Bank Levy Double Taxation Agreement (UK and Germany)

Mark Hoban Excerpts

Thursday 8th December 2011 Written Statements

[The Financial Secretary to the Treasury (Mr Mark Hoban)]

A double taxation agreement with Germany was signed on 7 December 2011 in relation to both countries’ bank levies. The text of the agreement has been deposited in the Libraries of both Houses and made available on HM Revenue and Customs’ website. The text will be annexed as a schedule to a Treasury Order and laid before the House of Commons in due course.

Asset Protection Agency

Mark Hoban Excerpts

Wednesday 7th December 2011 Written Statements

[The Financial Secretary to the Treasury (Mr Mark Hoban)]

The Asset Protection Agency (APA) has today published two legal agreements relating to the asset protection scheme (APS). Copies of the agreements have been deposited in the Libraries of both Houses.

The first of these agreements moves the main focus of asset management governance to the riskiest assets in the APS, to ensure that the level of APA oversight is commensurate with our current view of the risk associated with the APS. The second principally introduces revised rules for overdrafts that are outside the scope of the supplemental agreement relating to operational alignment outlined in the written ministerial statement laid on 14 July 2011, Official Report, column 35WS. This resolves an agreement to agree in the original accession agreement.

These agreements are in addition to the supplemental agreement on aligning the operation of the APS with RBS’s “business as usual” finance and risk management process, as outlined in the WMS on 14 July 2011. Details of other previous supplemental agreements are contained in the WMS laid on 15 February 2011, Official Report, column 72WS .

Bank Remuneration Disclosures

Mark Hoban Excerpts

Tuesday 6th December 2011 Written Statements

[The Financial Secretary to the Treasury (Mr Mark Hoban)]

The Government have today launched a consultation on a mandatory requirement for the largest UK banks and foreign banks operating in the UK to publish the details of the level and composition of remuneration of their eight highest-paid senior executive officers. The first disclosures would be made in 2012, in respect of the 2011 financial year.

In February 2011, the Government announced an accord between the UK Government and major UK banks under the name “Project Merlin”. As part of this announcement, the Government committed to consulting on extending the remuneration disclosures of the highest-paid non-board executives made under Project Merlin to major UK banks from 2012 onwards.

Remuneration practices in the financial services sector have incentivised excessive risk-taking in some cases, contributing to the severity of the financial crisis. While a number of UK, international and European initiatives have led to improvements in the alignment of risk and reward in the financial services sector, more detailed remuneration disclosures for the highest-paid senior executives at the largest firms will provide better oversight of incentives. This information will encourage improved shareholder governance and enhance public scrutiny, which, in turn, is expected to facilitate better decision making by boards in relation to senior executive pay.

These proposals have been designed to minimise potential costs and external impacts, including the impact on privacy. A full explanation of the regulatory changes and draft implementing provisions is set out in the consultation document and impact assessment. The consultation will be published on the HM Treasury website, and the consultation period is scheduled to end on 14 February 2012.

Following consideration of responses to this consultation, the Government will take a decision on whether amendments to the draft legislation are required, before publishing a summary of responses document and laying final regulations before Parliament during summer 2012.

ISA Reinstatement (Failure of Financial Firms)

Mark Hoban Excerpts

Monday 5th December 2011 Written Statements

[The Financial Secretary to the Treasury (Mr Mark Hoban)]

I am today announcing the Government’s intention to make changes to the ISA rules that will benefit investors whose ISA savings have been affected by the failure or default of a financial firm. This includes ISA investors affected by the collapse of Lehman Brothers.

Under current ISA rules, an individual can pay into their ISA a total amount up to the relevant subscription limit each year. The 2011-12 subscription limit for “adult ISAs” is £10,680, of which £5,340 can be in cash.

Where an ISA is affected by the failure or default of a financial firm, any reinstatement of sums held in the account at that point, or investment of any subsequent compensation received, is currently treated as a new ISA subscription, and therefore counts towards the normal annual limit.

We intend to change the ISA rules to permit investors affected by such a failure or default to make certain ISA investments over and above the normal subscription limits.

We intend that investors who have lost their cash ISA will be permitted to reinstate up to the balance of their account at the time of the firm’s failure in a new ISA, outside the normal subscription limits.

Where a stocks and shares ISA has been affected, we intend that the investor will be permitted to invest any compensation (or any similar payment) derived from assets held within their ISA in a stocks and shares ISA, outside the normal subscription limits.

We propose to apply different arrangements for cases in which Lehman Brothers was, at the time of its collapse, the sole counterparty to an ISA product. Affected investors will be permitted to reinstate up to the balance of their ISA at the time of this collapse, outside the normal subscription limits. This is irrespective of whether any compensation has been paid to the investor.

Further details can be found in the HM Revenue and Customs ISA bulletin, published today—a copy of which I have placed in the Library. I have asked HM Revenue and Customs to consult ISA managers and other interested parties on the detailed rules required to implement these changes. I anticipate that draft amending regulations will be made available for consultation in the new year, and that finalised regulations will be laid in spring 2012.

The changes we intend to make will provide a principles-based approach which—together with the Financial Services Compensation Scheme’s deposit guarantee scheme and other compensation arrangements—will enable investors whose ISAs are affected by the failure or default of a financial firm to continue to benefit from tax-advantaged savings. They also demonstrate the Government’s commitment to ensure that the ISA remains a secure, accessible and tax-advantaged saving product.

Employer Asset-backed Pension Contributions

Mark Hoban Excerpts

Tuesday 29th November 2011 Written Statements

[The Financial Secretary to the Treasury (Mr Mark Hoban)]

The Government announced at Budget 2011 that they would consult on changing the tax rules in relation to employer asset-backed contributions to registered pension schemes. These contributions involve an employer making a series of payments guaranteed with security over the assets from which the payments derive. The joint HM Revenue & Customs (HMRC) and HM Treasury consultation took place between May and August, and sought views on options to ensure that excessive tax relief would not arise from the way in which some of these pension contributions were structured.

Following the consultation, the Government have today published legislation that will be introduced in the Finance Bill 2012 to change the tax rules for giving relief to employers in relation to asset-backed pension contribution arrangements.

The Government are keen to continue to allow the use of asset-backed contributions, given the flexibility they can offer to employers and their pension schemes in managing pension deficits, while protecting the Exchequer from tax risks.

The changes announced will therefore ensure that the amount of tax relief received by an employer making these contributions accurately reflects, but does not exceed, the amount of payments received by the pension scheme. This means that employers will not gain unintended, excessive tax relief.

Because of a significant risk to tax revenue, this legislation will have effect from 29 November 2011.

The Government’s response to the consultation has been published alongside the legislation and tax information and impact note. These are available from the Budget 2011 pages of the HMRC website and the Finance Bill 2012 pages of the HM Treasury website.

ECOFIN (18 November 2011)

Mark Hoban Excerpts

Thursday 24th November 2011 Written Statements

[The Financial Secretary to the Treasury (Mr Mark Hoban)]

The Economic and Financial Affairs Council—Budget was held in Brussels on 18 November 2011.

The following items were discussed:

Preparation of the Conciliation Committee meeting with the European Parliaments

The Council reached a final position on the 2012 EU budget, as part of negotiations with the European Parliament via a concurrent Conciliation Committee meeting. In particular, it was agreed that EU spending (payment appropriations) in 2012 should total €129.1 billion, some €4.0 billion below the level advocated by the European Parliament. The level of commitment appropriations, which limits the value of new contractual obligations to disburse EU funds in current or future years, was set at €147.2 billion for 2012.

As part of this process, the Council also adopted the Letter of Amendment No. 2 to the Preliminary Draft Budget for 2012, which handles mainly administrative costs relating to the expected accession of Croatia to the EU, and the Letter of Amendment No. 3 to the Preliminary Draft Budget for 2012, which concerns updates for estimated needs for agricultural expenditure and international fisheries agreements.

Separately, the Council agreed to adopt Draft Amending Budget No. 6 to the General Budget 2011, which increases the level of EU funds by €200 million in 2011 in order to reflect the possibility of overspending on some programmes during the remainder of this year.

Outcome of the Conciliation Committee meeting with the European Parliaments

The Government supported the Council’s overall position on the 2012 EU budget, which delivers on the Government’s principal aim to freeze EU spending in real terms next year. This outcome delivers real budgetary restraint at EU-level, supports ongoing efforts to consolidate public finances across many member states and respects the principles of sound financial management. It also delivers on the Prime Minister’s letter from December last year, signed jointly by France, Germany, Finland and the Netherlands, that called on the Council to step up progressively its efforts to curb annual growth in EU spending.

In the Government’s view, the Commission did not present satisfactory forecasts to demonstrate that extra funds requested under Draft Amending Budget No. 6 to the General Budget 2011 were necessary. Unfortunately, this is another example of poor EU budgeting. This Government are committed to improving financial management in the EU, as well as delivering budgetary restraint. Therefore, the Government voted against this in-year adjustment, in order to signal its ongoing dissatisfaction with EU financial management.

Any other business

No substantive issues were raised under this agenda item.

Counter-Terrorism Act (Financial Order)

Mark Hoban Excerpts

Monday 21st November 2011 Written Statements

[The Financial Secretary to the Treasury (Mr Mark Hoban)]

The Government have today laid before the House an order under the Counter-Terrorism Act 2008 containing a direction requiring UK credit and financial institutions to cease all business with banks incorporated in Iran and their branches and subsidiaries. This means that UK credit and financial institutions are prohibited from entering into transactions or business relationships with these entities and continuing existing transactions and business relationships with them, unless licensed to do so by HM Treasury.

The Treasury is satisfied, as required by the Act, that activity in Iran that facilitates the development or production of nuclear weapons poses a significant risk to the national interests of the United Kingdom. The November board report of the International Atomic Energy Agency (the UN body charged with monitoring Iran’s activities and ensuring that no nuclear material is being diverted to non-civilian applications) highlights the reasons for the Government’s serious and ongoing concerns about Iran’s nuclear activities. The IAEA report sets out the agency’s concerns about

“possible military dimensions to Iran’s nuclear programme”.



In particular, the information available to the agency indicates that Iran has carried out the activities that are relevant to the development of a nuclear explosive device. The report notes that

“while some of the activities identified have civilian as well as military applications, others are specific to nuclear weapons”.

The Government view these developments with the utmost concern.

The case for action is underlined by the recent calls from the Financial Action Task Force for countries to apply effective countermeasures to protect their financial sectors from money laundering and financing of terrorism risks emanating from Iran. The FATF (the global standard setting body for anti-money laundering and combating the financing of terrorism) renewed these calls with urgency on 28 October 2011 and noted its particular and exceptional concern about Iran’s failure to address the risk of terrorist financing and the serious threat this poses to the integrity of the international financial system.

In light of these risks to the UK’s national interests, I consider it a proportionate response to require the UK financial sector to cease all business relationships and transactions with Iranian banks and their branches and subsidiaries, including the Central Bank of Iran. Iranian banks play a crucial role in providing financial services to individuals and entities within Iran’s nuclear and ballistic missile programmes as companies carrying out proliferation activities will typically require banking services. Any Iranian bank is exposed to the risk of being used by proliferators in Iran’s nuclear and ballistic missile programmes. Experience under existing UN and EU financial sanctions against Iran demonstrates that targeting individual Iranian banks is not sufficient. Once one bank is targeted, a new one can step into its place.

As they relate to an important global financial centre, UK restrictions will have an impact on the options available to Iranian banks. This will make it more difficult for Iranian banks to utilise the international financial system in support of proliferation-sensitive activities. It will protect the UK financial sector from the risk of unwittingly being used to facilitate activities which support Iran’s nuclear and ballistic missile programmes. UK action of this nature signals to Iran and the international community that we consider this risk to be significant.

These actions are being taken in co-ordination with other partner countries, who will make their own announcements separately.

Northern Rock

Mark Hoban Excerpts

Monday 21st November 2011 Commons Chamber

[The Financial Secretary to the Treasury (Mr Mark Hoban)]

With permission, Mr Speaker, I would like to make a statement about Northern Rock. As the House will be aware, on 15 June this year the Chancellor of the Exchequer announced that Northern Rock had been put up for sale. Last week, he announced that he had agreed the sale of Northern Rock plc to Virgin Money. I am grateful for the chance to update Parliament on those events.

As hon. Members will be aware, the collapse of Northern Rock four years ago foreshadowed a crisis that was to engulf the global financial system. The queues of people outside branches of Northern Rock—the first run on a British bank in more than a century—remain to this day a lasting image of the crisis. It was a sorry result of the inadequate regulation and irresponsible banking that the previous Government presided over, and it was a crisis that led to a range of Government interventions in the financial sector. The sale of Northern Rock to Virgin Money is an important step towards normalising the Government’s role in the financial sector and getting the Government out of the business of running the banks.

The deal with Virgin Money is expected to be completed on 1 January 2012, pending European Commission merger clearance and Financial Services Authority approval. Let me reassure the House that the sale route represents the best value for money for the taxpayer. United Kingdom Financial Investments and its independent advisers looked exhaustively at all potential exits, including stand-alone remutualisation, combination with an existing mutual and initial public offering, but ultimately advised that a sale would generate the best value for money for the taxpayer.

Furthermore, under the terms of the state aid agreement entered into by the previous Government, we have to transfer control of Northern Rock to a new owner by the end of 2013. That limits the window for getting Northern Rock plc back into the private sector. Combined with the fact that the bank is likely to be loss-making well into 2012, a sale to Virgin Money now is the best option measured against taxpayer value for money. We have also carefully assessed the impact of the sale on competition and financial stability.

Let me set out the details of the deal. The cash elements are as follows. Virgin will make a cash payment of £747 million to the Treasury on completion, which is expected to be on 1 January, conditional on regulatory approvals. We also expect about a further £50 million once we know the actual final net asset value of Northern Rock plc at the end of 2011. In addition to the cash payment, the Government will hold a capital instrument in Virgin Money, with a par value of £150 million and paying interest at 10.5%. Furthermore, we have ensured that the taxpayer will get a share of any upside. In the event of a profitable sale or initial public offering by Virgin Money, an additional cash consideration of between £50 million and £80 million will be paid to the Government.

By way of comparison, our shareholding in Northern Rock is valued at £1.2 billion on the Treasury’s balance sheet, because the previous Government injected £1.4 billion of capital into the loss-making bank at the start of 2010. By the end of this year, that value will have decreased further due to the losses that Northern Rock currently makes. Despite all that, we have sold Northern Rock plc at a price-to-book multiple of about 0.8. Given that other UK banking stocks are trading at multiples of around 0.5, that is a good outcome for the taxpayer. Of course, when we consider the final position we will need to look at both Northern Rock Asset Management and Northern Rock plc to see the final outcome for the taxpayer.

This is also a good deal for the economy of the north-east, with the potential to create new growth and new jobs in the area. Virgin Money has committed to there being no further compulsory redundancies beyond those already announced for at least three years. It will also make Newcastle the operational headquarters of the new, combined business. It will retain the total number of existing branches, with the highest concentration in the north-east, and with plans to expand as the business grows.

We are pleased that Virgin Money has also committed to extending the current financial agreement with the Northern Rock Foundation to the end of 2013. We all know that the Northern Rock Foundation plays a vital role in tackling disadvantage in the north-east and Cumbria. Virgin has also committed to exploring how Virgin Money Giving and the foundation could work together in the future.

This deal will create almost immediately a new, credible competitor in our retail banking sector, thus increasing choice for consumers. The Government are clear that more competition is needed in the banking sector. A competitive banking sector ensures that the economy benefits from banking products and services at efficient prices. Competition is also a spur to innovation and economic growth, but choice has diminished in recent years as a number of high street banks and building societies have disappeared or merged. As set out in this Government’s coalition agreement, we are committed to promoting competition in the banking sector and to the return to the private sector of the Government-held stakes in banks, of which this measure is a key part.

The Virgin brand has a strong reputation for growth and innovation and I am confident that its entry into retail banking will provide a real challenge and improve diversity in the banking sector. I want to be clear that for current Northern Rock customers, it is business as usual. They will not need to take any action as a result of the announcement. Virgin Money also plans to offer personal current accounts and small business banking products in due course.

I know some would have liked to see Northern Rock re-mutualised, but no final bids were made by mutuals and no workable plans for stand-alone mutualisation were put forward. None the less, the Government remain committed to promoting mutuals, which is why we are working with the mutuals sector to support its ambitions and ensure that it is not disadvantaged compared to bigger established banks—all to foster diversity and create a more competitive banking industry.

Of course, the sale of Northern Rock is only one step to a new banking sector—it is not simply a return to business as usual. The last crisis cost the taxpayer billions of pounds, and we cannot afford to repeat that. That is why this Government are pursuing ambitious reform of the financial sector at home and abroad, ensuring that we embed a competitive, successful but secure financial sector, and one that supports growth across the entire economy without jeopardising its stability; why we are fundamentally reforming the failed tripartite system, entrenching a much greater and much-needed focus on macro and system-level risks; why we are leading the international agenda for full implementation of the Basel III standards, to ensure that our banks are resilient to ongoing market turbulence; why we support in principle the recommendations of the Independent Commission on Banking to ring-fence better-capitalised high street banks, reduce taxpayer exposure through powers of bail-in, and increase competition in banking; and why we have secured commitments from the UK’s biggest banks to provide £190 billion of new credit to businesses across the country this year, lending £76 billion to small and medium-sized enterprises this year alone, which is £10 billion more than banks lent to them last year.

The sale of Northern Rock to Virgin Money is an important milestone in this Government’s efforts to return state-owned banks to the private sector. It represents good value for the taxpayer and provides an economic boost to the north-east region. For consumers across the board, it means greater diversity and choice in financial services.

I firmly believe that Virgin Money will have a hugely beneficial impact on the banking landscape in the years to come, providing better outcomes for customers and businesses. Of course, this is only one step towards a reformed banking landscape. The Government will continue to work hard to remedy the regulatory failures of the last decade, to promote a more competitive sector, and to ensure that we embed a stable and successful financial system that serves and not jeopardises the economy. I commend this statement to the House.

[Mr Speaker]

I apologise to the hon. Gentleman for inadvertently demoting him. I had been advised that this statement was to be made by the Exchequer Secretary to the Treasury, but I realise that the hon. Gentleman is a still more senior man, serving the Government as Financial Secretary.

--- Later in debate ---

[Chris Leslie]

Thank you very much, Mr Speaker. I was simply making the point that the Chancellor ought to have been here today because there are so many questions to answer about this deal. Obviously it is right that Northern Rock should be leaving public ownership, just as it was right to take it into public ownership in 2008 to avoid a catastrophe, but the decision to sell at this time and in this manner raises some very serious questions. Will the Minister confirm the net loss to the taxpayer from the sale, and that the proceeds will be used in their entirety to pay down the national debt?

On the sale’s timing, I read in the papers, and the Minister said again today, how the Government are blaming Europe and Labour—I am surprised that they have not blamed the civil service yet. These are weak excuses that just will not wash. He should start taking responsibility for some of his own decisions, and he should be doing what is right for the British taxpayer, not hiding behind EU rules. If he felt constrained by the EU requirement to sell by the end of 2013—let us remember that it is still only 2011—why did the Government not try to change that? If he is now suggesting that it was a bad deal for the taxpayer and that he would rather have waited, why did he not ask the European Commission for an extension? With the economy flat-lining, bank shares in decline and a deepening crisis in the eurozone, he could easily have made the case that circumstances had changed. Or does this fire sale suggest that they think that conditions will get even worse?

The Government have a duty to ensure that the deal is good for taxpayers, the economy, the new company and its customers and staff, so why is he scared to issue an initial public offering for Northern Rock? With about £700 million of excess equity on its balance sheets, why on earth is he selling it privately for 66p in the pound? Contrary to the headlines, this deal is funded not principally by Richard Branson, but rather with £250 million from US financier Wilbur Ross, a stake from an Abu Dhabi sovereign fund and—wait for it— £250 million of Northern Rock’s own money, using its existing capital assets in a complex financial swap deal. Is the Minister not a little troubled that the company’s assets are being stripped even before it changes ownership?

What is Northern Rock’s current core tier 1 capital position, and what does the Treasury anticipate it will be in three years? We know that the Financial Services Authority has voiced its anxieties about such a substantial removal of capital. What safeguards will it be given if these capital buffers are to be thinned out so dramatically? The Financial Times reports that Wilbur Ross has paid about 80% of the book value for Northern Rock, yet he is quoted as saying that he would have

“to sell out a few years down the road for 1.5 times book value.”

That is 150%. Is the Minister comfortable with the news that the Government have sold to an individual actively planning to dispose of the bank quickly and nearly double his money? Does that not indicate that the Treasury might be selling prematurely and at the wrong price?

I am amazed that the Minister has agreed to underwrite a further £150 million of the buyers’ payments? I have heard of vendor financing, but agreeing to accept £150 million of debt so deeply subordinated as to be basically unsellable takes the biscuit. Is it not possible that the subsidy will be regarded as further state aid, and is he presumably seeking EU Commission approval for that? Will he at least guarantee that the Treasury will receive a payment every year on that £150 million, and that we will get it all back by the end of this Parliament?

The coalition agreement promised to promote mutuals and financial services, yet no apparent consideration was given to the mutualisation of Northern Rock. Why did Ministers not try harder to develop that option? Will the Minister publish the analysis on the basis of which they dismissed a member buy-out? The concerns about the decision to run down £250 million of Northern Rock’s capital reserves are not just an issue for the taxpayer; they also reduce Northern Rock and Virgin Money’s ability to provide significant credit in a market crying out for mortgage finance. Despite the new owners’ reported assurances, there are no contractual guarantees that branches or jobs will be retained. Savers in Northern Rock will also need reassurance that their new bank’s depleted capital reserves will not bring repeated anxieties if another banking crisis occurs.

The Chancellor opposed the original decision to rescue Northern Rock, saying:

“I am not in favour of nationalisation, full stop.”—[Official Report, 19 February 2008; Vol. 472, c. 186.]

Is this not a golden opportunity for him to hold up his hands and admit that he made a mistake, and do not the growing question marks lingering over this giveaway deal also suggest that his judgment is as wrong now as it was then?

[Mr Hoban]

That was a lame response to my statement. The previous Government presided over the failure of financial regulation and an irresponsible banking culture that led to the collapse of Northern Rock. Now we have to deal with their legacy, and that includes the agreement that they struck with the European Commission requiring Northern Rock to be sold by 2013. Given the hand we were dealt by the previous Government, we had to do three things: get the best deal for the taxpayer, for the consumer and for Northern Rock and the north-east. The deal that we announced last week did just that.

The hon. Gentleman asked about proceeds. As we have said, this is a one-off transaction, and the proceeds will go towards paying down the debt. He asked whether it would have been better to hold on to Northern Rock longer. The reality is that Northern Rock is currently loss-making, and it is expected to make losses in the first part of next year. The best outcome for Northern Rock is to be acquired by somebody who wants to use the base in Gosforth to expand the business and offer a better deal to consumers and the staff of Northern Rock. David Fleming, the Unite trade union official, said:

“The treasury’s decision to sell Northern Rock to Virgin Money marks a significant moment in the history of this north-east based financial institution. After three years of turmoil and upheaval for the workforce at Northern Rock, Unite hopes that today will be the start of a secure future.”

Let me deal with Virgin Money’s capital position, which the hon. Gentleman raised. Virgin Money has clearly set out to be a strong and dependable partner. Its core tier 1 capital ratio is 15%, which is much higher than that of many existing high street banks, which averages about 10%. Of course the FSA will approve the capital structure and will have to give its approval of the transfer of ownership, and hon. Members should welcome that support.

On mutualisation, I made it clear, as did the Chancellor, that we were open to offers from existing mutuals to buy Northern Rock for a stand-alone remutualisation, but no firm bids were made in the final round. No one came forward with a well worked-out plan on how Northern Rock could be remutualised on a stand-alone basis, and that is why we took the decision we did. It was in the best interests of the taxpayer, the consumer, the north-east and Northern Rock to sell the business to Virgin Money.

[Mr Andrew Tyrie (Chichester) (Con)]

In the Treasury Committee’s recent report on competition in retail banking, we argued strongly that competition, and not just short-term revenue maximisation, should play a major part in the sales of the nationalised banks. Have consumer interests influenced the Treasury’s decision to sell Northern Rock now, and does the Minister agree that increasing competition should be central to future divestments?

[Mr Hoban]

My hon. Friend makes an important point. We have studied the Treasury Committee’s reports on competition carefully. We agree with him that competition is vital to improve outcomes for consumers, whether they be business or personal; and, to the extent that divestments of banks help to deliver improved competition, that is something to be welcomed and borne in mind. There are other areas where we can look to improve competition in the banking sector. The Independent Commission on Banking has made its proposals, and we will respond to them in due course.

[Several hon. Members]

rose—

[Mr Geoffrey Robinson (Coventry North West) (Lab)]

Is the Financial Secretary not aware that this is an appalling deal, and at quite the wrong time for the British taxpayer? Is he not aware that the European Commission cannot sanction the imposition of that date? The worst time to sell a company is when it is loss-making and when—as in this case—it has prospects of profits to come. He should have waited. It is the timing that is being opposed, and which has nothing to do with the European Union, but everything to do with the collapse of this Government’s economic policy.

[Mr Hoban]

The hon. Gentleman is well known for his business experience, but what we need is to get the best deal for the taxpayer and Northern Rock. The advice that we received from our independent advisers indicated that this was the best time. As I mentioned in my statement, we got a price-to-book ratio of about 0.8, which compares with other banks, which are currently trading on a price-to-book multiple of 0.5. That sounds to me like a good deal for the taxpayer.

[Stephen Williams (Bristol West) (LD)]

I welcome my hon. Friend’s confirmation that this is the best value for the taxpayer and injects a new competitive force into the high street. He said that this was a milestone in the Government’s journey of returning the other state-owned banks to the private sector. Will he agree to continue to work with me and others who have imaginative ideas in this area to ensure that all citizens benefit from that rather larger transaction?

[Mr Hoban]

My hon. Friend has championed particular ideas about the distribution of shares in RBS, and we listen to those views carefully. It is absolutely right to see this as a milestone towards the normalisation of the banking system. It requires a significant reform to regulation and to the structure of banking, which is a course that we are embarked upon.

[Mr Michael Meacher (Oldham West and Royton) (Lab)]

But is it not a scandal to sell off Northern Rock unnecessarily at this time at a cost to the taxpayer of up to a £500 million loss, especially when, in addition, the bad debts of Northern Rock Asset Management, which, significantly, the Minister did not mention, will be dumped on the taxpayer when the £50 billion of mortgages it still holds begin to default as interest rates rise?

[Mr Hoban]

Clearly, there are two parts to the Northern Rock business that the previous Government nationalised: the business that we are selling—Northern Rock plc—and Northern Rock Asset Management, which holds a lot of the old mortgage book. The previous Prime Minister assured the House that both would make a profit for the taxpayer.

[Mr John Redwood (Wokingham) (Con)]

I hope that Sir Richard Branson can turn this business into a profit-making, growing business, generating more jobs and paying some tax. Will the Minister remind us how much this bank has lost in state hands, which accounts for the fact that it is no longer worth what the Labour party paid for it?

[Mr Hoban]

The previous Government injected £1.4 billion-worth of capital into Northern Rock plc. That has gone down to £1.2 billion because of the losses incurred, and we expect further losses in this financial year and in the next. The challenge for Virgin is to use the platform it will have in Gosforth to grow the business, attract new customers and use its reputation for challenging incumbents.

[Mr Alan Campbell (Tynemouth) (Lab)]

Will the Minister give a cast-iron guarantee that the foundation will still exist beyond 2013?

[Mr Hoban]

It is a matter for Virgin Money and Northern Rock Foundation to discuss. Virgin Money has said as part of its agreement to acquire the business that it will extend existing arrangements to the end of 2013. It is keen to work closely with Northern Rock Foundation so that it can continue its excellent work in the north-east and Cumbria.

[Michael Fallon (Sevenoaks) (Con)]

The big plus here is that from January we will have a strong challenger retail bank. Will my hon. Friend assure me that in taking forward the Vickers proposals, he will get on with creating other challenger banks, not least as alternative sources of support for small businesses?

[Mr Hoban]

My hon. Friend is right. From 1 January we will see a strong challenger on the high street from a business that has a reputation for taking on incumbents and offering a better deal for consumers. That is one of the great attractions of Virgin Money in this transaction. We want to take more action to improve competition on the high street. We are working closely with challenger banks to find ways of removing barriers of entry to the market so that they can grow their market share. One of the Government’s key commitments is to improve competition on the high street for both business and retail customers.

[Roberta Blackman-Woods (City of Durham) (Lab)]

I note that the Minister said that this agreement would lead to additional job creation in the north-east. Will he say how many jobs he expects to be created, of what type and by when?

[Mr Hoban]

What this deal does is preserve jobs in the north-east. Virgin is committed to not going beyond the existing management’s plans for compulsory redundancies. The growth of Northern Rock will come off the back of how well Virgin Money does in exploiting new markets and new opportunities. I think this is a good deal for the employees of Northern Rock. That is why staff cheered when the deal was announced on Thursday at Northern Rock’s offices in Gosforth. They wanted an end to the uncertainty that has hung over the business for the past four years. We have delivered that for them.

[Mark Field (Cities of London and Westminster) (Con)]

I accept that any Government should, in the Minister’s words, be looking to “get out” of the business of banking. Presumably, the fact that we have done this deal now rather than wait until the end of 2013 is due to the expectation of a considerable deterioration in the value of all the banks, including RBS and Lloyds banking group, where we have far more significant holdings. Will the Minister give an indication of the time period during which we might be getting out of the business of those two banks?

[Mr Hoban]

The decision to dispose of Northern Rock was taken in isolation from consideration of other banks. A particular set of circumstances appeared, which enabled us to sell while providing a good deal for the taxpayer, a good deal for the future of Northern Rock and a new competitor on the high street. That is why we sold Northern Rock to Virgin Money. I think it is a good deal for everyone concerned.

[Chi Onwurah (Newcastle upon Tyne Central) (Lab)]

I welcome the end of some of the uncertainty that has been blighting many of my constituents’ lives, and Virgin Money’s commitment to keeping Northern Rock’s headquarters in Newcastle, but the people of Newcastle and the country want a return to a longer-term, more responsible form of banking to ensure that this never happens again. Given that the Government ignored the possibility of mutualisation, choosing a complex financial arrangement instead, what confidence can the people of Newcastle have that they will achieve that aim?

[Mr Hoban]

No one put forward a workable plan for a stand-alone remutualisation of Northern Rock. No mutual came forward in the final round with a bid to acquire Northern Rock. There is no point in hoping for a white knight to appear to remutualise Northern Rock when the reality is that none was forthcoming. I hope that the hon. Lady shares the view of Councillor Nick Forbes, leader of Newcastle city council, who said that he was

“delighted that the future of Northern Rock has now been decided with its sale to Virgin Money”.

[Guy Opperman (Hexham) (Con)]

I too was in Newcastle last week, when the foundation, local people, the Labour party and the cheering staff members in Northern Rock’s building in Gosforth were confirming—as were the unions—that this was a great deal. Is the Minister surprised that no mutual came forward, and will he explain once more why none would be willing to do so in the circumstances?

[Mr Hoban]

We went out of our way to encourage that. We spoke to various organisations that are keen to promote the idea of mutuality, but none of them could produce a workable model that would enable us to give money back to the taxpayer, and, as I have said, no mutual came forward with a bid in the final round. That was not for want of trying on our part. Clearly there was not the interest in the mutual sector in acquiring Northern Rock that people assumed to exist.

[Catherine McKinnell (Newcastle upon Tyne North) (Lab)]

Of course my constituents in Newcastle welcome news that appears to offer some job security to many local people in the short to medium term, but will the Financial Secretary tell us what financial guarantees have been given to ensure that Virgin Money delivers on its promises?

[Mr Hoban]

Indeed. Councillor Nick Forbes, whom I quoted earlier, also said:

“The decision by Virgin Money to make Newcastle their home sends a message of confidence in our city and the wider North East.”

Virgin Money backed that up by saying that it would not make any compulsory redundancies beyond those already announced by management for the next three years, and I think that that provides a good level of assurance for Northern Rock’s staff.

When I visited Northern Rock on Thursday and talked to some of its staff, they were clearly pleased that the uncertainty that had hung over the business for the last four years and acted as a brake on its development had been removed. They look forward to its continued growth under Virgin Money.

[Alec Shelbrooke (Elmet and Rothwell) (Con)]

The deal that the Minister has announced represents the best value that can be obtained for the taxpayer at this time, and for as long as financial crises continue to abound. We have secured the jobs of people in the north-east, hence the good cheer that is felt there. Does my right hon. Friend agree that the good news is here, and that the reason people may look po-faced is that, once again, we are clearing up a hell of a mess?

[Mr Hoban]

My hon. Friend is absolutely right. Since we came to office, we have reformed the failed tripartite arrangements that were introduced by the Labour party. We are changing the nature of banking in this country by establishing the Independent Commission on Banking, whose proposals on ring-fencing will mean higher levels of capital and better levels of liquidity for businesses. We are tackling the mess that Labour left behind, and the disposal of Northern Rock is part of that story.

[Mr Ronnie Campbell (Blyth Valley) (Lab)]

This is a three-year deal by Mr Goody Two Shoes, Mr Branson. [Interruption.] That is what he is: Goody Two Shoes. What will happen to the people in Newcastle? Will he come to London, or will he go offshore after three years? Where is the guarantee for those workers?

[Mr Hoban]

I think that there is a better guarantee of jobs under the current proposal than there would have been if Northern Rock had continued as it was. The problem with Northern Rock was that its cost base exceeded the business that it was writing, and that posed a long-term—[Interruption.]

[Mr Speaker]

Order. As I said to the hon. Member for Reading West (Alok Sharma), I understand that there are very strong feelings and effects on constituencies on these occasions, but the hon. Member for Blyth Valley (Mr Campbell) must not chant a chorus from a sedentary position—or even, for that matter, from a standing position. We are grateful to him for his views when he is called to speak.

[Matthew Hancock (West Suffolk) (Con)]

Is not the argument that we should hold on to Northern Rock for a few more years in the hope that the price will go up just a punt on the stock market, and is that not exactly the sort of attitude that got us into this mess in the first place?

[Mr Hoban]

My hon. Friend is right. The mentality that, hopefully, something will turn up seemed to guide the Labour party when it was in government, and we are now trying to pick up the pieces of the mess they left behind.

[Ms Gisela Stuart (Birmingham, Edgbaston) (Lab)]

I want to be reassured that this is the right time to sell Northern Rock. I presume that the Treasury took into account the situation in the eurozone. If the Prime Minister currently believes the European Central Bank should be the bank of last resort and should therefore buy Italian bonds, why does the Financial Secretary think that back in 1976 a Labour Government did not instruct the Bank of England to buy British bonds but instead called in the International Monetary Fund?

[Mr Hoban]

rose—

[Mr Speaker]

Order. The relationship between that question and the matter under consideration is, at best, tangential, but I am sure it is not beyond the intellectual compass of the Financial Secretary to address it.

[Mr Hoban]

I was, indeed, intrigued about the role Northern Rock might play in bailing out the eurozone economies. It is essential that action is taken in the eurozone to tackle the fundamental problems it faces. The banking system must be recapitalised, the fiscal crisis in Greece and a number of other member states must be resolved, and a firewall must be put in place to ensure that the turbulence in the eurozone comes to an end. We are all working towards achieving that, and it is in our long-term interests to do so. The fact that we were able to dispose of Northern Rock against that backdrop is a good sign of what is happening here in the UK.

[Richard Harrington (Watford) (Con)]

I, for one, would like to thank the Financial Secretary and his colleagues for this deal, as I believe it is a good deal for the taxpayer and it offers a good future for the employees of Northern Rock. Does the Financial Secretary agree with the shadow Chancellor, who unfortunately is not in his place but who said in 2006 that the tripartite committee provided robust supervision of risks to financial stability?

[Mr Hoban]

My hon. Friend makes an important point. The reality is that Northern Rock’s problems and ultimate failure as an institution were a consequence of the architectural flaws in the system of tripartite regulation, under which no one body was monitoring, and could respond to, the build-up of an asset price bubble, and no body was able, or prepared, to challenge Northern Rock’s business model which led to its being over-dependent on money borrowed in the wholesale markets. That was the cause of Northern Rock’s problems, and we are putting in place measures that will tackle some of them.

[Ian Mearns (Gateshead) (Lab)]

The Financial Secretary will remember the discussions we had in the summer and spring about this potential sale and the guarantees we were seeking about the Northern Rock Foundation. He said at the time that he could not give any guarantees about the foundation as he had to get the best deal for the taxpayer. Having failed to achieve that, will he go back and see whether he can get a further deal on the foundation beyond the one year that has been guaranteed?

[Mr Hoban]

There is a good deal for the foundation. There was no obligation on Virgin Money to continue the deal beyond 2012, but it has agreed to extend it to 2013, and it wants to ensure that Virgin Money Giving works with the foundation to enable it to continue its work. One of the challenges for the hon. Gentleman and his colleagues from the north-east is to work with Virgin Money and to persuade it of the merits of continuing to fund the foundation.

[Sir Alan Beith (Berwick-upon-Tweed) (LD)]

My constituents who have worked for Northern Rock, and people throughout the north-east who care about the new institution having its headquarters there, will be astonished at Labour’s opposition to the deal, as it is designed to give a future to a bank that failed on Labour’s watch, when guarantees were not worth the paper they were written on.

[Mr Hoban]

My right hon. Friend makes an important point. As someone who was born and brought up in the north-east, I understand how important Northern Rock is to the fabric of the region, and how important it is as an employer and as a sign of prosperity. That is why I was keen to ensure that we got a good deal, not only for the taxpayer but for Northern Rock and the north-east. I am disappointed that so few voices from the Labour Benches have spoken up in support of what is a good deal for Northern Rock and its employees.

[Tom Blenkinsop (Middlesbrough South and East Cleveland) (Lab)]

It is amazing that the Government find the ability to mutualise public services but not to remutualise a former mutual. Will the Minister put evidence in the House Library over the next 25 months proving that this was, indeed, a good deal for the taxpayer now?

[Mr Hoban]

I have made it very clear that we acted on the advice that we had received from our independent advisers. They put forward the case that it was better for Northern Rock to be sold to Virgin Money than for us to sit on it or have it remutualised in one form or another, and I think that that is the best outcome for Northern Rock and its employees. I also think that Labour Members should recognise their role in the circumstances that led up to the failure of Northern Rock and show some contrition about the regulatory system that they left behind.

[Mr Peter Bone (Wellingborough) (Con)]

For Northern Rock’s employees, borrowers and depositors, who does the Minister think would be better to run it: the Government or Virgin? It appears that Labour Front Benchers think it is the Government.

[Mr Hoban]

I have always taken the view—I think my hon. Friend will agree with me on this occasion—that these things are better run in the private sector than in the state sector. I think we will see good management and good leadership from Virgin Money, which will provide a long-term foundation for a credible competitor in the retail financial services sector.

[Grahame M. Morris (Easington) (Lab)]

My question is about the timing and sustainability of this deal. I wonder whether the Minister will answer a question that my hon. Friend the Member for Nottingham East (Chris Leslie) asked earlier about the reported recapitalisation—what we would refer to as “an asset strip”—whereby almost a third of the purchase price is reportedly coming from the bank’s current capital base. Does the Minister not feel that this would put the bank at greater risk in the future if the capital base is not quickly rebuilt?

[Mr Hoban]

This transaction is subject to regulatory approval by the Financial Services Authority, which will carefully examine a range of issues, including the capital position of Virgin Money. I have made the following point before, but it is worth repeating. Virgin Money’s core tier 1 capital ratio is about 15%, whereas most of the UK high street banks are operating at about 10%, so is strongly capitalised. This deal is subject to regulatory approval, and that should give all of us confidence in the future of Northern Rock.

[Robert Halfon (Harlow) (Con)]

As well as reassuring anxious employees that there will be no compulsory redundancies, will my hon. Friend confirm that there will be few branch closures under the new Virgin Money scheme?

[Mr Hoban]

I can indeed. One of the commitments given by Virgin Money was to maintain Northern Rock’s existing branch structure, particularly the branches based in the north-east, and as it grows and expands the services I suspect that it will want to open more branches, so that more people can access the deals that it is offering.

[Mr David Anderson (Blaydon) (Lab)]

If this is the best time to sell Northern Rock—a time when it has made a loss, with the implication of what the Minister has said being that it has already made a loss for part way through next year—does that not show what the real story here is? It is not about the bank, but about the fact that the Government are tacitly agreeing today that the economy will be no better, or worse, in the next two years than it has been in the past year and a half, under their stewardship?

[Mr Hoban]

I do not agree with that at all. If the hon. Gentleman had spoken to Northern Rock employees over the past few months, as I have, he would have found that they clearly have the capacity to expand their services beyond what is currently on offer; they can cope with a bigger flow of savings and mortgages. That is good news, because it will enable Northern Rock to cope with the volumes that should flow from the acquisition by Virgin Money. If we did not sell Northern Rock now, the risk is that there would be further job losses to try to cut the cost base in line with the current business book. That would not be a good outcome for Northern Rock or its employees. The prospect of moving to Virgin Money has lifted the uncertainty from over the heads of Northern Rock employees. As one of them said to me on Thursday, “This is like an early Christmas present.”

[Mrs Eleanor Laing (Epping Forest) (Con)]

In contrast to the Opposition’s blind prejudice against the private sector, does the Minister agree that Sir Richard Branson’s undertaking that there will be no compulsory redundancies and no branch closures in the next three years shows that Virgin Money is a decent company that will bring benefits to Northern Rock’s savers and employees, and to the north-east generally?

[Mr Hoban]

My hon. Friend is absolutely right. What is impressive about Virgin Money has been the way it has sought to engage with stakeholders in the north-east and to understand the importance of Northern Rock not just to the employees but to the wider community in the north-east. It has put forward a business plan that seeks to focus its operations in Gosforth in a way that will help to protect and grow the operation there. That is why the news of Northern Rock’s sale to Virgin Money has been greeted positively by most people, but, sadly, not by those on the Opposition Benches.

[Luciana Berger (Liverpool, Wavertree) (Lab/Co-op)]

Earlier this year, UKFI ruled out remutualising Northern Rock on the grounds that that would represent the gifting of shares to members of a new mutual. Aside from the fact that mutuals are not premised on gifting, can the Minister explain how using £250 million of existing equity within Northern Rock to finance this deal is anything other than gifting?

[Mr Hoban]

The deal we have agreed with Virgin Money involves the receipt of £747 million in cash now and further receipts in the future. I think that offers much better value for money than the remutualisation route, which would have involved the free transfer of shares to members and would have had no certainty of return to the taxpayer. It is in the long-term interests of the Northern Rock business for this deal to go ahead as it is.

[Alun Cairns (Vale of Glamorgan) (Con)]

Does the Minister agree that this could be seen as the first step in returning normality to the banking high street after regulatory failure over the past 10 years? Does he accept that by doing that he is bringing a new, welcome innovator to the marketplace that will have a positive impact on competition?

[Mr Hoban]

My hon. Friend is absolutely right. We want to see new competitors in the market—people who can challenge the incumbents and offer a better service, better rates and better products—and that is to the advantage of consumers. That is a trend we are seeing across the banking sector as a whole, with new entrants coming into the market, and we should be encouraging it so that we have a more competitive financial services marketplace with better outcomes for consumers, whether they are business or personal.

[Phil Wilson (Sedgefield) (Lab)]

Will the Government do an impact assessment of the effect on jobs in the voluntary sector if the Northern Rock Foundation closes after 2013?

[Mr Hoban]

I recognise the importance of the Northern Rock Foundation and I think we all appreciate the excellent work it does in the north-east, but following the denationalisation of Northern Rock it needs to think about how it will continue its work and how it will work with Virgin Money and Virgin Money Giving to continue its activities across the north-east in the future.

[Mr Philip Hollobone (Kettering) (Con)]

What commitment has Virgin Money made to Her Majesty’s Treasury that it will increase lending to small businesses with its new asset in place?

[Mr Hoban]

At the moment, Virgin Money operates primarily in the retail financial services field. It offers a range of products to personal customers. However, it has said that it will look to provide a range of products to small businesses in the future and we would welcome that increased competition in that key area.

[Chris Evans (Islwyn) (Lab/Co-op)]

Will the Minister please explain how using £240 million of Northern Rock’s own capital somehow represents a good deal for the bank and for consumers?

[Mr Hoban]

As I have already made very clear, Virgin Money is paying £747 million to the taxpayer, and other proceeds of sale will come our way. Our view is that this is far and away the best deal on the table. It is the best deal when it comes to value for money for the taxpayer, it is the best deal for consumers and the best deal for the north-east. I am sorry that the hon. Gentleman has not sought to welcome this opportunity to give the people of the north-east and those who work at Northern Rock some new hope for their future.

[Stephen Hammond (Wimbledon) (Con)]

I thank my hon. Friend for his statement. If I understand it, the deal done by the Labour party that forced Northern Rock to be sold before 2013 put a deadline in place, and if losses were being made, the book value was more likely to fall. May I urge my hon. Friend to stick to his guns, as this is a good deal for taxpayers? I remind him that the Labour party’s timing meant that gold was sold at the bottom of the market.

[Mr Hoban]

My hon. Friend makes a good point. I am not sure I would ever want to turn to those on the Opposition Benches for advice on when to sell assets.

[Mr William Bain (Glasgow North East) (Lab)]

Northern Rock demutualised in 1997 yet collapsed 10 years later. Does the Financial Secretary recognise that if it did so again, the cost to the taxpayer could rise to £10 billion? Why, then, did he not more rigorously pursue a mutualisation option that would have restored a safer building society mode of finance to the British high street?

[Mr Hoban]

We should think about those dates very carefully. It was demutualised in 1997 and failed in 2007. The hon. Gentleman needs to remember that the regulatory architecture put in place by the previous Government meant that Northern Rock could act as an outlier and become over-dependent on wholesale funding. Nobody did anything about that at a time when there was an asset price bubble in the UK economy. Those factors in the regulatory architecture led to some of the financial problems in the economy in 2007, 2008 and 2009. We are acting to strengthen the regulatory architecture, to tackle those problems and to ensure that the Bank of England has the powers it needs to supervise the banks properly and look at systemic threats to financial stability. We have also set up the Independent Commission on Banking, which is looking at ways of making the banking system in the UK safer while remaining competitive at an international level.

[Jonathan Evans (Cardiff North) (Con)]

My hon. Friend will recall that when he appeared before the all-party group for building societies and financial mutuals he was asked to arrange for the publication of the advice received in relation to UKFI and the start of this sale. Bearing in mind the reliance he has placed on advice today, when does he anticipate that advice being published?

[Mr Hoban]

My hon. Friend will understand from his own business experience that received advice can be subject to commercial confidentiality. I assure him that we looked carefully at the remutualisation of Northern Rock—that is why I went before his all-party group. We reached out to people in the mutuals sector who wanted to see the remutualisation of Northern Rock but, sadly, no one came up with a viable and workable plan to enable that to happen.

[Mr Andrew Love (Edmonton) (Lab/Co-op)]

I remind the Minister that UKFI made it absolutely clear at the start of the process that it was looking for short-term maximisation of the cash value of Northern Rock. That precluded any sensible mutual from entering the process. This deal is a disaster—we are losing money hand over fist on it. Would it not have been sensible in the circumstances, recognising market conditions, to have gone for a much longer-term deal with a mutual, which would have provided financial benefits as well as delivering benefits to the consumer?

[Mr Hoban]

I just point out to the hon. Gentleman that the mandate for UKFI was to maximise value for money for taxpayers, and that mandate was set by the previous Government.

[Andrew Bridgen (North West Leicestershire) (Con)]

Has the Minister noted that the deal agreed with Virgin Money represents 80% of the book value of Northern Rock, whereas RBS and Lloyds are currently trading at only 40% of book value? Does not the deal represent good value for the taxpayer?

[Mr Hoban]

My hon. Friend is absolutely right. If we measure this deal against the values at which other banks are trading at the moment, it is very clear that it is good value for money for the taxpayer. Rather than carping and criticising, Labour Members should welcome the fact that at a difficult time for the global economy we have been able to sell Northern Rock and get such good value for money.

[Nic Dakin (Scunthorpe) (Lab)]

Has the Financial Services Authority expressed a view on the use of £240 million of Northern Rock’s own money by the buyers for the purchase of this scheme?

[Mr Hoban]

As I said earlier, the FSA will go through its normal process of approving the transfer and sale of this business.

[Richard Fuller (Bedford) (Con)]

Given the failed corporate strategy that led directly to the first run on a bank for more than 100 years, the nationalisation and now the capitalised loss for the taxpayer, is my hon. Friend satisfied that the original directors and chief executive officer of Northern Rock have been held sufficiently to account for their fiduciary responsibilities and will he welcome funding for the Serious Fraud Office to ensure that they are?

[Mr Hoban]

The directors of Northern Rock have been subject to enforcement action by the FSA, but I shall not go into detail about that. I recognise that the directors have their responsibility for the failure of Northern Rock, but the Labour party should also share some responsibility for the architecture of the financial regulation it put in place, which meant that no one was in a position to prevent Northern Rock from being an outlier when it came to its dependence on wholesale funding. It was a consequence of that dependence that led to Northern Rock’s being nationalised and we should welcome the fact that it is returning to the private sector.

[Jonathan Ashworth (Leicester South) (Lab)]

Will the Financial Secretary confirm, so that we are clear, that the Treasury did not apply to the European Commission for an extension of the 2013 deadline? Will he also confirm, further to his answer to the hon. Member for North West Leicestershire (Andrew Bridgen), that given the price of shares in Lloyds and RBS, the Government and UKFI have no immediate plans to sell off their shareholdings in those banks as well?

--- Later in debate ---

[Mr Hoban]

We were dealt a hand by the previous Government. We inherited their ownership of Northern Rock. We inherited their holdings in Lloyds and RBS. Our judgment was that this was the right time to sell the business. The deadline imposed upon us by the European Commission acted as a spur to this. Looking at the prospects for Northern Rock under state control and comparing them to the prospects for Northern Rock under Virgin Money’s control, most sensible people would say that it was better that Northern Rock was owned by Virgin Money than by the state.

[Stephen Mosley (City of Chester) (Con)]

The employees of Northern Rock were cheering last week, but is this not also a vote of confidence by Virgin Money in the economy of the north-east and in the Government’s handling of the British economy as a whole?

[Mr Hoban]

That is right. We have a significant new entrant in the financial services market that is prepared to buy Northern Rock, to invest in the future of the operations in Gosforth and to provide job security there. It is a vote of confidence. It demonstrates that there are people out there who want to be part of our financial services market and who want to offer a good deal to consumers.

[Gemma Doyle (West Dunbartonshire) (Lab/Co-op)]

Can the Minister guarantee that the Government will get back the £150 million that they are lending to Virgin and, if so, when?

[Mr Hoban]

What we put in place with Virgin Money is a capital instrument which is an important part of its financing structure, and the terms of that instrument will be set in place shortly. It is important to recognise that we want to see a well capitalised bank there. The FSA will look very carefully at the structure of Northern Rock and its ownership. As I said, Virgin operated a business model whereby it has capital levels which are much greater than those of some of its peers. That is a welcome sign that Virgin takes financial stability very seriously indeed.

[Paul Blomfield (Sheffield Central) (Lab)]

Is it any wonder that Members on the Labour Benches and people more widely question the value of the deal, when the principal purchaser says that he intends to sell out within a few years at double the money?

[Mr Hoban]

That is why we have agreed as part of the deal that if Northern Rock is sold within five years, we will get a benefit from that. It is not just those on the Government Benches who agree with the deal. It is the staff at Northern Rock, the Labour leader of Newcastle city council, the national officer of Unite and others who welcome the fact that this is a vote of confidence in the ability of Northern Rock to add value to the Virgin Money brand.

[Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)]

Like my fellow Co-operative party MPs, I strongly wanted to see a mutual solution for Northern Rock. The Government’s reasons for not going down that route seem to change every time the issue comes before the House. The Government were happy to sell at a discount and use vendor financing, but are not those the very reasons why the Government used to say they could not proceed with remutualisation? Further to that, the Minister’s statement that “no mutual came forward with a bid” suggests that he does not really understand the issue at all. Surely the point of a mutual is that the members themselves would buy it out and become the owners.

[Mr Hoban]

I question whether the hon. Gentleman himself understands mutuals. There are situations where mutuals come forward and make bids. We have seen the consolidation of the mutual sector in recent years as a consequence of the financial crisis, so there are different ways in which a mutual option could arise. Let me reassure the hon. Gentleman and his hon. Friends. We looked closely at the mutualisation option, and we were open in reaching out to Mutuo, Adrian Coles, the Building Societies Association and Jonathan Michie to encourage them to come forward with a workable solution for how Northern Rock could be remutualised. No one came forward with such a solution. That is why this deal is the best one for the taxpayer.

[Mr Gareth Thomas (Harrow West) (Lab/Co-op)]

The Minister was asked at the all-party financial mutuals inquiry to publish in full the Deutsche Bank report to UKFI on the future of Northern Rock. Why will he not publish any of that report or any of the details of the other conversations that he says he has had with Mutuo and others? Does he not recognise that his failure to do so calls into question the seriousness of his commitment to financial mutuals?

[Mr Hoban]

I say this to the hon. Gentleman and other Members on the Opposition Benches who represent the Co-operative party: we have worked hard since we came into office to find ways to strengthen the mutual sector. That is why we have finally pushed through the legislative reform order which will make it easier for credit unions to expand, why we set up a fund in the Department for Work and Pensions to encourage credit unions to expand, and why we have pushed through, after years of inactivity by Labour when in government, a new capital instrument for building societies. This party is committed to diversity in financial services. We have done more to help the mutual sector in the past 18 months than the previous Government did before they left office. I believe we have a strong message on mutuals, and what we have here is the best outcome for the taxpayer and Northern Rock.

ECOFIN (18 November 2011)

Mark Hoban Excerpts

Tuesday 15th November 2011 Written Statements

[The Financial Secretary to the Treasury (Mr Mark Hoban)]

The Economic and Financial Affairs Council—Budget meeting will be held in Brussels on 18 November 2011. There is no provisional agenda at present. The following items are on the agenda:

Preparation of the Conciliation Committee meeting with the European Parliaments

The Council will aim to agree a final position on the draft budget for 2012, as part of negotiations with the European Parliament via a concurrent Conciliation Committee meeting. The Government will seek a final budget that delivers real budgetary restraint at EU level, supporting ongoing efforts to consolidate public finances across many member states, and that respects the principles of sound financial management.

As part of this process, the Government expect Ministers to be invited to discuss the Letter of amendment No. 2 to the preliminary draft budget for 2012, which handles mainly administrative costs relating to the expected accession of Croatia to the EU. The Government believe that these amendments should not increase the level of EU administrative expenditure.

Ministers are also expected to be invited to discuss Letter of amendment No. 3 to the preliminary draft budget for 2012, which concerns updates for estimated needs for agricultural expenditure and international fisheries agreements, reflecting changing market factors, revised estimates of needs for some direct payments, and legislative decisions this year, which are expected to affect this policy area next year. The Government are broadly supportive of these technical amendments.

Finally, Ministers may be invited to discuss this preliminary draft amending budget No. 6 for 2011, which would amend the 2011 EU budget to reflect latest implementation capacity and financial needs for the remainder of this year. The Government believe that any extra funding needs should be met fully via redeployments within existing budgets.

Outcome of the Conciliation Committee meeting with the European Parliaments

The Council will seek to agree to the outcome of the Conciliation Committee conciliation.

Any other business

At this time, the Government do not expect any issues to be raised under this agenda item.

Eurozone Crisis

Mark Hoban Excerpts

Tuesday 15th November 2011 Westminster Hall

[The Financial Secretary to the Treasury (Mr Mark Hoban)]

I congratulate my hon. Friend the Member for Basildon and Billericay (Mr Baron) on securing the debate.

Let me be absolutely clear: it is in our vital national interest that eurozone states reach a coherent, comprehensive and lasting solution. First and foremost, they must implement the agreement reached towards the end of October, which involves a three-pronged strategy to recapitalise the European banks, resolve the situation regarding Greek debt and reinforce the EFSF to create a firewall between Greece and other vulnerable euro area countries. The new Governments in Greece and Italy need to show that they can implement the tough measures required to deal with their debts and make their economies more competitive. Uncertainty in the eurozone is undermining not just their economies, but ours. A return to stability in the eurozone will benefit our economy, whereas continued uncertainty will harm it. My hon. Friends the Members for Cities of London and Westminster (Mark Field) and for Wimbledon (Stephen Hammond) made that point.

We have a clear interest in greater certainty in the eurozone, but at no point have we committed, or will we commit, any British taxpayers’ money to a special purpose vehicle, or through the EFSF or the ESM, either directly or through the EU budget.

[Mr Baron]

If I may be so bold, the Financial Secretary is coming up with the economic clap-trap that we must all save the euro. Does he accept that binding divergent economies into a single currency without fiscal union was and remains a massive mistake? It is as simple as that. The world will not fall apart if the euro breaks up, and countries such as Norway and Switzerland have proved that by trading with the eurozone using their own currencies.

[Mr Hoban]

My hon. Friend is absolutely right, which is why we did not join the euro in the first place. The remorseless logic of monetary union, as he said in his speech, is fiscal union. Fiscal union is necessary for monetary union to work. That is what we are seeing throughout the globe, and that is why we said that eurozone members must make greater progress towards fiscal union.

[Mr Baron]

If the Financial Secretary accepts the logic about the deficiency of the euro, are the Government joining in the chorus that we must all come together and save the euro?

[Mr Hoban]

As I have said, uncertainty and problems in the eurozone have a damaging impact on the UK economy and have a chain effect on what is happening here in the UK. It is not in our economic interest for that to continue. Just last week, John Cridland, director-general of the CBI, commented on the negative impact that the problems in the eurozone are having on the UK economy. We are an open economy and our European partners are our largest trading partner, so it is in our interest to ensure that the eurozone works. That will be of huge benefit to the UK economy.

--- Later in debate ---

[Graham Stringer]

(Blackley and Broughton) (Lab) rose—

[Mr Hoban]

I would like to make some progress. Let me address UK commitments through the IMF, which is the centrepiece of this debate. In a carefully worded statement, the hon. Member for Nottingham East (Chris Leslie) covered Labour’s retreat on its IMF policy. He was bravely leading his troops through the No Lobby in July without the support of the architects of the G20 London deal. The former Prime Minister and the former Chancellor were not there. What has happened? Last week, his boss, the shadow Chancellor, cut his legs from under him by saying that

“the Labour party supports an increase in the UK’s International Monetary Fund subscription”.

I do not think the hon. Gentleman is in a position to lecture anyone about consistency and principle.

As a founding and permanent member of the IMF, and as one of its largest shareholders, we continue to be a strong supporter of its role as a global backstop to the world economy. Currently, 53 countries are being supported by the IMF, of which only three—Greece, Ireland and Portugal—are in the euro area.

[Mr Baron]

Will the Financial Secretary give way?

[Mr Hoban]

Let me continue. As a founding member of the IMF, we recognise its important role in stabilising the global economy in times such as this. That is why we participated on the nine previous occasions when its quota was increased. In these turbulent times, it is essential for confidence and economic stability that the IMF has the necessary resources, and there may well be a case for further increases. At the G20 two weekends ago, Britain, the US, China and all the other countries round the table made it clear that in principle we are willing to have an increase in IMF resources to boost global confidence. We stand ready to contribute within limits agreed by the House and set out in the International Monetary Fund Act 1979. That limit, denominated in the IMF’s units of account—special drawing rights—stands at 38.8 billion SDRs, or about £38.3 billion pounds.

Let me remind the House that no one who has lent money to the IMF has ever lost that money. The money goes directly to the IMF and not to individual countries. It is one of the most creditworthy institutions in the world, and its loans are afforded preferred creditor status, which means that they are first in line to be repaid, even if not all other creditors are paid. Consequently, no country has ever lost money as a consequence of lending to it.

There has been no agreement about the timing, extent or exact method through which IMF resources will be increased, but an immediate need is to implement existing plans to increase its resources. Let me make clear how IMF resources will be used. Any increase must be available to all its members and not reserved for use only by the euro area. There can be no hypothecation, and money is lent to the IMF, not to specific countries.

The use of IMF resources is linked to the question of the need for economic reform. All hon. Members recognise the need for the euro area to reach a comprehensive resolution to the crisis, and clearly it is for the euro area to resolve that crisis. That resolution cannot be simply through recapitalisation of banks, the creation of a euro area bail-out fund or resolving the problems in Greece.

[Mr Baron]

Will the Financial Secretary give way?

[Mr Hoban]

Perhaps my hon. Friend will be patient. There are areas where the eurozone needs to tackle its competitiveness to respond to those issues. There is the question whether IMF money is conditional on structural reform to improve competitiveness. The answer is yes, because conditions are built into IMF programmes to ensure that competitiveness changes take place. Portugal, for example, has an extensive programme of privatisation, and the Portuguese Government’s right to be involved in private companies must be abolished. In Ireland, legislation has been passed to increase the state pension age to provide a significant boost to long-term fiscal stability. In Greece, the Government are discussing breaking the link between the national minimum wage and the annual inflation rate, and market reform is being promoted to allow businesses to set wages independently of collective agreements.

[Mr Carswell]

Will the Financial Secretary give way?

[Mr Hoban]

Let me continue. I have only three minutes left, and I want to ensure that I address as many of my hon. Friends’ questions as possible.

We are seeing structural reform to improve the competitiveness of economies hand in hand with IMF programmes. I hope that that will reassure my hon. Friends that reform is taking place in those countries to ensure that they meet their international obligations.

[Mr Baron]

Returning to a previous point, I suggest that the reason why the eurozone crisis is causing a bit of a problem over here is that existing policy is making the situation worse. Denying devaluation is forcing greater austerity packages on populations that are already trying to pare down their debt. That is the problem that the Government do not see.

May I take my hon. Friend back to devaluation? The Government make great play of the fact that only three of the 53 packages go to the eurozone. Can he name one programme outside the eurozone where a country cannot devalue?

[Martin Caton (in the Chair)]

Order. That was a long intervention.

[Mr Hoban]

My hon. Friend seems to believe that devaluation is necessary to restore economic growth. That is not the case. Ireland is a country that cannot devalue, but a consequence of how it implemented its reform programmes is that in quarter 2 growth increased by 1.6%, with a 2.3% increase year on year. That demonstrates that devaluation is not necessary to improve a country’s competitive position, for it to earn its way out of problems or for it to grow. Devaluation may make life easier, but it is not impossible for an economy to grow, even if currency devaluation is not possible. In September, the troika concluded that the programme is on track and remains well financed. In Ireland, the authorities are implementing a programme policy.

In the euro area, we are seeing programmes to restore competitiveness, but those reforms must be made throughout the eurozone, if the eurozone is to strengthen and help to underpin economic growth in the UK. No request has been received as yet for additional resources from the IMF, but the role that it can play in underpinning global economic stability is important, and this is an opportunity that the UK should consider if we are to resolve some of the problems in the wider global economy, tackle the fragility and, by definition, improve stability in the UK.