It’s been a tense run up to Christmas in the Commons. I have gone hoarse trying to get the government to understand the gravity of the credit crunch, and the need for more careful handling of the Northern Rock crisis. The inflation we now have is the result of low interest rates and sloppy lending in the past – mistakes made months ago. Today’s mistakes by the Bank and Treasury are the other way. There is too little lending and too little money available in the months ahead, which threatens house and commercial property prices, job losses, closures and bankruptcies. I have been asking for some action in the markets to ease the squeeze.
The Opposition has been pressing for a referendum on the EU Constitutional Treaty. The government said that it would let Parliament decide instead of the people. When we pressed for a vote on whether the Prime Minister should sign the Treaty or not, Parliament was denied one! The PM signed the Treaty a few hours late without a single vote being cast in Parliament, let alone in the country, in favour of such a course of action.
I have offered a fall back way of handling the Northern Rock crisis. I would be happy if a buyer does emerge who will take responsibility and offer to repay the loans made by taxpayers, but there are worries about whether one will complete a transaction. I oppose early Administration, as it would be difficult selling off all the mortgages and other assets in these conditions at a discount, threatening to realise less than we need to pay off all the creditors including the taxpayer, after accounting for the big costs of such an administration. Administration is clearly not in shareholders interest and prevents them leading a recovery of the bank and its business. I do not think the taxpayer can afford to nationalise the bank. . It is bad enough having up to ??30,000 million of taxpayers money at risk. Why on earth would we want to put ??110 billion at risk? How would we pay for that?
Plan B, if a bid does not succeed, is for the Bank of England to act as a stern bank manager setting clear repayment dates for tranches of loan, and demanding the bank use much of its cash when generated to repay taxpayers. This process can be phased, to allow recovery in the market for mortgages before Northern Rock needs to sell them on to repay the taxpayer, and giving shareholders and managers the chance to make a success of the business . The Bank of England should take all the security it can, and then manage the loan well.
This is a heavy agenda a few days before Christmas, but these issues are pressing now. How they are handled will determine how prosperous and successful our New Year will be. In the meantime I wish you and yours a very happy Christmas. My Christmas message is more in the spirit of the holiday!