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It may be helpful if I set out how we propose to apply these requirements to Northern Rocks 2007 accounts. Once the shares have been transferred, I am sure that Ron Sandler and the new board will want to consider and review whether he has an appropriate audit team in place. I can assure the Committee that the companys accounts will be published at the end of March, and I will ensure that a copy is placed in the Library of the House.
I contend that these are far more appropriate arrangements than the alternatives before us in the two amendments. The Governments proposal reflects our policy that the company should be run at arms length from the Government on a normal, commercial basis to ensure that it is well placed to return to the private sector at the earliest opportunity. Neither the National Audit Office nor the Bank of England are well qualified to take on responsibility for the auditing of large and complex financial institutions. To state the obvious, the Bank of England is a central bank and not an auditing firm; its expertise lies elsewhere. Moreover, the skills and experience of the National Audit Office, and its statutory role, lie in auditing the financial statements of government departments and agencies, not a large mortgage-lending and deposit-taking institution. Independent professional auditing firms with experience of the City are surely far better placed to provide the necessary expertise and scrutiny.
The noble Lord, Lord Forsyth, asked whether accountants reports were prepared for the bidders. Some analysis would have been done, but that was
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Lord Forsyth of Drumlean: I am not sure what the Minister is saying. If there was an accountants report prepared for the bidders, of course it was done for that purpose. But why should it not be available for sight by the taxpayers who are going to have to stump up the money for this business? We are buying a pig in a poke.
Lord Davies of Oldham: I hear what the noble Lord says. However, these reports were for the purposes of the two organisations concerned with the bids. As I have indicated, they do not meet our auditing requirements. The amendments are concerned with the 2007 accounts and the audit of Northern Rock in the future.
The noble Lord, Lord Oakeshott, raised what promises to be the spectre at our feast todaythe issue of Granite. I reiterate that Northern Rock sold some of its assets to Granite and so it no longer belongs to Northern Rock. No new assets have been transferred to Granite since September 2007. The taxpayers exposure continues to be secured by high-quality assets that belong to Northern Rock. The whole of our consideration, therefore, has been about Northern Rock and not about Granite because nothing has transferred to Graniteas I have reiterated time and again to the Committeesince September 2007.
Lord Oakeshott of Seagrove Bay: As the Minister has not answered my question perhaps I may ask him a simple question: does he regard the £8 billion of unsecured loans in Northern Rocks balance sheet as high-quality assets? Yes or no?
Lord Davies of Oldham: One of the reasons I stand at the Dispatch Box is that I am not an accountant. I am not going into waters such as these with the noble Lord when I know his expertise. I merely reiterate the obvious fact that the Government have made it clear that Granite and Granites assets are not part of this process with regard to law. It is separate from Northern Rock and there has been no transfer of assets since September 2007. The Government are considering Northern Rock and its assets, and they are sound.
Lord Davies of Oldham: If in its future business plan Northern Rock has any transactions with Granite, then of course Granite will appear in its accounts. That is for Mr Sandler to reach decisions on
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In any case, that is not an issue for the Government; it is an issue for the board, which takes responsibility for the presentation of its accounts. Otherwise, the noble Lord would be asking for the Government to interfere in a specific way when the whole point of our operation is that we should be at arms length from it.
Lord Leach of Fairford: I am sorry to persistI realise this question has, in a way, been asked beforebut it is a regulatory requirement that all bona fide bidders should be given equal information. The taxpayer is a bona fide bidder; will it therefore receive equal information with all the other bona fide bidders, the company itself, Olifant and Virgin? Yes or no?
Lord Davies of Oldham: The noble Lord will recognise the intensive interest in Northern Rock that the Treasury has been obliged to take over the many months since the crisis first developed. Of course the Treasury is and has been in a position to know fully the issue with regard to Northern Rock, its asset base and its book value. That is why we have been able to make the assertions that we have made on the security of the loans that have been made and the basis of the taxpayers support.
If the noble Lord is suggesting that the Treasury would do anything else except apply the highest level of diligence to this exercise, I can only state that this has been a significant issue for the Treasury for a considerable period of time. We hoped that the issue would be resolved with a private sector deal, but there was always a possibility that the bank would come into the public sector. That is why necessary work was carried out on the preparation of possible legislation, as noble Lords have been quick to point out. That hard work was done in the hope and expectation that it would be located in the private sector. When that failed, the Government, of course, had their full analysis of Northern Rock to hand.
Lord Forsyth of Drumlean: My noble friend is asking why the taxpayers cannot have the same information as was provided to Richard Branson before they embark upon this purchase. As he said, it is a regulatory requirement that you should treat all potential purchasers the same, so why cannot we have that information? While the Minister is answering that point, perhaps he will answer one of the questions I asked last night. Will the Government make available the very expensive advice that we obtained from Goldman Sachs and others for which we are paying? Why cannot that be provided? What do the Government have to hide?
Lord Davies of Oldham: The Government have nothing to hide on this issue. I recognise that the noble Lord is not speaking from the Front Bench and therefore may not be entirely compliant with his own Front Bench, either in this House or at the other end, with regard to these issues. However, if he is prepared to attest that he is, it will be an interesting point to put in the ledger.
The noble Lord is contending that as far as the Government were concerned there was another alternative once these bids had failed. The Government made up their mind that public ownership was best in the interests of the nation and for safeguarding the resources already provided by the taxpayer. I know that noble Lords opposite have a fanciful notion that Northern Rock could have gone into some kind of Bank of England administration, an absolute canard on how the issue was meant to work to the benefit of anyone. Certainly it would have been a catastrophe for Northern Rock, a catastrophe for its shareholders and a catastrophe for its workforce. The Government never considered that, and are not prepared to consider it, as a realistic proposition. That is why we have taken Northern Rock into public ownership while, at the same time, being confident that there are assets in Northern Rock against which the loans from the Bank of England and the taxpayers contributions are secured.
Lord Oakeshott of Seagrove Bay: Before I reply, I wish to say that I agree with my noble friend Lord Tordoff. I fear that on both sides of the House we are drifting into Second Reading speeches on quite a lot of these amendments. It is going to be a very long day if we continue on this basis.
I thank noble Lords who have supported me on this amendment. I apologise to the Minister if I had not made it clearI thought I hadthat we are talking not about the normal commercial audit of Northern Rock on 31 December 2007 but about a one-off event, to be followed up later, of an independent valuation of the bank on the day we buy it. That is quite a separate issue.
Listening to him, I was not clear whether he was saying that the auditors are likely to be changed for the year-end report, although I am bound to say that if they are going to be changed, that will need to happen quickly. I would have thought the existing auditors would be well advanced with their work. So that was not very clear, but then it is not the burden of the amendment. For all the reasons I have given, the amendment calls for a totally independent take-on audit to be conducted, not personally by the Bank of England, but on its behalf and on its instructions.
The National Audit Office is a separate issue. In todays papers, the NAO is talking about investigating the process leading up to the nationalisation of the bank. That is quite different from kicking the tyres, going through the books and seeing properly what the quality of the mortgage book is. I am absolutely sure that the Chancellor and the Financial Services Authority are wrong, and that there are many cans of worms in Northern Rocks mortgage loan book regarding what has been granted over the past couple of years. I am sure that an independent, properly
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( ) No provision may be made in regulations under this section which would have the effect of depriving any person of rights to use capital losses incurred in connection with a transfer of securities under section 3 or of property or rights under section 6 in the computation of that persons liability to capital gains tax or, in the case of a person liable to corporation tax, the computation of that persons liability to corporation tax on capital gains.
The noble Lord said: I declare my interest as a partner in the national commercial law firm, Beechcroft LLP, and as president of the Chartered Insurance Institute and the other entries in the register. I am merely seeking to probe the Governments intention behind Clause 10. I understand that the clause is intended to ensure that the nationalisation of Northern Rock, or, as the Minister seemed to imply last night, any other financial institution, does not have an unintended effect on tax revenues. I understand that any steps taken under this Clause will be based on a tax analysis report which will be produced in a few months time. I wonder whether the Minister could just answer a couple of questions.
First, will the tax analysis report be made public? Secondly, how far will the Government go to ensure that their tax revenues are not damaged by this nationalisation? The specific case that my amendment anticipates is that current shareholders in Northern Rock will potentially make a significant loss upon nationalisation. It would be natural for them to seek to offset that loss against any profit they might have made on other assets in their portfolios. Surely, the least the Government could do in these difficult circumstances is to avoid taking steps that might deny them this. I beg to move.
Lord Bach: In rising to speak for the first time on this Bill, I feel I ought to register the fact that I am a long-standing depositor with Northern Rock. Having said that, let me say that we have a lot of sympathy with the point that the noble Lord, Lord Hunt of Wirral, makes. The tax affairs of an authorised deposit taker are likely to be extremely complex. It is therefore necessary to have a broad power to deal with the tax consequences of the transfer of shares or property rights and liabilities which is very likely to give rise to various types of tax charges or losses. Given the aims of a transfer of an authorised deposit-taker under the Bill, it is important to have the power to deal with tax consequences that might arise as a result of a transfer carried out in the public interest.
The tax provision is wide, but it must be so to deal with the complexity. As I said at the start, we take the noble Lords point that it could deprive a former shareholder taxpayer of a right to claim a tax loss if one would arise from a transfer. I can now say that Her Majestys Treasury would not use the power to deprive such persons from claiming the use of any tax loss that might arise from having had their shares transferred away from them. That concession, if it is oneI certainly hope it is a reassurance to the Committeeshould give the noble Lord and the Committee the comfort that they are rightly looking for in this particular amendment.
Where an authorised deposit-taker is subject to an order made under section 3 or where the property, rights and liabilities of an authorised UK deposit-taker have been transferred to a body corporate under section 6, that deposit-taker or body corporate shall be deemed
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