Northern Rock rescue to cost British taxpayers £2bn bill

This article was last updated on April 16, 2022

Canada: Oye! Times readers Get FREE $30 to spend on Amazon, Walmart…
USA: Oye! Times readers Get FREE $30 to spend on Amazon, Walmart…

The National Audit Office (NAO) has concluded that British taxpayers could suffer a £2bn loss on Northern Rock but it should be seen as the cost of an opportunity to secure financial stability.

An abiding memory of the beginning of the financial crisis in 2007, Northern Rock could cost up to 2bn sterling. A price tag the National Audit Office has slapped on the process by which the U.K. government has rescued the stricken mortgage lender before separating it into two parts; the “good” bank, Northern Rock plc, and the “bad” bank, Northern Rock Asset Management.

The Government’s spending watchdog has said the Coalition had rightly pursued an early sale of the nationalised lender, which resulted in the sale of Northern Rock’s so-called “good bank” to Sir Richard Branson’s Virgin Money for an initial sum of £747m during the last year.

The head of the NAO, Amyas Morse has told: “A sale of Northern Rock plc at the earliest opportunity was the best option to minimise losses on the £1.4bn of public money invested in the bank. But most of the former Northern Rock’s assets will be in public ownership for many years to come and there could be a net cost for the taxpayer of some £2bn by the time these assets are finally wound down.”

That unit comprises of 75 branches, one million customers and about £14bn in mortgages. Branson is likely to make more payments that could bring the total to near £1bn depending on the performance of his new business. 

The problem for the government, says NAO, is that is still needs to run down the “bad” bank (Northern Rock Asset Management). It owes around £20bn to the Treasury and over the lifetime of those loans, many of which will go partly or fully unpaid, the tax-payer may take a hit of £2bn. 

The report by NAO has revealed that that the decision by the previous Labour Government to split Northern Rock into a “good” and “bad” bank was based on an overly-optimistic business plan. Mr. Morse has told the Government did not give enough thought to it at that time what it would mean for taxpayers. The participants described the sale process ran by U.K. Financial Investments, a treasury body; as fairly transparent and handled well.

The NAO does admit though that £2bn might be a reasonable price to pay for “stability” within Britain’s financial system.

Article viewed on Oye! Times at www.oyetimes.com.