Mr Darling digs an even bigger hole by nationalising the Rock

Mr Darling is already in a big hole, thanks to his misjudgements over monetary policy last August and September, the run on Northern Rock, the botched proposals on capital gains tax and the U turn on Non Doms. Now, the man in the hole has decided to more than double its size!

There are ten reasons why nationalising Northern Rock is a bad idea.

1. It more than doubles the amount of money the taxpayer has at risk,from a little over £50 billion to more than £100 billion
2. It means any bad loan Northern Rock owns, the taxpayer will own.
3. It means the taxpayer is now liable for any redundancy payments if Northern Rock has to slim its staff numbers.
4. The taxpayer may have to defend against writs from angry shareholders if the compensation terms are not sufficient.
5. The taxpayer becomes responsible for the pensions deficit for staff
6. The taxpayer has to pay compensation to shareholders at a time when public borrowing is already excessive
7. The Chancellor will have to explain mortgage foreclosures, staff redundancies and other bad news to Parliament each time it happens
8. The amount of total government borrowing will increase as a result of the big increase in the amount of money at risk, and the cash needs of the business.
9. The taxpayer will have to pay any losses, meet any write downs of assets and pay for all capital expenditure of the business.
10. The government and taxpayer may be accused of undercutting other viable financial businesses competing against this bank dependent on public money if they are not careful with their guarantees, subsidies and pricing.

What due diligence will the Chancellor do if any before committing the taxpayer to all these liabilities? What law suits if any is he anticipating from shareholders? What will be the cost of compensation to shareholders? What will his policy be on remuneration for his new state employees and how will that fit in with other public sector remuneration?

Tomorrow we need a statement from the Chancellor. There will be all too many questions, but I fear this botched nationalisation will not come with many convincing answers.

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15 Comments

  1. Nick
    Posted February 17, 2008 at 9:18 pm | Permalink

    Its pretty clear what's going on. The interest and penalty interest is due in the next few days. NR have told Darling and Brown they can't pay it (without borrowing more)

    Now it would blow a complete whole in the lie that the tax payer isn't going to lose money if Darling has to anounce that the interest isn't being paid.

    I'm pretty certain, this is the reason for the nationalisation.

    Analyse carefully Darlings statement about the tax payer not losing a penny, hopefully.

    Very subtle spin, and its highly ambiguous as to the interest and penalty interest. ie. Its not included, so the taxpayer loses.

    Nick

  2. Fish
    Posted February 17, 2008 at 9:40 pm | Permalink

    What would you do?

  3. Chuck Unsworth
    Posted February 17, 2008 at 10:03 pm | Permalink

    The Chancellor's Statement has already been made at length in front of the media. And the Chancellor has already answered direct questioning (and pretty ineffective that was) – from the press – enabling him to establish an entrenched position.

    Any Statement to Parliament will therefore be irrelevant and pointless. It's a done deal, and the Government will 'move on'.

    And, let's face it, Darling will shortly be replaced. His replacement will deny any involvement in the whole shambles – 'we are where we are' etc.

    The taxpayer will not see his/her money returned for at least five years. As to receiving any 'profits' on this 'investment', well I'm not betting a single penny on that.

  4. Matthew Lloyd
    Posted February 17, 2008 at 11:05 pm | Permalink

    What was the last nationalised company that wasn't a monopoly? The idea of a government run bank competing with other British businesses is bizarre.

  5. Cityman
    Posted February 17, 2008 at 11:06 pm | Permalink

    Actually I think this crock may appear on the bank of england's balance sheet. The bank is not directly answerable to parliament so questions can only sensibly be asked when the annual report is published.

    see you at the CSFI John

    Reply: The Bank is a 100% owned subsidiary of the Treasury. Some of the lending to N Rock was via the Bank and some was, I suspect, direct from the Treasury or with a Treasury guarantee, as the sums were too large for the Bank of England alone. There has been a lack of transparency over this whole transaction. Clearly now all the liabilities of the Rock will be at the taxpayers' risk.

  6. Sally C
    Posted February 17, 2008 at 11:25 pm | Permalink

    According to an intereview with Andrew Neil, Geoffery Robinson said Brown and Balls [in particular] drafted the tripartite system which has served the taxpayer so well. Any sign of the back of the envelope ?
    Ironic tha the guy who drafted it seems in line for a promotion as a result of its abject failure.

    How must Mr Darling feel with his wife looking over his shoulder.
    Any chance of his famous loyalty waivering? This is above and beyond the call of duty and he will get no thanks for it. He seemed to visibily shrink at the news conf. today.
    Is it true he wanted to announce it on Friday, but Gordon dithered?

    Fish. The question is not how you would fight the fire but how you would stop it happening in the first place……
    unless you expect a Govt. to lurch from one avoidable crisis to the next.

  7. Richard
    Posted February 17, 2008 at 11:45 pm | Permalink

    How many times did the Blair/Brown duumvirate ram down our throats how great a coup it was to give the Bank of England independence in 1997 to set interest rates, simultaneously restricting the Bank of England supervisory role over banks and building societies ?

    The blame for the Northern Rock disaster lies fairly and squarely at the door of 11, Downing Street. The culprit is Gordon Brown, aided and abetted by dysfunctional Darling.

    It's not a great feeling to realise that as a household with two taxpayers, we are now owed more than

  8. Stuart Fairney
    Posted February 18, 2008 at 7:34 am | Permalink

    Anyone with a basic knowledge of finance will tell you there are two things you need to know when considering any investment.

    1. How much money do I get?
    2. When do I get it?

    Darling's inability to answer the second point gives a lie to the claim that we won't lose anything from this 'investment' By my maths, every taxpayer is in for about two and a half grand !! I'm really not keen on paying redundancy to workers unlucky enough to work for an institution that has gone bust, nor taking on its many commercial leases, nor am I keen in subsidising the competition against my actual genuine investments in viable banks like HSBC.

    Boom and bust, excess borrowing, recession, incompetent ministers, nationalisation? It's 'life on mars' and I'm re-living the 1970's

  9. apl
    Posted February 18, 2008 at 9:42 am | Permalink

    Richard:

  10. Bazman
    Posted February 18, 2008 at 5:54 pm | Permalink

    Lets be clear who is responsible for this fiasco. Not the the government. They quite rightly bailed the bank out to protect many of the small shareholders and the banking system. How they did this and will continue to do this is open to debate.
    What I do not read on this site is how the blame fairly and squarely lies with the directors of this company. Anyone like to comment?
    How did they get the bank in it's present position and why have they not been sacked? Not even heard any answers from them, but lets face it. What can they say?
    It's a fair question, and all you free marketers need to ask yourselves where private business begins and ends.
    Rich people taking risks then expecting the state to bail them out, whilst bleating about any tax on their loot. Lloyds anyone?
    Shares and investments are great if you have the spare cash, but why should the taxpayers underwrite the risks?
    Fortunes are to be made and lost.

  11. mikestallard
    Posted February 18, 2008 at 6:41 pm | Permalink

    1. The messing up of the Bank in the first year of Gordon Brown's Chancellorship was, surely, the work of the EU. A wiser man would not, however, have gone alone with it.
    2. This is not the end of Northern Rock: it is the beginning.
    3. The net tax take for the UK per annum is slightly under

  12. billy
    Posted February 18, 2008 at 6:59 pm | Permalink

    All these years of 'new' Labour and it is starting to smell just as it did under Kinnock.

  13. Matthew Reynolds
    Posted February 18, 2008 at 8:22 pm | Permalink

    Alistair Darling is just Brown’s crony . He will keep his job as it suits the PM to have a stooge to take all the flak for all the problems caused by Browns flawed term at the Treasury . Your arguments about nationalisation of Northern Rock are sound as are your points about how this mess could have been avoided . I will never forget a letter in The Daily Telegraph which said that if the bank was called Southern Rock & was based in Guildford would a Labour Government spend

  14. Matthew Reynolds
    Posted February 18, 2008 at 9:22 pm | Permalink

    Alistair Darling is just Brown’s crony . He will keep his job as it suits the PM to have a stooge to take all the flak for all the problems caused by Browns flawed term at the Treasury . Your arguments about nationalisation of Northern Rock are sound as are your points about how this mess could have been avoided . I will never forget a letter in The Daily Telegraph which said that if the bank was called Southern Rock & was based in Guildford would a Labour Government spend

  15. Bazman
    Posted February 19, 2008 at 9:42 pm | Permalink

    Would Northern Rock be saved had it been called Southern Rock? Would Edwina Currie get away with saying that good Christians would not get aids, outside of Tory heartlands today, in the Daily Mirror? Who knows?!

One Trackback

  1. By Northern Wreck: better late than never « OurKingdom on February 18, 2008 at 11:14 am

    […] aside. It shows the strength of judgement of Vince Cable and the weakness of the Conservatives. John Redwood’s ten reasons why Labour is utterly mistaken strike me as shrill and one-sided. Where was the private […]

    reply: Not so – I am proposing the Government to act as a tough bank manager, limiting tax payer risk and getting the money back over a sensible timetable. The Rock can either trade itself out of trouble, or sell assets to meet the repayment schedule.

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    John Redwood won a free place at Kent College, Canterbury, He graduated from Magdalen College Oxford, has a DPhil and is a fellow of All Souls College. A businessman by background, he has been a director of NM Rothschild merchant bank and chairman of a quoted industrial PLC.

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