Tuesday, 20 November 2007

Northern Rock debate

Yesterday there was a short debate in the House of Commons on the Northern Rock debacle. You will not be surprised to learn that Alistair Darling (the fall guy Chancellor) failed to answer most of the questions posed by Conservative and Liberal Democrat MPs, Labour MPS seemed only worried about the jobs of Northern Rock employees in seats across the North of England. Here is an example of this sort of question :

"Mr. Doug Henderson (Newcastle upon Tyne, North) (Lab): May I say to my right hon. Friend that, contrary to the view expressed by the hon. Member for Tatton (Mr. Osborne), his proposals have been rightly welcomed so far in my constituency, where Northern Rock has its head office, and in Newcastle in general? He said that he would outline the principles on which the Government would act in the coming weeks, and I am pleased that the public interest was put at the forefront of those principles. In defining the public interest, is he prepared to look at the question of employment, not only at this time but at the time that any bid might be successful, and for a five-year period afterwards? Will he ask any bidder to itemise its employment plans, both at the time of sale and for a period of five years afterwards?

Mr. Darling: I am grateful for my hon. Friend’s support. As he rightly says, there is a great deal of understandable interest in the issue in the north-east, because of the impact on jobs and on the wider economy there. As I have said on previous occasions, I hope that we can do everything possible to allow the Northern Rock to continue to do business. As he knows, many hurdles must be crossed, but we will do everything we can to help. That is why it is so necessary to provide Northern Rock with a breathing space, and it is deeply regrettable that some people, particularly Conservatives, now seem to be suggesting that that is wrong."

Here are some examples from the Hansard record of the debate of Mr Darlings inability to answer a straight question...

1. "Mr. Osborne: The question we now ask of the Chancellor is simple: has he been honest with taxpayers about the risks that they face, and has he told the whole truth? First, let us look at what he has announced today. He announced that what was supposed to be a short-term emergency facility for Northern Rock may now be extended beyond February and could last for years. Thank you, but we already knew that because it was in a memo from the company’s advisers that was leaked last week. Indeed, throughout the crisis we have learned more from media leaks than we have from the Government.

The Chancellor will not tell us the size of the facility, when he expects it to be repaid or the terms of the repayment, even though much of that information is an open secret in the City. Indeed, the Governor of the Bank of England wants to publish the letter that he sent to the Chancellor to set out those terms. He told the Select Committee that that he wanted to do so, but the Chancellor refuses to publish the letter and simply says that it is in the public interest that he should refuse. Clearly, the Governor of the Bank of England disagrees. Will the Chancellor explain in greater detail why he will not publish that letter?

This is not about the commercial interests that the Prime Minister spoke about last week, but about the public interest and the £900 that has been pledged on behalf of every taxpayer in Britain. The Chancellor talks about the Government’s liabilities being secured against £100 billion of Northern Rock assets, but he does not say that many of the assets are already promised to other creditors. Will he confirm that the free assets at Northern Rock could be closer to £40 billion and that total Government liabilities, through both the facility and the deposit guarantee, might now be approaching the total of the available assets, putting the taxpayer further at risk?

The Treasury also said today:

“Authorities expect the costs and risks associated with Northern Rock to be borne to the greatest extent possible by the current and future private sector providers of capital.”

So do we, but has the Chancellor given a general guarantee to cover the £13 billion or so lent by medium-term note holders—the large institutions that lent money with their eyes open? Has the Chancellor considered reducing the risk to taxpayers by announcing a cap on the guarantee offered by the Government so that only individual savers are fully protected? Of course, we need to get the depositor protection legislation right, but we now know from the Governor of the Bank of England that he has been pressing the Chancellor to do that for a considerable time.

The Chancellor has failed to address today the two things that he appears so far to have kept secret from Parliament and from the taxpayer. First, will he tell us whether it is true that the Treasury, as well as the Bank of England, has lent money to Northern Rock? He mentioned only the Bank of England in his statement, but today we are told that the Treasury has also lent so-called subordinated term debt, which does not have to be paid for five years, comes at the back of the queue and is in most danger of default if the bank is wound up. If that is true, taxpayers have been exposed to an extraordinary long-term risk, yet we have been told about that Treasury loan by the BBC’s business editor rather than the Chancellor of the Exchequer. If it is true, the Chancellor is surely deliberately withholding information from Parliament and the public. Will he confirm the existence of that Treasury loan?

The second thing that has become clearer today is that the Chancellor cannot be sure of keeping the promises that he and the Prime Minister made to the taxpayer. He said to the Select Committee that

“we fully expect to be able to get that money back.”

He said to the public that

“any money that the Government makes available”

to Northern Rock

“we can recover from its assets”.

The Prime Minister said at the Dispatch Box last week that the money from the taxpayer was

“guaranteed against Northern Rock assets.”—[ Official Report, 14 November 2007; Vol. 467, c. 660.]

Today, the Chancellor merely says that he wants the best outcome for the public purse. Will all the money lent by the taxpayer be repaid with interest—yes or no? Let us hope that the answer is yes and that, in the final reckoning, the taxpayer will not have paid a heavy price for the Government’s incompetence. Let us hope that the Chancellor can be honest today about the risks to the taxpayer and about the existence of the secret Treasury loan."

"Mr. Darling: I am sorry that the hon. Gentleman was unable to make any constructive proposals. He supported the decision that I made at the start to enable us to provide lender-of-last-resort facilities to the bank. He also supported providing a guarantee, yet he now tries to give the impression that he does not agree with any of those things.

On the many questions that the hon. Gentleman asked about future proposals, he knows full well that, until we have had a chance to assess the proposals that the various financial institutions have presented and reach a view about what would work, it is impossible for me to state precisely the arrangements that we expect for Northern Rock in future. However, it is right to spend time assessing the proposals that the various institutions have made and then come to a view about what is best to ensure that we secure a future for Northern Rock and protect the wider public interest, especially the taxpayers’ money that has been lent to the bank.

It is hardly a secret that we have made facilities available to Northern Rock—I have informed the House at each and every stage of events, as hon. Members would expect. Furthermore, we were absolutely right to take such actions because the consequences of letting the Northern Rock bank fail, as the hon. Gentleman now appears to suggest that we should have done, would have been immensely damaging to this country’s financial institutions.

The hon. Gentleman asked several questions. First, he asked about the deposits that we are guaranteeing. As I told him, they remain in the bank, so there has been no cost to the taxpayers. The money is there; people can take it out if they wish. However, the guarantee exists, and it is not, therefore, necessary for people to take out the money. There has not been a cost to the taxpayer because the money is in the bank.

The hon. Gentleman asked about lending to the Northern Rock bank. The lending of last resort and the lending that started in the week beginning 9 October has been by the Bank of England. He asked especially about a story that appeared on the BBC this morning on the element of the loan that represents the penal rate of interest that the Bank of England normally charges. The sum concerned is nothing like the figure about which Mr. Peston speculated on the radio. It is a small amount of money, which will be recovered from Northern Rock. It is due to be recovered by Northern Rock as and when we move to the next stage. There is, therefore, nothing secret about it. It is a perfectly normal lending operation by the Bank of England that is necessary to secure the future of Northern Rock.

The hon. Gentleman asked about the letter that the Governor of the Bank of England sent. I repeat what I said when he asked that question last week—the Treasury Committee asked the same question. On the evening before the lender-of-last-resort facilities were announced, both the Governor of the Bank of England and the chairman of the FSA wrote letters advising me to authorise such facilities. The letters must be seen together. It is true that the Governor of the Bank of England told the Select Committee that he had no objection to publication. However, the chairman of the FSA most certainly objects to the letters being published. As I said to the Treasury Committee, I do not say that we will never publish them—I believe that, given time, it may be appropriate to do so. However, it would not be in the public interest to publish them now. I have consistently taken that position with the Select Committee and in the House last week and today.

I believe that what I did in respect of Northern Rock at the start was right. I believe that it is right now to give the bank the space that it needs to consider its strategic options. Anything else, I believe, would be grossly irresponsible, and I am sorry that the hon. Gentleman has chosen to follow that path."

2. "Dr. Vincent Cable (Twickenham) (LD): I do not know whether the Chancellor has been singing in the bath, but he does bear an increasing resemblance to the former Conservative Chancellor, Norman Lamont, who presided over a comparable financial disaster.

I want to focus on the £24 billion loan—£900 for every taxpayer—which is over and above the £18 billion deposit guarantee, which is less controversial and which we all support. The former Prime Minister, Tony Blair, was widely criticised for advancing £800 million for the millennium dome. In the past few weeks, the Government have provided the equivalent of 30 millennium domes to this bank, without even the prospect of a decent pop concert at the end of it.

The key question, which I put to the Prime Minister last week, is this: is the lending secured? He said that it was. Will the Chancellor confirm, however, that that is not the case? Of the loan, £13 billion has a first charge security, although at a more relaxed standard than is normal; £11 billion, however, is wholly unsecured. Half the assets of the bank have been packaged up by a company called Granite, which is registered in the Channel Islands and has the first claim on the assets. The remainder is a collection of mortgages, many of which were advanced at the peak of the property market and are now of declining value. I therefore return to the question that I put to the Prime Minister, and that has been partially put to the Chancellor already. Will he stand up and give an absolute guarantee that the loan will be repaid in full, with full interest, within the lifetime of this Parliament?

Will the Chancellor also comment on the management of the company? Does not Mr. Adam Applegarth, who has just been dismissed, now have a pension pot of £2 million and various bonuses, which are underwritten by the taxpayer? Will the Government explain how they got into a position in which they have entrusted £24 billion to a management team that was discredited, that led the bank into its present crisis, and whose chief executive showed such contempt for his own bank that he sold his own shares to invest in a country estate and a Ferrari for his wife?

That is not the only conflict of interest. An attempt is being made to sell the bank, led by the company. The company has a clear conflict of interest. It is in the interests of the directors and the management to maximise the taxpayer’s contribution. The taxpayer’s money is being used to prop up the bank, and to provide a profit opportunity for spivs in the City.

Let us consider the alternatives. The ideal outcome— [Interruption.]

Dr. Cable: The ideal outcome would be the sale of the bank, as a going concern, to a private operator who could maintain the employment in the north-east and the brand, and repay the Government in full. It is clear from this morning’s bids, however, that that is a fantasy and will not happen, which leaves us with two very unpalatable options.

The first option is liquidation of the bank—putting it into administration—which I think we all agree would be a disaster. It would devastate the north-east, the shareholders would get nothing, and the Government would lose a great deal of money. Should not the Government therefore consider the other option, which is temporarily assuming full control of the bank? That would eliminate the conflict of interest, it would provide a breathing space enabling— [Interruption.] It would provide a breathing space— [Interruption.]"

Straight questions there, so what dis Alistair Darling do...

"Mr. Darling: I note that over the weekend the hon. Gentleman changed his position on Northern Rock several times. On Saturday he was calling for full-scale nationalisation, by yesterday he was calling for reluctant nationalisation; and today it was reluctant nationalisation for a very short period. This afternoon, having denounced the City, he went on to press for a quick sale to the very people whom he had denounced.

I understand full well that the board and the shareholders have a particular interest with regard to Northern Rock—I made that clear in my statement—but we, the Government, have an interest in protecting not just financial stability but the taxpayer’s money that is being lent. The reason that we insist on our interests being upheld is that we would have to agree with any proposal for the future of Northern Rock. If we do not like a proposal, we can say no to it. We can veto it because, through the Bank of England, we are by far the major creditor.

I believe, however, that simply plumping for one solution today—and presumably, by extension, not bothering even to consider any of the expressions of interest that have been received—would be extremely short-sighted and foolish. Would it not be better to use the time that we have to establish whether those expressions of interest can be translated into a firm proposal that would both help the company and, crucially, protect the public interest? I think that that would be far the better course, and it is the one that I propose to pursue."

3. "Mr. Michael Fallon (Sevenoaks) (Con): Is it the Chancellor’s position now that there is no agreed schedule of repayments for the £23 billion? Is it not also clear from his statement to the stock exchange that he now envisages state aid continuing well beyond the original February deadline?

Mr. Darling: In relation to that last point, as I said to the Treasury Committee, of which the hon. Gentleman is a member, we wanted to make it clear to the company that we needed to get proposals and we needed to bring that to a head, which is why we said that we would review the matter at the end of February. We have never said that everything would stop at the end of February and could not possibly continue. Surely the best thing to do to secure the best possible repayment of the loan made by the Bank of England is to assess the proposals being worked up and then decide on the appropriate rate and timing of repayment. To box ourselves in now and exclude options without having properly considered them would be the wrong thing to do."

4."Sir George Young (North-West Hampshire) (Con): What are the implications for the Government’s borrowing requirement of the unexpected multi-billion pound liability for Northern Rock?

Mr. Darling: The position with regard to the Government’s borrowing was set out at the time of the pre-Budget report. The Bank of England’s lending is being done by the Bank, but clearly the Government stand behind the bank."

5. "Mr. Andrew Tyrie (Chichester) (Con): On 5 November, the Chancellor appeared to make it clear that any money the Government made available to Northern Rock would be recovered against Northern Rock’s assets, but today he has studiously avoided answering that direct question, and studiously avoided providing us with a guarantee for our taxpayers that in the end we will get our money back. Will he now give taxpayers that pledge?

Mr. Darling: I said in my statement—as I have said on a number of occasions—that money lent by the Bank of England is secured against assets such as mortgages held by Northern Rock, so we fully expect to get it back."

He "expects" to get it back, just expects.

6. "Mr. Graham Stuart (Beverley and Holderness) (Con): For the elimination of doubt, will the Chancellor confirm that the BBC is wrong, and that no loans whatever have been made by the Treasury, as opposed to the Bank of England?

Mr. Darling: I have explained the position on that element of the loan—the penal rate of interest. I have nothing to add to what I have said in response to previous questions on that subject."

Answer the question Darling.

Here are some more Labour MPs who seem only concerned about their voters not the UK banking system.

1. Mr. Ronnie Campbell (Blyth Valley) (Lab): At least 6,000 people work at Northern Rock, many of them in my constituency. I agree with my hon. Friend the Member for Newcastle upon Tyne, North (Mr. Henderson) that employment is a big issue among my colleagues and Members of Parliament in the north-east. I join my hon. Friend in asking the Chancellor please to ensure that those jobs are secure. We know that the money is important and paying back the taxpayer is important, but 6,000 jobs are a lot of jobs and we cannot afford to lose them.

Mr. Darling: My hon. Friend is absolutely right. The jobs are very important, which is why I think that the Liberal Democrats’ attitude is so short-sighted and
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wrong. I think that we owe it to people in the north-east, as well as to the general public, to do all that we can to try to reach a point from which this business can be taken forward. It will be difficult—many hurdles will have to be overcome, and a great deal of hard work will be involved—but I think that the Government have a responsibility to ensure that we can manage the process, and that it would be wrong to close the door on any possibility of something in the future.

2. Jim Cousins (Newcastle upon Tyne, Central) (Lab): The whole House will have noted that the Liberal Democrats have as much regard for the 5,500 employees of Northern Rock in the north-east—and the 6,500 nationally—as they had for the job of their former leader. [Interruption.] Two or three faces in public, 10 in private—that is the policy of the Liberal Democrats.

Does my right hon. Friend accept that the policy of nationalisation would lead to a slow lingering death for the jobs of the Northern Rock workers, its assets and Britain’s reputation as a major financial services centre, with my right hon. Friend the Chancellor cast in the role of undertaker—and that only by finding a successor business to grow on those jobs, assets and reputations can we offer any real prospect of the taxpayers getting their money back?

Mr. Speaker: Order. I remind Members that they must ask brief supplementary questions.

Mr. Darling: I agree with my hon. Friend. It is regrettable and surprising that the Liberal Democrats never seemed to support our earlier proposals to keep Northern Rock open. It would also, however, be a mistake to shut off all other options and simply go for one at this stage; that does not seem to me to make any sense at all.

3. Sir Stuart Bell (Middlesbrough) (Lab): The Chancellor of the Exchequer has just repeated what he said earlier, in his statement—that he is trying to balance financial stability, the taxpayer’s interest and the depositor’s interest. May I assure him that if he follows the line taken by the hon. Member for Tatton (Mr. Osborne) and secures only individual investors rather than institutional lenders, the financial markets would see havoc overnight? May I echo the thoughts of my hon. Friends who represent Newcastle seats—that 6,100 jobs are at stake and that this is a major regional company? What we are seeing in this House is Northern Rock being used as a political football, not a surrogate attack on our financial stability.

Mr. Darling: It would be regrettable if the future of Northern Rock became a political football, and I know that my right hon. Friend—who of course represents a seat in the north-east—is very mindful of the effect on the economy of the north-east. I agree that the three principles set out this morning are important. As for the guarantee, perhaps I did not deal with the point raised by the hon. Member for Tatton (Mr. Osborne). Having given the guarantee, I am now invited by him to unpick it—but that would be the wrong thing to do.

4. Mr. David Clelland (Tyne Bridge) (Lab): Is it not now clear that if either of the Opposition parties had been in power, Northern Rock would already have sunk without trace and 6,000 jobs would have gone down the drain? Is my right hon. Friend aware that whatever the outcome of this, the people of the north-east are at least assured that the Government are doing whatever they can to ensure the future of that business and the thousands of jobs involved?

Mr. Darling: My hon. Friend is right. He has raised that point every time we have discussed the issue on the Floor of the House, and he is right. We owe it to people to do everything we can to help the situation. It is unfortunate that some of those who supported what we were doing at the start now appear to be changing their tune.

5. Mr. Geoffrey Robinson (Coventry, North-West) (Lab): Is my right hon. Friend aware that Labour Members fully endorse his triple objectives? I wish to remind him, as many of my colleagues from the north-east have done, of the employment considerations. We also fully support him in taking time to find a solution that meets those objectives, but time is also pressing, in that further large loans may come to maturity in January and February and could make the Government’s exposure even greater. Therefore, I urge him to make it clear to those with whom he is negotiating that ultimately—if they are very unreasonable and cannot come to terms with the Government on those reasonable objectives—there is an alternative available.

Mr. Darling: I am grateful to my hon. Friend, and I think that I have set out the right approach, although he is right that the situation cannot be allowed to drag on. We need to try to bring the matter to a conclusion as quickly as we reasonably can, consistent with an opportunity to assess the proposals that we have.

6. "Dr. Roberta Blackman-Woods (City of Durham) (Lab): I wonder whether my right hon. Friend is aware that my constituents are very grateful to the Government for the way in which they acted to support Northern Rock depositors and to secure a future for the bank, but that confidence in the bank, and the well-being of my constituents, is not helped by the comments of Opposition Members? Can he tell us whether the public interest criterion will extend to trying to secure a future for the Northern Rock Foundation as well as for the bank itself?

Mr. Darling: I know that many people in the north-east are concerned about the foundation, which has provided support in excess of £24 million for projects. That is important, so I hope that anyone making proposals will bear it in mind; it is one of the reasons why Northern Rock is so appreciated in the north-east. I can only repeat what I said earlier: we will do everything we can to help. There are considerable difficulties, and the period for assessing the proposals will allow us to see whether we can make progress."

7. Mr. Kevan Jones (North Durham) (Lab): Northern Rock is the only major financial institution with headquarters in the north-east, and I concur with the sentiments expressed by Members from the north-east who argue that those jobs are important to the north-east economy. Will my right hon. Friend ignore the sanguine voices of Opposition Members, including the former Economic Secretary, the hon. Member for Stratford-on-Avon (Mr. Maples), who said last week that by the end of this week we should let Northern Rock go into receivership? That would be not only disastrous for the north-east economy but bad for the negotiations.

Mr. Darling: I agree with my hon. Friend. It is important that we do everything we can to assist in this situation, and I am sorry that a number of Opposition Members take a different view.

8. Mr. David Anderson (Blaydon) (Lab): It does not surprise any of us that Opposition parties do not care about 6,000 jobs in the north-east, as they have a track record of not caring about work in the north-east. What is really in the interests of the public and taxpayers is to ensure that neither Opposition party ever again gets control of the financial levers of this country.

Mr. Darling: I have some sympathy with that proposition, too.

9. Mr. Andrew Love (Edmonton) (Lab/Co-op): If the board of directors rejects all the expressions of interest by hedge funds that are large shareholders in the organisation, what powers do the Treasury and the Secretary of State have to ensure that we bring the matter to a quick conclusion so that we do not end up with a liquidation, which would be to nobody’s benefit, least of all the employees of the bank?

Mr. Darling: The Northern Rock bank has to consider all the options available to it. It is perfectly well aware that the option of doing nothing is not open to it; that just cannot be the position. The Government will remain in close contact with the bank to ensure that it examines all the options. As I have made clear, we need to keep all the options on the table. It would be a big mistake to rule out any one of them.

Labour MPs you have to respect their total single-mindedness, re-selection at all costs.

Jeremy Corbyn was an honourable exception to this rule as he often is.

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