Taxpayers to be saddled with 'rubbish' assets as banks protest over Northern Rock's 'blank cheque'

13 April 2012

Tax shelterer: The Rock's new chairman Ron Sandler yesterday

A major part of the bank holding its gold-plated debt assets is not being taken into public ownership, the Commons was told.

The riskiest debts — including homeowners with "supersize" mortgages of 125 per cent — are in the main part of the bank that is now being underwritten by the public purse.

MPs on all sides protested at the arrangement, which they said exposed the £110 billion of taxpayer-backed guarantees to greater risk.

They threatened to block the progress of the Bill to nationalise the Rock in the House of Lords debate today, unless the Government provides more information on a separate company, Granite, which has taken over the bank's safest mortgages.

Liberal Democrat Treasury spokesman spokesman Vince Cable said: "What we are now being told is that in some way this has been hived off to the benefit of a person or persons unknown.

"It appears to be not public ownership of Northern Rock but an asset-stripping operation designed to benefit whoever, we don't know. This is a very serious development.

"What was left for the taxpayer included unsecured debts, such as mortgages which allow buyers to borrow an unsecured loan of a quarter of the property's value on top of a 100 per cent mortgage.

"In other words, the rubbish," said Mr Cable. "We now need to have a very rapid and thorough explanation of exactly what's gone on here because this could be stopped in the House of Lords unless there 's a proper explanation."

Former Conservative chancellor Kenneth Clarke said: "The best assets are in Granite. It looks as though there is a contract enabling more assets to be drawn in and it is the rubbish in the assets that we are now nationalising."

Last night, Labour was accused of signing a "huge blank cheque" on behalf of the taxpayer last night as emergency laws nationalising Northern Rock were rushed through the Commons.

The Tories warned that the Government had no idea how much it would have to pay for crippled bank - but could have to find £2billion within months just to take it into public ownership.

And they accused ministers of failing to set out the true extent of an estimated further £110billion risk to the taxpayer, or say how long the Rock would remain nationalised.

As the political crisis deepened, there were also protests that Ron Sandler, the troubleshooter being paid £1.1million a year by the taxpayer to attempt a rescue of the bank, has "non-domiciled" tax status, meaning he is able to shelter overseas income from UK tax.

MPs also expressed deep alarm that the Bill allowing the Rock to be taken into state hands contained further, sweeping powers.

The 24-page legislation will allow ministers to nationalise any other bank or building society at the stroke of a pen for the next 12 months.

Last night the emergency legislation cleared its first major hurdle in the Commons.

Despite Tory opposition, the Banking (Special Provisions) Bill was given a second reading by 367 votes to 164.

The Bill, which provides for the troubled bank to be put into temporary public ownership, will go to the Lords and is expected to come into force by the end of tomorrow.

As the Tories stepped up their calls for Chancellor Alistair Darling to resign over the affair, he insisted nationalisation would "maintain financial stability".

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Brown gives Darling a weary look at a joint press conference

"It will support the savers and it also gives a chance for this company to refocus and restructure. It is also a proposal that protects the taxpayer," he said.

Northern Rock was a bank that was "only trading today because of Government support", he added.

But Shadow Chancellor George Osborne said the Conservatives supported an alternative plan of Bank of England-led administration for Northern Rock, which ran into trouble last year in the global credit crunch.

Taxpayers' exposure to the bank has doubled since the beginning of the year and is now thought to stand at about £110billion - four times the defence budget and the equivalent of 27p on the basic rate of income tax.

Mr Osborne told MPs: "Not only do we not know what we are paying for this bank, we don't know what we are buying into.

"The Government simply refuses to tell us how risky this exposure is."

Mr Osborne said legal action by shareholders could easily result in the Government being forced to pay £2billion for the Rock.

Hedge funds which own a fifth of the bank would "fight tooth and nail" for £4 a share, arguing that Sir Richard Branson's Virgin Group was willing to pay to acquire it.

Mr Osborne said MPs were being asked to "sign a blank cheque" because the Government had not told Parliament how much it would cost to nationalise Northern Rock.

"We are told that it will be decided after we have bought it - which is certainly an unusual approach to buying something," he added.

It also emerged that though Mr Darling insisted the state-owned bank will be run at "arm's length", four members of its new board have links to the Government.

They include one of Mr Brown's closest aides, an executive whose company donated money to Labour, and two businessmen previously appointed to official posts by the Government.

In the City, rival banks protested that the nationalised company could enjoy a huge competitive advantage over them and steal business away.

Tory leader David Cameron said: "When you've got a Chancellor who I think everyone would accept has lost all credibility, what I think is right is for the Prime Minister to reconstruct his government.

"If I was the Prime Minister, I would say to my Chancellor that he has to move from his job and that a new Chancellor is required to take the country forward and help restore economic credibility."

The revelation about Mr Sandler's tax status is awkward for Gordon Brown and Mr Darling, who have targeted "non-doms" with a new £30,000 levy.

Mr Sandler moved to the UK in the 1980s after being brought up in Zimbabwe, and has a German passport.

It also emerged that the woman chosen to be his £75,000-a-month chief financial officer, Ann Godbehere, is resident for tax purposes in Switzerland.

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