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21 Jan 2008 : Column 1214

The Chancellor said that there would be a profit-sharing arrangement between taxpayers and the private owner, but no numbers were given. Is it true, as the Financial Times reported this morning, that the proposal is likely to be for a 5 to 10 per cent. Government equity stake, with 95 to 90 per cent. of the uplift going to the private owner? If the proposal is of that order of magnitude, what is the position, if there is to be profit sharing, of the Northern Rock Foundation? The Chancellor mentioned it in the context not of profit sharing but of nationalisation.

Since we have heard from the north-east of England, the Chancellor will know that the Treasury’s private sale document made not a single, solitary reference to jobs or the future of the region, so what is its role under the proposals?

This morning, the BBC’s political correspondent described Mr. Branson as the “cat what got the cream”. I do not know what that is, but Mr. Branson appears to be the Government’s preferred bidder. Can the Chancellor tell us what Mr. Branson is going to contribute? My understanding is that he is proposing to put in £250 million in kind, not cash, to acquire a bank worth £100 billion, or 40 times that value. He has never run a bank, and I believe that the profits will be routed through a Caribbean tax haven, so what benefit does the taxpayer derive from his participation?

Finally, as the Conservative spokesman has already noted, Northern Rock shares have soared, while the British and other international stock markets have fallen. The only cheerful faces this morning were those of the two equity fund investors who made a speculative punt on Northern Rock a few months ago and have now recouped their investment. Meanwhile, the taxpayer in being taken for a very big ride. That will continue until the Government adopt the honest, transparent solution of taking the bank into public ownership.

Mr. Darling: As I said earlier, the hon. Gentleman has argued for the nationalisation of Northern Rock for some time, but he would accept that if the Government do that, many of the issues that he has raised still come into play. He has said on a number of occasions that he does not think that the long-term future of the bank lies in being publicly owned. He sees nationalisation as a temporary step back into the public sector, and I agree that if it came to that, that would be precisely the position that we should adopt, because the long-term future of the bank cannot lie with being run by the Government.

The hon. Gentleman must accept, therefore, that if the bank is nationalised, the risks to which he referred will remain with the Government, and that money from the private sector investors does not come immediately into the bank, so the Government will have to fund that. In any event, if the bank is subsequently transferred into the private sector, which he and I agree would be the right thing to do, under current market conditions it is likely that similar Government guarantees to those that I am proposing today would have to apply then, too.

The difference between the hon. Gentleman and me is that he wants to nationalise today. I believe that the better option, if we can do this on the right terms and conditions—the hon. Gentleman raises some very fair points about this—is to explore whether we can bring
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those private investors into Northern Rock now, which would enable the Bank of England’s lending to be repaid with interest, which is one of the demands that has been made time and time again in the House, and rightly so.

The hon. Gentleman raised a number of points about profit sharing and the financing details, which can be resolved only during the course of negotiation. As I said to the shadow Chancellor, I will of course keep the House informed about that. In relation to the prospective bidders, two have publicly expressed an interest and the Government are talking to both of them, while the company’s existing board is also considering proposals. All those will be considered, along with any others that are made in the next few days.

John McFall (West Dunbartonshire) (Lab/Co-op): It has been suggested that Mr. Branson is putting £250 million of his own money into the company by selling Virgin Money to Northern Rock, but estimates in the City indicate that that company is worth about £50 million. I would not like to think that Richard Branson was getting that £250 million from what Northern Rock was paying him for a company that is worth only £50 million, so transparency is of the utmost importance for the Government and others. I would encourage the Chancellor to have other companies coming in before 4 February, so that we can have a vibrant exchange and a vibrant sale.

On 19 November, the Chancellor told me that he would seek to pursue the interests of the taxpayer, promote financial stability and safeguard consumers. Is he satisfied that today’s new proposal gives equal weight to those three objectives? If he is, will he say how he will ensure that?

Mr. Darling: As I said in my statement just a few moments ago, what I am proposing today is consistent with the statement of principles that I published on 19 November—that is, to protect the taxpayer’s interest, which is extremely important; to look after the interests of the depositors, which has always been a concern; and to achieve wider stability. All the proposals that are currently available—that is, the board’s proposal and the Virgin and Olivant bids—involve those companies raising money from investors. In other words, they will have to put money into the company to ensure that it can continue to operate. The proposal that I have set out today will also mean that the Bank of England’s money that has been lent to Northern Rock can be repaid with interest, which is precisely what we wanted to achieve.

My right hon. Friend mentioned the final proposal, but we have not got to that stage yet. That is something that needs to be discussed, which is why negotiations are taking place. I made a point of saying in my statement that all options need to remain on the table, including that of a temporary period of public ownership, because there are conditions in relation to what I am proposing today. We need to ensure that we look after the interests of taxpayers as well as ensuring wider stability and continuing to look after the depositors. These are difficult times, and the conditions are not ideal, but I believe that what I am suggesting is the best way possible to proceed, and that the proposals ought to be supported on that basis.

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Mr. Kenneth Clarke (Rushcliffe) (Con): Does the Chancellor agree that, a few months ago, it was obvious that, in order to protect financial stability, it would be necessary to give guarantees to depositors and to achieve a quick, orderly work-out of the situation at minimum risk to taxpayers, in circumstances in which it has long been obvious that no purely private sector or commercial solution was going to be remotely possible? After five months of delay, are we not now being offered a proposal that will be of benefit to the shareholders in Northern Rock, including hedge funds, who will find that their shares have been given a value by this statement that they would not otherwise have had, and to future investors in Northern Rock, whoever they might be, who will find that the Government and the taxpayer are taking on an open-ended commitment to take all the principal risk involved? This is surely the result of dithering and delay, and of political considerations getting in the way of the speedy decision making and the orderly work-out that could have been achieved even before Christmas.

Mr. Darling: I agree with the first part of what the right hon. and learned Gentleman said. It was necessary for the Bank of England to intervene, and it was right to offer guarantees on the depositors’ money. We have common ground on those points. Throughout last autumn, considerable efforts were made to find a solution to the problems at Northern Rock, either by merger or by acquisition or through other proposals. Some interest was initially expressed by other banks and financial institutions but, as the financial markets tightened last autumn, it became increasingly obvious that that solution was not going to be possible. In the late autumn, interest was expressed by Virgin, by Olivant and then by another private equity group which subsequently withdrew. It became obvious to us that, without some degree of Government support, nothing was going to happen. That is why we commissioned Goldman Sachs to advise us.

I agree with the right hon. and learned Gentleman that, had it been possible to get a quick sale in the autumn, that option would have been highly desirable. Unfortunately, the conditions in the financial markets made that totally impossible. It would have been far more preferable, as I said in my statement, if we could have found a purely commercial solution. However, that is not going to be possible in the foreseeable future, as I am sure he recognises.

Jim Cousins (Newcastle upon Tyne, Central) (Lab): Whoever the future owner of Northern Rock might be, will the Chancellor assure me and the people of the north-east that he is in this for the long haul and that he will prevent the dumping of its assets—its workers and its mortgage book—into a falling market, where they will be bound to fetch far less than they are worth?

Mr. Darling: That is precisely what would happen if the company were to be put into administration as the shadow Chancellor has suggested. In the current conditions, which are there for all to see, if the administrator were required to start realising the company’s assets, there would undoubtedly be a loss, given the present mortgage conditions and today’s market. That was recognised by the shadow Chancellor himself only two months ago. He has changed his tune now, and we shall wait with
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great interest to see what his policy will be tomorrow morning. I do not expect that he has any more idea about that than I do.

Mr. Alan Beith (Berwick-upon-Tweed) (LD): The Chancellor was reminded by my hon. Friend the Member for Twickenham (Dr. Cable) of the importance of the Northern Rock Foundation, which is of immense value to communities throughout the region. What assessment has he made of the potential impact of his current proposals on the Northern Rock Foundation and its share of profits?

Mr. Darling: The Northern Rock Foundation is very important not just to the north-east of England but to the north-west as well. The proposed bidders in the company are well aware of this issue and how greatly the foundation is valued. I cannot today say precisely what will happen, but I can tell the right hon. Gentleman that we take this matter extremely seriously. The Northern Rock Foundation derived a great deal of income from Northern Rock plc, so for very obvious reasons there is bound to be a difference in the future. I recognise the foundation’s importance and it has already had meetings with Treasury officials; those discussions will continue.

Mr. Fraser Kemp (Houghton and Washington, East) (Lab): I welcome the Chancellor’s statement. Many others in the north-east as well as myself believe that this is a practical, realistic and imaginative solution to a problem that is not the making of anyone in the House but whose consequences we face in the financial markets. It secures the objective of protecting the taxpayer and offers real hope of long-term viability for a company that is very important for the north-east. Those of us who represent north-east constituencies will have many thousands of constituents who work for the company. I welcome the proposal; above all, it will end the damaging uncertainty that the company has faced— [Interruption.] I am asked what is the question. Does the Chancellor agree that ending the uncertainty is the most important consideration because it has been a critical factor in causing the damage? The Chancellor’s deadline is welcome, so let us hope that we can get a private buyer in place by then.

Mr. Darling: On the last point, I said in my statement at the beginning of October, when guarantee arrangements were put in place, that I wanted the company to come back by mid-February at the latest. We have a deadline in respect of state aid approvals of the middle of March, so matters do need to be brought to a head. As I said in response to the right hon. and learned Member for Rushcliffe (Mr. Clarke), market conditions over the last few months have been extremely difficult. While they are better now, a great deal of uncertainty remains. I agree with my hon. Friend about the importance of Northern Rock to the north-east of England. Not just the foundation, but the bank itself is an important employer. We still have a lot of ground to cover with difficult negotiations ahead. That is why I say that all options remain on the table. I will not rule out the option of a temporary period of public ownership, but I greatly take to heart what my hon. Friend said.

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Mr. Michael Fallon (Sevenoaks) (Con): Is the Chancellor aware that the Swedish taxpayer still owns 20 per cent. of Sweden’s largest bank 16 years after the Government stepped in there? He told the exchange this morning that he expects Northern Rock to operate without Government support “in due course”. How would he define “in due course”?

Mr. Darling: As I said to the shadow Chancellor, and in my statement, I want to bring about a position whereby the company can stand on its own feet as quickly as possible. I cannot today—these discussions are continuing—set out a specific timetable, but it is important for the Government to provide backstop back-up to the bank’s proposals. I would have a great deal more sympathy and listen with greater interest to the hon. Gentleman and his colleagues if they actually had a solution themselves, but it is becoming increasingly clear that they have no idea what they would do. I do have a plan.

Sir Stuart Bell (Middlesbrough) (Lab): It was perfectly appropriate for the Chancellor to refer in his statement to uncertain financial conditions throughout the world, which are enduring, long-lasting and perturbing the markets to this day. It is also perfectly right to defend the taxpayer and depositors. Building on the questions put by my hon. Friends the Members for Newcastle upon Tyne, North (Mr. Henderson), for Houghton and Washington, East (Mr. Kemp) and for Newcastle upon Tyne, Central (Jim Cousins), when the Chancellor meets representatives of the work force, will he tell them that his patient approach to solving this difficult problem is also in their interests?

Mr. Darling: As I have said on several occasions, having taken the difficult decision to provide support to Northern Rock in the first place last September, we must have the conviction to see it through. I am therefore disappointed that, having received wholehearted support from the Leader of the Opposition—he has now departed from the Chamber, but I am sure that he will remember those words—he is now running away from it.

Sir Peter Tapsell (Louth and Horncastle) (Con): Does the Chancellor appreciate the irony that the present world credit crisis is largely due to excessive securitisation of loans—a bankers’ ramp, which he is now joining? Does he hope that the Chinese will start buying his loans to Northern Rock when he has securitised them into bonds?

Mr. Darling: Not exactly, no. The difficulties in the US sub-prime market, which started the present problems, were primarily caused by the fact that, it would appear, too many lenders did not know whom they had lent to and had no idea of the true value of the assets on which those loans were secured. Securitisation in itself is not a bad thing, as I am sure the hon. Gentleman would agree. What matters is whether lenders know what they are doing. If only some of those who had lent to householders in America over the past few years had realised that those borrowers did not have enough income to support the loan repayments, and their houses were not worth anything like what was claimed, we might not be in the difficulties that we are in today.

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Mr. Chris Mullin (Sunderland, South) (Lab): I am sure that the 1,100 Northern Rock employees based in my constituency will welcome the Chancellor’s statement today. May I press him a little further, however, on the future of the Northern Rock Foundation? In his statement, he says that he will address it, “in the event of temporary public ownership”. However, many people in the north-east, especially those voluntary organisations that are dependent on the help that they receive from the Northern Rock Foundation, will want him to press the interests of the foundation regardless of whom the owner is. Please will he clarify that point?

Mr. Darling: Yes, we will. I said earlier to the right hon. Member for Berwick-upon-Tweed (Mr. Beith) that I recognise the importance of the foundation. My point was that in the event that we had to take the bank into a period of public ownership, we would have to provide for that. If the proposals as set out today come to fruition, I know that the company and the bidders are acutely aware of the importance of the foundation and will want to do what they can to help. This is one of the many problems that need to be sorted out and addressed, but I assure my hon. Friend and other Members who represent north-east constituencies that we are well aware of the problem and will do whatever we can to help. These are, however, difficult decisions and difficult times.

Mr. Iain Duncan Smith (Chingford and Woodford Green) (Con): I cannot tell you, Mr. Speaker, how much more confident we feel now that we know Chancellor Baldrick has a cunning plan. Does the Chancellor not think that allowing one of the potential bidders for Northern Rock to go on a visit to China and have an unminuted discussion about Northern Rock with the Prime Minister smacks of impropriety at almost any level?

Mr. Darling: On this side of the House, we do not believe in imposing travel restrictions.

Mr. Geoffrey Robinson (Coventry, North-West) (Lab): Is my right hon. Friend aware that he can safely ignore the opportunism of those on the Conservative Front Bench and particularly their irresponsible attitude to administration? As he nears the final stage of the complex and difficult negotiations in which he is involved, will he take it from us that we look to him to get the best possible deal for the public sector in those negotiations, and that the position that he has taken on a temporary period of nationalisation will greatly strengthen his hand in doing so?

Mr. Darling: I am grateful to my hon. Friend for his support. I agree with his comments about administration. I also agree that our proposals today represent an opportunity to try to resolve the matter. As I said, however, many matters still need to be discussed, and I hope that we can get on with that over the next few weeks.

Mr. John Redwood (Wokingham) (Con): When £25 billion was first advanced by the Bank of England, it did not appear that the usual banking disciplines over how and when the money would be repaid were put in place. Now the Chancellor says that he can get the
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money back with interest, which is welcome, but at the expense of a guarantee. Will he now put in place proper banking disciplines so that the guarantees can be run off quickly, as the market will allow, and taxpayers do not have the guarantee hanging around their heads in perpetuity?

Mr. Darling: As I said a few moments ago, I hope that the guarantees can be lifted as soon as is appropriate. That will be one of the subjects under discussion.

I agree wholeheartedly with what the right hon. Gentleman said on 15 January:

I could not have put it better myself. The right hon. Gentleman might like to have a word with his colleague.

Mr. Michael Meacher (Oldham, West and Royton) (Lab): Given that the consequences of the sub-prime market fiasco which brought down Gord—Northern Rock—

Hon. Members: Brought down Gordon Brown!

Mr. Speaker: Order.

Mr. Meacher: Given that those consequences have now spread more deeply across the economy with the undermining of the bond insurers, when will my right hon. Friend tackle the real underlying causes of the debacle, namely the use of securitisation with no proper risk management and no cross-border supervision, weak and inadequate banking regulation, the widespread use of exotic financial derivatives which are frankly designed to deceive, and an auditing system that involves far too cosy a relationship with the banks themselves?

Mr. Darling: As I said in my statement, I will publish proposals for strengthening the banking supervisory system next week, but as I told the hon. Member for Louth and Horncastle (Sir Peter Tapsell) a few moments ago, I do not think that securitisation in itself is a problem. The problem arises when institutions do not know what they are doing: when they are lending money and do not know the true value of the asset against which they are lending, and when they cannot be confident that repayments will be made. Those problems need to be tackled at national level, but—as I have also said on a number of occasions—they need to be tackled at international level as well. That is why we have made proposals to the International Monetary Fund and to the Financial Stability Forum, which we will discuss at the G7 in Tokyo in about three weeks’ time.

Stewart Hosie (Dundee, East) (SNP): The run on Northern Rock— although not the reason for it—coincided with the Bank of England’s not increasing liquidity last September, a month after the Government knew of Northern Rock’s liquidity difficulties and after the European Central Bank and the United States Federal Reserve had increased liquidity. Since that period, the Government have announced new powers for the Financial Services Authority and consulted on protection of depositors’ savings.

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