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

I do not think that the circle can be squared. If the loan were made permanent for, say, 10 years, it would give the business more chance, but there would then be enormous competition issues with the European Union, which might prevent it from exploiting that chance. Indeed, my next point is that given that the Government are forecasting perhaps three years of quite serious losses, they will have to argue hard to our bosses in Europe that they are not making a direct Treasury subsidy to allow unfair competition, even though the business is slimming itself down. My hon. Friend the Member for Fareham (Mr. Hoban) has already put his finger on the issue, which is that although it would be quite easy to defend ourselves against a charge of anti-competitive practices in making new advances, because the business would be shrinking its advances portfolio, it would be more difficult to defend against that charge on the deposit front. I looked at the Northern Rock site today, as many others preparing for this debate no doubt did too, and saw offers of 6 per cent. with the full Treasury guarantee. That seems a pretty attractive rate, but a justification will need to be made to the competition authorities in Brussels if such rates are supported by direct Treasury subsidy, because the company is a loss-making business offering those rates to collect capital to replenish its capital base. We have a business with two conflicting aims. I trust that the repayment of the moneys will be completed before the next general election—it would be a neat order to do so—but the Government will then have a weakened, loss-making business with far fewer staff and an unpleasant impact on the north-east, which is one of the tragedies of the situation that they have created, that will be quite difficult to return to market for a sensible price. Ministers must accept that they are responsible not just for getting back the £24 billion that has been lent, but for getting a fair value for the assets that they have taken over, rather than going through three of four years of writing them down, showing that they are impaired, losing lots of money on them and ending up with a second set of losses for the taxpayer, in addition to the running annual loss that will have to be paid for out of taxpayers' money, as the Chief Secretary knows but will not admit, because once someone owns 100 per cent. of the shares, they are clearly responsible for paying the losses. There are other oddities. It is interesting that Northern Rock appointed new non-executive directors on £90,000 a year, plus £10,000 for every committee, shortly before the nationalisation went through. Will that become the standard level of remuneration for such posts in the public sector, or will an attempt be made to bring Northern Rock into line with the more normal public sector levels? That is an issue for Ministers, who have naturally been telling the public sector that they want good wage and salary control, because they are worried about the inflationary effects of doing otherwise. One interesting point to emerge in the business plan is that there is to be a continued transfer of new money into the Northern Rock Foundation. We have been promised a minimum of £15 million, but we have to ask whether that has been through the proper public expenditure assessment processes and whether other parts of the country would be eligible for such treatment, as we are now talking about a public subvention to a particular part of the country for particular purposes. If Ministers are to have their way in the Division, as they often do, what we need above all is a bit more explanation of how they will satisfy themselves that Northern Rock's business plan will lead in due course to resale to the private sector on terms that are satisfactory to the taxpayer, and how they will satisfy themselves that they can do that without falling foul of competition rules, while still getting the repayment within a reasonable period. I think that they have set themselves an impossible task. Ministers are in this situation because they dithered and made mistakes at every twist and turn of this awful story. They did not keep markets liquid enough in the summer to head the problem off. They did not understand how to organise a lender of last resort, in secret or with the involvement of all the banks, so that there was no great shock to Northern Rock that brought it down. They delayed when the run on the Rock began, and greatly increased the cost of the rescue by not making an immediate statement, as they should have done. They spent too long lecturing banks for making all sorts of mistakes and not enough time understanding that there was a crisis in the credit markets, and that bad credit and good credit were both going down at the same time in a way that would undermine good as well as bad institutions. They delayed too long when trying to put together a private sector bid, even though many people told them that that was not likely to be productive, given the delays and difficulties that the Government faced. The Government have come up with the worst of all possible worlds, which is to nationalise all the assets and liabilities of Northern Rock. I fear that those in the north-east will grow to dislike the policy because it will mean redundancies, closures and a squeeze on the bank, and I fear that taxpayers will come to loathe the policy because it will mean endless losses and a very bad final result if the Government try to sell the bank.