Business

Northern Rock: Osborne to reveal EU deal over 2013 sale

  • 20 November 2011
  • From the section Business
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Northern Rock branch
The chancellor is to strongly defend the timing and value of the sale

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.

"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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