Mr. Darling: As I said, we will have to wait and see what the board proposes. The board will look at all the products that Northern Rock currently sells. It is acutely aware of its responsibilities, and of the fact that it is trading with the benefit of Government support at the moment. As I said, it will publish its plan fairly shortly and everyone will then have an opportunity to see what it proposes.
John McFall (West Dunbartonshire) (Lab/Co-op): I welcome the appointment of Ron Sandler to his new post. One of the first initiatives that he undertook was to abolish the Together mortgagethe 125 per cent. loan to value. That was a good move, because I considered that mortgage an example of irresponsible lending. However, does the Chancellor appreciate that there are genuine issues of competition at stake? A number of banks and others have been on to me, and at the moment the spread between the inter-bank ratethe LIBOR rateand base rates is considerable. That may be causing problems for companies. In advance of Ron Sandlers appearance before the Treasury Committee, would the Chancellor discuss those issues with him so that he can put our minds at ease on that competitive advantage, which others in the market have seen?
Mr. Darling: My right hon. Friend raises two matters. First, with regard to Northern Rocks competitive position, he is absolutely right that Ron Sandler and the board will want to look at what it is selling and offering. I understand that the board is looking at that now with a view to ensuring that whatever products it has on the market are priced appropriately. Everyone recognises that it would be unfair for the bank to rely on those guarantees for anything like a short period, and it would not be possible in terms of the Governments objectives of reducing and removing their guarantees in due course. On his second point, the Bank of England keeps the spread of interest rates and the LIBOR rate under constant review.
Peter Viggers (Gosport) (Con): Based on 2006 accounts, the inclusion of Northern Rock in the national accounts would add £90.7 billion to public sector net debt and increase the debt-to-GDP ratio by 6.7 per cent. In view of suggestions that the Chancellor of the Exchequer may be seeking to airbrush Northern Rock out of the national accounts, will he explain how he intends to deal with Northern Rock in the financial statements accompanying his Budget?
Mr. Darling: The hon. Gentleman will see that next week, but I cannot believe that he is seriously suggesting that, because Northern Rock is temporarily on the Governments books, we should slash public spending to take account of that fact. That would be absolutely ridiculous.
Ms Sally Keeble (Northampton, North) (Lab): Does my right hon. Friend agree that, given that Northern Rock had a very rapid expansion, it is likely that there will be a quick contraction of the business? Will he say how he is going to set about explaining that to the public, or ensuring that it is explained to the public, so that people do not get into a panic and think that there is a crisis, but understand that the process is part of an orderly management of the business?
Mr. Darling: The whole point of asking the board to produce a business plan is to plot a course for the future to enable the bank to continue to trade. Our objective has always been twofold: to ensure that we obtain value for the taxpayers on repayment of the Bank of England loan and to secure financial stability. Both elements have been met. We have been consistent in our objective throughout, and that will continue.
Mr. Michael Fallon (Sevenoaks) (Con): Given that the national statistician has ruled that Northern Rock, as a public company, should count as part of the public sector net debt, surely excluding it from the sustainable investment rule is nothing other than a straightforward political fiddle. Nobody is suggesting cutting public spending, only that the figures should be accurate.
Mr. Darling: The figures will be accurate. As the hon. Gentleman said, the national statistician has classified Northern Rock as part of the public sector. That is hardly surprising in view of the legislation that we passed a couple of weeks ago. However, the proposition that I put to the hon. Member for Gosport (Peter Viggers) is that the Conservatives appear to argue that, because it is now on the books, we should take account of it in ensuring that we meet our fiscal rules. The code for fiscal stability, which is underpinned by legislation, makes it clear that we can accommodate a period of temporary public ownership, and that would be properly accounted for. To suggest that, by extension, we should take action that would be bad for the economy is ridiculous.
Ian Lucas (Wrexham) (Lab): Does my right hon. Friend agree that when Northern Rock got into difficulties the primary responsibility of Government was to ensure that the banking system as a whole would not be undermined? Have not the Government achieved a great deal by restricting the difficulty to Northern Rock and resolving the position through the course that they have taken?
Mr. Darling: My hon. Friend is right. The justification for our intervening to provide facilities for Northern Rock was the genuine risk of the problems affecting it spreading to other financial institutions. That is why we took the decision. As I said a moment ago, one of our central objectives is to maintain the financial stability of the system. I expect that if we had not intervened the terms of the debate in the past few months would have been different. I remind the House that the decision that we made last September had all-party support at that time, precisely because it was the right thing to do.
The hon. Gentleman is right to raise the matter, which is, of course, of concern to Northern Rock employees. The issue must be tackled as part of the banks overall business plan as it moves from where it is today to a more viable position in future. I know that Ron Sandler and his colleagues are considering all the options and that they will want to discuss them
with their staff and staff representatives. All those matters will be considered in the business plan. They need to be resolved relatively soonthe state aid approvals run out on 17 March and we must therefore submit a new application, although some of the details will take longer to be fully worked out. I will keep the House informed.
Sir Peter Tapsell (Louth and Horncastle) (Con): Since the Government are so keen at present on European treaties, may I draw the Chancellors attention to the fact that his proposals are a clear breach of the budget deficit procedure imposed on Britain by the Maastricht treaty? I opposed it at the time on the precise ground that he is now using: the inflexible rules that Europe lays down often have to be broken in unforeseen circumstances.
Mr. Darling: I know, as does the House, about the hon. Gentlemans difficulties with many matters European, but the fiscal rules that we operate are designed precisely to allow the flexibility that we need, not only for long-term investment, which is important, but for exceptional circumstances, such as the temporary ownership of Northern Rock. The rules were designed to take account of that possibility. However, it would be plain daft, having acquired Northern Rock, to take action that would be wholly inappropriate and damaging to the British economy.
Dr. Vincent Cable (Twickenham) (LD): What is an appropriate mortgage lending policy for a state-owned bank, bearing in mind that house prices are falling at 10 per cent. a year on the Nationwide index and 13 per cent. in the forward market, so that even the 90 per cent. mortgage would produce negative equity in a year, let alone the 95 per cent. mortgage, which the Governments Post Office is promoting?
Mr. Darling: It is for the board to devise a strategy to enable the bank to get out of its current difficulties. The hon. Gentleman will simply have to wait until then. It is true that house prices are slowing down, but on the back of many years when house prices were growing at 10 per cent., or even more in some parts of the country. Although the housing market in this country will slow down, I believe that it is fundamentally strong, but all lenders will want to price their products at what they regard an appropriate level now and at any time in the future.
Mr. Darling: I believe that we can meet the European state aid rules. We have had many discussions with the Commission and I remain confident that we can resolve the situation, just as I was always confident that we could resolve the situation with regard to Northern Rock. The hon. Gentleman might be better employed trying to find a credible policy on Northern Rocksomething that the Conservatives have singularly failed to do in the past six months.
The Exchequer Secretary to the Treasury (Angela Eagle): According to the latest Bank of England statistics, total personal debt was £1.4 trillion in January 2008. That is against a background of economic stability and rising prosperity, with rising employment and robust income growth.
Annette Brooke: I thank the Minister for her answer, but given that about one fifth of all income is necessary just to service debt, which in turn will affect the demand for final goods and services, how confident is she about her forecast for economic growth of 2 to 2.5 per cent., when the consensus is that economic growth will slow down to 1.75 per cent.?
Angela Eagle: The hon. Lady will have to wait until next week for the updated forecast in the Budget. When looking at net debt, we must look at the level of assets, too, which have also risen, to £7.5 trillion. Household net wealth has risen by 72 per cent. in real terms under the economic policies pursued by the Government since 1997. I think that that is a success.
Mr. Barry Sheerman (Huddersfield) (Lab/Co-op): Does my hon. Friend agree that an intrinsic part of personal debt is the mortgage? Is she worried that people are predicting a mortgage famine, as the banking system increasingly refuses to lend to anyone? Will that be good for the economy or for personal debt?
Angela Eagle: I am not quite so pessimistic as my hon. Friend. We are not complacent about the situation that we face, but I should point out that there have been 1.8 million more home owners in the past 10 years under Labour. Because of our policies of economic stability and success, the average mortgage rate has been 5.6 per cent., which is half what the Conservatives managed to achieve between 1979 and 1997. That makes mortgages more affordable.
Mr. Mark Field (Cities of London and Westminster) (Con): I must confess that I was rather disappointed with the Exchequer Secretarys complacent answer to the original question. Does she not recognise that while she preaches stability and prudence her Department is setting the worst possible example of personal debt, given the enormous amount of public debt now on the balance sheet, which is getting ever worse?
Mr. Andrew Love (Edmonton) (Lab/Co-op): One of the best ways to address personal debt is through the provision of generic financial advice. This week the Thoresen review was published. Will my hon. Friend say whether she has had a chance to read it yet, when the Government are likely to come forward with recommendations based upon it and when we can look forward to a comprehensive system of generic financial advice throughout the country?
Angela Eagle: We strongly welcome the Thoresen review and have already announced £12 million to finance the pathfinder roll-out of all the generic financial advice involved in the review, in order to increase financial literacy, which Thoresen suggested that we do.
The Chief Secretary to the Treasury (Yvette Cooper): Northern Rock set up Granite as a separate company structure for the sole purpose of raising finance for mortgage lending by Northern Rock. The commercial relationship between them reflects that. Other banks have set up similar securitisation arrangements.
ultimate controlling party is Northern Rock.
Yvette Cooper: No, as we have made repeatedly clear, Northern Rock has been taken into temporary public ownership; Granite has not. It is the case that Northern Rock has significant control over Granite, because it sets the mortgage rates and decides whether to sell mortgages to Granite, and it set up Granite solely for the purpose of raising finance for mortgage lending by Northern Rock, so there is a clear commercial relationship between them. However, the hon. Gentleman seems to be proposing that we should effectively buy out the Granite bond holders. That would not be sensible for the taxpayer and could lead to considerable taxpayer costs.
Mr. Philip Dunne (Ludlow) (Con): The Chief Secretary told us in the debate on the Banking (Special Provisions) Bill that Granite was not being taken into public ownershipshe has just confirmed that again nowand that it was not being guaranteed by the Government. Was she not aware that, in the week before that debate, the Office for National Statistics had determined that Granites debts would be included in the public sector net debt?
Yvette Cooper: Of course we were aware of the ONS classification, which was set out on the basis of the loans and guarantees provided to Northern Rock at the beginning, and not on the basis of the subsequent decision to take Northern Rock into temporary public ownership. The ONS approach is to look at issues of control, and it is right that it should do that. However, we have to take these decisions in the interest of the taxpayer. Safeguarding those loans and guarantees by taking Northern Rock into temporary public ownership was the right decision for the taxpayer. It would not have been the right decision to buy out Granites bond holders. They take risks, and it is right that they should do so. Frankly, this is becoming another day, another policy from the Opposition. Now they want us to fork out to buy up Granite as well.
Mr. Andrew Mackay (Bracknell) (Con): Does the Chief Secretary recall that Ministers kept reassuring us that Northern Rock had a very strong loan book? Will she confirm, however, that all the mortgages that have been hived off to Granite are the best and the early mortgages, and that those remaining with Northern Rock represent a much higher risk?
Yvette Cooper: No; the Financial Services Authority has testified that the loan book held by Northern Rock is of high quality. It is the case that Northern Rock has sold high-quality mortgages to Granite, but Northern Rock also holds high-quality mortgages, as assessed by the FSA, on its own books. That is why we have taken the decisions that we have taken, in the interests of financial stability and of the taxpayer.
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