George Osborne was accused of letting the state-owned Northern Rock go "for a song" yesterday after he announced the sale of the nationalised bank at a loss of at least £400m to the taxpayer. The Chancellor insisted the deal – under which Sir Richard Branson's Virgin Money takes Northern Rock over for £747m, possibly rising to £1bn – represented good value.
But the agreement raised fresh fears over whether ministers will eventually be able to obtain a reasonable return from the state's £50bn rescue of the Lloyds Banking group and Royal Bank of Scotland in 2008.
The sale of Northern Rock came nearly four years after the Labour government nationalised the troubled Newcastle-based lender which suffered the first run on a British bank since the 19th century. It plunged into crisis because of its heavy exposure to the American sub-prime market and for a while was at serious risk of collapse until the intervention.
The Treasury has injected some £1.4bn into Northern Rock since then and after the sale the taxpayer will still have responsibility for £20bn of toxic assets such as bad debts and closed mortgages. Sir Richard had made an unsuccessful bid four years ago for the bank which would have involved an initial outlay of £1.25bn.
Mr Osborne said: "It was clear to us this was the best deal for the British taxpayer; we were getting more money back than any other deal on the table."
Ed Balls, the shadow Chancellor, said: "It is being sold off at a loss and I think there is a question as to whether or not this is the best time, with the markets in turmoil, to get the best deal."
Mark Field, Conservative MP for the Cities of London and Westminster, told BBC Radio 4: "There has to be a sense that Richard Branson has got the deal he was craving four years ago for a song today."
Virgin will pay £747m up front, with a further £50m to come. Further add-ons could bring the eventual purchase price to just over £1bn. The planned acquisition includes 75 branches and 2,100 staff, one million customers, a £14bn mortgage book and retail deposits of £16bn. The company promised there would be no further compulsory redundancies for three years.Reuse content