation and put it more firmly on the agenda when it comes to issues of sale?

[Lord Sassoon]

My Lords, I am sorry if I cannot work up enough enthusiasm at 11am on a Thursday morning. The first thing to say is that not only has the foundation done good work in the north-east but its footprint covers Cumbria. We must not forget Cumbria. The previous Government agreed that Northern Rock would donate £15 million per annum to the foundation for a three-year period, 2008-10, and that commitment was honoured. Yes, the new agreement has an initial expiry date of December 2012, as I said, but it has the potential for a rolling one-year extension by mutual consent, to be agreed under certain terms. The door is open there, and it will be one of the things that I am sure prospective purchasers will want to take into account.

[Lord Eatwell]

My Lords, in the determination of best value for the taxpayer, how will the Government balance the short-run cash return from the sale with the long-run benefit to the taxpayer of there being a stable and successful mutual?

[Lord Sassoon]

The noble Lord makes a presumption there about the form of sale. We will be guided by the experts who have been appointed to conduct the sale, who will give advice on these matters to the Treasury.