There was an interesting letter in the Financial Times on Saturday (14/6/2014) from Prof. Tim Congdon. As a former Northern Rock shareholder he pointed out that the latest results from Northern Rock Asset Management (the “bad” part of the bank that was left after the good part was sold off to Virgin) showed underlying profits of £1.16bn. So it has achieved profits of almost £3bn in the last 39 months and is likely to generate a few more billion before the mortgage book is wound up.
Everyone is surely aware that the company was nationalised in February 2008, with no compensation paid by the Government of the time. As originally expected, it looks like the Government is going to make very substantial profits from the nationalisation. The Government did not permit a normal commercial valuation of the business but passed an Act of Parliament that guaranteed that no compensation would be payable. Prof Congdon points out that the company had shareholders funds of £1.7bn at the time and the stock market valuation had been a lot higher in the past. In addition the traditional role of the Bank of England to provide cash to balance sheet solvent but illiquid banks was subverted by the decisions of Governor Mervyn King, and the failure to step in promptly caused a run on the bank that fatally undermined the whole financial sector. In due course this led to a major decline in the whole UK economy.
Now Prime Minister David Cameron is today talking about how we are failing to promote British values. He seems particularly keen on Magna Carta as an example of how the English established democracy and respect for the law. One of the key clauses in that document (turned into modern English) reads as follows: “No free man shall be seized or imprisoned, or stripped of his rights or possessions, or outlawed or exiled; nor will we proceed with force against him, except by the lawful judgment of his equals or by the law of the land. To no one will we sell, to no one deny or delay right or justice”.
Clearly these principles were overturned in the cases of Northern Rock and Bradford & Bingley. Decisions were made by the executive branch of the Government and pushed through Parliament that overrode the principle of no confiscation of property without compensation. An appeal to the Courts and ultimately to the European Court of Human Rights proved ineffective because the Courts simply said that the Government had the right to do these things without reference to legal principles (much as in the old days the King would have claimed the same rights to do anything he chose as a “divine right”).
It is for these reasons that former shareholders in Northern Rock and Bradford & Bingley still feel aggrieved. Incidentally there is a meeting for Bradford & Bingley shareholders in Bradford on the 27th September 2014. One of the speakers will be George Galloway so it should be a lively event.
We surely need a new Magna Carta, i.e. a clear “Bill of Rights”, to re-establish the principle that the Government is bound by the rule of law and a set of principles, not a body with a free hand like former kings.