Taxpayers are to fund a £270m "Christmas bonus" for about 152,000 customers of Northern Rock because they weren't given the right information about their outstanding loans.
Customers will be refunded an average of £1,770 and the state must foot the bill because the mistake was made by the so-called "bad bank" still owned by the Government. The "good" part was sold to Sir Richard Branson's Virgin Money last year.
After Northern Rock was nationalised in 2008 at the start of the financial crisis, the Consumer Credit Act, which covers unsecured loans under £25,000, was changed to ensure that borrowers were informed of three figures in loan statements – the original sum borrowed, the opening balance and the closing balance. Northern Rock Asset Management did not include the original sum.
Although customers did not lose money as a result, they are entitled to a windfall because they were not properly informed under the Act.
Lord Oakeshott, the Liberal Democrats' former Treasury spokesman, said last night: "Every taxpayer is being stung for £10 because of gross negligence by the Treasury and UKFI [the body which holds the Government's stake in bailed out banks]. No one was overcharged but they were fast asleep so we must all pay out. Their arrogance and incompetence was a toxic mix and they couldn't run a whelk stall. This is a classic example of nationalising the banks' losses and privatising the profits. Richard Branson won't be paying out."
Ministers pointed the finger at the regulatory regime introduced by the previous Labour Government, saying the mistake was another sign of the problems exposed by the financial crisis.Reuse content