British govt clears first hurdles for bank nationalisation bill

Business Materials 20 February 2008 08:53 (UTC +04:00)

( AFP )- British govt clears first hurdles for bank nationalisation bill

Britain's Labour government on Wednesday rushed through the first steps towards passing a bill to nationalise troubled mortgage lender Northern Rock, the bank it had to step in to save six months ago.

Deputies in the lower House of Commons voted by 293 to 167 to give a third reading to the bill, which allows for the lender to be taken into public ownership.

It now moves on to the upper house of parliament, the House of Lords, with the government hoping to enact it into law by the end of the week.

Finance minister Alistair Darling announced on Sunday that the bank would be nationalised, a decision that drew heavy criticism for both him and Prime Minister Gordon Brown.

Britain's first official nationalisation in Britain since the 1970s, the move has prompted some observers to question the government's economic competence.

The bill's powers will expire after one year, but critics argued that this was longer than needed if the plans were intended to apply only to Northern Rock.

They suggested that the government would have the power to nationalise other banks that fell prey to the credit crisis that has shaken international markets since last year.

Meanwhile, an ICM poll published in The Guardian newspaper, showed that 51 percent of 1,003 British voters questioned were pessimistic about their economic prospects. That was a seven-percentage-point increase from a similar survey in December.

The poll, which was carried out before Darling announced the nationalisation plans, will nevertheless put more pressure on the finance minister. The opposition Conservatives have already called for him to be sacked.

Defending the bill in a Commons debate that began on Tuesday but ended past midnight, Darling insisted the government would not be involved in the day-to-day management of the bank.

"But we do need to approve its business plan," he added.

"We want to make sure it is prudent, that it's sensible, and protects the interests of the taxpayer. But also we want to make sure it avoids distortions" in the banking sector.

Darling also suggested that Northern Rock's shareholders should expect little in return for their investment.

"If we had not intervened last September, this bank would have gone under, it would have gone bankrupt," he told the Commons.

"It would be unfair to the general taxpayer to calculate compensation on the basis that this bank is continuing as a going concern," he said.

George Osborne, the finance spokesman for the main opposition Conservatives, attacked the bill.

He argued that it was not known "how much we are buying this bank for, we don't know what we are buying in terms of its assets and liabilities, we don't know how long we are buying it for."

The bank was forced to apply for emergency Bank of England loans in September, when the global credit crunch -- a result of the US subprime mortgage crisis -- meant it could no longer easily raise funds for its business.

It has since borrowed an estimated 26 billion pounds (34.7 billion euros, 50.9 billion dollars) from the British central bank, although media reports have put the actual liability to taxpayers at 55 billion pounds or higher.