Banking (Special Provisions) Bill

Part of the debate – in the House of Lords at 1:30 pm on 21st February 2008.

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Photo of Lord Oakeshott of Seagrove Bay Lord Oakeshott of Seagrove Bay Spokesperson in the Lords, Treasury, Spokesperson in the Lords, Work & Pensions 1:30 pm, 21st February 2008

This is a simple and straightforward amendment, which calls for a take-on independent audit if I may put it that way, as at the date of Royal Assent—which I hope is today but might be tomorrow—of what the taxpayer has bought. When we buy any business, as the Labour Member Mark Todd pointed out—I heard his speech in the Commons the other night—we like to find out what we have bought. There are important reasons why there needs to be an independent audit by a firm of auditors which is not associated with the previous regime.

As I mentioned yesterday, quoting the distinguished banking analyst Sandy Chen at Panmure Gordon, there are serious concerns in the City about the last interim report—the audited report from Northern Rock as at 30 June last year—and whether the auditors had done their job properly. Did the FSA do its job properly when it looked through some of the funny pieces of paper—the CDOs, SIVs and so on that Northern Rock was then holding? Was the bank even solvent at that stage? Those questions will need to be examined seriously. They should not be examined by the auditors who were responsible for those figures. The noble Lord, Lord Eatwell, was kind enough to give me a little preview of what he was going to say, and one cannot rely on the Financial Services Authority in this respect. It has blatantly failed in its regulation of Northern Rock, and we would not be here today if it had done its job properly. The authority itself has some serious questions to answer. There should be an independent audit commissioned by and reporting to the Bank of England—effectively the banker for the taxpayer, which is lending the money—which we can all see.

It would be a gross dereliction of duty if we did not insist on this because there could well be a very substantial claim for negligence against the auditors of Northern Rock, from which the taxpayer could obviously benefit substantially. That is why it is important. Perhaps the Minister could confirm that the year-end audit of Northern Rock as a public company up to 31 December, which would normally have appeared at the end of January, is in train. That is all well and good, but that audit clearly was of the public company as at 31 December and is therefore a quite separate process from a proper, independent audit of the bank on the day we all buy it.

It is also important that this independent audit should look into and explain simply the position of Granite. Frankly, a lot of nonsense was spoken by the Treasury and the Minister to my noble friend Lord Newby and me last night. I want to ask a simple question. Northern Rock has something like £100 billion worth of assets, of which just under half, £45 billion, are in Granite, and we know that the assets in Granite are all high-quality secured mortgages because they have to be under the terms of the trustee. We are then left with £55 billion of which we know £8 billion is in unsecured loans, a lot of them the top slice of those pernicious "together" mortgages. If £8 billion out of the £55 billion left to the taxpayer is in unsecured loans, surely there is no way that the quality of the Granite portfolio can be similar to the quality of the rest of the Northern Rock portfolio. That is so obvious that I am surprised that the Treasury or anyone else tries to pretend otherwise.

Moreover, I remind noble Lords that £8 billion is five times the shareholders' funds in Northern Rock in the last published accounts. So we will want to see from the independent auditor a full and frank explanation of exactly how Granite works, the economic and commercial reality of the relationship, not these weasel words, this legal fiction. We need a proper setting-out of the contracts between Northern Rock and Granite, realistic scenarios on how fast the mortgage book runs down, as well as, frankly, the prospect of various rates of house prices falling, which is the realistic assessment of the City and is mine too. That should form part of an independent audit.

Those points are pretty clear and I would be amazed and surprised if the Minister could give any reason why we should not protect the taxpayer's investment in this way. I beg to move.