Northern Rock: Labour hits out at 'fire sale' price

Northern Rock branch The government has strongly defended the timing and value of the sale

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Labour have criticised the government's sale of Northern Rock as a poor deal for taxpayers, saying it was sold off at a "fire sale" price.

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

But the government said the sale was the "best possible deal" for taxpayers.

The chancellor has revealed the bank had to be sold by 2013 under a deal signed by the former Labour government.

This had never been made public.

But shadow Treasury minister Chris Leslie said in Parliament: "If you felt constrained by a European Union requirement to sell by the end of 2013, why didn't the government simply try to change that?

"If you are now suggesting this is a bad deal for the taxpayer and you would rather have waited, why didn't you 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."

Financial Secretary Mark Hoban said that the sale offered the "best possible deal" for taxpayers.

"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."

'Limited window'

Mr Leslie had sent a letter to Mr Osborne last week, raising concerns about the value and timing of the sale.

In his reply, Mr Osborne said 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.

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 said.

The government also said 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.

Government losses on Northern Rock

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.

BBC business editor Robert Peston has 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.


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  • rate this

    Comment number 63.

    Why don't all the 'Blame Labour' lot at least read the article. The deadline was still two years away and was imposed by Europe..... Virgin and others offered to buy NR before but offered a similarly bad price which was not viewed as good value then but somehow is now, this is just Branson grabbing a bargain at the tax payers. Selective memories or the same bandwagon finger pointing?

  • rate this

    Comment number 62.

    If the government are prepared to take a £21Bn hit, does that mean we can all stop paying our NR mortgages and call it quits?

    Perhaps that is the sort of boost the economy REALLY needs - put money back into the hands of the people.....!

  • rate this

    Comment number 61.

    Does this surprise anyone? Poltics - a game of hit me, I hit you back. Sadly, Labour are very good at popping out the bush to throw a stone.

  • rate this

    Comment number 60.

    Sometimes selling something at a loss saves even bigger losses later on I guess - but I can't help but to think that the UK Taxpayer just go defrauded.

  • rate this

    Comment number 59.

    BBC reports potential loss on sale of Northern Rock could be between £373-650 million. Actual loss (based on current gold price) on sale of gold reserves by Chancellor Gordon Brown (and Ed Balls, his chief economic adviser at the time) – approximately £12,000 million.


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