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Let me tell Opposition Members that presenting different options which do not stack up and which unravel in the end, resulting either in administration
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and a sell-off that is against the interests of the taxpayer or in nationalisation by another name, is simply disingenuous. We have had a serious debate about Northern Rock’s difficulties, but we have also debated the need to secure the financial stability of the wider banking system. I wish Opposition Members would acknowledge that that is the overall purpose of the Bill.

The financial stability of the banking system is not something that we should ever take for granted: it is something about which we should always be vigilant. The consequences of losing it would be devastating for people throughout the country. That is why it is important to protect it, and important for us to present the Bill now. I hope that Members will stop playing politics with the banking system and its stability, and will recognise the advantage to us all of achieving a secure deal and a secure future for Northern Rock.

10.55 pm

Mr. Philip Hammond: The Chief Secretary has given her version of the events leading up to the introduction of the Bill, so let me remind the House of mine. In the summer of 2007, the credit crunch arrived—from the United States, as she said—and placed Northern Rock in difficulties. The Government had an opportunity then to pursue an expression of private sector interest in acquiring Northern Rock, but they were not interested; they dithered and passed up the opportunity. On 13 September, when it became clear that Northern Rock was in serious trouble, they dithered, delayed and prevaricated over the weekend, leading to the events of Monday 17 September, when eventually they stopped the run on the bank by introducing a general guarantee on deposits. They then ignored—very expensively, as it has turned out—the advice they received that they needed to act quickly and decisively in order to protect the taxpayers’ position and resolve the issue of Northern Rock. We have had more dither and delay since 17 September, leading on Sunday to the announcement that the Government were going to go down the route that they had desperately sought to avoid for the past five months and nationalise Northern Rock.

One thing that we have clearly understood from today’s debate is that the nationalisation of Northern Rock is but a mechanism. The Opposition submit that there is nothing substantive that the Government will now be able to do with Northern Rock in nationalisation that could not have been done without taking the bank into public ownership and with only slight modifications to powers that already exist in the Enterprise Act 2002 and insolvency legislation. However, proposed legislation was rushed out yesterday and rushed through this House today under an emergency procedure, and we and the public were clearly told that it was legislation for the purpose of nationalising Northern Rock. What we have before us today is a Bill—now on Third Reading—that includes many provisions that are not relevant to the nationalisation of Northern Rock, but which deal with other situations that we are not facing today. They might be sensible provisions with which we could agree, but we will never know because we have not had the opportunity to scrutinise the Bill properly and to consider those measures. It is our submission that when a Government come to the House and ask it to set aside its procedures and its standard practices for scrutiny
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and to rush through legislation in a day, that legislation must be for an immediate and pressing purpose; it must not be a portfolio of powers that the Government would quite like to have in case they come in handy at some point in the future.

We have seen the weakness of this compressed procedure this afternoon and this evening. Our amendments were tabled without the benefit of consultation with outside bodies; they were our amendments and they did not reflect, as is the usual practice in this House, the real and detailed concerns of experts in the relevant field and from across the relevant industry. Ministers saw the amendments just a couple of hours at most before having to respond to them. In those circumstances, I do not blame them for adopting a defensive strategy and approach; what else could they do? They have not had a chance to consider, or consult on, the amendments; they have not even had a chance to sit with their officials and think about them. [Interruption.] Yes, they might have another chance when the other place gives them an opportunity to consider some of them again. All of this is a genuine shame, because it means that the legislation that is leaving this House today is weaker for lack of scrutiny, and that we, as the superior House, are once again in the humiliating position of relying on the other place to look in detail at the provisions that have been put before us. As it, too, has been prevailed upon to limit its consideration of the Bill, it is likely that unelected judges in the courts will have the final say on a matter that we know will be the subject of substantial litigation.

Mr. Cash: Does my hon. Friend agree that in respect of the other House a number of important provisions are privileged? I am thinking of tax consequences, which are dealt with under clause 10, and a number of other matters relating to guarantees and indemnities, which are at the heart of the financial liabilities that arise. The other House will be unable to consider such provisions, and that compounds the disgraceful way in which the Government have truncated consideration of the Bill.

Mr. Hammond: My hon. Friend makes a good point, because at least one clause will be privileged and thus will not be considered by the other place. I must say that he slightly surprised me, because I thought that he was again going to raise the issue of the exclusion of the courts. I am somewhat disappointed that he did not do so.

The debate has made it clear that whatever their view about the principle of nationalisation—the hon. Member for Newcastle upon Tyne, Central (Jim Cousins) understandably has his constituents’ interests at heart, while other hon. Members have given greater primacy to the taxpayer’s interest—hon. Members on both sides are deeply uncomfortable about the lack of clarity about the Government’s intentions. Perhaps it is a lack of honesty about their intentions.

I do not know whether I am alone in this House in finding it slightly extraordinary to be presented with the proposition that over the past five months, when one of the most politically explosive situations has been sitting on his desk, the Chancellor of the
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Exchequer has not established a plan B and he has not considered what he would want to do in the event that his preferred private sector sale of Northern Rock failed. He also does not have a strategic business plan setting out the objectives for its new management team and he has not given Ron Sandler a brief that sets out those strategic objectives. That is all extraordinary. Perhaps that is why the Government have included a provision in their draft order that the publicly owned Northern Rock will be exempt from freedom of information requests—so that we may never know.

The risks of nationalisation are clear. The first is the politicisation of the decisions. I do not blame the hon. Member for Newcastle upon Tyne, Central for one moment for putting the interests of his constituents first, as we would all have done in his position, but this evening we have seen the kind of pressure that the Government will come under from hon. Members and from outside interests. Other risks include the transfer to the taxpayer of a huge additional tranche of liabilities at a stroke and the risk to Britain’s reputation as a financial centre.

We know that the risks are clear, but we do not know much about the business that the Government are acquiring on our behalf. We do not know how much we will pay for it, how much it is worth, what its assets and liabilities are, how long we are acquiring it for and what the purpose of our acquisition is. The truth is that nationalisation is not a solution; it is simply a mechanism.

The solution has to be based on a plan, and the strategic direction of that plan must come from the top down. The Minister chose not to recognise a clear distinction a few moments ago. Nobody in this House, except perhaps for a few people below the Gangway on the Government side, wants the Government to micro-manage a state-owned Northern Rock, but we all recognise that the Government, as shareholder, must set out the strategic objectives that they want the management of Northern Rock to follow. The Government must give a clear picture of where they want Northern Rock to be in six months or a year or two years’ time, of how quickly they want to shrink the business and of what priority and level of importance they place on returning it to the private sector with all taxpayer loans repaid. That is how the Conservatives would like the NHS or the education system to be managed—with a clear, strategic direction from Government and a hands-off approach that lets the professionals get on with delivering those strategic objectives.

What we have is a wide-ranging Bill that has received little scrutiny. Many issues are unresolved and will have to be dealt with in the other place. I set out earlier our alternative proposals, not for a fire sale—as Ministers like to characterise them—but for an orderly resolution of Northern Rock in a Bank of England-led reconstruction. The Government have a consultation paper out on future legislation to reform the banking sector, and I predict that when we finally get round to putting in place a regime to deal with—God forbid—any future Northern Rocks, it will reflect much more of our proposal and much less of the Bill that we are being asked to pass today.

At the end of this debate, we are no clearer about many of the key questions. The Government have
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rejected all of our amendments. They will brook no criticism. The Chief Secretary has probably taken her cue from the Prime Minister, who said yesterday in his press conference on Northern Rock, with typical modesty, that

The taxpayer is now much deeper in. There is no sense of the direction in which the Government intend to take us and no business plan is on the table. I must therefore ask my right hon. and hon. Friends to vote against Third Reading.

11.7 pm

John McDonnell (Hayes and Harlington) (Lab): I first wish to make it clear that I welcome the Bill. In fact, with the greatest respect to the hon. Member for Twickenham (Dr. Cable), I think that I was the first MP to call for nationalisation, although that is hardly surprising because I have been calling for the nationalisation of the financial sector for 30 years or more. However, I was astounded when my right hon. Friend the Chancellor said on Second Reading that the Granite operation was not included in the legislation.

From my reading of the Treasury Committee’s brief reference to Granite and the advice received from accountants in the tax justice campaign, my understanding of the scheme—even its name suggests that it was a great wheeze—is that several of the directors at Northern Rock established an offshore vehicle to avoid tax. It was still on the balance sheet of Northern Rock and they securitised a large percentage of their assets in it and received about 50 per cent. of their funding from it. As a result and as far as I am concerned, Granite is a creature of Northern Rock and therefore is part of the asset base of the bank and its operations.

Mr. Alan Beith (Berwick-upon-Tweed) (LD): It should not go without mention that one feature of the arrangement was a purported benefit to a charity for handicapped children in the north-east, which has so far received no money from it whatever.

John McDonnell: I understand the issue that the right hon. Gentleman raises, and I have seen reports about it. It is an issue that needs to be exposed and examined, but my concern is the greater issue. Those who took that decision will be exempted from their responsibilities as a result of this legislation. They deliberately undertook an exercise of tax avoidance and tried to maximise the profits for their company. As a result, they enhanced their own benefits in salaries and bonuses through a scheme that is completely exempt from the Bill. The taxpayer and the community will pick up some of the liabilities from that exercise and those who have profiteered through Granite will be completely exempt of liabilities. They will walk away with their profits secure, while others suffer. Some of the constituents of my hon. Friend the Member for Newcastle upon Tyne, Central (Jim Cousins) may lose their jobs and some people may have their homes repossessed. Yet the Granite scheme has enabled those people to walk away scot-free.

I tell my right hon. Friend the Chief Secretary that when there are discussions in the future about further legislation and regulation, we will need to take into account what happened with regard to Granite. We will need to consider how to prevent tax exemption and tax
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avoidance regimes being used in such a way at the cost of the long-term interest of the workers involved and of those people who are dependent on mortgages from a company such as Northern Rock. If there is any way in which Granite can be brought within the ambit of future legislation, the Government should examine that matter.

Ms Abbott: Does my hon. Friend agree that when the Government are considering future legislation they should also consider the long-standing and vexed issue of conflict of interest when it comes to audit? A firm such as PricewaterhouseCoopers will make a lot more money out of its consultancy on securitisation than out of the audit. In banking collapse after banking collapse, we see auditors who see no problem in continuing to trouser their consultancy fees.

John McDonnell: I hope that that is one issue that the Treasury Committee will come back to at some future stage when it further examines transparency within the financial arrangements of such companies and the City itself.

I support the legislation, but I believe that we have missed an opportunity to nail down one of the devices that has been used by Northern Rock and its directors to avoid their long-term responsibilities to its work force, to those who have borrowed from the company and to this country and its taxpayers. I regret that such a measure was not contained actively in the Bill.

11.11 pm

Dr. Cable: I had not intended to speak at length at all, having made my points, but I am prompted to by the important speech that we have just heard from the hon. Member for Hayes and Harlington (John McDonnell). Alarm bells rang slightly for me when I heard the mention of Granite on Second Reading, but its full significance did not dawn on me at the time. I do not think that the problem is quite that identified in the hon. Gentleman’s point about tax status. The problem is that Granite is a separate institution that, as I understand it, securitises the best assets of the bank. The best mortgages of the bank are wrapped up in the Granite vehicle. We are being told that in some way that is being hived off to the benefit of person or persons unknown, apparently, to the Minister.

What is going on here appears to be not the public ownership of Northern Rock but an asset-stripping operation designed to benefit someone—we do not know who. That is a serious development, and unless we get a proper explanation by tomorrow morning of what exactly is going on—

Mr. Philip Dunne (Ludlow) (Con): If I may, I want to see if I can help the hon. Gentleman to understand the true implications of Granite’s not being included in the nationalisation. My understanding is that Northern Rock retains a seller’s share in the packages of mortgages provided to Granite to provide security for the debt obligations that Granite issues, and that that package of mortgages will have to be refreshed continually by Northern Rock as mortgages are redeemed or repaid or come to the end of their natural lives. If Northern Rock fails to supply continuing fresh mortgages into Granite, the liabilities will crystallise, there will be a default in Granite and the entire securitised
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debt obligations will implode and will have to be sold off on a fire sale basis, with proceeds going to the bondholders. At that point, the seller’s share held by Northern Rock will also be part of the fire sale and will become of much lesser value than its stated asset value in the books. Guess who will pay the bill, if Granite is not included in the nationalisation? The taxpayer.

Mr. Deputy Speaker (Sir Alan Haselhurst): Order. That was a very generous intervention.

Dr. Cable: I am trying to absorb the hon. Gentleman’s analysis, and I hope that he will repeat it at greater length. My understanding is that the remainder of the assets of Northern Rock, outside Granite, consist of unsecured mortgages and the so-called Together mortgages—those at 125 per cent. of value—or, in other words, the rubbish. That is what the Government have acquired. We now need a rapid and thorough explanation of exactly what has gone on, as otherwise the Bill can be stopped in the other place.

Mr. John Maples (Stratford-on-Avon) (Con): The problem is actually worse than the hon. Gentleman has described, as Granite’s loan-to-value ratio is more than 100 per cent. Mortgages are placed in Granite to securitise a loan that is for a smaller amount so, if the security had to be exercised, the mortgages could be sold at a discount. I think that what is left is actually worse than the hon. Gentleman is making out.

Dr. Cable: We are all getting a rapid education. Perhaps the hon. Member for Hayes and Harlington can tell us more.

John McDonnell: I may not have explained the point that I was trying to make well enough. My view is that the motivation was a tax avoidance dodge, but the problem is that the liability, which is on a significant scale, now rests with the public purse. As a result, the people who will gain are the participants in Granite. The ones who will lose, and who are in jeopardy, are those who retain an interest in Northern Rock—that is, the taxpayer, and the workers who may lose their jobs.

Dr. Cable: These are big questions, and we are not getting any answers. I see that the Minister has fled the Chamber to get an urgent briefing from the Treasury. Unless the Paymaster General can give us a proper explanation, it is clear that an Exocet has landed somewhere in the middle of the Government’s proposals. The Government need to come up with some proper explanations overnight, as otherwise they will be in serious difficulty in the other place tomorrow.

I could make many other points but I shall restrict myself to two, as I think that we have highlighted a critical issue that we need to focus on.

Mr. Gerald Howarth: On a point of order, Mr. Deputy Speaker. It is perfectly apparent that a key part of this nationalisation is wholly uncertain. Something has come to light that means that the House cannot reach a serious decision on this matter. The Minister has fled the Chamber, presumably to go and get advice. Would it not be sensible to suspend proceedings until she is able to inform the House on this very important consideration? [ Interruption. ]


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