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The heat has to be put on those who now have a shareholding stake in the business. Some of the hedge funds have bought into the business and probably have an exposure of £150 million to £200 million. I expect that they would lose that if the business were nationalised. There has to be a dialogue between the Government and the Bank of England, and those bidders, on how a deal can be structured to allow the bidders to take over—albeit not unconditionally. The banks that are backing the bids will not allow any unconditional takeover to be made by either of the bidders. The Royal Bank of Scotland is not exactly naive about this sort of thing and it seems to be the lead bank on the syndicate of
banks. It is going to lay down conditions that I believe have to be consistent with what the Government are looking for. If so, the shareholders have to make a decision, perhaps following advice from the board of Northern Rock, on whether, given all the circumstances, that is the best way forward.
That is not going to be easy, but I hope that the situation can be addressed in that way, because that will be best for the workers, the small shareholders and the north-east. But I am not naive enough to think that we are bound to be successful. If we do not succeed, of course we will have to look at other ways of making sure that the bank has a future and that those who have a stake in the bank—the workpeople, the shareholders, the depositors and others—have a future. It is quite a long process, and it is unavoidable. I wish it were quicker, because the longer it goes on, the more of a drain there is on the business and the more insecurity is created.
When the Liberal Democrats talk about the bank bleeding to death, as the hon. Member for Twickenham did this afternoon, they are not helping the situation. The hon. Gentleman is not helping to build confidence either in the north-east or elsewhere. I hope that the House rejects the Liberal Democrat motion and backs the Government on what people in the north-east know is the best way forward, and the only way forward at the moment.
5.54 pm
Mr. Alan Beith (Berwick-upon-Tweed) (LD): If we leave aside the party politics, there was a lot in what the hon. Member for Newcastle upon Tyne, North (Mr. Henderson) said with which I entirely agreed. However, our objective is to try to ensure that the bank’s circumstances can be protected in the future in better market conditions than those that will exist between now and the beginning of January, which is the time scale about which we are talking. For all the hon. Gentleman’s passion, which I fully respect as I am well aware of the number of his constituents who are directly involved—my constituents are involved, too—we must face uncomfortable facts and make some difficult decisions.
The collapse of Northern Rock has been a disaster for north-east England and, on the part of those responsible, a betrayal of the region’s history and the great traditions of Northern Rock as an institution. The events have had such serious and traumatic effects on the region that there is understandable reluctance to face up to the uncomfortable facts of how they came about and what must happen now, if something is to be saved from the wreckage. There is an understandable desire to see a knight in shining armour coming to the rescue, but such knights as have appeared are not self-evidently in a position to repay the vast and unprecedented debts to the taxpayer that the company is piling up.
Those with mortgages will not suffer—they will be comfortable—and those with retail deposits are unlikely to suffer, because this is the Government’s problem, not theirs. However, the shareholders, including the small shareholders, will lose heavily whatever solution emerges.
No one in the House would be prepared to advance any basis on which small shareholders would be protected from the consequences of what has happened. The big losers in the region will be those who work for Northern Rock, the many businesses that supply it, those who benefit from Northern Rock’s sponsorship in the community and, significantly, all the good causes in the region that benefit from the Northern Rock Foundation, which owns 15 per cent. of the shares and got 5 per cent. of Northern Rock’s profits.
Why does the foundation exist? The official history of Northern Rock makes it clear that it was devised to persuade reluctant building society directors and members to support demutualisation. It was designed to persuade them that there would be a block of shares that would help to resist takeover by anyone from outside the region, and that the region would continue to benefit from the future success of Northern Rock. What an irony that that 15 per cent. shareholding now has little or no value and certainly will not be a blocking share to a takeover, which people in the region are now anxiously asking for. The events have had a wider impact on confidence in the region. The Government must realise that they could help confidence in the region in many ways that go beyond Northern Rock itself.
The fundamental responsibility for what has happened lies with the directors, many of whom I know, who either failed to understand the dangers in the chief executive’s strategy, or were just not willing to stand up to him. Many of us were worried by the speed of the company’s expansion, but we did not know—although the directors must have known—that it was five times more exposed than any other UK bank to borrowing from the markets, relative to the size of the institution.
There were clearly failings in the regulatory system, including due to the division between responsibility for regulation and the position of lender of last resort. The Prime Minister created that division when he was Chancellor, alongside his commendable action of giving the Bank of England independence over monetary policy, for which I had long argued, but it has proved, in this instance, to be an unsatisfactory division of responsibility.
It can just about be argued, although I am not entirely convinced by the argument, that the run on the bank might have been forestalled by earlier injections of liquidity into the system by the Bank of England. However, we must bear it in mind that liquidity was exceptionally low at that time. I hope that the Treasury Committee will examine both that and the previous issue more closely.
Jim Cousins: Does not the right hon. Gentleman accept that the fatal thing that caused the run on the bank was the quite improper leaking of the news that the bank had gone to the Bank of England for a credit facility? The directors and employees of Northern Rock all feel a profound sense of betrayal about that leak. Sadly for the directors, they never recovered their leadership after that and the feeling of betrayal sent them off course. Does he acknowledge that that leak caused the damage?
Mr. Beith:
Yes, I do, although the lack of leadership of the directors goes back much further than that. However, the hon. Gentleman is right in the other part
of what he said. I am still not convinced that the bank’s position was sustainable, or that we can be certain that a run would not have happened, but the speed with which the run took place indeed resulted from that news bulletin deriving from that leak. Would we not all like to know how that came about and whether there was any motive on anybody’s part that generated the leak?
To return to what happened, if one drives round a blind corner at 80 mph and crashes into a broken-down bus, it is no use saying, “Somebody should have stopped me speeding” or “I didn’t know there was a broken-down bus round the corner”. That is essentially what the defenders of the bank’s previous policy are saying—that the regulator should have stopped them having a bad business model, and that banks cannot be relied on to cater for unexpected circumstances. Banking is about managing the risk of the unexpected. That is what banks are for. What happened to risk management? Did it fail because Mr. Applegarth had a majority of executive directors on the risk committee?
Then there is the squalid episode of the creation of the Jersey-based Granite Trusts, where Northern Rock parked its mortgage assets, supposedly to benefit Down’s Syndrome North East. The association was completely unaware of its name being used and had not received a penny from the trust or network of trusts, whose real purpose was to facilitate the securitisation of the bank’s loan book in terms intended to benefit charitable trusts. It transpires that other banks, including Halifax-Bank of Scotland, Standard Life and Alliance and Leicester, have all engaged in similar exercises, which may involve breaches of UK charity law or procedures.
I hope the Charity Commission will look at this, and that the Government will review the law in this area. The irony is that Northern Rock’s hard-working staff raised £40,000 for the Down’s Syndrome Association by their own efforts six years ago, but the creature created in Jersey by the bank has not given a penny, so far as I know, to Downs Syndrome North East.
The question that we must consider is whether the interests of the north-east are likely to be best served by waiting to see whether a saviour can be found who will repay the taxpayer’s £30 billion and get the bank on a sound footing. That looks increasingly uncertain. The big danger is that the bank will be driven into administration, in which case the north-east’s interests are not even in the queue for the proceeds of the resultant fire sale—and it would be a fire sale, selling into the market at a bad time.
Or are people asking for the taxpayer to waive some part of the loan and the interest, perhaps as much as £10 billion, to give a potential buyer a better chance? If we start to say that we could do more to enable a private buyer to take over the bank, the only way in which that could be made realistic—everything else is being done at present—is to offer a lot more taxpayers’ money to a particular private buyer to enable that to happen.
For heaven’s sake, if we can have billions of pounds of Government money to help the north-east, which certainly needs help, would we choose to put money on such a scale into a failing bank? What about all the other things that we need in the north-east, such as our infrastructure, the A1, fast rail links, schools, universities to build up our skills base, and new businesses? We have
to ask whether that would be the best way to help the region, and note that it took not something about the north-east but a threat to London’s banking system to drive those huge amounts of money out of London. Why is London, so to speak, sending so much money to the north-east? It is doing so because London’s banking system, on which London depends, was threatened by what was happening at Northern Rock.
The taxpayer is pouring into Northern Rock sums far beyond the wildest dreams of regional bodies, local authorities and the whole north-east business community, with no guarantee of getting more than a part of it back, no current interest payments, and precious little control over what is happening to all the money. That is why Northern Rock probably will be nationalised, and, if not, will probably go into administration.
We probably ought to bite the bullet now, but in doing so we must recognise what the Government’s principles failed to recognise—that the north-east has suffered and will continue to suffer from this disaster, and that the interests of the region must be one of the guiding factors in deciding how the business can be managed into a state where it can survive as a regional financial institution. That is what it was, before it was taken so recklessly into an aggrandising policy that has proved so disastrous. Frankly, to expect more than that—to expect to get more than a modest regional institution at the end of the day—would be unrealistic. Even now, no private bidder, realistically, looks able to promise that.
We also need to ensure that the foundation survives. I hope that it will, and with wider participation from businesses in the region. At one time in London there was a 1 per cent. club of businesses that gave 1 per cent. of their profits to a charitable foundation. Here we have a ready-made charitable foundation, and I hope that more businesses in the north-east will see that it could belong to them in future. Whatever emerges from Northern Rock, it is unlikely to produce the yield for the Northern Rock Foundation that Northern Rock itself produced.
It gives me no pleasure to say harsh things about what has happened to Northern Rock—still less does it please me not to be able to offer a comforting picture of a private participant coming in to rescue the business and meet all the conditions that we desire. I wish I could say that that would happen, but we are in a much more challenging situation.
Mr. Deputy Speaker: Order. I am afraid that the right hon. Gentleman’s time allocation has been used up.
6.6 pm
Mr. David Anderson (Blaydon) (Lab): The last time that we debated this issue, a number of my colleagues and I were accused in the Tory press the following morning of being parochial. Perhaps I have got it wrong, but I thought that that was part of my job. I have not read the job description, but I think it is all right to be parochial.
Last week, the House had a parochial debate about the road scheme around Stonehenge. The hon. Members for Salisbury (Robert Key), for North Dorset (Mr. Walter), for Somerton and Frome (Mr. Heath),
for Bridgwater (Mr. Liddell-Grainger) and for Torbay (Mr. Sanders) and the right hon. Member for North-West Hampshire (Sir George Young) rightly argued their corners for their parts of the world. The right hon. Member for Berwick-upon-Tweed (Mr. Beith) has mentioned the A1. In any debate on transport and road structures, we would all argue strongly for the improvements that we want in our parts of the world. That is why we are here, and I feel no shame whatever about being parochial again. The argument is parochial, although it is also a national and potentially international argument.
I want to start with the parochial impact on the work force. There are thousands of workers in the north-east in this very key sector—one that is not a traditional strength in our area but one that we want to build on. If that fails, the knock-on impact could be very serious.
The trade union representing the majority of that work force has set up a charter of rights that it wants included in its discussions. It wants to be recognised as a stakeholder in the future of Northern Rock and to ensure long-term job security for its employees. It wants to protect and improve terms of employment for the employees and to improve and maintain existing pension rights.
Clearly, the union wants the work of the Northern Rock Foundation to continue and the bank to stay a listed company. It is entering discussions with the private companies and saying, “These are the things that we want to work with you on.” As far as I am aware, it is not saying to us or any other political party that it wants to discuss nationalisation. For it, nationalisation would simply mean that it had failed totally and saw no way out other than nationalisation. The union says clearly that it would like politicians to stop playing politics with our lives and asks people to stop talking down Northern Rock’s opportunity to make its way out of its situation. I hope that Members across the House will listen to that.
In my region, we are far too used to the realities of unemployment. Twenty years ago, the Conservative party was clear that unemployment was a price worth paying. The truth, of course, was that it was not paying it—but people in our part of the world were paying it in spades. We do not want to go back to those days—certainly not in respect of the people working at Northern Rock.
I turn now to the Northern Rock Foundation. This is a parochial point, but an important one to ordinary people on the ground. I shall go through some of the things that the foundation is doing day in, day out, as it promotes social justice. It has invested £8.5 million in work with disadvantaged young people across the north-east; £8 million in regeneration; £8 million in schemes to help disadvantaged people to set up their own businesses; £6.5 million in tackling domestic abuse; £6.5 million in reducing crime; £4.5 million in helping people with mental health problems who do not get support from elsewhere; £4 million in helping people with debt problems; £16 million in the cultural renaissance of the region, including £1 million in the establishment of the Sage music centre in Gateshead, which is now among the world’s state-of-the-art opera houses; £5.5 million in heritage projects; £6 million in
advice and support to local charities and development of the region’s voluntary sector; and nearly £5 million in providing training and development support directly to local groups.
In my own constituency, the foundation has spent £15,000 to provide a live-at-home scheme for elderly people. Last week, I was fortunate to be able to go to their Christmas party with 100 people who, but for the foundation’s support, would not be getting out of the house and enjoying this time of year. It has provided nearly £2 million to establish a domestic abuse rapid response service, £70,000 to a women’s health project, and £120,000 to a young women’s outreach project. Of course we do not want to lose that. It is a key thing in our region; we are very proud of it and want to hold on to it.
Sammy Wilson (East Antrim) (DUP): I appreciate the list of good things that the hon. Gentleman has given to the House, but does all that justify committing the equivalent of the defence budget in taxpayers’ money to propping up the bank?
Mr. Anderson: I am glad that the hon. Gentleman asked that question; I was about to come to that. He is right to say that all those important things alone would not justify it, but they are part and parcel of what will not be there if we do not carry on trying to find a resolution.
This is not just a parochial matter. The hon. Member for Twickenham (Dr. Cable) said that what happened was unprecedented and unexpected. It hit Northern Rock in a way that it should not have, and it hit other banks, but we did not intervene as a Government solely to protect Northern Rock but to protect the whole banking system. As the right hon. Member for Berwick-upon-Tweed (Mr. Beith) pointed out, it was about not only what was happening in the north but in this part of the world. The whole system was at risk, and we stopped that.
It is clear that the Liberal Democrats are starting to bottle out. As usual, they have taken an opportunistic chance to make some hay while the sun shines—that is the way they work, and that is up to them. They talk about nationalisation. I spent my life working in nationalised industries—20 years in coal mines and 16 years in local government. I have a very different ideological view from that of my party’s Front Benchers: their view is that public ownership is a good thing and we should have more of it. However, we should not have it only when things are on their knees. That is what happened in the past. In the post-war years, we nationalised the pits, the railways and the steel industry because we had to, because they had been run down and not looked after properly by the Government or the businesses that were supposed to be protecting them.
Northern Rock may not be nationalised, but we should give a chance to the people who have stepped in and fulfilled some of the criteria put forward by people who work for the Rock and by the Governor. Virgin and Olivant have said in their bids—they must be tested; I do not have a problem with checking carefully what companies say before we sign up to it—that they will make up-front payments back to the Treasury on day one, give guarantees that the rest of the taxpayers’
money will be paid back over two or three years, support the work force with guarantees of no compulsory redundancies, support the foundation, and protect mortgage holders and savers. They will also do what they can for the shareholders who, as Members on both sides of the House have said, need to understand the situation and bear the risk. Surely we should give the people who have come forward with a bid the opportunity to work with the bank and with the trade union, on behalf of the work force, to try to make this work.
The Liberal Democrats have come forward with proposals that they think will grab a headline. We are used to that. The people of the north-east will see through what they are doing and will not forgive them for it.
6.14 pm
Sir Peter Tapsell (Louth and Horncastle) (Con): I agreed with the mover of this motion, the hon. Member for Twickenham (Dr. Cable), who has been such a very effective temporary leader of the Liberal party, when he stressed the great seriousness of the situation we are facing. He pointed out not just the tremendous tragedy for those people, mainly in the north of England, who are depositors and shareholders, but the seriousness of the situation for our banking system, which is part of this debate and which, as the Minister pointed out in her speech, is part of an international banking system.
For the past 10 years, while the present Prime Minister was Chancellor, whatever question I asked him on any subject, he always prefaced his answer by pointing an admonitory finger at me and saying, in his usual genial way, “I want to remind the House that that was the hon. Member who spoke and voted against the Bank of England Act 1998, which has been such an enormous success.” Having waited 10 years to reply, as unfortunately, unlike when I first entered the House, Back Benchers never get the chance of a second supplementary, I hope that the House will bear with me for a moment—rather a long one, I fear—while I read a bit of the speech I made on 11 November 1997:
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