Northern Rock nationalisation bill becomes law
The bill to nationalise Northern Rock has been approved by parliament and the Queen and will now pass into law.
The Banking (Special Provisions) Bill means that under "special
circumstances" the Treasury can nationalise any deposit-taking
institution, including building societies.
Members of the House of Lords initially presented some opposition to the bill, arguing that extra safeguards were needed and calling for an independent audit. They also wanted to see the bank come under Freedom of Information laws.
However, the House of Commons rejected these proposals, with MPs voting 268 to 171 to overturn the Freedom of Information Act amendment and 277 to 167 against an independent audit.
Lord Davies of Oldham, a Labour peer and deputy chief whip in the House of Lords, told his fellow peers that the Freedom of Information Act amendment had been rejected because no other commercial bank comes under this Act.
He added: “The regime under that Act would be entirely inappropriate for any commercial bank, even one run at arm’s length from the government, as Northern Rock will be.”
Conservative peer Lord De Mauley responded: “It is most regrettable in the case of their rejection of our attempts to insist on the applicability of the Freedom of Information Act… the Labour government’s inconsistency on this matter beggars belief.”
However, the bill has now been given the Royal Assent and will be included in the statute book today.
All shares in the company have now be transferred to the government. An independent valuer will also be appointed to consider whether shareholders in Northern Rock should receive compensation.
A government statement explained: "An Order will be laid before parliament shortly establishing the compensation scheme. The principles for assessing any compensation... reflect the principle that the government should not be required to compensate shareholders for value which is dependent on taxpayers' support."
Chancellor Alistair Darling announced that Northern Rock is to be temporarily nationalised after takeover bids failed to adequately protect taxpayers.
He said the two private sector offers to buy the lender, including one from Virgin Money, were rejected because they would not "deliver sufficient value for money for the taxpayer."
Darling says a nationalised Northern Rock will be run at “arm’s length” from the government and on a commercial basis.
The decision will hit shareholders and employees, although savers and borrowers will remain unaffected for now.
The government’s guarantee for savers' money remains in place and mortgage borrowers are being urged to continue making their repayments as normal.
How will Rock's nationalisation affect you?