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Taxpayers 'to get Rock rubbish' Brown accused over Northern Rock
(about 3 hours later)
Clashes are expected later in the House of Lords as peers debate the nationalisation of Northern Rock. Gordon Brown has been accused of failing to answer questions on Northern Rock, including why its most profitable part will not be nationalised.
It comes after claims in the Commons the government was only taking over the "rubbish" from the mortgage book. Tory leader David Cameron also demanded to know how long the bank would be publicly owned and why it was exempted from Freedom of Information laws.
The part which takes the best mortgages and resells the debt will not be taken into public ownership, MPs were told. He told MPs Mr Brown's lack of openness would "make Fidel Castro proud".
Lib Dem spokesman Vince Cable said a firm called Granite had been "hived off" from Northern Rock with many of the best mortgage loans. Mr Brown said the government had acted in taxpayers' interests and said the Tories had no credible alternative.
Mr Cable said: "The problem is that Granite is a separate institution which, as I understand it, securitises the best assets of the bank. The government is rushing through emergency legislation to nationalise Northern Rock after efforts to find a private buyer failed.
"The best mortgages of the bank are wrapped up in the Granite vehicle." But opposition MPs are concerned it has not done enough to protect taxpayers if the bank runs into further trouble.
'Asset-stripping operation' 'Rubbish' assets
He said chief secretary to the Treasury Yvette Cooper appeared not to know what was happening to these mortgages. There is particular concern about the role of Granite - a Jersey-based trust set up by Northern Rock in 1999 to package up and sell on its best mortgages to investors - which owns about half of the bank's assets.
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 Vince Cable Lib Dem treasury spokesmanWe 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 Vince Cable Lib Dem treasury spokesman
During an emergency Commons debate on the bill to nationalise the bank, Mr Cable said: "What we are now being told is that in some way this has now been hived off to the benefit of a person or persons unknown, apparently, to the minister. Granite contains about £45bn of Northern Rock's most profitable mortgages but it will not be nationalised - leading opposition MPs to claim taxpayers will be left with the "rubbish" in the bank's mortgage book.
"What is going on here 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." Mr Cameron and Lib Dem leader Nick Clegg both raised the issue at prime minister's questions in the Commons.
He said the remainder of Northern Rock's assets, which have been acquired by the government, consisted of unsecured mortgages for up to 125% of the value of a home. Mr Clegg said the way the nationalisation had been handled was "jeopardising the interests of the British taxpayers". Mr Brown insisted "stability" was the government's "watchword" - and Granite would "not affect the sale of Northern Rock to a private buyer".
Responding to questions from Mr Cameron, Mr Brown said it was necessary to exempt Northern Rock from freedom of information laws because of commercial confidentiality.
'Student politics'
He claimed the Conservatives had been through six different policies on Northern Rock, with their latest set of proposals amounting to "fire sale" of its assets.
Mr Cameron described the prime minister's answers as "feeble" as several other publicly-owned companies were subject to FoI laws.
He said Mr Brown had failed to say what the total liability to the taxpayer would be over Northern Rock, how long the public would own it and why half of its mortgages would be left in private hands.
Mr Brown accused Mr Cameron of reducing the Northern Rock issue to the level of "student politics" and said the government had acted in the best interests of taxpayers.
'Asset-stripping' claim
Clashes are also expected later in the House of Lords as peers debate the nationalisation of Northern Rock, with the Lib Dems expected saying they could vote against it if they do not get a satisfactory explanation of the role of Granite.
On Tuesday, Lib Dem treasury spokesman Vince Cable accused chief secretary to the Treasury Yvette Cooper of not knowing what was happening to the mortgages held by the offshore trust.
During an emergency Commons debate on the bill to nationalise the bank, Mr Cable said: "What is going on here 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."
He said the remainder of Northern Rock's assets, which are being acquired by the government, included poor quality loans and unsecured mortgages for up to 125% of the value of a home.
'Ping pong threat''Ping pong threat'
Mr Cable added: "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."Mr Cable added: "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."
The Lib Dems support the nationalisation of Northern Rock but they will call for more time to debate it if the government does not provide a better explanation later when the emergency legislation comes before peers. Ms Cooper insisted the government had made the position on Granite clear and taken everything into account and that taxpayers would not be made to the foot the bill if it collapsed.
The government could then be faced with the prospect of the bill 'ping ponging' between the Lords and Commons on Thursday - the deadline minister have set for getting it on the statute books.
Jersey-based Granite, which was set up in 1999, is a securitisation vehicle through which mortgages are parcelled up and sold to investors.
It is thought to hold about £45bn of Northern Rock assets, about 40% of its business, but there are potential legal obstacles to its nationalisation, including the fact that is based offshore.
MPs have also expressed concern that - under Granite's structure - investors could call in their loans if mortgages are not continually replaced by new ones.
Conservative MP Philip Dunne said this left "a gaping hole" in the nationalisation programme, potentially putting taxpayers at a much larger risk than previously claimed.
But Ms Cooper insisted the government had made the position on Granite clear and taken everything into account and that taxpayers would not be made to the foot the bill if it collapsed.
"It is a separate legal entity, it will not be covered by the order - but equally it was not covered by the government guarantees and we have made that clear from the beginning," she said."It is a separate legal entity, it will not be covered by the order - but equally it was not covered by the government guarantees and we have made that clear from the beginning," she said.
'Rubbish assets'
But former Conservative chancellor Kenneth Clarke persisted: "The best assets are in Granite.But former Conservative chancellor Kenneth Clarke persisted: "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.""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."
Emergency legislation to nationalise the stricken bank was rushed through the Commons in a single day on Tuesday. Labour MP John McDonnell said he was writing to the chancellor to demand an explanation of Granite's role, which he said increased the burden on the taxpayer and put Northern Rock jobs at risk.
The Banking (Special Provisions) Bill was given a third reading by 293 votes to 167 despite Conservative opposition. Emergency legislation to nationalise the stricken bank was rushed through the Commons in a single day on Tuesday, with the government hoping to get in to the statute books by Thursday.
If passed, the legislation will put the troubled bank into what the government has described as temporary public ownership.
The action comes after the bank ran into problems last autumn amid the US sub-prime lending crisis and the global credit squeeze.
Ministers opted for public ownership of Northern Rock after rejecting a bid from a consortium led by Sir Richard Branson's Virgin Group and a proposal from the board of Northern Rock.