Banking (S.I., 2008, No. 432)

It would be to the benefit, because there are better solutions to Northern Rock's problems that the one before us today. We have argued that case for some time, and I shall touch on that briefly towards the end of my speech. To go back to the comparison with the US, Bear Stearns shareholders now have certainty over the value of their shares—unlike Northern Rock shareholders, who have to wait until the independent valuer tells them how much their shares are worth. Of course, JP Morgan Chase will pay for the compensation and buy the shares, not the US taxpayer; whereas, in the UK, the UK taxpayer will have to compensate Northern Rock shareholders for the nationalisation. In reality, although for some people nationalisation was the end of the story and the solution to the problem, it is not an end in itself and the publication of the business plan and accounts today demonstrates that. The two documents clearly point out the risks that the taxpayer has assumed as a consequence of nationalisation. The order transfers ownership of Northern Rock from its shareholders to the taxpayer, but it transfers the risks, too. The regulatory impact assessment published alongside the order gives no assessment of the risks assumed by the taxpayer. When the Chancellor signed off the RIA, he said that it represents a reasonable view of the likely costs and benefits, yet no numbers were attached to the RIA to back up that assertion; whereas the accounts and the business plan make plain the scale of the challenge that faces Northern Rock and therefore the risks borne by the taxpayer. The Chancellor in his written statement today supports the objective that Northern Rock repay its loan to the Bank of England by 2010 and release guarantees by 2011, so we know that taxpayers' exposure to Northern Rock will continue beyond the next general election. But as the business plan makes clear on page 8, the repayment of the loans by 2010 is an assumption that is part of the base case of the management's plans. I wonder whether the Chief Secretary can tell us how long it will take to repay the loans using the management's worst case scenario? The Treasury has access to the forecasts that the management prepare, so she should be able to tell us what is the worst case scenario for repaying the debt. Yet even the statement that the debt will be repaid by 2010 is at odds with the views of Ron Sandler, who wrote to Northern Rock customers—I have here a letter that was passed to me by a mortgage holder at Northern Rock—about repaying the bank's debt in full and said:"““We aim to achieve this over the next three to four years””." That is by 2011 or 2012—a much more pessimistic assumption than the line that the Treasury has been spinning today. Can the Chief Secretary explain the discrepancy between the Treasury line put out today and the line that the man whom they handpicked to run Northern Rock has taken in talking to customers? Let us be clear: we want the loans to be repaid as soon as possible. We expect the Government to stand by the commitment that the Chancellor gave on 19 November:"““we fully expect to get””" the money"““back.””—[Official Report, 19 November 2007; Vol. 467, c. 972.]" However, we recognise that the changes that need to be brought about to achieve that will lead to job losses in the north-east. They will come about as Northern Rock wants to shrink its mortgage book over the next three years. In 2011, its share of the mortgage market is forecast to be about 2.4 per cent. compared with 7.5 per cent. last year, and its assets will shrink from £107 billion to £49 billion. To achieve that, Northern Rock customers coming to the end of their fixed terms will need to be encouraged to move to other providers. In the current circumstances, that will be relatively straightforward for customers who present a low risk, who have low loan-to-value ratios on their mortgages, or who have good credit histories. Is there not a danger, however, that the more risky customers will have to stay with Northern Rock, thereby reducing the overall quality of its loan book and exposing taxpayers to greater risk of defaults—and defaults would, of course, be a cost we would pick up? The overall quality of the loan book will deteriorate as people who cannot find an alternative are forced to stick with the standard variable rate that Northern Rock offers. Therefore, there is a risk to the value of the assets. Will the Chief Secretary clarify what the table on page 10 of the business plan means? It refers to net assets before fair value adjustments. Is that to do with further write-offs of structured investment vehicles, or is it to prepare us for the write-off of further Northern Rock assets? If there are further write-offs, will the taxpayer not have to pick up the tab? In our debates on Northern Rock, the Chancellor has always reassured us about the quality of the loan book, yet the accounts that were published today present a much less rosy picture. Northern Rock's impairment figures have deteriorated between two and three times the average of the Council of Mortgage Lenders figures for residential mortgages. The accounts also make it clear that the more aggressive approach to arrears that Northern Rock has introduced has led to a fourfold increase in the number of homes that it owns through repossession. Are the Government content with the practice on repossessions that Northern Rock has instituted? Despite the Chancellor's reassurances about the quality of the loan book, we see in the accounts published today a rapid deterioration in the loan book and a sharp increase in repossessions. Is the Chief Secretary prepared to reiterate the confirmation the Chancellor has given on the quality of the loans that the taxpayer has, in effect, taken on through the nationalisation of Northern Rock? Another aspect of the recovery plan—and justification for nationalisation—is the proposed build-up of retail deposits from about £10 billion at the end of 2007 to £20 billion in 2011. That depends on Northern Rock's ability to rebuild depositor confidence. However, there is a challenge here, because we are now entering into a more competitive phase for deposits as a consequence of the closing off of wholesale markets to financial institutions. What assessment have the Government made of the likelihood of Northern Rock doubling its deposits by 2011, and what will be the impact on achieving the 2010 deadline if it does not? Will the Chief Secretary also confirm that the commitment given in the appendix to the business plan that Northern Rock will rank outside the top three in any one of the ““Moneyfacts”” retail deposits categories for the remainder of 2008 extend beyond then? One of the concerns raised when this House and the other place discussed the Banking (Special Provisions) Act 2008 was the impact that the Government guarantee arising through nationalisation could have on competition for both loans and savings. People are rightly concerned that Northern Rock might take advantage of its privileged status as a Government-backed bank to offer better rates than its competitors. Will the commitment on savings extend beyond 2008? The taxpayer's exposure to Northern Rock will depend not only on the loan book and the ability to rebuild customer deposits, but on the operating results of the company in public ownership. In 2007, it made a loss of £141 million. The business plan predicts that it will make substantial losses in 2008 and will return to break-even only in 2011. How much will Northern Rock cost the taxpayer over the next three years, simply in terms of its operational results? In deciding to acquire Northern Rock, did the Treasury understand that it would be loss-making from 2008 onwards? My next point refers back to one made by my right hon. Friend the Member for Wokingham (Mr. Redwood). The plan sets out a timetable of the repayment for the taxpayer-backed loans and releasing the guarantee, but contains nothing to indicate when either the Government or Northern Rock expect the bank to return to the private sector. Will the Minister tell us whether or not privatisation will happen as soon as the loans are repaid? Have other conditions been set that will trigger the bank's privatisation? Notwithstanding this evening's proceedings, the business plan is still subject to approval by the EU, and it could, of course, ask Northern Rock to revise its business plan. That could have an impact on how quickly Northern Rock's strategy would be effective in reducing the level of the taxpayer loans and so on. Will the Chief Secretary tell us when she expects to receive the Commission's approval of Northern Rock's business plan? Until that clarification is received there will clearly be an important uncertainty that affects the way in which the business is run. There are potential risks in respect of the objective that the taxpayer-backed loans will be repaid by 2010. Tonight's debate gives the Chief Secretary the opportunity to confirm, without qualification and caveat, that the taxpayer will pay not one penny towards the cost of rescuing Northern Rock, and I hope that she will take it. There were some unfinished pieces of business from our debate on the Banking (Special Provisions) Act 2008, one of which has now been clarified with the publication of today's accounts and is crucial to understanding the liabilities that will be assumed by the taxpayer through this Order. On Second Reading and on Third Reading some debate took place between the Chief Secretary and my Conservative colleagues and some Labour Members about Granite. It is clear that the risks associated with Granite will be borne by Northern Rock. Today's accounts make a statement about Granite:"““regarded as legal subsidiaries under UK companies legislation. This is because they are principally engaged in providing a source of long term funding to the Group, which in substance has the rights to all the benefits from the activities of the SPEs. They are effectively controlled by the Group.””" The Office for National Statistics said in its evidence to the Select Committee on Treasury that the risks and rewards of Granite accrue to Northern Rock and thus to the taxpayer. Does the Chief Secretary now accept that she was wrong in a response that she gave to an intervention from my hon. Friend the Member for Ludlow (Mr. Dunne) during the debate on the Act? She said:"““We have also repeatedly made it clear that the Government guarantees apply to Northern Rock and not to Granite.””—[Official Report, 21 February 2008; Vol. 472, c. 631.]" The reality of the accounts today is that the taxpayer bears the risk. The risk is not being ring-fenced, kept to one side or kept offshore. The risks and rewards of Granite accrue to Northern Rock, and they will be borne by the taxpayer. The other matter that we debated as the Act was going through Parliament was the framework agreement. It was deposited in the Library today, yet as Northern Rock's report makes clear, the agreement was in place from 22 February—the day that Northern Rock was nationalised. Can the Chief Secretary tell us why Parliament was not presented with the document earlier? Why did we have to wait until today's debate and the publication of today's accounts for the document to be placed in the Library? Is that not another example of the Government riding roughshod over Parliament? Although our debate focused primarily on Northern Rock, it is worth remembering that the Act enables the Government to nationalise any other bank where lender of last resort status has been given and that the taxpayer assumes an open-ended commitment without effective parliamentary scrutiny. Today's debate seeks to annul an order that had been made last month. Parliament should be given the right to approve nationalisation before it takes place, rather than debate it retrospectively. Parliament should have the power to veto these proposals, rather than be treated as a doormat by an over-mighty Executive. The Prime Minister talks about strengthening Parliament, but he undermines its authority through measures such as this. The publication of the accounts and business plan today makes it very clear that nationalisation is not the end of the Northern Rock story. The Government's mishandling of the Northern Rock crisis has led to the risk that taxpayers will not get back all the money we have lent to the bank. The repayment depends on the bank's ability to manage down the mortgage book and to rebuild customer deposits and the viability of the remaining business, EU state aid approval, and the state of the housing market. The Government have gambled our money on Ron Sandler and his management team, but we know it need not have been like this. As the rescue of Bear Stearns shows, private sector solutions can be found to the problems created by the credit squeeze. We also believe that nationalisation was not the only alternative. The Chancellor proposed that in future failing banks could be dealt with through a form of administration. We believe that that could have been the answer to the question. It would have presented a better deal for the taxpayer and the assets could have been realised in a way that protected the interests of taxpayers, rather than exposing them to ongoing continued risk until 2010-11. The Government rejected that course of action despite endorsing it for the future. The Northern Rock story will run on and on. Even based on today's announcement, the liability of the taxpayer will run beyond the next general election, leaving another problem for the next Conservative Government to sort out.