The Chancellor is ever keen to claim a Tory “black hole” in the Opposition figures for any odd billion needed for a tax cut or a spending improvement. Yesterday when I asked him about the ??23 billion “hole” in his own figures he was unable to answer.When I asked Peter Hain at the end of the debate the government still did not know. Ministers had failed to use the hours of the debate to get properly briefed on this important subject – yet they raised Northern Rock themselves in the Chancellor’s opening remarks.
The Chancellor authorised the Bank of England to make ??23 billion (so far) available to Northern Rock. The Bank of England is a company wholly owned by the Treasury on behalf of taxpayers. It is a relatively small bank, with total equity of just ??1.8 billion, and a total balance sheet of around ??40 billion before the Northern Rock crisis.
I asked the simple question, where did the ??23 billion come from? Which account? How will it be accounted for in the government’s reports to Parliament and the nation?
The answer has to be that the public sector has borrowed the money to lend to Northern Rock. I appreciate they believe they will be repaid it as some point – maybe some of it not for several years according to latest leaks – but in the meantime it is money spent. As the public sector overall has been spending more than it raises in taxes, and as it is heavily in debt, the most likely source of the cash is borrowing. Buying a mortgage portfolio should have the same effect on public spending and borrowing as buying property or vehicles or any other public asset.
It appears from the Banking returns of the Bank of England that there has been some reduction of the other assets on the Bank’s balance sheet to make some room for the Northern Rock loan which helps. But it also appears that the Bank has increased its overall borrowings to help finance this loan, which means public borrowing as a whole has increased. We should be told how we are paying for this special finance. We should be told what guarantees the Treasury has offered the Bank of England to enable it to take such a large loan onto its books, distorting prudent management of risk at the Bank of England.We should expect the Chancellor to know how it was done, as he authorised it. We should expect him to tell us, as he is always urging the commercial banks to be more open about their assets and liabilities. As this is our money at risk we have a right to know. I will go on asking these questions until we get an answer.
November 15, 2007
Commissar Brown’s declaration that his government would be frank and open without “spin” has been shown to be no more than empty rhetoric otherwise known as “spin”! He and his government treats the elected members of the House of Commons with contempt. No effort is made to answer any questions and the lead is given by Commissar Brown. As well as continuing to ask these questions in your valiant way, I feel that you will also need to find other ways of finding out the answers to such important issues as this and many more which this rotten government is trying to conceal.
November 15, 2007
Alistair is a man out of his depth in this job, and the whole response to the crisis seems to have been one which first failed to notice a problem, then underestimated it, it then moved on to blaming others whilst still not forming a credible policy, only to make panic short-term moves, and finally finds itself left with a wholly unplanned liability of enormous proportions.
May I ask a question, is this amount in excess of the foreign exchange Major blew away that fateful Wednesday in the futile attempt top keep Sterling in the ERM? If so, perhaps this is Darling’s equivalent of “Black Wednesday”
November 15, 2007
A big thank you for being so dogged over this issue John. Labour cannot be allowed to get away with this. We were promised open government by Blair in 1997, we were promised open government by Brown after his coronation. Yet all we get is fudge and slight-of-hand. Labour believe they can get away with this because the issue is far too complicated rouse interest of most people, however they must be held to account. Keep turning the screw John!
November 15, 2007
I have read about this and still can't really understand how they could have not gone bust. If these financial companies talk about free markets and being allowed to do what they like. Then they should be free to go bankrupt.
Who is responsible? Was Nothern Rock a nationalised company?
Knighthoods and triples all round.
Reply: The government took the view that their lending was good and that conditions (which they had allowed to exist) in the money markets were most unusual, so they thought it best to lend the Rock the money that temporarily they were unable to borrow from the market.
November 16, 2007
[…] John Redwood – who asked a splendid question in the house ‘from which government account did the
November 16, 2007
This is interesting from the FT 14/11/07:
"Britain is used to being on the side of Europe's free-market angels over state aid. Having privatised most of its state sector, the UK rarely has to skirmish with the European Commission over subsidies. But the fact that billions of pounds of Bank of England loans to Northern Rock could endure until at least 2010 will catch the eye of the Brussels authorities. So it should. The UK cannot frown at French subsidies or grumble about German loan guarantees and then count on a benign nod when it lends