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Northern Rock

The taxpayer is already heavily implicated in the company. Its liabilities include the deposits, which are already guaranteed, and they would include the loans that are rolled over but are not being rolled over at present because the market will not do it. In practice, the taxpayer is 100 per cent. liable for all these liabilities as they come due. If it was a nationalised company, temporarily, the Government would have some control over the process instead of being an entirely passive spectator. Let me retrace the steps to some of the key decisions that the Government have made. In September, there was a key decision to provide what was said at the time to be unlimited support. The question that needs to be asked—it relates to the intervention by the hon. Member for Houghton and Washington, East (Mr. Kemp)—is what estimate was made of the likely deposit withdrawal and the extent to which commercial loans would have to be replaced? At about that time, Lloyds bank made a proposal that involved £30 billion-worth of Government loans. The Chancellor, as we understand from the records, personally rejected that option on the grounds that the commitment of Government money was too large. We now know that £30 billion has already been advanced in Government loans without resolving the problem, so somebody made a horrendous miscalculation about the sums that were going to be involved. We need to know how that happened. A second basic question that I have been asking throughout is: why was this loan advanced in a completely open-ended and unconditional way? The Government, as the major creditor, could have said, ““We will advance credit to the bank subject to the removal of the chief executive and others who were directly responsible for getting the bank into trouble in the first place.”” Any major creditor could reasonably insist on conditions, but the Government said, as did the Chancellor, rather pathetically, on several occasions in the Chamber, ““We can't do anything about this because we don't own the bank.”” We now have an extraordinary situation whereby the chief executive of the bank, Mr. Applegarth, who drove the bank on to the rocks, is still sitting in the chief executive's chair driving the company and managing the Government's taxpayers' money. It is an extraordinary situation for the Government to have allowed to arise. Another fundamental question that I have asked is: when the loan had been advanced, what security did the Treasury or the Bank of England, or both, insist on in return for the taxpayer's money? One would have thought that that was a reasonable, prudent provision to request. I have been writing letters to the Governor of the Bank of England to ask him what security was available, and he has written me a letter that is so shameless that even Sir Humphrey would have been embarrassed to sign it. There are no figures in it, nor an explanation of what happened to the rolled-up interest on the loan. It is completely and utterly uninformative and, frankly, borders on the impertinent, because the Bank of England and its Governor are saying that elected representatives have no right to know what happens to public money. That is a completely unacceptable position. We can infer—we do not know it because it has never been confirmed—that roughly half the funding of the bank loan is secured pretty solidly against the assets of the bank, but the other half is not. Most of it is secured against what are called the free assets of the bank; in other words, it takes a secondary role to that of secured creditors such as Granite, which accounts for about half of the balance sheet. It is argued that that is fine because the money is secured against the bank's mortgage book. However, it has emerged that among the assets of the bank against which the Government loan is secured are £8 billion-worth of unsecured loans. It appears never to have occurred to anybody in the Treasury or the Bank of England to ask how secure those assets were. The confidence of the Government and the Bank of England was based upon a belief that Northern Rock had a very good repayment record from its borrowers. On paper, that looks perfectly true. However, people have now started digging—notably Panmure Gordon, one of the brokers, which has established that a lot of bad debt is actually being hidden because the Northern Rock bank did not employ the sort of rigorous practices employed in other institutions such as Alliance and Leicester and Bradford and Bingley. However, whether or not that is the case, there was an underlying optimism, all based on the strength of the mortgage book and on the value of the domestic property that underlies those assets.