Northern Rock: Osborne to reveal EU deal over 2013 sale

 
Northern Rock branch The chancellor is to strongly defend the timing and value of the sale

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Northern Rock had to be sold by 2013 under a deal signed by the former Labour government, Chancellor George Osborne is to reveal on Monday.

The bank, which was nationalised in 2008 following its near-collapse during the global credit crunch, was sold on Thursday to Virgin Money for £747m.

Mr Osborne will say the sale offered the "best possible deal" for taxpayers.

Labour said the chancellor had to start taking responsibility for his decisions.

Shadow Treasury minister Chris Leslie had sent a letter to Mr Osborne, raising concerns about the value and timing of the sale.

In a strongly-worded response, the chancellor will say that, under the deal negotiated by his predecessor Alistair Darling with the European Commission over state aid to banks, the government had to sell the majority of its stake by the end of 2013.

This deadline had never been made public.

Mr Osborne will also say the sale's valuation of Northern Rock's "price-to-book value ratio" - that is, its assets minus its liabilities - is higher than peers Barclays, Lloyds TSB or the Royal Bank of Scotland.

BBC business editor Robert Peston said as taxpayers had injected £1.4bn into Northern Rock in 2010, the sale would see a loss of somewhere between £400m and £650m.

But there is the potential for the Treasury to receive a further £280m over the next few years.

'Imperative'

That deal with European authorities "left the new government with a limited window to get Northern Rock Plc back into the private sector," Mr Osborne will say in his reply to Mr Leslie.

Government losses on Northern Rock

"Given we were advised Northern Rock plc would have been likely to remain loss-making at least well into 2012, which would have depleted taxpayer resources still further, agreeing a sale now was even more imperative."

Mr Leslie said: "It's time George Osborne started taking responsibility for the decisions he takes. He should be doing what's best for the British taxpayer, not hiding behind EU rules.

"Last week the chancellor claimed he had secured a good deal by selling off Northern Rock for a substantial loss. If he is now suggesting this was a bad deal for the taxpayer and he would rather have waited why did he not ask the European Commission for an extension?

"With the British economy flat-lining for over a year, bank shares in decline and a deepening crisis in the eurozone, he could have made the case that circumstances had changed."

The previous Labour government in 2010 split the bank into two, Northern Rock plc, and Northern Rock (Asset Management), into which was placed its bad debt.

The so-called "bad" bank was saddled with the cost of being bailed out and still owes the Treasury £21bn.

The government has said it had no plans to sell Northern Rock (Asset Management).

The sale of Northern Rock plc is expected to be completed on 1 January 2012.

 

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  • rate this
    +1

    Comment number 245.

    My, looks like Georgie-boy is trying to get the money when he needs it most to try and dig Britain plc out of the muck. Whether he's doing the right thing, time will tell - but its a bit cheeky of the guys who oversaw the collapse and bailing-out of NR in the first place to challenge him on the wisdom of his fiscal policy. Don't they have an economist they can pay to say it for them?

  • rate this
    +2

    Comment number 244.

    As Northern Rock is based in Newcastle I expect when savers begin to experience the effect of the Branson "customer care" (as NTL customers have since Virgin Media gobbled up the cable company), there'll be a whole new meaning to the term "Great North Run" :)

  • rate this
    +1

    Comment number 243.

    When during this debacle of a financial crisis is someone going to finally stand up for the taxpayer? The banks were always going to try and shaft us, but when your governments are continuously doing it too, it will soon end up on the streets.

  • rate this
    +1

    Comment number 242.

    Basically NR is like a pro footballer (League 1 at best) with 2 years on his contract. The chances of keeping the contract deadline secret is slim and he will not sign a new contract. You know with 12 months to go on contract price will drop and between then and now he could get injured (dodgy balance sheet already required surgery).

    Someone offers a decent price now - would your team sell?

  • rate this
    +2

    Comment number 241.

    its pathetic that every single thing now seems to be about how can you make the opposition look bad rather than what can we do to save this country.
    cameron only seems to care about the rich, miliband seems to only know how to complain without and alternativve. and clegg, well he's set his party back a good 20 years. who ever gets into power cares about one thing..$$$ for the people around them

  • rate this
    +3

    Comment number 240.

    Will George Osborne be aware that Richard Branson has intentions of using £250 million of the capital base of Northern Rock plc to complete this purchase Is he using bail out money we have put in to save the company from collapse I am concerned he has access to this money prior to completion of his purchase Who will approve this loan Maybe George Osborne? Will George recieve a commission?

  • rate this
    -1

    Comment number 239.

    *Yawn* More BBC-engineered HYS's to get the EUphobes out in droves. It's getting boring. Try acting like journalists instead of Tory publicists

  • rate this
    0

    Comment number 238.

    235.CryFreedomMachine
    Fact is you like most tories ignore the fact just like labour so did tories but you want to try to ignore such facts dont you and blame it all on labour.
    So for how long are you going to blame labour 5 years ten years when will you accept tories made the real mess with their greed and selfishness and i me my never ever us we ours

  • rate this
    +1

    Comment number 237.

    Its about time we took back control of our UK banks
    from the Spaniard's before their economy goes under!!!

  • rate this
    +1

    Comment number 236.

    Will this shower who govern us ever stop whingeing on and on about the previous government's legacy and start taking responsibility for their actions. We all know we've been in the smelly brown stuff for about three years now, 50% of which is under this lot.
    They didn't need to sell Rock for two years, certainly not now, at a knock down price. Branson will be laughing all the way to his new bank!

  • rate this
    +2

    Comment number 235.

    Fact is, Labour signed contracts like NR & many other agreements which will cost absurd amounts of money & cause loads of problems & also basically sold us down the swanny which is going to cost dearly for many years to come.

    They used borrowed money to increase numbers of teachers/nurses/doctors, now they complain that numbers are being cut to what we can actually afford.

  • rate this
    -2

    Comment number 234.

    Instead of unemployment benefit, government should provide instant no-questions-asked work for all who turn up. Workers get experience, references, etc. This avoids benefit-associated paperwork. The salary is whatever is considered the official minimum wage. People would still get benefit, but would be contributing to something useful. That would get us out of recessions more quickly.

  • rate this
    0

    Comment number 233.

    It looks more and more like Labour sabotaged what they could to make life harder for the coalition. Desperate men do desperate things.

  • rate this
    +1

    Comment number 232.

    DG1969 (229)

    "Is gold king? Or cash? You can't eat either of them. Its work which creates wealth no matter how its measured so job losses in both public and private sectors mean the country is getting poorer."

    Probably the most fundamental observation made here.

    This also shows that the unemployment common in recessions actually DELAYS recovering from the recession.

  • rate this
    +1

    Comment number 231.

    Great reporting from the BBC, but we still haven't even seen the start of it yet.

    As an ex-Investment banking worker, who go out due to being totally appauled with the industry, the worst is still yet to come. Osborne will also continue to blame "the previous government", but like his predecessor, has no problem spending taxpayer's money on 'independent consultancy'....

  • rate this
    +1

    Comment number 230.

    There is no point in crying about any of this .You are responsible for continuing to support various strands of pro-capitalist political parties.Capitalism can't be reformed away of its nasty bits.All the stuff you are complaining of resurfaces again and again.Time to consider a post-capitalist moneyless society with, real democracy, common ownership & free access to all produced wealth.Socialism.

  • rate this
    +1

    Comment number 229.

    Is gold king? Or cash? You can't eat either of them. Its work which creates wealth no matter how its measured so job losses in both public and private sectors mean the country is getting poorer. Politicians of all parties need to show more imagination in how to create wealth, cutting the housekeeping and selling the furniture will only keep us going for a little while,

  • rate this
    0

    Comment number 228.

    When will we understand how debt and credit all really works at government level ? They issue debt to raise money to spend for us, the banks sell it for them,. If a government overspends they raised to much debt. Taxes from workers and company profits are the only way to pay it back. Banks can only operate as Governments allow them to (Regulations)

  • rate this
    0

    Comment number 227.

    Looks like Labour stuffed us again . .
    Incompetence . ..

  • rate this
    +4

    Comment number 226.

    If Labour didn't think it was wrong to tie us into a sale of Northern Rock by 2013, why not be up front about the deal?
    Perhaps they saw an opportunity to make political capital out of a deal they new could never recoup taxpayers money?
    No such foresight I fear, incompetence more like. Same as destroying our pensions, screwing up bank controls and selling our gold reserves for tuppence!

 

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