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Northern Rock

Volume 699: debated on Tuesday 26 February 2008

asked Her Majesty’s Government:

What contingency fund they are providing to cover any shortfalls arising in the guarantees provided to Northern Rock; and what its effect will be on fiscal policy.

My Lords, the guarantee arrangements have not been called. There has therefore been no cost to the taxpayer. If the guarantee were called, parliamentary approval for expenditure would be sought through the normal supply process. Costs would be met from the contingencies built into the fiscal forecast in the normal way. The Government will report on the fiscal position at the Budget.

My Lords, I thank the Minister for that Answer. As he will recall, however, on 14 January he addressed your Lordships' House on the same subject and informed us that £150 billion-worth of assets were available in Northern Rock and that the amount of government liability was but a fraction against that; it was said at the time to be £56 billion. Since then, as he will be aware, we have had references to Granite and to Dolerite. Note 22 of the recently signed 2006 accounts for Northern Rock lists 23 companies performing the same function. Would he therefore like to say the same thing again today—that he is still comfortable that the liability is but a fraction? It sounds as though the liabilities are now a fraction of the guarantee.

Not so, my Lords. As was made clear in both Houses in the debate last week on Northern Rock, Dolerite does not exist and the guarantees do not extend to Granite. The guarantees extend to Northern Rock and its assets. Its assets are secure and outweigh its liabilities.

My Lords, does the Minister recall that only yesterday, in answer to a Question from my noble friend Lord Steinberg, he informed the House that, so far as Granite was concerned,

“the Treasury will be making the details of the position clear today”?—[Official Report, 25/2/08; col. 438.]

He was subsequently obliged to write to my noble friend to say that he had got it all wrong and that the Treasury had nothing to add to the singularly uninformative letter to Mr Vincent Cable a week ago. Does it not mean that the Treasury is every bit as much in the dark about the true complexity of the relationship between Granite and Northern Rock as the rest of us? Will the Minister therefore put in place an investigation without further delay, preferably conducted by the National Audit Office, into the full facts of this tangled tale and the risks to the taxpayer that follow from it?

My Lords, I think that the noble Lord doth protest too much. However, I am grateful for the opportunity that he affords me, and which I recognised would be presented by this Question, to apologise for the fact that I made a mistake yesterday in responding to the noble Lord. I intended to convey that the Government will in due course be presenting, in full publicity, the Northern Rock strategic business plan. I am happy to confirm that they will do that. It has, of course, been the burden of many representations.

I emphasise that Granite has no relevance to the public position at all. The Treasury guarantee and the loans provided by the Bank of England have nothing to do with the assets in Granite. The guarantees relate to the assets in Northern Rock. Those are sound, substantial and above the level of loan that it has taken from the Bank of England. As the noble Lord will know better than anyone else, Granite is merely a securitisation vehicle for the processing of Northern Rock money. Those responsible for meeting the costs of Granite are bond holders, not Northern Rock—therefore, not the Government at all.

My Lords, does my noble friend enjoy this now almost daily opportunity, which the Opposition are kind enough to afford him, to demonstrate the strength of the British economy, the strength of the City of London, and just how desperate the Opposition have clearly become on this issue?

My Lords, it is certainly the case that the Opposition have narrowed their arguments. I promise the House a further instalment tomorrow.

My Lords, does the Minister acknowledge the continuing considerable confusion about Granite, which, with all due respect, I think he has just compounded? Will the Government urgently convene a seminar for Members of both Houses with an interest in this matter at which the Chancellor of the Exchequer and Mr Sandler can explain, once and for all, clearly and to avoid ambiguity in the future, the status of Granite and how it affects the ongoing fortunes of Northern Rock?

My Lords, I cannot make the issue with regard to Granite any clearer, but what I can say to the noble Lord is quite straightforward. In due course—by which I mean very shortly, by the end of March—the strategic business plan for Northern Rock will be published. It will of course be in the public domain. Any Member of either House will be able to raise and debate the issues at that point. However, as was explained during the Bill’s passage last week, and as I have attempted to explain today, Granite’s obligations cannot be a charge on the taxpayer. They are a charge on the bond holders and are nothing to do with the taxpayer because they are not governed by the Treasury guarantee. Nor do they have anything to do with the Bank of England loan.