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Mr. Gerald Howarth:
I am extremely grateful to the Minister for giving way. I quite understand what she is saying, but it is extremely important that the public should understand one aspect of this issue. In the technical note that the Chancellor of the Exchequer sent to the hon. Member for Twickenham (Dr. Cable), it is mentioned that Northern Rock sold about half of its mortgage assets to Granite between 1999 and 2007. The note explains that Northern Rock will have an obligation to top up in the event that some of those assets are redeemed. Are the public not entitled to know whether some of the best assets of Northern
Rock can be siphoned out of the company into Granite, thereby diminishing the value of the taxpayer’s investment?
Yvette Cooper: The hon. Gentleman cites the technical note, but has not read the subsequent sentence, which clearly states:
“There remain high quality assets on Northern Rock’s balance sheet, as well as Granite’s.”
“It is a commercial decision for Northern Rock whether to provide new mortgage assets to the Granite financing vehicle or whether to allow the vehicle to run-off in an orderly way.”
Rob Marris (Wolverhampton, South-West) (Lab): Lords amendment No. 2 is basically the same as new clause 2, which was put forward but not reached when the Commons last debated this legislation. Amendment No. 14 was also put forward by the Opposition at that time, and that was discussed. That amendment mentioned provisions to ensure the independent day-to-day management of the business.
Does my right hon. Friend agree that it appears that, first, some right hon. and hon. Members do not realise that the Freedom of Information Act does not cover the private sector and that, secondly, to put forward an amendment asking for independent day-to-day business and then say that freedom of information should cover the bank is a contradictory and silly position?
Yvette Cooper: My hon. Friend makes an important point. There is also, as I understand it, a curious consequence of the way in which the amendment has been drafted. Under the amendment, even after Northern Rock was sent back into the private sector and sold, it would still be subject to the Freedom of Information Act. That is clearly bonkers and shows that it is simply a wrecking amendment designed to prevent it being viable to operate Northern Rock effectively in the public sector in order to be able then to sell it on to the private sector to get the best possible return for the taxpayer.
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In the end, this is all about us getting the best return for the taxpayer and getting a proper arrangement that supports the stability of the financial services and banking system. We think that those are important objectives. Opposition Members are simply playing opportunistic games. They are making nonsense claims about Northern Rock, about how the securitisation system works, and about how the legal system works. It is right that we should have a proper debate about this, but it is also right that we should come up with a proper solution to the problems of Northern Rock, which Opposition Members have continually and singularly failed to do.
Mr. Philip Hammond (Runnymede and Weybridge) (Con):
We have listened to 30 minutes of rubbish and waffle from the Minister, and we now have precisely 29 minutes left to scrutinise the House of Lords amendments and to consider the very significant points that were raised in the other place. There is clearly no prospect of this measure receiving proper scrutiny in
this House. Indeed, the one part of the Bill that has been properly scrutinised is the bit that the Delegated Powers and Regulatory Reform Committee looked at in the House of Lords. The Government have tabled five amendments of their own in recognition of the weakness of the original drafting—testimony to the value of proper scrutiny.
There was no reason at all to impose the farcical timetable that we have had for this Bill. We could have sat through the night tonight; we could have sat tomorrow. The only possible reason was to prevent proper debate and to obscure the extraordinary powers that the Government are taking, not only for Northern Rock but on a wider basis. We are witnessing a shocking abuse of this House’s willingness to expedite legislation in an emergency, with many of the powers in the Bill simply not necessary to resolve the situation of Northern Rock.
The amendments that have come back to us from the Lords fall into three groups: those dealing with transparency, the one dealing with fairness, and those dealing with procedure. Amendments Nos. 1 and 2 deal, respectively, with audit and freedom of information. There is a clear need for an audit of the situation in Northern Rock, including an analysis of the quality of the loan book, which would not necessarily be undertaken in depth in the course of the ordinary statutory audit that the Minister talked about. The public are being asked to buy a pig in a poke. No one is sure what we are getting, how much we are paying, or what we are buying it for.
An additional complication has come to light—that of Granite—and I want to take a minute to touch on that. We are all agreed that some of the best of Northern Rock’s assets are included in Granite, but Granite also includes a Northern Rock seller’s share worth about £5 billion to Northern Rock, which would be an early casualty of a default on the covenants in the Granite documentation, quickly undermining the solvency of Northern Rock. One of the requirements of an auditor would be to look at any impairment to the value of that seller’s share as a result of the change in Northern Rock’s situation. Specifically, Northern Rock must feed Granite with new mortgages; if it fails to do so, the Granite entities will collapse and go into wind-up with all the cash flows diverted to the bondholders, putting the seller’s share, which belongs to Northern Rock, at risk. To try to avoid that, Northern Rock may be forced, if it is not originating new business, to take the good-quality assets that it has within its own portfolio and feed them into Granite. That is the way in which Granite can become a sponge sucking the high-quality assets out of Northern Rock. That is why an audit is so important, and that is why we have consistently argued for an alternative method of dealing with Northern Rock that puts the taxpayer at the top of the pecking order, not at the bottom, which the Chief Secretary’s solution would do.
Lords amendment No. 2 would be unremarkable anywhere but in the wonderland that this Government inhabit. It says that what is a publicly owned company shall be deemed to be a publicly owned company for the purposes of freedom of information. But we know from the draft order that the Government intend to ordain by statute that this particular publicly owned company is not a publicly owned company. We have
heard a new definition from the Chief Secretary this evening; she says that it is not a “public purpose company”. The order talks about a “publicly owned company”. At this rate, next week we can anticipate a piece of legislation allowing the Government to designate by order that black is white.
If Granite’s loan book is as good as the Chancellor and the Prime Minister claim, and if, as the Prime Minister said at his press conference on Monday, they have
“made at all times the right decisions”,
what do they have to fear from an audit? What do they have to fear from a freedom of information request?
Frank Dobson (Holborn and St. Pancras) (Lab): Would the hon. Gentleman accept that the freedom of information request would not be made of Ministers, but of people who, in a competitive market, are trying to run Northern Rock to the advantage of the taxpayer? It might well be to the disadvantage of the taxpayer for information to be disclosed. I suggest that the Tories could come up with a compromise in this case. If this House and the House of Lords insist on freedom of information applying to Northern Rock for the sake of protecting taxpayers, will they agree to apply freedom of information to all the institutions with which Northern Rock would have to compete?
Mr. Hammond: I say to the right hon. Gentleman that there are other companies in the public sector that are subject to the Freedom of Information Act. The concern that he has will not arise because there is an exclusion from freedom of information provisions for commercially sensitive information. Let us be clear: what the Government are seeking to protect is not the commercial secrets of Northern Rock, but the cock-up that they have made of this whole fiasco since last September, which would be in danger of coming out if we got access to Northern Rock’s information through the Freedom of Information Act.
Mr. Cash: Will my hon. Friend give way?
Mr. Hammond: I am going to make some progress because I do not want to do what the Chief Secretary did and take up all the remaining time.
Lords amendment No. 3 would include in the Bill a statutory role for the Office of Fair Trading, which would address a key concern in the City of London and the financial services industry about fairness and competition. The state aid rules are a constraint, but the Government have acknowledged that they are not in themselves a significant constraint. We have had a significant concession from the Government on that issue in the House of Lords, and I am grateful to the Chief Secretary for that. The Government made it clear during the debate in the House of Lords that Northern Rock will not be allowed to abuse its privileged position to act anti-competitively in the marketplace. That is a great victory for us, and for common sense. We would have preferred to see that clarification in the Bill, because when the chips are down and Granite needs topping up, there will be a great temptation to interpret this self-made and self-policed regime flexibly, but it is, none the less,
something that we are pleased to acknowledge, and I thank the Chief Secretary for that.
Finally, the Government amendments to clause 13 represent a partial response to the concerns expressed by the Delegated Powers and Regulatory Reform Committee in the House of Lords, but they do not go nearly far enough. The negative resolution procedure is simply not satisfactory for the approval of orders made under this Bill. Where the purpose of the order is to transfer assets, it is no good us coming back to the order and negating it 30 or 40 days after it has come into effect and the damage has been done. The effect of using the negative procedure would be, in practice, to remove all effective parliamentary scrutiny from the process. It would allow the Government to make a transfer of assets by order that Parliament can do nothing about.
There is absolutely no need for the measure. The Government argued in the House of Lords that they may, in an emergency, need to transfer an asset urgently, but they do not need to act immediately in the case of Northern Rock. The shares are suspended and depositors still have access to their accounts. Life goes on. Mortgage holders are paying off their monthly payments and there is no risk to the system. We on the Conservative Benches maintain that this emergency legislation must relate precisely to the emergency situation—if we can call it that—of Northern Rock, not a wider, general purpose that the Government are seeking.
To fail fully to accept the DPRRC recommendations is, I understand, unprecedented without cross-party support. The DPRRC is not some partisan sniping party; it is a highly respected procedural Committee of the House of Lords. The Government’s behaviour on the matter shows up as cynical, hollow rhetoric the Prime Minister’s words back in June about respect for Parliament and the returning of powers to it.
The Government’s rejection of proper scrutiny not only of the Bill, through their timetabling motion, but of Northern Rock, the company that we are buying, through their refusal to accept the amendments, and their steamrollering of order-making powers in the face of the recommendations of a respected independent Committee of the House of Lords speak volumes about this rotten, incompetent and arrogant Government. I urge my hon. Friends to vote against the Government motions in respect of Lords amendments Nos. 1 and 2, and to support the Lords in their decision.
Sir Stuart Bell (Middlesbrough) (Lab):
We have had one blessing in disguise, which is that the hon. Member for Runnymede and Weybridge (Mr. Hammond) did not pray in aid the copy of the Financial Times that is on the Dispatch Box before him. I was waiting for him to tell us that he would quote from the Financial Times; indeed, one Opposition Member—I think it may even have been one on the Front Bench—quoted many Financial Times articles. It is a great pity that the Opposition spend so much time reading the Financial Times, but learning so little from it. I am reminded of a saying that Winston Churchill used during the second world war. He quoted Dean Inge, who said, “I’ve had a
great many worries; most of them never happened.” The hon. Gentleman’s doomsday scenario bears no relationship to reality.
I followed the Third Reading debate on the Bill, when the House was seriously misled by the hon. Member for Twickenham (Dr. Cable), whose comments on Granite come from another world. The Chief Secretary to the Treasury—
Mr. Deputy Speaker (Sir Michael Lord): Order. The House is very particular about the words that we should not use and “misleading” is one of them, so perhaps the hon. Gentleman would care to withdraw that remark.
Sir Stuart Bell: I am not entirely sure what I am supposed to withdraw. I am not entirely sure what I said— [ Laughter. ]
Mr. Deputy Speaker: Order. It is helpful to the House if hon. Members can remember what they have just said. There was some suggestion of misleading the House and I am sure that that is not what the hon. Gentleman meant.
Sir Stuart Bell: I am grateful, Mr. Deputy Speaker. If I may quote Winston Churchill again, he said, “The best speeches come from the heart.” But if I have unintentionally misled the House, I am happy to—
Mr. Deputy Speaker: Order. It is obviously taking me some time to explain this. Perhaps the hon. Gentleman would like to withdraw the word “misleading”.
Sir Stuart Bell: I am very sorry if I used the word “misleading” in relation to the speech by the hon. Member for Twickenham and of course I withdraw the remark.
I have followed the Opposition most of the evening. They have consistently refused to look any of the arguments in the face when responding to the Chief Secretary. What they are showing is a total misunderstanding of any kind of use of special purpose vehicles in the City of London and any concept of global securitisation. They read the Financial Times, and I can tell them that the City of London will be very disconcerted by their lack of knowledge about what actually happens in the City.
Mr. Dunne: It is revealing to learn that the hon. Gentleman is an expert not only on matters of faith but on global securitisation. As he has criticised the hon. Member for Twickenham (Dr. Cable) for raising the subject of Granite, perhaps he will expand on the final sentence of the technical note from the Treasury which states:
“Northern Rock is not liable for the Granite bonds and bondholders have no access to Northern Rock’s assets.”
If that is the case, why is it that Northern Rock not only controls all the cash flowing into Granite, but has an obligation to top up assets and the seller’s share that it holds in Granite?
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Sir Stuart Bell: I am very happy to answer, because the hon. Gentleman has shown his total ignorance of economics as they apply to securitisation. [Interruption.] Yes, he has. That is the nature of a securitisation, and that is the nature of a bond. The hon. Gentleman’s failure to understand that demonstrates the Opposition’s failure to understand anything about the taking of Northern Rock into public ownership, the reasons why it is happening, and the reasons why it is temporary. The hon. Gentleman must understand—although he seems not to wish to understand—that Granite is an independent legal entity. That is a fact from Northern Rock. Granite is owned by its shareholders; Northern Rock owns no shares in Granite. This is a normal procedure.
Angela Browning (Tiverton and Honiton) (Con): I too was present for the Third Reading debate. Can the hon. Gentleman explain this? The technical note states, under the heading “Control of Granite”:
“The contractual structure of Granite is such that it is effectively controlled by Northern Rock as it continues to service the mortgages in Granite and to provide cash management and other administrative services.”
Sir Stuart Bell: That is the principle of securitisation. Securitisation has been here for 20 years. If the House wants a lesson on the concept, let me explain that it began with General Motors. Opposition Members have no understanding of what securitisation means, but everything that the hon. Lady has said is right: that is what securitisation is about. The Opposition’s inability to understand securitisation reveals that they do not understand the City of London, do not understand the financial markets, and do not understand why we are in this position.
Mr. Philip Hammond: Can the hon. Gentleman explain why the Granite entities are consolidated in Northern Rock’s accounts?
Sir Stuart Bell: I understand that at least 40 per cent. of Northern Rock’s mortgages are going across to Granite. Again, we are talking about a concept: the concept of balance sheets and accountability. I must tell Opposition Members that each time they open their mouths they show that they do not understand the City of London, they do not understand accountancy— [Interruption.]
Mr. Deputy Speaker: Order. This is an important matter. The House must listen. [Interruption.] Order. The House must listen to the hon. Member who is addressing it.
Sir Stuart Bell: I give way to my hon. Friend the Member for Wolverhampton, South-West (Rob Marris).
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