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Northern Rock

That is precisely the point that I was about to make. With the benefit of hindsight, it is undoubtedly clear that had the Government decided to advance the facility to Lloyds TSB, it would have done so on terms that would have been commercially more attractive to the bank. That would have meant that the bank would not have had to pay the penal rate of interest that is causing part of the problem to the profitability of the remaining part of Northern Rock. I shall say more about that shortly. Much has been made of the fact that what was on the table was not a firm proposal. Indeed, the Chancellor told the Treasury Committee that there was no firm proposal. However, my research makes it clear that Northern Rock ran a competitive bidding process among institutions that might have been in a position to make a bid, that the process began on 20 August, and that by Friday 7 September Lloyds TSB had concluded that it would proceed with an offer, but only on condition that the Government facility of £30 billion was made available at LIBOR flat, a commercial but not penal rate of interest. That offer would have been via a scheme of arrangement, a court procedure, and would therefore not have been conditional on shareholder consent, which would potentially have frustrated the bid. The offer was there. It was not completely unconditional, but had the Government accepted it, confidence would have been provided for Northern Rock's funders and much of the present mess would have been avoided. Had a different decision been made it would undoubtedly have attracted political flak at the time, and there would have been difficulty, but it would have been nothing compared to what we have now. The next piece of indecision from the Government occurred when someone—it is not certain who, but the finger of suspicion clearly points towards the Treasury, as the hon. Member for Newcastle upon Tyne, Central suggested—decided to brief the BBC on the extent of the problem surrounding Northern Rock on Thursday 13 September. The lender of last resort facility was announced the following day. A decision was made to leak some information—I am not accusing the Chancellor directly, but someone made the decision—and the next day, when the announcement was made, Northern Rock made a statement about its financial prospects. The failure on the part of Government was that no joint decision was made by the parties involved, the three members of the tripartite arrangements and the company. Nor was the decision made at the same time to extend the deposit guarantee, as has been referred to. Had both guarantees been announced together, and had there been a common statement from those concerned, considerable confidence would have been given to the market, we would not have had a run on the bank, and we would not be in the mess we are in. Furthermore, it now seems that the Government were taking all these decisions about critical aspects of market practice without any external advisers. Goldman Sachs was appointed only a week after the guarantee was provided. That is another example of poor decision making at the heart of Government. The next poor decision was the security package that the Treasury and the Bank of England negotiated for their facility. The Bank of England is a bank so it understands security and it appears that it took security over the best assets available, which is good for the Bank of England. The Treasury is not a bank and did not take such good security. What package of security has the Treasury taken? The Economic Secretary gave us a clue; it seems that it does include the seller's share owned by Northern Rock in the mortgage collateral within Granite. The seller's share is, I believe, £7 billion of the worst tiering of security within the Granite structure, which effectively means that if the Granite mortgages start to default that will come out of the Government's security package first—in other words, it is the weakest form of security. What will happen if either of the current offers are pursued? It will be interesting to hear from the Economic Secretary in her winding-up speech what security the Bank of England and the Treasury will be encouraged to surrender. Will they share in the risk with the bidding group, or will—as would be more normal practice—new money coming into the business require priority in security, in which case the Government would be left with even lesser quality assets?