Northern Rock

Part of Opposition Day — [4th Allotted Day] – in the House of Commons at 4:29 pm on 12th December 2007.

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Photo of Vincent Cable Vincent Cable Shadow Chancellor of the Exchequer, Acting Leader, Liberal Democrats 4:29 pm, 12th December 2007

I beg to move,

That this House
notes with dismay that the Chancellor of the Exchequer has presided over the first run on a UK bank for over one hundred years and that the taxpayer has now made approximately £30 billion worth of loans to Northern Rock without the Government providing evidence of either the exact amount or the security of the loan, over and above deposit guarantees;
further notes that the current search for a private purchaser for Northern Rock faces enormous difficulties in the face of the high costs of credit and the conflicting interests of different groups of shareholders;
applauds the important role played by the Northern Rock Foundation in the North East and regrets the potentially negative consequences for jobs in the North East should Northern Rock go into administration;
further regrets that the Chancellor chose not to recognise the importance of Northern Rock as a large employer in the North East amongst his principles for assessing Northern Rock proposals;
calls upon the Financial Services Authority to suspend trading of shares in Northern Rock immediately to prevent insider trading;
and calls upon the Government to introduce legislation to allow for Northern Rock to be placed immediately in temporary public ownership as the only action that will guarantee the loans are paid back in full as soon as possible at the lowest risk to taxpayers.

We are very much in the middle of a banking crisis that is without precedent— certainly in my lifetime and probably for most of the last century. I was always brought up to believe that banking runs occur in far-off countries and that the lender of last resort is an obscure academic construction that appears in monetary textbooks, not the real world. However, I suspect that when the dust has settled on the Northern Rock affair, future generations will think of it much as people think of the South Sea bubble: a major historical event when a speculative bubble in financial markets burst. If one were to be pessimistic by thinking that the crisis will continue unabated, one could well seek a historical precedent in the Creditanstalt in Austria in 1931. Those events had major financial and economic repercussions.

We are dealing with enormous sums: approximately £30 billion of Government loan, which excludes the deposit guarantees. To try to help Members get their heads around that, I point out that 30 billion is a "3" with 10 noughts. It is impossible to be precise about how much money is involved because the Government do not give the necessary information, and neither does the Bank of England. The information can only be inferred from the Bank's balance sheet, but the figure is approximately of that order of magnitude.

To put the amount in context so that we can make sense of such an enormous number, I simply equate it to a little bit less than the annual defence budget. Given that it is a one-off payment, we are talking about six Iraq wars. Such a sum would build a high-speed train route from London to Edinburgh, and enough money would be left to build another one to Glasgow. The sum is the equivalent of about £5 million for every Northern Rock employee.

That leads me to a key aspect of the argument: we are talking about not just money, but people. I have been to Newcastle several times in the past year to talk about its economic situation. Northern Rock is a major employer in north-east England. I understand that it has about 3,500 employees in Newcastle and about 1,500 in Sunderland. In addition to that employment, it has been an important part of the repositioning of the north-east of England from manufacturing towards financial services.

In addition, the Northern Rock Foundation makes an important charitable contribution. It has spent some £175 million over 10 years, but it does not just spend a lot of money. As I discovered when I walked along Hadrian's Wall last summer, an enormous number of local charities rely on the foundation for obtaining charitable money quickly and effectively. They receive the money from the foundation much more effectively than they do from the national lottery.

Before Ministers stand up and pose as angels of the north, it would be worth while for them and their Back-Bench colleagues— [ Interruption. ] I entirely understand why Labour Back Benchers will quite reasonably wish to speak up on behalf of their constituents and their constituents' jobs. If I was in their position, I would do exactly the same. However, if they have not already done so, I urge them to study the document on the principles for assessing Northern Rock proposals, which is the basis for the Government's sale. Those who have studied it will realise that it says absolutely nothing—not one word or one syllable—about either employment in north-east England or the Northern Rock Foundation.