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With your permission, Mr. Speaker, I should like to make a statement to update the House on the current position with regard to Northern Rock. The House will recall that last week I said during the Queen's Speech debate that I would keep the House informed of developments. I also said that I expected to publish a statement of principles underpinning the Government's approach to proposals received by Northern Rock with regard to its future. I published that statement this morning, prior to the markets opening, in the usual way. Copies are available in the Vote Office and the Library of the House.
It is important to be clear about the respective responsibilities of the Northern Rock board and the Government. The board is legally responsible to its shareholders for the future of the company. However, the Government have a wider public interest in maintaining financial stability, which is why we agreed to lender-of-last-resort support in September and subsequent lending by the Bank of England. The Government also have an interest in protecting the interest of the taxpayer. Because of this, the Government have, as a major creditor, a direct interest in the future of Northern Rock. The Government therefore have to agree to any proposals for the future of Northern Rock.
Before turning to our approach, let me deal first with the position on the guarantee arrangements to Northern Rock depositors provided by the Government and, secondly, with the loan facilities provided by the Bank of England to support Northern Rock and to maintain financial stability in general. First, we have made it clear that the guarantee arrangements already announced for depositors in order to safeguard their position will remain in place during the current instability in the financial markets. These guarantee arrangements were absolutely necessary. They have not had any cost to the taxpayer because these deposits covered by the guarantee arrangements remain in the bank. As I have said before, savers are free to take their money out if that is what they want to do, but they have no need to do so. The guarantee arrangements ensure that savers' deposits are safe. The guarantee will not be removed without proper notice being given to depositors.
Looking ahead, I have made it clear that the Government will legislate for a new regime for protecting bank depositors. As the House knows, we have published a discussion paper on this legislation, and I very much welcome the offer of cross-party support for it. But it is important that we get it right. There are many examples, both here and in other countries, of legislation having been rushed through only to be regretted later. The current consultation finishes on
The second element of support is the Bank of England loan facilities. It is important to remind ourselves of why this support was provided in the first place. Northern Rock got into difficulties because it was almost totally reliant on getting very substantial sums from the securitisation and money markets on a continuous basis to do its business. When that lending became ever more difficult, it had no option other than to go to the Bank of England. Because of the possible impact on the stability of the wider financial system, it was right that I authorised the Bank of England to intervene. That, too, had cross-party support.
While international financial markets have shown signs of improvement since the sharp credit squeeze in August and September, following the problems that arose in the American housing market in the summer, there clearly remains continued uncertainty in the markets. The rates at which banks are willing to lend to each other also remain high in all the major currencies. It is therefore vital that we do everything we can to maintain stability internationally, as well as here at home. As the House knows, we are taking steps at an international and domestic level to improve the regulatory regime and to provide greater transparency. That was the subject of the discussions of G20 Finance Ministers that I attended in Cape Town over the weekend.
The continuing support of the Bank of England has also given Northern Rock an opportunity to consider its strategic options. I am very clear that this is also the right thing to do and, indeed, when I announced this, it enjoyed support from both sides of the House. I know that there has been interest in how much support the Bank of England is giving. The Bank publishes its balance sheet every week. However, in common with other central banks, it does not provide details of any operations because it believes that doing so would undermine its ability to provide such support. I understand the frustrations that that can sometimes cause, but to provide what would, in effect, be a running commentary on any operations would be likely to have adverse affects that none of us would want.
Having said that, I can tell the House that Bank of England lending is secured against assets held by Northern Rock, which include high-quality mortgages with a significant protection margin built in and high-quality securities with the highest quality of credit rating. The Bank is the senior secured creditor. The Financial Services Authority has said before, and continues to say, that Northern Rock's main asset base—its mortgage book—is strong and sound.
As with any lender on this scale, we have ensured that the Bank's lending is subject to significant conditions and controls to ensure that our interests are protected, and, in return for that facility, Northern Rock has agreed a number of controls, including not declaring, making or paying any dividend without the prior written consent of the Bank of England, and not making any substantial change to the nature of its business.
I now turn to the next stage. It is in the interests of everyone that the situation with regard to Northern Rock is resolved as soon as possible. That was why Northern Rock asked for expressions of interest in purchasing the business. As the company announced earlier today, as part of its review of its strategic options, it has received indicative expressions of interest, covering a range of options for the business. It currently expects to receive further expressions of interest in the next few days.
It is essential that the public interest is protected. That is why I have published today the principles that will underpin the Government's approach, when assessing proposals from Northern Rock regarding its future. As I have already said, the Government have to agree to any such proposals. The principles make it clear that the Government have a clear duty to protect the public interest, and we will do so. However, I think that the whole House, and particularly Members representing the north-east, will want us to do everything we can within the constraints on us to resolve a very difficult position for Northern Rock.
Let me therefore set out our approach. First, we must protect the interests of the taxpayer. Substantial sums have been lent, and that money has to be repaid at an appropriate time and rate. The Government will consider proposals with a view to reaching the best outcome for the public purse. Secondly, we want to protect depositors. It is essential to do everything we can both to safeguard their interests and to maintain the service provided to them. Thirdly, we will maintain wider financial stability.
As I have made clear all along, the Government will now assess proposals from the company consistent with the approach that I have set out, and we remain closely engaged with the company as the best outcome for its future is assessed. As the company has acknowledged today, any proposals would have to be approved by the Government and, importantly, any proposal can be vetoed by the Government. In that way, the Government can ensure that the public interest is safeguarded. As I have told the House on previous occasions, any outcome must meet EU state aid rules.
It would be quite wrong to dismiss any option now without proper consideration, as some have suggested we do. I continue to believe that it is right to use this time to explore the best outcome for the company and the public interest. I agreed to Bank of England support because I believed it was right to do so. I agreed to continue support to allow Northern Rock the time it needs to consider its strategic options because it was right to do so.
I have set out today the approach that the Government will take as they assess proposals from the company to ensure that we will approve a solution only if it safeguards both the public interest and the specific interests of the taxpayer. That work is being done now and will be concluded as quickly as possible. I will, of course, continue to keep the House informed in the coming weeks. I commend this statement to the House.
The fallout from the first bank run in 140 years gets worse each week, and today has been another day of weakness and confusion from the Chancellor of the Exchequer. Of course, we all hope that a buyer can be found who will save the jobs at Northern Rock and repay the taxpayer. [Hon. Members: "No you don't."] I am sorry that Labour Members are not interested in jobs in the north-east or in the future of Northern Rock. Perhaps they will pay attention, because we are conscious of the impact of this in the north— [ Interruption. ]
The question we now ask of the Chancellor is simple: has he been honest with taxpayers about the risks that they face, and has he told the whole truth? First, let us look at what he has announced today. He announced that what was supposed to be a short-term emergency facility for Northern Rock may now be extended beyond February and could last for years. Thank you, but we already knew that because it was in a memo from the company's advisers that was leaked last week. Indeed, throughout the crisis we have learned more from media leaks than we have from the Government.
The Chancellor will not tell us the size of the facility, when he expects it to be repaid or the terms of the repayment, even though much of that information is an open secret in the City. Indeed, the Governor of the Bank of England wants to publish the letter that he sent to the Chancellor to set out those terms. He told the Select Committee that he wanted to do so, but the Chancellor refuses to publish the letter and simply says that it is in the public interest that he should refuse. Clearly, the Governor of the Bank of England disagrees. Will the Chancellor explain in greater detail why he will not publish that letter?
This is not about the commercial interests that the Prime Minister spoke about last week, but about the public interest and the £900 that has been pledged on behalf of every taxpayer in Britain. The Chancellor talks about the Government's liabilities being secured against £100 billion of Northern Rock assets, but he does not say that many of the assets are already promised to other creditors. Will he confirm that the free assets at Northern Rock could be closer to £40 billion and that total Government liabilities, through both the facility and the deposit guarantee, might now be approaching the total of the available assets, putting the taxpayer further at risk?
The Treasury also said today:
"Authorities expect the costs and risks associated with Northern Rock to be borne to the greatest extent possible by the current and future private sector providers of capital."
So do we, but has the Chancellor given a general guarantee to cover the £13 billion or so lent by medium-term note holders—the large institutions that lent money with their eyes open? Has the Chancellor considered reducing the risk to taxpayers by announcing a cap on the guarantee offered by the Government so that only individual savers are fully protected? Of course, we need to get the depositor protection legislation right, but we now know from the Governor of the Bank of England that he has been pressing the Chancellor to do that for a considerable time.
The Chancellor has failed to address today the two things that he appears so far to have kept secret from Parliament and from the taxpayer. First, will he tell us whether it is true that the Treasury, as well as the Bank of England, has lent money to Northern Rock? He mentioned only the Bank of England in his statement, but today we are told that the Treasury has also lent so-called subordinated term debt, which does not have to be paid for five years, comes at the back of the queue and is in most danger of default if the bank is wound up. If that is true, taxpayers have been exposed to an extraordinary long-term risk, yet we have been told about that Treasury loan by the BBC's business editor rather than the Chancellor of the Exchequer. If it is true, the Chancellor is surely deliberately withholding information from Parliament and the public. Will he confirm the existence of that Treasury loan?
The second thing that has become clearer today is that the Chancellor cannot be sure of keeping the promises that he and the Prime Minister made to the taxpayer. He said to the Select Committee that
"we fully expect to be able to get that money back."
He said to the public that
"any money that the Government makes available" to Northern Rock
"we can recover from its assets".
"guaranteed against Northern Rock assets."—[ Hansard, 14 November 2007; Vol. 467, c. 660.]
Today, the Chancellor merely says that he wants the best outcome for the public purse. Will all the money lent by the taxpayer be repaid with interest—yes or no? Let us hope that the answer is yes and that, in the final reckoning, the taxpayer will not have paid a heavy price for the Government's incompetence. Let us hope that the Chancellor can be honest today about the risks to the taxpayer and about the existence of the secret Treasury loan.
We are considering a tale of incompetence and weak leadership from a Government who now reel from one disaster to another. We have a Chancellor who appears to have made secret loans from the Treasury, who has made guarantees to the taxpayer that he cannot be sure of honouring and whose weakness contributes to the instability of the financial system. That is why the Chancellor's job is now on the line.
I am sorry that the hon. Gentleman was unable to make any constructive proposals. He supported the decision that I made at the start to enable us to provide lender-of-last-resort facilities to the bank. He also supported providing a guarantee, yet he now tries to give the impression that he does not agree with any of those things.
On the many questions that the hon. Gentleman asked about future proposals, he knows full well that, until we have had a chance to assess the proposals that the various financial institutions have presented and reach a view about what would work, it is impossible for me to state precisely the arrangements that we expect for Northern Rock in future. However, it is right to spend time assessing the proposals that the various institutions have made and then come to a view about what is best to ensure that we secure a future for Northern Rock and protect the wider public interest, especially the taxpayers' money that has been lent to the bank.
It is hardly a secret that we have made facilities available to Northern Rock—I have informed the House at each and every stage of events, as hon. Members would expect. Furthermore, we were absolutely right to take such actions because the consequences of letting the Northern Rock bank fail, as the hon. Gentleman now appears to suggest that we should have done, would have been immensely damaging to this country's financial institutions.
The hon. Gentleman asked several questions. First, he asked about the deposits that we are guaranteeing. As I told him, they remain in the bank, so there has been no cost to the taxpayers. The money is there; people can take it out if they wish. However, the guarantee exists, and it is not, therefore, necessary for people to take out the money. There has not been a cost to the taxpayer because the money is in the bank.
The hon. Gentleman asked about lending to the Northern Rock bank. The lending of last resort and the lending that started in the week beginning
The hon. Gentleman asked about the letter that the Governor of the Bank of England sent. I repeat what I said when he asked that question last week—the Treasury Committee asked the same question. On the evening before the lender-of-last-resort facilities were announced, both the Governor of the Bank of England and the chairman of the FSA wrote letters advising me to authorise such facilities. The letters must be seen together. It is true that the Governor of the Bank of England told the Select Committee that he had no objection to publication. However, the chairman of the FSA most certainly objects to the letters being published. As I said to the Treasury Committee, I do not say that we will never publish them—I believe that, given time, it may be appropriate to do so. However, it would not be in the public interest to publish them now. I have consistently taken that position with the Select Committee and in the House last week and today.
I believe that what I did in respect of Northern Rock at the start was right. I believe that it is right now to give the bank the space that it needs to consider its strategic options. Anything else, I believe, would be grossly irresponsible, and I am sorry that the hon. Gentleman has chosen to follow that path.
May I say to my right hon. Friend that, contrary to the view expressed by Mr. Osborne, his proposals have been rightly welcomed so far in my constituency, where Northern Rock has its head office, and in Newcastle in general? He said that he would outline the principles on which the Government would act in the coming weeks, and I am pleased that the public interest was put at the forefront of those principles. In defining the public interest, is he prepared to look at the question of employment, not only at this time but at the time that any bid might be successful, and for a five-year period afterwards? Will he ask any bidder to itemise its employment plans, both at the time of sale and for a period of five years afterwards?
I am grateful for my hon. Friend's support. As he rightly says, there is a great deal of understandable interest in the issue in the north-east, because of the impact on jobs and on the wider economy there. As I have said on previous occasions, I hope that we can do everything possible to allow the Northern Rock to continue to do business. As he knows, many hurdles must be crossed, but we will do everything we can to help. That is why it is so necessary to provide Northern Rock with a breathing space, and it is deeply regrettable that some people, particularly Conservatives, now seem to be suggesting that that is wrong.
I do not know whether the Chancellor has been singing in the bath, but he does bear an increasing resemblance to the former Conservative Chancellor, Norman Lamont, who presided over a comparable financial disaster.
I want to focus on the £24 billion loan—£900 for every taxpayer—which is over and above the £18 billion deposit guarantee, which is less controversial and which we all support. The former Prime Minister, Tony Blair, was widely criticised for advancing £800 million for the millennium dome. In the past few weeks, the Government have provided the equivalent of 30 millennium domes to this bank, without even the prospect of a decent pop concert at the end of it.
The key question, which I put to the Prime Minister last week, is this: is the lending secured? He said that it was. Will the Chancellor confirm, however, that that is not the case? Of the loan, £13 billion has a first charge security, although at a more relaxed standard than is normal; £11 billion, however, is wholly unsecured. Half the assets of the bank have been packaged up by a company called Granite, which is registered in the Channel Islands and has the first claim on the assets. The remainder is a collection of mortgages, many of which were advanced at the peak of the property market and are now of declining value. I therefore return to the question that I put to the Prime Minister, and that has been partially put to the Chancellor already. Will he stand up and give an absolute guarantee that the loan will be repaid in full, with full interest, within the lifetime of this Parliament?
Will the Chancellor also comment on the management of the company? Does not Mr. Adam Applegarth, who has just been dismissed, now have a pension pot of £2 million and various bonuses, which are underwritten by the taxpayer? Will the Government explain how they got into a position in which they have entrusted £24 billion to a management team that was discredited, that led the bank into its present crisis, and whose chief executive showed such contempt for his own bank that he sold his own shares to invest in a country estate and a Ferrari for his wife?
That is not the only conflict of interest. An attempt is being made to sell the bank, led by the company. The company has a clear conflict of interest. It is in the interests of the directors and the management to maximise the taxpayer's contribution. The taxpayer's money is being used to prop up the bank, and to provide a profit opportunity for spivs in the City.
Let us consider the alternatives. The ideal outcome— [Interruption.]
The ideal outcome would be the sale of the bank, as a going concern, to a private operator who could maintain the employment in the north-east and the brand, and repay the Government in full. It is clear from this morning's bids, however, that that is a fantasy and will not happen, which leaves us with two very unpalatable options.
The first option is liquidation of the bank—putting it into administration—which I think we all agree would be a disaster. It would devastate the north-east, the shareholders would get nothing, and the Government would lose a great deal of money. Should not the Government therefore consider the other option, which is temporarily assuming full control of the bank? That would eliminate the conflict of interest, it would provide a breathing space enabling— [Interruption.] It would provide a breathing space— [Interruption.]
I note that over the weekend the hon. Gentleman changed his position on Northern Rock several times. On Saturday he was calling for full-scale nationalisation, by yesterday he was calling for reluctant nationalisation; and today it was reluctant nationalisation for a very short period. This afternoon, having denounced the City, he went on to press for a quick sale to the very people whom he had denounced.
I understand full well that the board and the shareholders have a particular interest with regard to Northern Rock—I made that clear in my statement—but we, the Government, have an interest in protecting not just financial stability but the taxpayer's money that is being lent. The reason that we insist on our interests being upheld is that we would have to agree with any proposal for the future of Northern Rock. If we do not like a proposal, we can say no to it. We can veto it because, through the Bank of England, we are by far the major creditor.
I believe, however, that simply plumping for one solution today—and presumably, by extension, not bothering even to consider any of the expressions of interest that have been received—would be extremely short-sighted and foolish. Would it not be better to use the time that we have to establish whether those expressions of interest can be translated into a firm proposal that would both help the company and, crucially, protect the public interest? I think that that would be far the better course, and it is the one that I propose to pursue.
At least 6,000 people work at Northern Rock, many of them in my constituency. I agree with my hon. Friend Mr. Henderson that employment is a big issue among my colleagues and Members of Parliament in the north-east. I join my hon. Friend in asking the Chancellor please to ensure that those jobs are secure. We know that the money is important and paying back the taxpayer is important, but 6,000 jobs are a lot of jobs and we cannot afford to lose them.
My hon. Friend is absolutely right. The jobs are very important, which is why I think that the Liberal Democrats' attitude is so short-sighted and wrong. I think that we owe it to people in the north-east, as well as to the general public, to do all that we can to try to reach a point from which this business can be taken forward. It will be difficult—many hurdles will have to be overcome, and a great deal of hard work will be involved—but I think that the Government have a responsibility to ensure that we can manage the process, and that it would be wrong to close the door on any possibility of something in the future.
Will the Chancellor spell out in more detail why, despite the unprecedented sums involved, he is unable to be more transparent with the House in regard to the amount, the conditions, the terms and the repayment process? He now says that that is not possible because of the central bank's commercial confidentiality, but we were told earlier that the potential deal being considered by the Treasury and the bank was aborted precisely because it was thought that such details would have to be made public.
The right hon. Gentleman raises two points. Let me deal with the second one first, as there has been some comment about a proposal that a major bank made to the Government, the Bank and the FSA at the end of August. There was no firm proposal on the table, but, as the FSA chairman has said, an exploratory inquiry was made as to whether the Bank would be prepared to lend the institution in question about £30 billion at commercial rates. It was explained that there were three problems with that. First, neither the Bank nor the Government normally provides commercial lending in this way to a going concern, which is what that financial institution was. The second problem was that if we were to entertain such an option we would have had to ask other banks whether they would be willing to enter into a similar arrangement, perhaps involving less Government money. As the right hon. Gentleman will recognise, the Government cannot just, in effect, lend £30 billion to a bank without there being some sort of due process to allow others to see whether they could do something more competitively. I would have been open to severe criticism if I had done that. The third problem was that, on any view, this would have been state aid.
As it happened, having made the preliminary inquiry the institution never pursued the matter. The proposal was made on a Saturday and the institution withdrew its interest in Northern Rock on Monday. Therefore, it was never the case that there was a proposal on the table that was there to be considered and accepted or rejected. There was a preliminary inquiry, and I have explained what the difficulties were. However, as I have also said to the House, and to the Treasury Committee, I have always taken the view that had it been possible for Northern Rock to have been acquired prior to all these difficulties, that would have been the best solution. I must also say to the right hon. Gentleman—I apologise to the House for taking up so much time in dealing with this, but it is important—that we should remember that that approach was made before anybody in the outside world knew there was a problem with Northern Rock. For us to have then started a competition as to which bank might take it over might have drawn attention to the very problems we are concerned about.
Let me now deal with the other part of the right hon. Gentleman's question. I will be able to tell the House about the terms of repayment once it is clear what course of action is best for Northern Rock and the public interest, as I have set out. It is not possible to do that until we have a proposal that is properly assessed and worked out. On the right hon. Gentleman's point about the general Bank of England question, I explained the position in my statement.
The whole House will have noted that the Liberal Democrats have as much regard for the 5,500 employees of Northern Rock in the north-east—and the 6,500 nationally—as they had for the job of their former leader. [Interruption.] Two or three faces in public, 10 in private—that is the policy of the Liberal Democrats.
Does my right hon. Friend accept that the policy of nationalisation would lead to a slow lingering death for the jobs of the Northern Rock workers, its assets and Britain's reputation as a major financial services centre, with my right hon. Friend the Chancellor cast in the role of undertaker—and that only by finding a successor business to grow on those jobs, assets and reputations can we offer any real prospect of the taxpayers getting their money back?
I agree with my hon. Friend. It is regrettable and surprising that the Liberal Democrats never seemed to support our earlier proposals to keep Northern Rock open. It would also, however, be a mistake to shut off all other options and simply go for one at this stage; that does not seem to me to make any sense at all.
In relation to that last point, as I said to the Treasury Committee, of which the hon. Gentleman is a member, we wanted to make it clear to the company that we needed to get proposals and we needed to bring that to a head, which is why we said that we would review the matter at the end of February. We have never said that everything would stop at the end of February and could not possibly continue. Surely the best thing to do to secure the best possible repayment of the loan made by the Bank of England is to assess the proposals being worked up and then decide on the appropriate rate and timing of repayment. To box ourselves in now and exclude options without having properly considered them would be the wrong thing to do.
I refer the Chancellor to his statement on principles this morning. Paragraphs 2 and 3 talk about protecting taxpayers' interests, promoting financial stability and ensuring that the consumer is safeguarded. For the sake of the Treasury Committee's inquiry, will he tell us in what order he places those objectives? May I remind him about Friday's statement from Northern Rock, which was put out late in the evening and did nothing to bring credibility or focus to this issue. Will he impress upon Bryan Sanderson, its chairman, that there is no case for a payout for its chief executive, Adam Applegarth? Suspicious minds would consider that he is staying on until February so that it is reported in the spring 2009 annual reports, when this will have been swept under the carpet. Credibility is important in negotiations over the next few months. Will the Chancellor ensure that that credibility is injected into this company?
I am sure that Bryan Sanderson will have heard what my right hon. Friend has had to say. It is important, especially given the position that Northern Rock is in at the moment, that whatever it does, it must ask itself whether that is the right thing to do. In answer to his question about the three principles that I set out—to protect taxpayers, to promote financial stability and to protect depositors—they are all equally important. For the avoidance of doubt, both inside this House and out, ensuring that we safeguard the taxpayer's interest is very important, but the other principles are important too.
The Chancellor said in a previous answer that the facility would be reviewed at the end of February. Today's Treasury press release was headed:
"Principles for assessing Northern Rock proposals".
"The principles clearly state that interested parties should not assume at this stage that the current Bank of England loan facilities will be available beyond either any sale or the expiry of the facilities in February."
Yet in his statement the Chancellor said that it would be wrong to dismiss any option, and the third point of what he called his approach was to maintain wider financial stability. Those comments may seem slightly inconsistent, so to help provide transparency, which he was discussing with the G20 Finance Ministers at the weekend, will he tell us how long he expects to, or would be prepared to, have the guarantee and the facility in place?
May I suggest that the hon. Gentleman read the statement on principles that I have published today? It says that bidders should not just assume that the facilities will be available in perpetuity, and then goes on to say that we
"are willing to discuss any proposals made".
That is entirely consistent with what I said in my statement, and with what I said to Mr. Fallon. To get ourselves into a situation whereby right from the start we impose conditions on ourselves that mean that we may not get the best deal available would be a mistake. Most people in this House want to see a solution that, ideally, would help Northern Rock move on in the future and also ensure that we can safeguard both the wider public interest and the specific taxpayers' interest. If Stewart Hosie were to examine paragraph 3 of the statement on principles, he would see that that is precisely what the Government set out.
The Chancellor of the Exchequer has just repeated what he said earlier, in his statement—that he is trying to balance financial stability, the taxpayer's interest and the depositor's interest. May I assure him that if he follows the line taken by Mr. Osborne and secures only individual investors rather than institutional lenders, the financial markets would see havoc overnight? May I echo the thoughts of my hon. Friends who represent Newcastle seats—that 6,100 jobs are at stake and that this is a major regional company? What we are seeing in this House is Northern Rock being used as a political football, not a surrogate attack on our financial stability.
It would be regrettable if the future of Northern Rock became a political football, and I know that my hon. Friend—who of course represents a seat in the north-east—is very mindful of the effect on the economy of the north-east. I agree that the three principles set out this morning are important. As for the guarantee, perhaps I did not deal with the point raised by Mr. Osborne. Having given the guarantee, I am now invited by him to unpick it—but that would be the wrong thing to do.
Surely if a way ahead is to be found, it will be on the basis of known facts. For the Government to plead confidentiality, and for an injunction to be sought to prevent the publication of facts relating to the matter, must be counter-productive. Can the Chancellor specifically confirm or deny that there is a proposal for a five-year subordinated loan stock to roll up the interest on the loan?
Is it not now clear that if either of the Opposition parties had been in power, Northern Rock would already have sunk without trace and 6,000 jobs would have gone down the drain? Is my right hon. Friend aware that whatever the outcome of this, the people of the north-east are at least assured that the Government are doing whatever they can to ensure the future of that business and the thousands of jobs involved?
My hon. Friend is right. He has raised that point every time we have discussed the issue on the Floor of the House, and he is right. We owe it to people to do everything we can to help the situation. It is unfortunate that some of those who supported what we were doing at the start now appear to be changing their tune.
The Chancellor charges the shadow Chancellor with irresponsibility, but many taxpayers believe that the Chancellor may have acted irresponsibly by putting their money at risk. They will not be reassured by the vague assurances that he has given today, unless he is more specific. For that reason, can he tell us the precise value of the free collateral that Northern Rock holds, and how many of its assets are already pledged to other creditors?
I do not think that I said that the shadow Chancellor was irresponsible: that is the hon. Gentleman's word, not mine. There are two issues in relation to the point that he makes. It was, and continues to be, right to give Northern Rock both the initial lender of last resort support and subsequent support. The hon. Gentleman almost implies that we should not have done that— [Interruption]—but that would have meant that Northern Rock would have been in substantial difficulties— [Interruption.] Well, that is the implication of what the hon. Gentleman said. As for the loans made by the Bank of England, they are secured in the way that I described in my statement.
Is my right hon. Friend aware that Labour Members fully endorse his triple objectives? I wish to remind him, as many of my colleagues from the north-east have done, of the employment considerations. We also fully support him in taking time to find a solution that meets those objectives, but time is also pressing, in that further large loans may come to maturity in January and February and could make the Government's exposure even greater. Therefore, I urge him to make it clear to those with whom he is negotiating that ultimately—if they are very unreasonable and cannot come to terms with the Government on those reasonable objectives—there is an alternative available.
I am grateful to my hon. Friend, and I think that I have set out the right approach, although he is right that the situation cannot be allowed to drag on. We need to try to bring the matter to a conclusion as quickly as we reasonably can, consistent with an opportunity to assess the proposals that we have.
I wonder whether my right hon. Friend is aware that my constituents are very grateful to the Government for the way in which they acted to support Northern Rock depositors and to secure a future for the bank, but that confidence in the bank, and the well-being of my constituents, is not helped by the comments of Opposition Members? Can he tell us whether the public interest criterion will extend to trying to secure a future for the Northern Rock Foundation as well as for the bank itself?
I know that many people in the north-east are concerned about the foundation, which has provided support in excess of £24 million for projects. That is important, so I hope that anyone making proposals will bear it in mind; it is one of the reasons why Northern Rock is so appreciated in the north-east. I can only repeat what I said earlier: we will do everything we can to help. There are considerable difficulties, and the period for assessing the proposals will allow us to see whether we can make progress.
In the Chancellor's statement he said that the guarantee for depositors would not be removed without proper notice to depositors. May I invite him to be a little more specific? Surely, without a successful sale, any withdrawal of that guarantee will simply precipitate another run—a terminal run.
I was making the point that the guarantee is there and that it will not be removed without warning. I said it would continue as long as current conditions subsist. One of the things that we will consider is future legislation to put in place a long-term deposit protection scheme, as I indicated earlier. What I have tried to do right from the start is to provide stability not just for Northern Rock but for the financial system as a whole, and the guarantee is an important part of that.
Unlike those on the Opposition Front Benches, I remember having welcomed the Chancellor's giving the facility to Northern Rock on the grounds that it would avoid wider financial instability. My memory is better, and I stick by it. I now welcome the spelling out of the priorities in terms of taxpayer and depositor protection, as well as wider financial stability—but has the bank made crystal clear to private shareholders, including the one or two hedge funds that have opportunistically come on board, the reality of their position, and made sure that they approach the private bids with that reality in mind?
My hon. Friend raises an important point, and I think the shareholders are aware of their position. Our responsibility in respect of the stability of the financial system is to make sure we can help depositors and maintain the interests of taxpayers as we look for a solution. Those are our objectives, and people should be in no doubt about them.
I said in my statement—as I have said on a number of occasions—that money lent by the Bank of England is secured against assets such as mortgages held by Northern Rock, so we fully expect to get it back.
Northern Rock is the only major financial institution with headquarters in the north-east, and I concur with the sentiments expressed by Members from the north-east who argue that those jobs are important to the north-east economy. Will my right hon. Friend ignore the sanguine voices of Opposition Members, including the former Economic Secretary, Mr. Maples, who said last week that by the end of this week we should let Northern Rock go into receivership? That would be not only disastrous for the north-east economy but bad for the negotiations.
No, I think that the approach that we are taking is right. As I said, I wanted to provide Northern Rock with the breathing space to assess the options available to it. We have to make that assessment too, because of the interests that I have outlined. It is important that we take the necessary time to do that, but I have also said that we cannot allow the situation to run indefinitely, for perfectly obvious reasons. To impose an artificial deadline or date would be unhelpful at this stage.
It does not surprise any of us that Opposition parties do not care about 6,000 jobs in the north-east, as they have a track record of not caring about work in the north-east. What is really in the interests of the public and taxpayers is to ensure that neither Opposition party ever again gets control of the financial levers of this country.
As the Chancellor has now been forced to concede that the business editor of the BBC was right to say that the Treasury, too, is loaning money to Northern Rock, the only questions are: how much, at what rates, and when is it to be repaid?
I did not say that at all. I said that the element that was being talked about, to which the penal rate of interest has been applied and which is being treated separately, is being made available from the Bank of England—but we expect that to be repaid, too.
If the board of directors rejects all the expressions of interest by hedge funds that are large shareholders in the organisation, what powers do the Treasury and the Secretary of State have to ensure that we bring the matter to a quick conclusion so that we do not end up with a liquidation, which would be to nobody's benefit, least of all the employees of the bank?
The Northern Rock bank has to consider all the options available to it. It is perfectly well aware that the option of doing nothing is not open to it; that just cannot be the position. The Government will remain in close contact with the bank to ensure that it examines all the options. As I have made clear, we need to keep all the options on the table. It would be a big mistake to rule out any one of them.
Is it still the Chancellor's position that if any other bank were to find itself in comparable difficulties, the same sort of support would be provided?
Yes, I have made it clear that the Bank of England's job as a central banker is to ensure the financial stability of the system, so if we were to have another situation with a bank like what happened with Northern Rock, the approach would be clear. That is the job of the central bank in this country, as it would be in any other country.
Following on from the previous question, does the Chancellor have any concerns that any other bank, along the lines of Northern Rock, has borrowed excessively on the inter-bank market and therefore put itself and its customers in some danger? Does he have any proposals to change legislation in that respect?
I made it clear that I think two things are necessary. One is that the FSA, as it has already said, needs to examine the way in which it regulates banks. It has said, perhaps with the benefit of hindsight, that what was happening in Northern Rock should have been looked at earlier. One thing that we should not lose sight of is the root causes of the problem: Northern Rock had a business model predicated on its being able to get very large sums of money from the financial markets, which simply dried up so that it could no longer get those sums. The FSA accepts that it should have looked at that situation. I have also said that we need to consider whether to make any further changes to the regulatory system, and that is being considered by the Treasury Committee, too.
For the elimination of doubt, will the Chancellor confirm that the BBC is wrong, and that no loans whatever have been made by the Treasury, as opposed to the Bank of England?
I have explained the position on that element of the loan—the penal rate of interest. I have nothing to add to what I have said in response to previous questions on that subject.
In the case of Northern Rock, there was no adverse finding by the ombudsman but a 100 per cent. bail-out of savers by Government. In the case of 125,000 pensioners, there is an adverse finding by the ombudsman but currently only an 80 per cent. bail-out. Will my right hon. Friend agree to increase the financial assistance scheme bail-out to 100 per cent., and, if he does not agree to 100 per cent. for those pensioners, can he explain the inconsistency in the Government's position?
Financial support for pensioners is a different matter altogether. As my hon. Friend knows, the Government have been considering the position, and I expect that my right hon. Friend the Secretary of State for Work and Pensions, who was at the Dispatch Box just before me, will have something to say about it in due course.