It emerges from the Parliamentary debate on the
nationalisation of Northern Rock that billions of pounds are to be diverted
away from the intended purpose of preventing a banking collapse, into the
pockets of the Rock’s management.
The directors set up a financial institution called Granite.
The alleged purpose of Granite was to fund a charity for handicapped children
in the north-east. Not a single handicapped child has seen the colour of their
money.
The real purpose of Granite was to act as a scam for
tax-dodging. It was registered in Jersey. As we know, Jersey is a tax haven. It
is also part of the UK, and its status as a sunny place for shady people could
be ended by the British government with the stroke of a pen.
The soundest mortgages on the Rock’s books have been
transferred to Granite. It is believed to hold £44 billion in mortgages (it
might be higher than that). As we know Northern Rock had a reckless business
plan. The 125% mortgages and other dodgy deals remain on the books of the Rock
as a little present to the taxpayer to sort out. The good stuff is out of our
grasp, cherry-picked for Granite.
Is Granite part of Northern Rock or not? The accountants’ or
magicians’ answer seems to be, ‘now you see it, now you don’t.’ If the Granite
mortgages are dodgy, then responsibility for deficits would be the Rock’s. If
they’re OK (and most of them are very sound) they belong to Granite and we
can’t use them to offset the losses at the Rock. They achieve this by waving a
magic wand called ‘securitisation’ – in other words they turned the mortgages
into bonds. They should not be allowed to get away with this racket.
Granite is not part of New Labour’s nationalisation plan. We
are taking over the losses and leaving the juicy bits in private hands! The
Rock has been and is being asset-stripped, and the government is letting them
get away with it. As LibDem Vince Cable comments, "it is clear that an Exocet
has landed somewhere in the middle of the government’s proposals." As you see from
the transcript of the parliamentary debate below, the minister responsible
physically fled from the debate in the House of Commons as the scale of New
Labour’s stupidity and incompetence became clear.
The bloke the government has put in charge of northern Rock
to handle the loss-making stuff is a ‘non-dom’. That means he pays no tax in
Britain. What a splendid example to the rest of us! New Labour seems to live in
a culture where ‘only little people pay taxes’ – and they pay so the government
can give their money away to the rich.
The biggest robbery in Britain is said to be the Brinks Mat
heist in 1983. The gang got away with £26 million. Organiser McAvoy got
twenty-five years. This lot are set to walk off with £44 billion or more of our money. They’ll probably all get knighthoods.
Don’t let them get away with it.
Here are extracts from the debate:
John McDonnell (Hayes and
Harlington) (Lab): I first wish to make it
clear that I welcome the
Bill. In fact, with the greatest respect to
the hon. Member for
Twickenham (Dr. Cable), I think that I was the
first MP to call for
nationalisation, although that is hardly
surprising because I have
been calling for the nationalisation of the
financial sector for 30
years or more. However, I was astounded when my
right hon. Friend the
Chancellor said on Second Reading that the
Granite operation was not
included in the legislation.
From my reading of the
Treasury Committee’s brief reference to Granite and the advice received from
accountants in the tax justice campaign, my understanding of the scheme – even
its name suggests that it was a great wheeze – is that several of the directors
at Northern Rock established an offshore vehicle to avoid tax. It was still on
the balance sheet of Northern Rock and they securitised a large percentage of
their assets in it and received about 50 per cent of their funding from it. As
a result and as far as I am concerned, Granite is a creature of Northern Rock
and therefore is part of the asset base of the bank and its operations.
Mr. Alan Beith
(Berwick-upon-Tweed) (LD): It should not go without
mention that one feature of
the arrangement was a purported benefit to
a charity for handicapped
children in the north-east, which has so far
received no money from it
whatever.
John McDonnell: I understand
the issue that the right hon. Gentleman
raises, and I have seen
reports about it. It is an issue that needs to
be exposed and examined, but
my concern is the greater issue. Those who
took that decision will be
exempted from their responsibilities as a
result of this legislation.
They deliberately undertook an exercise of
tax avoidance and tried to
maximise the profits for their company. As a
result, they enhanced their
own benefits in salaries and bonuses
through a scheme that is
completely exempt from the Bill. The taxpayer
and the community will pick
up some of the liabilities from that
exercise and those who have
profiteered through Granite will be
completely exempt of
liabilities. They will walk away with their
profits secure, while others
suffer. Some of the constituents of my
hon. Friend the Member for
Newcastle upon Tyne, Central (Jim Cousins)
may lose their jobs and some
people may have their homes repossessed.
Yet the Granite scheme has
enabled those people to walk away scot-free.
I tell my right hon. Friend
the Chief Secretary that when there are
discussions in the future
about further legislation and regulation, we
will need to take into
account what happened with regard to Granite. We
will need to consider how to
prevent tax exemption and tax avoidance
regimes being used in such a
way at the cost of the long-term interest
of the workers involved and
of those people who are dependent on
mortgages from a company
such as Northern Rock. If there is any way in
which Granite can be brought
within the ambit of future legislation,
the Government should
examine that matter…
John McDonnell: I support
the legislation, but I believe that we have missed an opportunity to nail down
one of the devices that has been used by
Northern Rock and its
directors to avoid their long-term
responsibilities to its work
force, to those who have borrowed from the
company and to this country
and its taxpayers. I regret that such a
measure was not contained
actively in the Bill.
Dr. Cable: I had not
intended to speak at length at all, having made
my points, but I am prompted
to by the important speech that we have
just heard from the hon.
Member for Hayes and Harlington (John
McDonnell). Alarm bells rang
slightly for me when I heard the mention
of Granite on Second Reading,
but its full significance did not dawn on
me at the time. I do not
think that the problem is quite that
identified in the hon.
Gentleman’s point about tax status. The problem
is that Granite is a
separate institution that, as I understand it,
securitises the best assets
of the bank. The best mortgages of the bank
are wrapped up in the
Granite vehicle. We are being told that in some
way that is being hived off
to the benefit of person or persons
unknown, apparently, to the
Minister.
What is going on here
appears to be not the public ownership of
Northern Rock but an
asset-stripping operation designed to benefit
Someone – we do not know
who. That is a serious development, and unless
we get a proper explanation
by tomorrow morning of what exactly is
going on-…
Dr. Cable: I am trying to
absorb the hon. Gentleman’s analysis, and
I hope that he will repeat
it at greater length. My understanding is
that the remainder of the
assets of Northern Rock, outside Granite,
consist of unsecured
mortgages and the so-called Together
mortgages – those at 125 per
cent of value – or, in other words, the
rubbish. That is what the
Government have acquired. We now need a rapid
and thorough explanation of
exactly what has gone on, as otherwise the
Bill can be stopped in the
other place(the House Of Lords)…
Dr. Cable: We are all
getting a rapid education. Perhaps the hon. Member for Hayes and Harlington can
tell us more.
John McDonnell: I may not
have explained the point that I was trying
to make well enough. My view
is that the motivation was a tax avoidance
dodge, but the problem is
that the liability, which is on a significant
scale, now rests with the
public purse. As a result, the people who
will gain are the
participants in Granite. The ones who will lose, and
who are in jeopardy, are
those who retain an interest in Northern
Rock-that is, the taxpayer,
and the workers who may lose their jobs.
Dr. Cable: These are big
questions, and we are not getting any
answers. I see that the
Minister has fled the Chamber to get an urgent
briefing from the Treasury.
Unless the Paymaster General can give us a
proper explanation, it is
clear that an Exocet has landed somewhere in
the middle of the
Government’s proposals. The Government need to come
up with some proper
explanations overnight, as otherwise they will be
in serious difficulty in the
other place tomorrow.
I could make many other
points but I shall restrict myself to two,
as I think that we have
highlighted a critical issue that we need to
focus on.
