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Howard's Way.... a weekly column from the Rt. Hon. Michael Howard QC. MP. 

21 February 2008

On Monday the House of Commons returned after the short half-term recess. Almost the first thing we heard was the statement by the Chancellor of the Exchequer in which he confirmed the announcement he had made on Sunday; that Northern Rock was to be nationalised.

This was the culmination of months of dithering and delay. The bank could have been nationalised as soon as it got into difficulties last summer. It could, almost certainly, have been sold to Lloyds TSB at much less cost to the taxpayer. It could have been put into administration.

In all cases depositors would have been protected. Those who have mortgages with Northern Rock would not have been affected. And the taxpayer would not now be facing a potential liability of £100 billion.

The logic of the Government’s decision is hard to follow. Not even this Government would have been likely to nationalise, at such huge cost, a loss making industrial concern. Why should the taxpayer be asked to shoulder such a burden just because the business is a bank?

Nor do the Government’s protestations that this is all the fault of the American sub-prime crisis hold much water. It is, after all, an inescapable fact that only one country has seen a run on a bank – ours.

Of course the management of the bank bear the greatest responsibility. But the new tripartite regulatory framework set up by Gordon Brown in 1997 failed its first big test.

I think regulation of banks should be handed back to the Bank of England where it previously resided. And a diet of humble pie for Messrs Brown and Darling wouldn’t come amiss either.