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Last Updated: Thursday, 21 February 2008, 09:37 GMT
Darling hits back over Rock trust
Northern Rock branch
Ministers say nationalisation of the bank is a temporary measure

Chancellor Alistair Darling has moved to calm fears about the nationalisation of Northern Rock after it emerged the bank's best assets would stay private.

Mr Darling said taxpayers would not benefit from the nationalisation of an offshore trust holding 45bn of Northern Rock's high value mortgages.

The Lib Dems and Tories have accused the government of "asset stripping".

But Mr Darling said Northern Rock was separate from Granite and still had a sound mortgage book of its own.

Northern Rock sold about half of its mortgages to a Jersey-based Granite to fund its expansion plans.

But the arrangement was suspended when the government stepped in to rescue the bank - and Mr Darling said it would be up to Ron Sandler, the man appointed to run Northern Rock, to decide whether the scheme should continue.

High quality mortgages

Critics - including Conservative former chancellor Ken Clarke - said that meant taxpayers would be left with the "rubbish" on Northern Rock's mortgage book, such as unsecured loans.

But the Treasury has said Northern Rock "does not sell all its high quality mortgages to Granite; it retains a substantial volume of high quality mortgages on its own balance sheet".

There was also concern that investors could demand money from Northern Rock if Granite was not continually topped up by new mortgages.

Lib Dem Treasury spokesman Vincent Cable earlier wrote to Mr Darling demanding to know why Granite was not being nationalised.

He accused the government of supporting an "asset stripping" operation and threatened to withdraw his party's support for nationalisation - potentially delaying its passage through Parliament.

Mr Darling stressed in reply that Granite was entirely independent of Northern Rock - and the structure of its relationship with the bank was "a common feature for many high street banks and building societies".

He said Northern Rock's mortgage book was "of good quality and its assets exceed its liabilities" - and that Granite had no claim on the bank's assets.

He added: "There would be no public benefit to the taxpayer in seeking to bring Granite into public ownership".

'Reckless lending'

Peers debated the nationalisation bill later in the Lords, where the Lib Dems said they would support Tory calls for amendments, and add some of their own, when it returns to the Commons on Thursday.

MPs will have an hour to put down amendments.

The government is hoping it can get the legislation on to the statute book by the end of Thursday.

Lib Dem peer Lord Newby attacked Northern Rock's "reckless" lending practices and urged Mr Sandler to curb them.

The Granite charitable trust was set up by Northern Rock in 1999 to raise cash for Down's Syndrome North East Association.

'Sensitive'

It does not undertake any charitable activities - a structure the government says is commonly used by banks and building societies around the world.

But Lord Newby asked how much cash had been donated by Granite to the charity and questioned an arrangement in which the name of a charity had apparently been "taken in vain".

Former Conservative chancellor Lord Lawson attacked the nationalisation scheme and said Northern Rock should instead have been closed to new business and its mortgage book sold off when market conditions improved.

He said the government had chosen to continue running it as a business because it was "sensitive about feelings in the North East", where the bank is based.

'Tax dodge'

Prime Minister Gordon Brown was earlier accused of failing to answer questions on Northern Rock, with Conservative leader David Cameron saying his lack of openness would "make Fidel Castro proud".

In exchanges at prime minister's questions, Lib Dem leader Nick 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".

Labour MP John McDonnell has also written to the chancellor to demand an explanation of Granite's role, which he said was a "tax dodge" that increased the burden on the taxpayer and put Northern Rock jobs at risk.

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