Northern Rock – now the government’s problems will mutliply

The taxpayers’ misery – and the government’s discomfort – have now begun. The nationalisation of Northern Rock will be costly to taxpayers and damaging to the government’s reputation.

Last night the government brushed aside Conservative proposals to handle Northern Rock in a different way and to avoid the taxpayer taking on responsibility for all the jobs, mortgages, loans, properties and bills.

Instead, the government announced a one third cut in the workforce, and a halving in the size of the business, along with confirmation that the bank will lose money in each of the next three years. That prospectus for the nationalised business suited no-one. MPs from the North East, along with the rest of us, did not want to see such large reductions in the workforce. MPs who care about the taxpayer do not wish to see taxpayers having to foot the bill for the job losses and the other losses in the business.

The government refused to tell us what the forecast losses amount to, implying they will be significant. They refused to tell us how the taxpayer would be asked to pay for these losses, implying they have not thought through how the revenue subsidy will be injected in to the business. Their numbers of course did not add up, as the size of the business is going to be reduced by more than the workforce, implying further job losses to come later.

The Chief Secretary contented herself with claiming that the Opposition had no alternative to nationalisation, declining to answer my points about how the Bank of England and the Treasury could have acted as Northern’s bank manager, lending them the minimum necessary to see them through and managing the repayment of the loan in a timely way.

The government seems to be in denial. It thinks nationalisation is the answer, when it will turn out to be a whole new load of problems. Every staff member dismissed, every loan that goes bad, every customer upset now stretches up to a Minister who is in ultimate control of the destiny of the company. They do not seem to have a plan to handle the complex management problems, and are refusing to own up to the magnitude of the cash requirements of their new acquisition.

Last night the Opposition were right to ask them to think again. We were right to offer them a better way of handling a distressed bank. It is a pity for all of us they turned us down and made silly political points instead.

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3 Comments

  1. Posted April 1, 2008 at 12:03 pm | Permalink

    This could be a great wheeze by Brown to make the taxpayer feel better.

    Nationalised Bank makes losses due to large payments of interest and capital on Taxpayers loan. However, the interest and loan are paid back. Result – Happy Taxpayer.

    Nationalised Bank makes substantial losses due to above and owner/shareholder value reduced. Average Taxpayer unaware that he is indeed the owner/shareholder and that he has funded these losses out of Tax. Result – Happy Taxpayer(with wool pulled firmly over eyes).

  2. Posted April 1, 2008 at 3:08 pm | Permalink

    Frankly I dont know whether to laugh or cry with this inept government. Probably cry, as it is going to cost all of us so much money.
    Labour really do seem to live in some sort of parallel universe, where inflation is low, the economy strong and they have no concept of the difficulties of day to day life for the poor benighted taxpayers (So What? as Ed Balls says)
    In their 10 years in power they have reduced our nation to a laughing stock and ridden roughshod over so many traditions. We now no longer believe a word any of them say, there seems to be nothing we can do about broken promises, and we have to watch mutely as they gorge themselves at the taxpayer-funded trough.
    Talk about bringing politics into disrepute!!!!

  3. Posted April 1, 2008 at 4:29 pm | Permalink

    If only the Prime Ditherer had sold it to Lloyds TSB immediately.

    Our Prime Minister is a fantastic example of the trusim that it is often better to make the wrong decision than to make no decision at all.

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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