Northern Rock plc Compensation Scheme Order 2008

My Lords, I am grateful to all noble Lords who contributed to the debate. As my noble friend Lord Desai indicated, we are covering some ground that we have traversed in the not too distant past. I accept entirely the cricketing analogy used by the noble Viscount, Lord Eccles, with reference to the noble Baroness, Lady Noakes. She is a specialist in reverse swing. She is able to perplex Ministers, and certainly myself, even when I think I am on secure ground, as I did on this occasion. However, it ill behoves him to upbraid Oldham’s British cricket connections. After all, it produced one of the finest England opening batsmen and captains of recent years, Michael Atherton. All I seek to do is keep bat and pad close together when I am dealing with these issues, not to disregard the rules of the game. The noble Baroness began by asking about the valuation assumptions in Article 6, and she raised the issue of administration. We make it clear in Article 6 what has been the government position all along on Northern Rock. It is not a going concern, because only public support enabled it to get through the problems of cash-flow difficulties from the summer of last year. The first limb of the statutory objective for administration refers to the possibility of rescuing the company as a going concern. We are clear that the support that was given to Northern Rock, which has kept it going over recent months, has been a reflection of the fact that without that support Northern Rock would have gone into administration. I know that the Opposition indicate that that would have been at very limited cost and that it did not necessarily mean a fire sale of the assets. It would certainly mean a far more difficult situation as far as Northern Rock is concerned than the one that we are facing at present because of the judicious action of the Government, after seeing whether the private sector thought that Northern Rock was a going concern. Without going into too much detail about the travails of the past, let us be absolutely clear that as far as Virgin was concerned regarding Northern Rock, there was a huge price to be paid in public support. The public did not get anything back until Northern Rock had made £2.7 billion profit. That was a reflection of the fact that as far as Virgin—a private sector company—committing its resources to Northern Rock was concerned, it did not think that it was viable to do so at that time without this huge underpinning government subsidy. I rest my case there. It is quite clear that Northern Rock was not a going concern, and therefore we are asking the valuer to look at the issues against that background. Why against that background? I do not see how any noble Lord can seriously argue that the taxpayer should be underwriting additional value for the shareholders in circumstances where Northern Rock was not a going concern. Of course, the valuer has his job to do regarding the assessment of Northern Rock’s value. I want to reassure the noble Baroness that we will ensure a competition for the appointment of the valuer; I take on board her point that it is a valuable contract and it should be open to competitive tender. We intend that that should be so. Clearly, the valuer has a challenging role to play, and we all recognise that. It is not going to be done in a matter of weeks; it will be a long process. I indicated in my opening statement the rights of shareholders with regard to the valuer and his initial assessment and any potential challenge to that. They have also the right to go to the tribunal if they disagree with the valuer, so their rights are safeguarded in those terms. The Government are determined that all shareholders shall be equal with regard to the position of Northern Rock. I have heard the reflections, which were also made in the other place, that certain international treaties will safeguard shareholders based abroad and give them more favourable treatment than other shareholders. First, that is not so. Secondly, in all equity, it ought not to be so. I cannot think of anything being less fair to the ordinary small shareholder. The noble Baroness began her remarks by saying that we should consider the small shareholders first; at least she considered them first in her representation. Nothing could be more offensive to the small shareholder than the idea that someone based abroad would be able to take advantage of bilateral treaties that were designed to—and this has been accurately reflected in discussion today—safeguard, on the whole, British taxpayers regarding regimes that can act on occasion in an extremely arbitrary and unfair manner. We can all think of illustrations where property has been appropriated without any recognition of obligations to others. For British shareholders, this is not the case as far as the United Kingdom is concerned. We honour our obligations and it will be appreciated that, in honouring them, we will be able to express before any conceivable court the fact that all Northern Rock shareholders are treated equally. There is the particular position of the Northern Rock Foundation, raised by the noble Viscount, Lord Trenchard. The foundation is a special case; after all, it is a section of Northern Rock in which there are shares devoted to charitable purposes. If he is saying that the Government ought to have treated that position four-square with every other shareholder in Northern Rock, with no particular respect for the foundation, he indicates scant regard for the value of the Northern Rock Foundation’s charitable role. The Government felt duty-bound to guarantee £15 million a year for three years. This is not a massive sum as a percentage of what the Northern Rock Foundation enjoyed under the best years of the bank, but is nevertheless a figure that it could expect to receive in years of relatively poor activity. The Government would have been open to criticism if they had shown that particular charitable function of Northern Rock no regard whatsoever. The criticism would have been voiced in all parts of the Chamber. The issue of Granite has raised its attractive head yet again. I emphasise once again that everyone knows the nature of the category of securitisation vehicle into which Granite falls. Everyone knows that these vehicles exist for other banks and building societies, in order that they should be able to realise value from mortgages more rapidly than they would over the duration of the mortgage period. It is quite clear that the Office for National Statistics regards Granite as being included in the accounts of Northern Rock. That does not mean that it is to be included in the liabilities to the Government, because the Government have not taken Granite into public ownership. They are not responsible for the debts to bond holders, who are the massive majority of shareholders in Granite. Although it appears on the nation’s balance sheet at present, the issue that the noble Baroness has to address—as do her colleagues in the Commons—is not whether Northern Rock appearing on the public accounts together with Granite is an embarrassment to the Government. Let me say that it is a short-term embarrassment to the Government because the Government will resolve this issue in due course. It would be a greater embarrassment if the Opposition had to spell out how the resources—which now, in the national accounts, have to be devoted to Northern Rock on the debit side—would be withdrawn from the Government’s spending side. If the Government are being pressed to take account of Northern Rock in the national accounts in a matter of weeks, and therefore to take out of the Government’s spending pattern the very significant resources and obligations that Northern Rock represents, I can only say that the Opposition, not the Government, should answer the questions.