Government Face Fall-out From Rock Nationalisation

Labour’s decision to nationalise Northern Rock leaves the taxpayer with £100bn in mortgage debts and the government’s reputation somewhat tainted.

Ron Sandler – who rescued stricken insurer Lloyd’s of London in the nineties – will be paid £90,000 a month to ‘return the bank to a more sustainable size’, in his words. It is expected that branches will close and jobs will go.

Desperate to find a buyer, Chancellor Alistair Darling was not , however, convinced that either private package – from Virgin and the Rock’s own management – would pay back the government enough of its loan.

As they claimed that every family in Britain now effectively had a second mortgage of £4,000, Conservative shadow chancellor George Osborne said: “This is the day when Labour’s reputation for economic competence died. Gordon Brown has dithered his way to the disaster of nationalisation. Now the taxpayer will bear the full risk of lending £100billion of mortgages in an uncertain housing market.”

Mr Darling said that nationalisation would only be temporary, but couldn’t say how long that might be, with experts saying it would be years.

The government is likely to face fall-out from job losses in one of its heartlands, and from the 180,000 small shareholders who could end up with very little. The government has also broken one of Labour’s ‘golden rules’ - that net public sector debt should not exceed 40% of national income.

It was last September that the sub-prime crisis in the US spilled over to bring Rock into crisis with a lack of cash to fund its operations. The Treasury was asked to step in and assist as this was the first run on a British bank in over a century. As the government lent the bank money, the search for a private buyer began, but eventually came up short.

Prime Minister Gordon Brown cut short a weekend break in Scotland to help make the decision at the weekend.

Darling said: “It is better for the Government to hold on to Northern Rock for a temporary period and as and when market conditions improve, the value of Northern Rock will grow and therefore the taxpayer will gain. The long-term ownership of this bank must lie in the private sector.”