HC Deb 17 July 1985 vol 83 cc320-5 3.51 pm
The Chancellor of the Exchequer (Mr. Nigel Lawson)

With permission, Mr. Speaker, I should like to make a statement. I told the House on 20 June that if further investigations into the affairs of Johnson Matthey Bankers were to turn up any evidence of fraud, appropriate action would be taken. Investigations have been continuing since then. Although, strictly speaking, they have not so far established prima facie evidence of fraud, they have revealed serious and unexplained gaps in the records of Johnson Matthey Bankers, including the possibility of missing documents relating to substantial past transactions on certain accounts that are the subject of large losses.

In the light of that, Johnson Matthey Bankers has today requested the Commissioner of the City of London police to conduct a preliminary inquiry with a view to establishing whether any criminal offences may have been committed. The result of the inquiry will be reported to the Director of Public Prosecutions, who will advise what, if any, further action should be taken. The House will, of course, be kept informed.

Mr. Roy Hattersley (Birmingham, Sparkbrook)

The Chancellor of the Exchequer was wholly right to inform the House of this latest development in the Johnson Matthey affair at the first opportunity, and I thank him for that. Obviously, it is not possible to speculate about the outcome of the police inquiry—[HON. MEMBERS: "But."] It is, however, essential to clarify the procedure which now follows. Will the Chancellor of the Exchequer confirm that two prosecutions may now result from the unhappy affair: first, regarding the auditors, about which he told the House a month ago, and now Johnson Matthey Bankers? What is more, because of their mutual mismanagement, the Bank of England and the Government are involved in the whole episode. It grows increasingly difficult to answer the question why Johnson Matthey Bankers was bailed out in the first place, and so quickly.

Does the Chancellor of the Exchequer agree that the fullest revelation of all the facts is essential? Will he promise that after the police inquiries there will be a general inquiry into the whole Johnson Matthey Bankers' scandal, either by a Select Committee of the House or under the Tribunals of Inquiry of (Evidence) Act 1921?

Mr. Lawson

I am grateful to the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) for his initial welcome. He referred to the two matters which are now under way as if they are somehow similar. In fact, they are very different. There is the prospect of civil action by JMB, which is now a wholly owned subsidiary of the Bank of England, against the auditors Arthur Young McClelland Moores and Co. Secondly, there is the separate preliminary police inquiry.

The right hon. Gentleman asked why Johnson Matthey Bankers was bailed out. I gave a full explanation of that when I made my statement on 20 June, and the matter was covered fully in the annual report of the Bank of England. As for what might happen in future, I think that it is better at this stage to wait and see.

Sir William Clark (Croydon, South)

Is my right hon. Friend aware that his statement will be very welcome, so that the whole affair can be cleared up once and for all? Does he agree that if the Bank of England had not intervened in the Johnson Matthey affair there could have been a loss of confidence in the City, which would have been detrimental to the invisibles sector of the economy?

Mr. Lawson

My hon. Friend is right. There were obvious dangers to the London gold market especially, which was a special and important feature of the case. It is striking how open the Government have been in revealing to the House details of this matter, in sharp contrast to what happened under the previous Labour Government during the lifeboat incident.

Mr. Richard Wainwright (Colne Valley)

Will the Chancellor of the Exchequer explain to the House why it is only now that he is able to tell the House that serious and unexplained gaps in the records have come to light, when various skilled teams of investigators have been engaged in the Johnson Matthey investigation over the past six months? How much longer does he think it will take possibly to produce prima facie evidence?

Mr. Lawson

The fact that the documents were missing was not established until quite recently. Since the Bank of England took over Johnson Matthey it has stopped further out-flows and has been working to establish the full extent of the bad debts, which I reported to the House on 20 June. It has been engaged also in getting Johnson Matthey Bankers back into a shipshape and saleable condition, so as to protect taxpayers' and the Bank of England's money and that of the indemnifiers. The inquiry is not the only matter in which the Bank of England has been engaged, but I am satisfied that it is diligently pursuing the inquiry with the aid of its advisers. I am sure that it is as anxious as the House to have a prosecution for fraud if any evidence of fraud should be found.

Sir Anthony Grant (Cambridgeshire, South-West)

Is my right hon. Friend aware that the deplorable goings on at Johnson Matthey Bankers have caused the most acute embarrassment to many of my constituents who work successfully and honourably with the chemical division of Johnson Matthey? Will he emphasise that the two companies are quite separate, and in so doing wish every success to those who work in Johnson Matthey chemicals?

Mr. Lawson

I did so when my hon. Friend properly raised the matter on 20 June, and I gladly do so again now.

Mr. Dennis Skinner (Bolsover)


Hon. Members

Hear, hear.

Mr. Skinner

Is the Chancellor of the Exchequer aware that if the Attorney-General had acted on 12 November 1984 when I asked him a question about the fraud squad's investigation of this matter there is a fair chance that some of the tracks that have probably since been covered up would have been found and explored thoroughly by the fraud squad?

The right hon. Gentleman will be aware that in the Crown Agents' affair very few people were trapped at the end because there was too long a delay. In the London and Counties Security scandal, Gerald Kaplan managed to get to America because of the delay. The result is that he has got off scot free. In other words, he has obtained an amnesty. If the right hon. Gentleman compares the Johnson Matthey Bankers' affair with the Slater, Walker fiasco, and all the others that arose at about that time, he will find that most of those involved got off scot free. Against that background, is he not open to the charge that, because he has delayed matters and refused to answer my questions and those of my hon. Friends, people such as James Firth, a director, whose son was employed by one of the largest borrowers from Johnson Matthey, have been able to cover up all their tracks? The borrower is a personal friend of the Prime Minister and of the Secretary of State for Trade and Industry.

Is it not a scandal that the Chancellor has come to the House eight months after Johnson Matthey's exposure on 30 September? The result is that we will be lucky to get hold of any of the culprits, yet there are so many people to pick on. Why does the right hon. Gentleman not act against the Governor of the Bank of England? Why is the Governor not charged with the fact that he allowed so much neglect to take place? What about Michael Arnold, who worked for the auditors and apparently could not discover anything throughout 1984? One of those auditors is now in charge of looking after the NUM's funds. What a scandal this is.

Is it not a fact —

Mr. Speaker

Order. The House knows that the hon. Member for Bolsover (Mr. Skinner) has taken a special interest in this matter, but he must not make a speech.

Mr. Skinner

Is it not a fact that, by being so laggardly, the Chancellor and the Attorney-General, with the connivance of the Prime Minister, will allow these people to get off scot free while miners have been locked up in gaol for doing absolutely nothing?

Mr. Lawson

I resent and reject the hon. Gentleman's allegations. I had hoped that he would welcome my statement.

Mr. John Maples (Lewisham, West)

Does my right hon. Friend agree that one of the most difficult decisions that a central bank has to make from time to time is whether to rescue a particular financial institution? It is, by contrast, extremely easy for the Opposition to cast doubt on those decisions in ignorance of the full facts.

Mr. Lawson

My hon. Friend is correct, but, strictly speaking, that is not the issue before the House. This is a serious matter. It concerns the fact that the Bank of England, through Johnson Matthey Bankers, has reached the point where sufficient suspicion has arisen through the missing documents to lead the Bank of England to feel justified in asking the City fraud squad to make a preliminary inquiry.

Mr. Robert Sheldon (Ashton-under-Lyne)

Is it not clear that the rescue of Johnson Matthey Bankers, by comparison with a large number of firms which have been allowed to go to the wall, represents an error of judgment by the Chancellor? Does the right hon. Gentleman, agree that Johnson Matthey Bankers has shown itself to be the unacceptable face of capitalism, whereas the Chancellor's actions have shown themselves to be the unacceptable face of Government intervention?

Mr. Lawson

The right hon. Gentleman is wrong on both counts. First, the decision to rescue JMB was not my decision but that of the Governor of the Bank of England. Secondly, it was not an incorrect decision. In my judgment, the Governor of the Bank of England was correct in taking that decision.

Mr. Anthony Beaumont-Dark (Birmingham, Selly Oak)

Does my right hon. Friend accept that most of us will think that he was right to make this statement, because the invisible earnings of the City of London are important to our balance of payments? Does my right hon. Friend accept that what has happened at Johnson Matthey is a scandal which should be investigated, wherever it goes, and whatever its results? Bearing in mind the City revolution to come, the loss of confidence in the City by events such as the Johnson Matthey incident and the fact that Lloyd's has cast a great cloud over many people's views of the City's reputation, should not the same strictures be applied to Lloyd's, as a police investigation would bear heavily upon many people involved in some of the disgraces there?

Mr. Lawson

My hon. Friend will know that investigations into Lloyd's are going on. The prosperity and future of our people are threatened by the unacceptable face of Socialism. Whereas we are acting properly against what the right hon. Member for Ashton-under-Lyne (Mr. Sheldon) called the "unacceptable face of capitalism", the unacceptable face of Socialism is publicly embraced by the Leader of the Opposition.

Mr. Brian Sedgemore (Hackney, South and Shoreditch)

Is the Chancellor aware that Mr. Michael Hepker, the chairman of a public company, Sumrie Clothes Ltd., who today left the country, has been leading the Bank of England auditors, Graham Mark and Robin Collier, up the garden path ever since the collapse of Johnson Matthey in relation to a £1.5 million loan made to Ravensbury Investments, an offshore Isle of Man company, which loan involved a whole series of frauds, including a fraud on Johnson Matthey? Will the right hon. Gentleman confirm that on 29 June 1982 Eric Ellen, the director of the International Bureau of Maritime Fraud, went to see Ian Fraser, a director of Johnson Matthey, to tell him about various proven misdemeanours in which Mr. Mahmud Sipra, who controls the El Saeed empire which led to the collapse of Johnson Matthey, had been involved? Will the right hon. Gentleman confirm that, on 12 December 1982, he telephoned Mr. Fraser to tell him that Mr. Sipra was caught up in a £3 million fraud and that it was ridiculous to continue to lend him money, only to be met with the reply by Mr. Fraser, "You chaps are all the same. You don't give anyone a chance."? Will the Chancellor give a guarantee that he will come to the House next week, when I hope to present further details of fraud at Johnson Matthey?

Mr. Lawson

If the hon. Gentleman has any relevant evidence, I hope that he will immediately make it available to the police.

Mr. Eric Cockeram (Ludlow)

Will my right hon. Friend accept that his assurance that if any fraud is uncovered the matter will be brought to the attention of the Director of Public Prosecutions is little comfort, in view of the repeated lethargy of that department? I remind my right hon. Friend that fraud at Lloyd's was uncovered more than 12 months ago, yet no action has been brought by the DPP.

Mr. Speaker

Order. Wide questions promote wide answers.

Dr. Oonagh McDonald (Thurrock)

Is the Chancellor aware that his statement makes nonsense of the Prime Minister's reply to me last Thursday, which was reinforced in her Monday letter to me, when she said that she saw no purpose in an inquiry into the relationship between Johnson Matthey and companies to which loans had been made? Does not everything that the Chancellor has said today underline the need for such an inquiry? What will the right hon. Gentleman do to shake the Prime Minister's complacency about Johnson Matthey?

Mr. Lawson

There is no question of complacency on the part of my right hon. Friend the Prime Minister, myself, any member of the Government or the Governor of the Bank of England. We have acted throughout on all the evidence that has been made available. It was impossible to act before there was any evidence. Now that further facts have come to light, the Bank of England and Johnson Matthey Bankers, without any delay, have called in the police, who will report to the Director of Public Prosecutions.

Mr. John Stokes (Halesowen and Stourbridge)

Disregarding much of what the Opposition have said, is my right hon. Friend aware that the honesty and integrity of the City of London is at stake? We look to my right hon. Friend to help us in every possible way.

Mr. Lawson

I agree with my hon. Friend that the honesty and integrity of the City of London are of the first importance. As I made clear in my statement of 20 June, it would be wholly wrong to assume that the shambles, and worse, at Johnson Matthey Bankers was in any way characteristic or typical of banking in the City of London. It does no good to this country to pretend otherwise.

Mr. Laurie Pavitt (Brent, South)

Is the right hon. Gentleman aware that, apart from the large companies which were caught, a large number of small businesses are affected? I know of the tragedy of a small concern in Norfolk which had been built up over 30 years and which has gone to the wall. Does the Chancellor's announcement offer any hope that, after a lifetime of work, these small businesses will be rescued from bankruptcy?

Mr. Speaker

Order. That question has nothing to do with Johnson Matthey.

Viscount Cranborne (Dorset, South)

Now that my right hon. Friend has set such a good example in dealing with white collar fraud, can we expect him to encourage the responsible authorities to promote similar investigations into the Lloyd's insurance market?

Mr. Speaker

Order. That question is no good, either.

Mr. D. N. Campbell-Savours (Workington)

May I ask the Chancellor to give an assurance that every penny of public money expended on rescuing that bank will be returned to the public purse before the company is again privatised? May we now have a copy of the Price Waterhouse report?

Mr. Lawson

As I made clear to the hon. Gentleman earlier, the Price Waterhouse report contains details which, because of the law relating to banking confidentiality, cannot be revealed. It also bears upon the legal action which the Bank of England and Johnson Matthey Bankers contemplate against Arthur Young McClelland Moores and Co. On the hon. Gentleman's point about money being returned before privatisation, the money that will be received by the Bank of England as a result of the privatisation of Johnson Matthey Bankers will play an important part in the recovery of funds which have been expended.

Mr. Tam Dalyell (Linlithgow)

Did it come to the Chancellor's ears from around the gold market and elsewhere in the City before Christmas that there was a likelihood of fraud being involved? On what date, before or after Christmas, were Sir Robert Armstrong, the Prime Minister and the Chancellor warned of the likelihood of fraud in the Johnson Matthey Bankers case?

Mr. Lawson

I received no such warning at any time. The Bank of England discovered the documents to be missing last week.

Mr. Robert C. Brown (Newcastle upon Tyne, North)

As it becomes increasingly apparant that a large sum of public money has been involved in fraud, will the Chancellor give the House an assurance that if, after the fraud squad's inquiries, the Director of Public Prosecutions reveals that the villians have fled, he will dismiss the Governor of the Bank of England, and resign?

Mr. Lawson

No, Sir.

Mr. Hattersley

Does the Chancellor agree that the exchanges of the past few minutes confirm the need for a general inquiry? At some point, must he not answer the question why, when my hon. Friends below the Gangway suspected fraud six months ago, the Bank of England suspected it only yesterday?

Mr. Lawson

The right hon. Gentleman's colleagues below the Gangway suspect fraud on every occasion, whether or not there happens to be any evidence of it.