The secret £18 billion of taxpayer borrowing

The story about Banco Santander and the UK’s taxpayers £18 billion still has not made it into the press. It just shows you the power of Labour spin, and the cleverness of their media manipulation. The story is there on the Treasury website, hidden but clear to anyone who wants to read it.

We were told by the government and the media that the deposits of Bradford and Bingley along with their branches had been sold to Banco Santander for a positive sum. This was never very likely, as deposits are liabilities. You have to pay someone to take them away.

Indeed, that is what has happened. The UK taxpayer is borrowing £18 billion to send £18 billion in cash to a Spanish bank to take the deposits over. The questions that flow from this include:

Did UK based banks have the chance to bid for these deposits with the cash that went with them?
How did they determine the amount of the cash to send?
Why is £14 billion of it being routed through the Financial Services Compensation Fund, which has been offered a government guarantee and a promise of government refinancing of the £14 billion?
Wouldn’t it have been easier and cheaper just to make it all a straight Treasury payment from Day One, as £4 billion is?
Why didn’t the government tell us it was spending another £18 billion of our money in this way? How much of this does it expect to get back eventually from the mortgage book it has kept?
Did the government know when it chose Santander that Santander had poorer capital ratios than the stronger UK banks and was likely to need to raise new capital? It has recently announced that it is raising E7billion in new share capital to improve its Tier One Ratio from 6.3% to 7%.

Shareholders in Bradford and Bingley still await the detailed terms of any compensation for them. B and B is not offering any new mortgages, so like Northern Rock once nationalised it is efectively in run off. Why is the taxpayer having to take the risk and pay all the bills for two mortgage banks who are unable to help the housing and mortgage market by making new advances?

This entry was posted in Blog. Bookmark the permalink. Both comments and trackbacks are currently closed.

14 Comments

  1. torydeb
    Posted November 12, 2008 at 12:47 pm | Permalink

    Mr. Redwood I hope you have informed the shadow treasury team of this so that they can get the question asked at PMQs!

  2. Henry Crun
    Posted November 12, 2008 at 1:03 pm | Permalink

    Mr. Redwood

    Any chance Mr Cameron could broach this subject at PMQs today?

    Perhaps you could follow it up with a written question to the Chancellor so that we can see his reponse documented in Hansard.

    Reply: they have already failed to answer PQs

  3. Lola
    Posted November 12, 2008 at 1:51 pm | Permalink

    Mr Redwood – as an owner of a retail financial planning and advice business I am extremely angry that this bribe has been routed through the FSCS – the purpose of which is to make me and mine pay for it! My FSCS levy will jump massively and may well force many small firms like mine out of business by this despicable tactic by the Government. As a partnership my personal assets are up for grabs by this deceitful government and its stasi like regulatory system. My favoured response is to add a flat fee to all our invoices (we are a fee charging business) with an explanation to clients and to build up a cash float to meet it. Clients must realise that all these disgraceful levies and 'consumer protections' come at a price. As you may guess I am furious about this.

  4. Obnoxio The Clown
    Posted November 12, 2008 at 2:59 pm | Permalink

    Unbelievable!

    Remind me again, how well placed are we to weather the storm that was all the Americans' fault?

  5. Evan Owen
    Posted November 12, 2008 at 5:13 pm | Permalink

    John

    The FSCS is a government designed compensation machine which is wholly funded by the financial services industry, things could get so bad that all the regulated firms might be sucked into this black hole created by HM Treasury so why should the Treasury not 'guarantee' it? In the unlikely event that any of this cost falls on the taxpayer the system itself would have fallen apart and caused the UK to default, imagine a bankrupt country being auctioned off to the highest, if any, bidder?

    Reply: It is guranteed by the Treasury and will be refinanced by them

    Anyone think I'm mad? We saw this coming but very few listened apart from Mr Cable. The regulators decided not to talk to us, their loss.

  6. Phil Castle
    Posted November 12, 2008 at 5:37 pm | Permalink

    I agree with Lola and am currently waiting for our compliance consultants (Former Financial Ombudsman lawyers) to come back confirming whether we can add to our client agreement wording to commit our clients to pay this debt which has in fact been offloaded by the liars in Government on a minority group (i.e. advisers). What I expect to see is us being told we cannot add it to our Client agreements, eitehr when our consultants reply, or when our Local Trading Standaards (off whom we are members of the "Buy with Confidence Scheme"), tell us it is not allowed under the Unfair Contract Terms legilslation. If that is the case, bearing in mind I NEVER AGREED to assume the position and be shafted with B&Bs debts will either refuse to pay my FSA fees next year (and go to prison) or declare war on the F – Pack who are not even accountable to Parliament and the House of Lords and ignore the 15 year long stop defence which even a terrorist would have.

  7. Mark Wadsworth
    Posted November 12, 2008 at 6:51 pm | Permalink

    deposits are liabilities. You have to pay someone to take them away.

    That is a very good start to the explanation, but notwithstanding Labour miss no opportunity to make things worse, I don't really see a problem.

    The alternative would have been for all B&B savers to transfer their funds to other banks, the result of which would be that other banks end up with a claim of £18 billion against B&B, which is now part of the government for these purposes.

    So whether 'other banks' have a claim against B&B and hence against the government and hence the taxpayer; or whether Banco S has a claim against FSCS or whatever branch of the government, what is the big difference?

    Reply: Why did we need a taxpayer funded solution at all? Did other banks have a chance to bid to see if could have been done for less?

    • Mark Wadsworth
      Posted November 13, 2008 at 12:35 pm | Permalink

      Again, agreed, the taxpayer should have not been drawn in at all.

      The whole banking malaise could and should have been fixed by banks coming to a settlement with bondholders that maturities would be extended or bonds part-cancelled and/or converted to equity.

  8. David Belchamber
    Posted November 12, 2008 at 8:26 pm | Permalink

    As one of the very few people who seem to have a handle on our economic woes, are you able to be more specific than you and Vince Cable were able to be with Paxman the other evening about the true level of government debt?
    Brown claims it was 44% when he took over and that it is now 39%. This is patently untrue and I think Vince Cable got up to about 60%.
    What do you reckon it is and how does the government get away with claiming that so many liabilities are off-balance sheet?

    Reply: Yes, I have set out the figures several times on here – the base data is in the Freeing britain to compete download. A recent post here brought it up to date using Brooks Newmarch's figures.

  9. mikestallard
    Posted November 12, 2008 at 9:47 pm | Permalink

    The trickier this lot become, the more people will get furious.
    Labour are rapidly becoming just like the Conservatives at the very end of the John Major regime.
    The difference is that they are also totally incompetent it seems. Isn't that why they won't answer the questions?

  10. DBC Reed
    Posted November 13, 2008 at 12:23 am | Permalink

    Please explain how deposits are liabilities in a quotable way that I can pass on to the sceptical. Many thanks.

    Reply: A deposit is a bank's liability because the owner of the deposit can come along and demand the money bank and the bank has to pay up. The deposit is an asset of the deposit holder and a liability for the bank.

  11. Dave Chaundy
    Posted November 13, 2008 at 1:03 pm | Permalink

    Dear Mr Redwood,

    I am delighted that someone, somewhere is questioning the apparent ability of Gordon Brown to turn water into wine. To me his wine tastes sour indeed. Perhaps it is tainted with the blood of his old friend Prudence?

    As a self employed IFA I object most strongly to the FSCS being used as some sort of vehicle for supporting a bankrupt system and a bankrupt government.

    Gordon Brown and his 'team' constantly refer to the FSCS as some sort of Haven of Last Resort, as if it can solve the entire mega billion costs of every and any financial crisis.
    No-one seems to ask "Who funds the FSCS and where does that money come from?".

    I know that, if it were truly the Last Resort, it is technically feasible that, if every financial institution in the UK were to go into liquidation tomorrow (except for us poor sole trader IFAs who are no allowed to) then I could end up with the entire liability myself. Bad news I am afraid – I dont have the money!

    This is the ludicrous stupidity of the government and its system. Please could politicians STOP promising things they cannot deliver. STOP trying to remove risk and explain it instead. Stop feeding the public with platitudes and tell it as it really is. Hey you never know – they may actually be intelligent enough to behave with a little more prudence themselves.

    Dave

  12. David Belchamber
    Posted November 13, 2008 at 7:53 pm | Permalink

    Thank you for referring me to Freeing Britain to Compete. Very interesting.
    John Major in his article in the Times today also gives the answer I was seeking; if you include the long-term liabilities that Brown tries to ignore (PFIs, Network Rail debts, unfunded public sector pensions, Northern Rock and B&B etc), our true debt is about 3 times higher than Brown claims it is or c£76,000 for every household.
    We have to make the public aware of this asap.

  13. Chris Hulme
    Posted November 14, 2008 at 6:12 pm | Permalink

    Dear Mr Redwood,

    I would agree with my professional colleagues; IFA's, brokers. The FSCS has only £4.03bn in its coffers to address all areas of its governance broken down into; deposits: £1,840m; life and pension: £790m; General insurance: £970m; Investments: £370m; Home finance: £130m.

    The levies charged to brokers, banks, advisers, insurers should be proportionate to the busines activity they undertake but as ever the poor old Regulated Adviser can do nothing but put his hand in his pocket and ask the FSCS "how much?" and this is on top of an additional 'CCJ Levy' brought in recently.

    Dave Chaundy is right – Politicians should STOP running around taking the moral high ground and promising the earth when there simply isnt any of it left.

    I wonder how quick the FSA will be to instigate complaints from clients who lose money they have deposited due to the 'risks' of their deposit/ investment having not been explained by the untrained bank teller who simply said "I dont know, just fill in the form".

    I would also have to ask at this point, "Given the major complance failings of the FSA over the last 12 to 18 months, who is going to fine them, and by how much?"
    If I, or any other broker or IFA had failed so miserably, the FSA would be handing out fines all over the place.

    In respect of the NRK and B&B debacle, even Mr Cable MP doesnt really know all the details!! At a meeting with my own Lib Dem MP, in South Manchester, my MP declined to be drawn into technicality as he voted on these issues on what he had read in the papers.

    Unbelievable!!

One Trackback

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

  • John’s Books

  • Email Alerts

    You can sign up to receive John's blog posts by e-mail by entering your e-mail address in the box below.

    Enter your email address:

    Delivered by FeedBurner

    The e-mail service is powered by Google's FeedBurner service. Your information is not shared.

  • Map of Visitors

    Locations of visitors to this page