asked Her Majesty's Government:

What are the consequences for Northern Rock and for the Government of the declaration by Granite Master Trust plc of a non-asset trigger event.

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.

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?

My Lords, the seller share trigger is 8.23 per cent of the pool. The seller's interest share fell below that because Northern Rock concluded that it wished neither to put high-quality assets into Granite—it had not done that since September 2007, which is totally in accordance with its agreement under state aid not to grow its book of business—nor 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.

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?

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.

My Lords, my noble friend's 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?

My Lords, Granite is a separately capitalised vehicle in which Northern Rock had an interest known as a seller's 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 seller's equity interest in the Granite structure.

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?

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—

Noble Lords:

Lord Newby!

I apologise to the noble Lord, Lord Naseby. I am new to the House and I am trying very hard.

Noble Lords:

Hear, hear!

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.

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?

My Lords, I do not have the information that the noble Baroness, rather the noble Lord, Lord Bilimoria—I got that wrong again, Lord Barnett, didn't 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.

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?

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 vehicles—all these types of vehicles, not just Granite—will 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.

My Lords, the noble Lord seems to be saying that there are no consequences whatsoever for Northern Rock or the Government as a result of this declaration. Is that right?

My Lords, I can confirm that that is correct. This is neither advantageous nor detrimental to the interests of the Government in terms of Northern Rock exposure.

My Lords, further to the noble Lord's 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?

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.

My Lords, I am sure that I am the only Member of your Lordships' House who needs to ask this question, but what is a non-asset trigger event?

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.

My Lords, is my noble friend aware that I, too, did not understand the Question, and neither have I understood all of his answers, but they sounded absolutely terrific.

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?

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 government's involvement in this, as we do in all aspects of government policy.