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Mr. Darling:
Again, much depends on the business plan that is to be prepared. As the business plan progresses, the Government will have to reach a judgment as to when it is right—when it is the best value for the taxpayer in terms of getting the Bank of England money repaid—to do so. That judgment will
have to be reached further along the line. I cannot tell the hon. Gentleman when exactly that will be. I have made it clear, however, that the business plan will need to set out the direction in which the company is to proceed. I have also made it clear on many occasions that the measure can only be a stepping stone before the company is returned to the private sector.
Mr. Christopher Chope (Christchurch) (Con): Does the Chancellor accept that if the board of Northern Rock had known the terms on which the Government are setting out compensation back at the time that it received Treasury and Bank of England assistance, it might well have declined that assistance because it thought that it would lead to confiscation of shareholder value?
Mr. Darling: I do not know on what basis the hon. Gentleman can make that claim. The board’s position last September was rather more stark. It had reached a situation where it could not continue because it could not raise the billions of pounds that it needed in order to continue trading. That is why the board came to the Bank of England for lender of last resort support. That was in the forefront of its minds. The then board would have taken legal advice as to what it ought to do and what its options were. That is a matter for the board, but as I have said on many occasions, by the end the company did not have much choice because it was so exposed. When the difficulties arose in the financial market, the board had little alternative but to come to the Bank.
Mr. Philip Hammond (Runnymede and Weybridge) (Con): Clause 9(7), dealing with provisions for compensation, includes
“power to make different provision for different cases or circumstances”.
Is it the intention of the Chancellor that different classes of shareholders might be compensated differently?
Mr. Darling: That might be difficult. Shareholders are shareholders, and it is difficult to discriminate between one and another. What we want to do is to try and put in place a compensation scheme that allows as much fairness as possible, consistent with the problem that the bank had run out of money and is trading today only because of Government support. We hope that as it is restructured and refocused, it can recover its position. At this stage, in the absence of the business plan, we must wait and see what the new management proposes.
Mr. Kevan Jones (North Durham) (Lab): My right hon. Friend will be aware that many of the small shareholders are former employees of Northern Rock who saved in the company savings plan at their retirement. If the Government had not interceded last September, is it not the case that those shareholders would have got nothing, and that they would likewise have got nothing if we had followed the barmy suggesting of putting the bank into administration?
Mr. Darling: My hon. Friend is right. Had the Government not agreed to the Bank of England intervention last September, Northern Rock would have gone under. It had simply run out of money; it could not raise the money that it needed. If that had happened, not only would employees and shareholders have been affected, but depositors would have been put at risk. We have always made it clear that the reason why we intervened was, first, to ensure financial stability—the first and foremost duty of any Government—and, secondly, to assure the savers and depositors. We also had to have regard, quite rightly, to the interests of the taxpayers, and we have been doing that.
I have said on many occasions that to have put the bank into administration would have been a huge mistake. It would have crystallised the losses, which would have had to have been met by the taxpayer, and it could have provoked a fire sale. I am not alone in thinking that; the hon. Member for Tatton (Mr. Osborne) said something very similar last November.
Mr. Swire: I am grateful to the Chancellor for giving way again. What discussions did he have at the time with Paul Thompson on the new management proposal? He and his team had raised £700 million—£500 million from existing shareholders, and another £200 million from the Tyne consortium in the United States. What discussions did the Chancellor have with them at the time?
Mr. Darling: I do not think that I have had any discussions with Mr. Thompson. In relation to the Northern Rock board and the Virgin consortium, they had discussions with Treasury officials and others about their proposals. As I said in my statement yesterday, both their proposals were considered and both were judged against the option of a temporary period of public ownership. As I said yesterday, the best value for money is the course of action that I am putting forward today.
Mr. Hands: Will the Chancellor give way?
Mr. Darling: I shall not give way; I have done so fairly generously.
I hope that I have outlined to the House the way in which the Bill is structured. I readily recognise that no matter what I or anyone else might say, the Conservative party is against this proposal. I am not entirely sure, and I do not think many people outside the House are, about what exactly its proposal is. Its whole approach throughout this whole affair has been muddled, confused, opportunistic and without any solution whatever.
We are proposing a course of action that will maintain financial stability. It will support the savers and give a chance for the company to be refocused and restructured. However, above all it is a proposal that supports the interests of the taxpayer, which must be first and foremost. I commend the Bill to the House.
4.57 pm
Mr. George Osborne (Tatton) (Con): Thank you, Mr. Deputy Speaker— [Interruption.] The hon. Member for Blyth Valley (Mr. Campbell) should calm down.
Today we debate all stages of a Bill that will give the Government, for the next year, unprecedented powers to take into public ownership any bank or building society. We are also to debate the particular application of the Bill to Northern Rock. Having listened to the Chancellor for the last half hour, one could forget that for five months he and the Prime Minister had done everything possible to avoid the course of action that the Chancellor is recommending this evening. Even after his half-hour speech, we still do not know the simplest things about the Bill. For a start, we do not know how much we are buying the bank for. We do not know what we are buying in terms of its assets and liabilities, nor how long we are buying it for. What do the Government plan to do with it once it has been bought?
I know that the Prime Minister has a long record of doling out public money with no regard as to how it is spent, but even by his standards this is a huge blank cheque. Let us go through the questions in turn. First, what are the Government going to pay for Northern Rock? We are told that that will be decided after we have bought it, which is certainly an unusual approach to buying something. The Chancellor hopes—I stress “hopes”—that the shares will be valued as all but worthless. However, as he knows full well, the hedge funds will fight tooth and nail through the courts for £4 a share, which would leave the taxpayer with a bill just shy of £2 billion. He can give the House absolutely no assurance that he will be successful in persuading either an independent valuer or the courts to agree with his valuation. When the House passed the British Leyland Act 1975, the cost to the taxpayer was limited in the Bill to £265 million. There are precedents in nationalisation Bills for putting a limit on taxpayer exposure in terms of the amount of money that the taxpayer will pay for initial purchase of the company.
Frank Dobson (Holborn and St. Pancras) (Lab) rose—
Mr. Osborne: I give way to the right hon. Gentleman, who probably remembers the British Leyland Act.
Frank Dobson: Would it be the policy of the Conservative party to support a court action by the hedge funds to get compensation that they do not deserve?
Mr. Osborne: I certainly would not support such a court action. I personally believe, as indeed the Chancellor believes, that the shares are virtually worthless, and without the Government support in September they would not be worth anything.
I hope that the Chancellor succeeds in achieving this objective, but he has no way of assuring us that he can do so. Let us be clear; some of the hedge funds that we are dealing with specialise in taking Governments through the courts for years in order to achieve the maximum return. I was told a story about one of the hedge funds involved, which finally ended up seizing the aircraft of the Argentine state airline in lieu of defaulted Argentine Government bonds that it had bought on cheaply from other banks. We are dealing with a lengthy process; this is the beginning of a long period rather than the end of one.
Mr. Leigh: Will not the courts take the view, sadly, that the shares have an obvious value, which is the value that was proposed by Virgin, so the figure of £2 billion that my hon. Friend mentioned is quite possible?
Mr. Osborne: My hon. Friend is right. A whole range of different sums could be agreed on by the independent valuer, and I am sure that my hon. Friend’s Committee will want to take a close look at this matter given its concern for the use of public money. The key point is that we do not know how much we are buying the bank for and how much we are being asked to shell out at the end of this debate.
Mr. Geoffrey Robinson (Coventry, North-West) (Lab): The whole House will be pleased that the hon. Gentleman has put a value of precisely zero pounds sterling on the shares of Northern Rock—we have heard that very clearly from the Conservative Front Bench. Is that the value at which, in his nutcase scheme, he would transfer them to the Governor of the Bank of England so that he could conduct a fire sale for him?
Mr. Osborne: I know that the hon. Gentleman is an expert on giving mortgages to people who cannot get them through normal channels. However, let me deal with his first point. I agree with the Chancellor of the Exchequer and, I think, with the deputy leader of the Liberal Democrats, that we have to accept, I am afraid—it is not a happy story for many small shareholders, particularly those in the north-east of England who received shares when the bank demutualised—that the value of the shareholders’ shares is very low, and they would be worthless without the Government support back in September.
Let me be clear about our proposal for a Bank of England-led reconstruction, which the hon. Gentleman mentioned in derogatory terms. That is exactly the procedure that we are all going to be asked to vote on for future bank rescues. I make a heady prediction that he will be trooping through the Lobby to support Bank of England-led reconstruction, which, by the way, would not double the liabilities of the taxpayer, as nationalisation will, would mean that the taxpayer comes first in the queue rather than last, and would not mean that the rest of the world looks to Britain and says, “This is the country where they have nationalised a high street bank.”
Mr. Kevan Jones: I am listening closely to the hon. Gentleman. Is he saying to those small shareholders in the north-east that he would give them no compensation whatsoever?
Mr. Osborne: I am saying that I agree with the hon. Gentleman’s Chancellor of the Exchequer that the value of those shares is, I am afraid, very small. It will be a decision for the independent valuer, but I am afraid that they would not be worth a great deal without the support that the Government gave in September. I am afraid that the hon. Gentleman had better break the news that this is the approach that the Government have taken. By the way, Bank of England-led reconstruction would mean that at the end of the process, once the taxpayers got their money back, there was at least a possibility that something would be left for the shareholders. I suspect that that will not be the case if we go down the route that he will vote for tonight.
Not only do we not know what we are paying for this bank, but we do not know what we are buying into. We know that nationalisation will double the exposure of the taxpayer from £55 billion to £110 billion—£3,500 for every taxpayer—but the Government simply refuse to tell us how risky that exposure is. The Chancellor did not tell us today, either. All he says is that the FSA judges the bank’s loan book to be of good quality. He said that last September, and says the same thing now, even though the prospects for the housing market have deteriorated markedly since then.
We know, however, that the independent rating agencies disagree with the Chancellor’s assessment. Standard and Poor’s says of Northern Rock’s mortgage securitisation that the losses are rising and repossessions are on the way up. We also know that Northern Rock wrote more mortgages than any other bank in Britain at the top of the housing market. We know that it offered 125 per cent. mortgages when most of its competitors thought that such mortgages were too risky. We are told that, as a result, Northern Rock is repossessing more homes than any other major bank in Britain. The least we should have from the Government before we vote on this Bill is an honest and independent audit of what we are being asked to buy.
Will the Chancellor tell us how many bad loans there are? What is the default rate? What is the pension fund deficit? The private sector bidders know those things; they were told. But the public sector and Parliament, which are being asked to buy the bank, know none of those things. Surely that is not an acceptable state of affairs. We are entitled to know what we are buying.
Mr. Bellingham: My hon. Friend is making an absolutely vital point. Does he agree that it is strange, to say the least, that the Chancellor did not tell the House the level of Northern Rock’s unsecured debts? Surely he should have told the House that, because we do not have a figure for it.
Mr. Osborne: My hon. Friend is right in the sense that we have not heard anything from the Chancellor about the general state of Northern Rock’s mortgage book beyond his bland assessment, repeated month after month, that it is in a good state. That is not what the credit rating agencies are saying.
My hon. Friend the Member for Gainsborough (Mr. Leigh), the Chairman of the Public Accounts Committee, said that we do not know how much we will be paying for the various City fees that have racked up while we have been waiting for the Prime Minister and the Chancellor to make a decision. We know that Mr. Sandler is going to be paid more than £1 million a year, but we do not know what the total bill for the advisers will be. I think that the Chancellor said, in answer to my hon. Friend the Member for Gainsborough, that he would publish the fees at some point—I hope that he did; I shall have to check Hansard tomorrow. I hope that that is the case, and that he does not just publish the fees for Goldman Sachs; hon. Members may not realise it, but we are paying the banking fees of Olivant, Virgin and Northern Rock. Once they became preferred bidders, Northern Rock agreed to pay their
advisory fees, and that is how we get to the £100 million figure on the front page of some of the newspapers.
Let us be clear: the consequence of nationalisation is that the risk of every Northern Rock loan defaulted on, of every Northern Rock mortgage that cannot be repaid, of the pension deficit and of those City fees will now be borne by the taxpayer.
Mr. Jonathan Djanogly (Huntingdon) (Con) rose—
Mr. Osborne: I shall give way first to my hon. Friend the Member for Huntingdon (Mr. Djanogly).
Mr. Djanogly: Would my hon. Friend agree that the fees incurred so far would be dwarfed by the litigation fees that may arise if the shareholders are not sorted out quickly?
Mr. Osborne: As my hon. Friend is a very successful solicitor, I am sure that he did not need to declare an interest. He well knows the substantial fees we all have to pay for good legal advice. I now give way to my hon. Friend the Member for Stone (Mr. Cash), who also has some expertise in this area.
Mr. Cash: I do not know whether my hon. Friend will reach clause 10, which is entitled “Tax consequences”, but does it worry him that the arrangements that it sets out constitute carte blanche, especially given the width of the orders,
“in connection with...or in consequence of”
the transfer of property and so on, and the fact that the
“provision that may be made by the regulations includes provision for or in connection with...a tax provision not to apply”?
In other words, clause 10 could lead to no tax being paid and total tax relief being given in all the circumstances that the provision outlines.
Mr. Osborne: I think that my hon. Friend’s interpretation of clause 10 is right. When we went through the technical details of the Bill, we asked Treasury officials about the clause and we were told that the reason for it was to avoid any perverse tax consequences of nationalisation and that it was an insurance policy against taxpayers losing out unexpectedly. However, my hon. Friend makes a good point. I suspect that we may not even reach clause 10 in the couple of hours allowed for the Committee proceedings, but if we had longer, the points could be explored in more detail and we could hear Ministers’ reasons for its inclusion.
John Hemming (Birmingham, Yardley) (LD): Perhaps the hon. Gentleman accepts that the difficulty is that, as soon as the Government underwrote the Northern Rock depositors, they were in a position whereby, if the music stopped, they were responsible for all the remaining losses. The error was to incur all the due diligence costs of hundreds of millions of pounds rather than nationalising straight away so that the Government were in control and could act to minimise the losses for the taxpayer.
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