Northern Rock: You can’t not nationalise Granite because it has no existence apart from Northern Rock

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Most of the country's serious press have called me this afternoon, plus most of its serious news broadcasters. Granite is the theme of the day. And all want to know "how can it be that Granite won't be nationalised?"

The reality is that Granite has no independent existence apart from Northern Rock. Look at the last filed accounts of Granite Master Issuer plc here. They're for the year to 31 December 2006.

Note 19 says the company's ultimate controlling party is Northern Rock plc. This means it is part of the Northern Rock group. We know that. It is in the Northern Rock accounts - note 19 says so. So do the Northern Rock accounts.

Then look at note 4. The company has no employees. It pays Northern Rock to do its admin for it. It cannot stand alone. It has no means to do so.

Also look at its parent company according to the Granite structure plan - that is Granite Finance Holdings Limited. Its accounts are almost meaningless - and (staggeringly) they're unaudited. It's annual return is even less useful. What it says is that of the four directors of this sham two are nominee companies. This is classic tax haven stuff and hardly appropriate for an accountable entity that is part of a plc, let alone a nationalised company. It also says the shareholder is The Law Debenture Intermediary Corporation plc, which we know is untrue: they hold it on trust and no indication is given of that fact and nor is any clue given as to who that trust might be, who its trustees are, where they might be located and what the trust deed might say. We just have to take that on trust (I guess).

The result is that what we have here is an empty shell of a company, utterly dependent upon Northern Rock, and its mere cypher to conduct business at its will. .

Then look at the letter Alastair Darling sent Vince Cable today. It's here. Note what he says:

Absolutely legally correct. And also absolutely wrong. This is Alastair Darling playing the special purpose vehicle, off balance sheet finance game to suit his convenience. And this is the man who aid the Labour Party conference last year:

We need ... [f]ar greater openness and to prevent risky investments being hidden off the balance sheet. Effective supervision for banks, here and across the world.

It's in all our interests to learn from what's happened and we are ready to take the lead and take whatever action is needed. And, we will continue to take that action on the basis of the long term interests of our people and our country.

And now he owns Northern Rock and what does he do? He pretends that its off balance sheet structure is real, and that he is most definitely going to hide behind it. More than that, he's saying that although Northern Rock controls this company it has nothing to do with him and he is not going to nationalise it.

This is straightforward hypocrisy. You can't nationalise Northern Rock and not nationalise Granite. Granite is part of Northern Rock.

And you can't pretend Northern Rock is not responsible for Granite's debts: if it was not then Adam Applegarth (the man really to blame for this mess) would have walked away from Granite last year. But he couldn't, and Northern Rock failed as a result.

Nor can Alastair Darling, and he must know it.

So why is he play acting so badly, and selling all his fine words from last year down the line at the same time? I can offer only one reason . He doesn't want the Granite debt on the government's balance sheet because keeping it off balance sheet will make his boss happy. After all, Gordon Brown does not want the golden rule broken by more than it has to be.

And for that reason alone Alastair Darling is letting the best assets in Northern Rock go, accepting the lower quality debt as the sole security for the debt owing to the taxpayer and is at the same time compromising all his principles by showing himself more than capable of being a balance sheet manipulator.

I am not impressed. Ethics count for all in my book. And I'm left asking if Alastair Darling has any, at all, because what he is doing is dishonest (he is nationalising Granite in truth), unaccountable (he'll live behind an unknown, unaccountable trust facade) and ultimately just an accounting con-trick.

He knows he's accountable for the Granite debt, and is denying it. It doesn't get much lower than that.

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