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The Financial Services Secretary to the Treasury (Lord Myners): My Lords, the declaration by Granite Master Trust of a non-asset trigger event has no impact on the viability of Northern Rock as a business. Preliminary analysis of the company's numbers by our financial advisers suggested that Granite moving into pass-through would not be detrimental to the interests of the taxpayer.
Baroness Noakes:My Lords, I thank the Minister for that response. Does he agree that throughout the passage of the Northern Rock legislation we were consistently told by the noble Lord, Lord Davies of Oldham, that there would be no exposure to Granite as a result of the nationalisation of Northern Rock? Will the Minister confirm that the non-asset trigger, and indeed the arrears trigger which also happened last week, means that Northern Rock will now receive nothing from Granite until all the other bondholders are repaid and that, if there is any shortfall, Northern Rock remains exposed for the £3.3 billion or so seller share, which, one way or another, will end up being borne by the taxpayer?
Lord Myners: My Lords, the seller share trigger is 8.23 per cent of the pool. The sellers interest share fell below that because Northern Rock concluded that it wished neither to put high-quality assets into Graniteit had not done that since September 2007, which is totally in accordance with its agreement under state aid not to grow its book of businessnor to take assets out of Granite. Accordingly, under rapid amortisation, its position moves from pari passu to subordination, but it has not changed in terms of the quality of the underlying assets in place to meet its obligations. I confirm that the noble Baroness, Lady Noakes, is correct that the taxpayer has no specific responsibility related to Granite. Granite is not guaranteed by Northern Rock or the taxpayer.
Lord Forsyth of Drumlean: My Lords, on the subject of taxpayer liabilities in respect of the bank rescue schemes, how much taxpayers money, to the nearest billion, has been lost as a result of the dividend policy on the underwriting of the shares of Royal Bank of Scotland and other banks?
Lord Myners: My Lords, I am pleased to notify the noble Lord that no money has been lost. These are long-term commitments. As a former employee of a major American bank, he well knows that one cannot factor in a specific analysis to explain a market development. The stock market has continued to fall since we took action to support the British banking system. That action has been widely acclaimed throughout the world as right, correct and proper to defend depositors. We are taking action when it is required.
Lord Barnett: My Lords, my noble friends comments are absolutely right as regards the action we have taken. However, I gather that Granite was not part of the Northern Rock nationalisation. Is the press report correct that we have some exposure to Granite? If that is the case, what kind of totally unsecured bond did we take in Granite, if we took one at all, which I hope we did not?
Lord Myners: My Lords, Granite is a separately capitalised vehicle in which Northern Rock had an interest known as a sellers share. That is part of the cascading waterfall of liabilities. That was the case when Northern Rock was taken into temporary public ownership. It is not a bondholder; it has a sellers equity interest in the Granite structure.
Lord Newby: My Lords, does the Minister accept that one of the consequences of the recent action in respect of Granite is that it might, in response to its own bondholders, become more aggressive in repossessing properties which fall within its portfolio? Do the Government have any influence whatever over the management of Granite to prevent it acting so aggressively, and if they do, will they exercise it?
Lord Myners: My Lords, Granite is an entirely separate vehicle from Northern Rock. It is a plc based in the Channel Islands. The Government exercise no direct influence over Granite. However, in an attempt to be helpful to the noble Lord, Lord Naseby
Lord Myners: After each session in the House my noble friend Lord Barnett gives me a little tutorial on the mistakes I have made. Lord Newby, sir, foreclosures are higher in Northern Rock than in other mortgage lenders because its lending was more irresponsible. It is as simple as that.
Lord Bilimoria: My Lords, we were given to understand that Northern Rock was nationalised to prevent systemic failure. We were also given to understand that it was nationalised to protect jobs in the region and in Northern Rock and to save the taxpayer money. Can the Minister confirm what percentage of jobs have been lost at Northern Rock since the nationalisation? Furthermore, I heard the Government say that they might be making a profit for the taxpayer from Northern Rock. Can the noble Lord confirm what losses have been made at Northern Rock since nationalisation?
Lord Myners: My Lords, I do not have the information that the noble Baron, rather the noble Lord, Lord BilimoriaI got that wrong again, Lord Barnett, didnt I?seeks on redundancies, but I will communicate with him in writing. The essential intention in taking Northern Rock into temporary public ownership was to stabilise the banking system and to reassure people that a deposit placed with a British bank is a safe deposit.
Lord Northbrook: My Lords, does the situation now mean that all Granite vehicles will be starved of new mortgages, and does it mean that the percentage of defaulting mortgages within the Granite vehicles will rise as existing good mortgages are repaid?
Lord Myners: My Lords, the press has occasionally referred to Granite as a monster which needed to be fed with mortgages. That was not the case; there was not a legal obligation either to feed Granite with new mortgages or to remove bad mortgages from it. As the vehicle declines in size, the quality of mortgages in these types of vehiclesall these types of vehicles, not just Granitewill decline, because the good mortgages are paid off earlier. That is a phenomenon which is common to structured investment vehicles of this sort, which is why there is a facility to go into pass-through, and a switch from pari passu to subordination in the structure. What is happening here is what was envisaged in these structures. This structure was simply too big for Northern Rock, and has become enormous, standing beside a contracting Northern Rock. Therefore, it is entirely proper that the structure should be wound down as a prelude to returning Northern Rock to public ownership.
Lord Forsyth of Drumlean: My Lords, further to the noble Lords answer to me, can he assist me as a former investment manager and explain why, if the shares in the Royal Bank of Scotland and other banks were underwritten at a given share price and the value of that share price is now £8 billion less, there has not been a loss to the taxpayer?
Lord Myners: My Lords, that is because, as the noble Lord, Lord Forsyth, would know, equity investment is long term and we are confident that the wisdom of this investment over the long term will be vindicated.
Lord Myners: My Lords, a non-asset trigger event is an event in the documentation which allows for moving to rapid amortisation and is not linked to the asset value of Granite alone. It could be linked, for instance, to debt service cover, to credit rating or to the equity share that Northern Rock or the sponsor has in the vehicle. I have a 400-page document on this, which I am more than happy to share with the noble Lord, Lord Brooke, if he wishes; in fact, I would be more than delighted to have it moved from my library to yours, sir.
Lord Trimble: My Lords, there are rumours to the effect that in the region of £4 million has been paid to accountants for the valuation of the assets of Northern Rock, plus a further sum with regard to Granite, and total audit fees of £12 million. Are these figures correct? If they are, what was done in terms of tendering for this contract and could it not have been done more cheaply?
Lord Myners: My Lords, I believe that the payment to BDO Stoy Hayward in respect of any compensation that might be due to the shareholders of Northern Rock was part of a public tender exercise and was agreed at a fixed fee of £4.5 million. I am not sure whether all or any part of that has yet been paid. Other fees that have been incurred by Northern Rock are a matter for Northern Rock to report on and I am afraid that I am not in a position to give a helpful answer about the quantum. However, from our perspective, we will certainly ensure that we seek value for money in every aspect of governments involvement in this, as we do in all aspects of government policy.
Lord Bassam of Brighton: My Lords, it may be helpful to the House if I say a few words about the expected timing of Prorogation today. At the close of business, this House will adjourn until 8.15 pm to allow the other place to complete its business. It is expected that Prorogation will begin when the House resumes at 8.15 pm.
Before Prorogation brings the current Session to a close later today, it may also be helpful if I set out how we intend to proceed on the Banking Bill in the next Session. As your Lordships may know, the other place is considering the Banking Bill today and that Bill will be carried over in the other place to the next Session. In order to make progress towards achieving Royal Assent for the Bill by 20 February next year, when certain provisions of the Banking (Special Provisions) Act will expire, the usual channels have agreed to the introduction of a Banking (No. 2) Bill in this House after State Opening. This House will take the Second Reading of the Banking (No. 2) Bill on Tuesday, 16 December, which will allow the Committee stage to begin after the Christmas Recess.
The text of the Banking (No. 2) Bill is expected to be the same as the Bill that will arrive from the other place in due course in the next Session. If, as expected, the Banking Bill is brought from the other place in the next Session, it will, as usual, have its First Reading, and the Second Reading will be taken formally. Further proceedings in this House will then take place on the Bill brought from the Commons, and the Banking (No. 2) Bill will be dropped. This has been agreed by the usual channels to provide as much time as possible for your Lordships House properly to exercise its scrutiny function in respect of the Bill.
Lord Shutt of Greetland: My Lords, this channel is not overflowing with euphoria about that statement. We are very happy to try to achieve the objective date of 20 February 2009 but, as the Chief Whip knows, we
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Lord Bassam of Brighton: My Lords, I have always thought that the usual channels work rather well, and I hope to have long and co-operative discussions with all the parties to them. I am sorry that the noble Lord feels that he has the fuzzy end of the lollipop or the rough end of the stick on this occasion but we all have to engage in a bit of give and take. I encourage the House to continue with that tradition.
The Minister of State, Department of Energy and Climate Change & Department for Environment, Food and Rural Affairs (Lord Hunt of Kings Heath): My Lords, I beg to move that the Commons amendment be now considered.
(a) a condition of a particular licence under section 6(1)(c) or (d) of the Electricity Act 1989 (c. 29) (distribution and supply licences);
(b) the standard conditions incorporated in licences under those provisions by virtue of section 8A of that Act;
(c) a document maintained in accordance with the conditions of licences under section 6(1) of that Act, or an agreement that gives effect to a document so maintained.
(a) establishing, or making arrangements for the administration of, a scheme of financial incentives to encourage small-scale low-carbon generation of electricity;
(b) requiring or enabling the holder of a distribution licence to make arrangements for the distribution of electricity generated by small-scale low-carbon generation;
(c) requiring the holder of a licence to make arrangements related to the matters mentioned in paragraph (a) or (b).
(a) provision requiring the holder of a supply licence to make a payment to a small-scale low-carbon generator, or to the Authority for onward payment to such a generator, in specified circumstances;
(b) provision specifying how a payment under paragraph (a) is to be calculated;
(c) provision for the level of payment under paragraph (a) to decrease year by year in accordance with a formula published, or to be published, by the Secretary of State;
(d) provision about the circumstances in which no payment, or a reduced payment, may be made to a small-scale low-carbon generator;
(e) provision about the circumstances in which a payment may be recovered from a small-scale low-carbon generator;
(f) a requirement for the holder of a supply licence or distribution licence to pay a levy to the Authority at specified times;
(g) provision specifying how a levy under paragraph (f) is to be calculated (which may require specified matters to be determined by the Authority or the Secretary of State);
(h) provision conferring an entitlement on the holder of a supply licence or distribution licence to receive a payment from the Authority.
Authority means the Gas and Electricity Markets Authority;
distribution licence means a licence under section 6(1)(c) of the Electricity Act 1989 (c. 29);
owner, in relation to any plant which is the subject of a hire purchase agreement, a conditional sale agreement or any agreement of a similar nature, means the person in possession of the plant under that agreement;
plant includes any equipment, apparatus or appliance;
small-scale low-carbon generation means the use, for the generation of electricity, of any plant-
(a) which, in generating electricity, relies wholly or mainly on a source of energy or a technology mentioned in subsection (5), and
(b) the capacity of which to generate electricity does not exceed the specified maximum capacity;
small-scale low-carbon generator means an owner of plant used or intended to be used for small-scale low-carbon generation, whether or not the person is also operating or intending to operate the plant;
specified maximum capacity means the capacity specified by the Secretary of State by order, which must not exceed 3 megawatts;
supply licence means a licence under section 6(1)(d) of the Electricity Act 1989 (c. 29).
(c) fuel cells;
(e) water (including waves and tides);
(g) solar power;
(h) geothermal sources;
(i) combined heat and power systems with an electrical capacity of 50 kilowatts or less.
(a) may be exercised generally, only in relation to specified cases or subject to exceptions (including provision for a case to be excepted only so long as specified conditions are satisfied);
(b) may be exercised differently in different cases or circumstances;
(c) includes a power to make incidental, supplemental, consequential or transitional modifications.
(a) need not relate to the activities authorised by the licence;
(b) may make different provision for different cases.
As noble Lords will know, an upper-capacity cap for the feed-in tariff scheme has been defined in the Bill to give clarity and certainty to investors in large-scale projects under the renewables obligation. Our original amendment set an upper cap in the Bill of 3 megawatts. As I said when I first introduced the feed-in tariff clause, we want the upper cap to be high enough to give us sufficient flexibility to ensure that we are able to direct support to small-scale projects at the right capacity.
Since the debate we have reflected more on the arguments put forward by noble Lords and other interested parties that the upper limit on this power gives enough flexibility for us to ensure that appropriately sized smaller-scale projects are effectively incentivised to come forward. We still believe that setting this limit as high as 10 megawatts, which was the subject of an amendment tabled by the noble Baroness, Lady Young, would be too disruptive to larger-scale renewable investments under the renewables obligation. Having listened to the debate in your Lordships House and to other considerations in which we have taken part, we think that it would now be prudent to set the upper limit at 5 megawatts. If further analysis and evidence gathers support, this higher upper limit would give us the flexibility to implement a feed-in tariff to support smaller-scale projects up to a possible maximum capacity of 5 megawatts.
Noble Lords will be aware that we have a power in the Bill to set the upper cap below this maximum level. As part of the process for consulting on the details of this scheme we will undertake further analysis to determine the limit at which the feed-in tariff should be set below the 5 megawatt cap. Our guiding principle in following the capacity cap has been to preserve the investment being successfully delivered by the renewables obligation. This is very important since the renewables obligation will remain the key mechanism for supporting large-scale renewable projects. I reassure noble Lords that 90 per cent of onshore wind capacity to date is delivered by projects above the 5 megawatt limit that is now proposed on the feed-in tariff.
I should also say that as part of the Pre-Budget Report this week, we announced our intention to strengthen the renewables obligation by extending the scheme by 10 years beyond its previous end date of 2027. This is to ensure that investors can plan with confidence for the future, making renewable electricity investment more viable and helping us to achieve our renewable energy targets.
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