Banking (Special Provisions) Bill

The right hon. Member for Holborn and St. Pancras (Frank Dobson) should applaud all the losses, because they have been a gift of billions of dollars from big international banks to poor people who could not otherwise have got mortgages; I would have thought that he would be in favour of such Robin Hood-ery. I want to make a couple of points. If a bank were not involved, we would not be talking about a rescue operation at all. Such an operation was put in place to save not Northern Rock, but the banking system—it was to stop there being system failure. We should not be concentrating on that particular company and why it is good for Newcastle, for the north-east, for jobs, or whatever. That is not why the Government stepped in to save it—they did so because of the threat of system failure. In any other circumstances, that would not be the case at all. If some of the Labour Members who have spoken substituted any other industry for the word ““banking”” in their speeches, they would find that they sounded pretty old-fashioned. By any standards, £100 billion is a huge amount of money—about 22 per cent. of annual Government spending, or four times the defence budget—and the Government's strategy should be to recover that money for the taxpayer as soon as possible and with as little risk as possible. If that involves some redundancies and the north-east's favourite building society not turning into a big international bank, then I am sorry, but that is what happens in business. The Government dithered around unnecessarily for six months. When they found that Lloyds bank—one of the biggest banks in the country—could not take on Northern Rock without a Government guarantee or loan of £25 billion, they must surely have realised that the chances of any of the other people who paraded their interest doing so were negligible. They gave credence to a possible bid by Richard Branson, whose company, which had never run anything of such size or scale before, planned to put in a bit of new management and £200 million of new equity—a lot of money, but negligible in the context of a £100 billion balance sheet—and fiddled around with bidders who never had the equity to do the deal. The Government either did not recognise the realities of the situation or did not have the courage to make the decision then that they have found themselves forced to make now. I ask the Chief Secretary to deal with the question of nationalisation versus administration. Nationalisation will give the Government a huge amount of headaches. They will become a debt collector on a massive scale; if they have never been in the debt collection business before, they have some nasty shocks in store. On Northern Rock's 2006 balance sheet, there were £8 billion of unsecured loans, which I suspect will be difficult to collect. There are 125 per cent. mortgages, which must inevitably involve a bit of unsecured lending as well. Repossessions are running at 50 a week and will probably step up as the economy slows down, as looks likely. The Government have taken on all the bank's liabilities, and they have almost inevitably taken on the necessity to make thousands of redundancies—not all 6,000, I guess, but certainly many of them—as well as an unknown and unquantified pension fund deficit. If the bank had gone into administration, that would have provided far greater flexibility to deal those matters without taking on those responsibilities. That alternative would also have had the great advantage—I hope that the Chief Secretary will deal with this point—of avoiding the need to deal with shareholders' compensation, because they would merely have got what was left at the end, probably nothing. Nationalisation means having to deal with compensation, and, given that there are some pretty tigerish hedge funds out there, I suspect that there will be some lengthy and expensive litigation. A casual glance at Northern Rock's balance sheet makes one wonder how good is the security for taxpayers' money. I mentioned the unsecured loans; there are also some derivatives and intangibles, and a lot of the good mortgages are already securitised at a loan-to-value in excess of 100 per cent. The ability to recover all its assets to satisfy the taxpayer seems to be limited, which is why I worry about the idea of continuing to run it as a business. I checked Northern Rock's website today. Even with a Government guarantee, it offers a better savings rate, by nearly 1 per cent., than Cheltenham and Gloucester. I use that comparator because it happens to be where my own mortgage is, but it is owned by Lloyds bank and is a long-standing and very reputable lender and savings institution. One of my richest friends in the City told me the other day that he and all his friends had put all their money into Northern Rock, because where else could one get 6.5 per cent. with a Government guarantee? It is ridiculous that it is being allowed to do that. That arrangement is not only uncompetitive—it encourages the company to make more unsecured and 125 per cent. loans in what looks like a dodgy and difficult housing market. If it is allowed to carry on doing that, we will find that it is harder to recover our money than it is now, and it will take longer. If it goes on making new loans, the recovery from cash flow of the Government's money and guarantee will inevitably take longer. The first thing that the Government should tell Ron Sandler to do is to stop making risky loans. We want the credit criteria under which Northern Rock lends to be tightened up considerably so that they are the same as those of other lenders. If that results in a run down in the size of the business, that is probably a good thing. Moreover, the bank cannot be allowed to distort the market by offering above-market interest rates with the backing of a Government guarantee. The Government guarantee ought to mean that people are willing to save at National Savings and Investments or gilt rates, not that they need a premium. Whether it is in administration, liquidation or a nationalised state, we must instruct that the company be run for the benefit of the taxpayer and instruct it to recover the loan and the guarantees that are outstanding, which now, in aggregate, must amount to more than £100 billion. That must be its objective in any of those formats; the one that the Government have chosen is nationalisation. If one puts other political objectives into the mix, the Government will risk huge sums of money. In the context of jobs alone, we are talking about £15 million per job.