David Prosser: Northern Rock - back where it belongs even in the absence of a profit for the taxpayer

Outlook Before we all get too upset about the losses to the taxpayer – up to £650m at the prices agreed – on the sale of Northern Rock, it is worth remembering that only part of the bank nationalised three and a half years ago was sold yesterday. Virgin Money is buying Northern Rock, but not Northern Rock Asset Management, the so-called "bad bank" that will remain with the taxpayer for the foreseeable future – probably until around 2050, when the final mortgages in the business are due to be repaid.

We will not know for several decades yet, in other words, what the true loss to taxpayers has been from Rock.Indeed, it is still possible that we will turn a profit on the rescue.

Ironically, the bad bank, into which Bradford & Bingley's toxic loans have also been injected, has been a much better performer than "good Rock" over the past couple of years – booking profits at a time when the entity just sold was loss-making. Even more happily, its mortgage arrears rates have been coming down, suggesting that the loans it holds, including those infamous 125 per cent Together mortgages that Rock once shifted by the bucketload, are not quite as toxic as previously thought.

That may yet change, of course, but the bad bank has been quietly making profits for the taxpayer and repaying debt steadily. So much so that its £50bn mortgage book, set against an effective loan from the taxpayer of £22.5bn, produces enough to compensate us all for the loss crystallised by yesterday's sale of its other half.

If so, the promise made by Alistair Darling, the then-Chancellor, four years ago, that taxpayers would not in the end lose out from the nationalisation of Rock, will be kept. Not that Mr Darling had any choice but to take over the bank – whatever its shareholders tried and failed to claim subsequently (or, for that matter, whatever Virgin said when bidding too little for the whole of Northern Rock in 2008).

Against all that, we can only speculate about the returns to come. What we know for sure is that the taxpayer is today booking a loss from the Virgin sale. Naturally, that begs the question – posed, but not actually answered, by Labour's Ed Balls yesterday – of whether George Osborne has got the timing of this deal right.

Certainly, there is a natural suspicion that political motivations have played their part (just as they nearly did when Gordon Brown considered getting shot of Rock prior to the general election last year). Given that all the fiscal traffic has been one-way in recent months – heading towards missed borrowing targets, that is – the Chancellor will no doubt enjoy cashing the cheque, even if the windfall will make only a tiny dent in the deficit. Mr Osborne can be forgiven too for wanting to get on the front foot for once.

Would the Government have got a better price by biding its time? In truth, probably not, unless it was prepared to play the really long game. In this low-interest-rate environment, running a small retail banking business focused on UK savers and borrowers means coping with low margins and a tough competitive environment. In that context – not forgetting the prevailing economic headwinds – this is not a business that has been sold on the cheap.

Nor, moreover, is this a business that belongs in the public sector. Even those who make the case for using the public ownership of Lloyds and Royal Bank of Scotland to force those institutions to do more to support business accept that Northern Rock is too small to help with that. It is already run at arm's length from the Treasury and the link needs to be severed altogether.

One final thought. Selling Northern Rock may have been a business decision, but it should provide some emotional catharsis too. Amid a eurozone crisis that threatens, in extremis, to prompt another round of bank failures across Europe, there is something to be said for making a statement of intent. The sale of Northern Rock, at the very least, represents an advance in the battle to put the banking crisis behind us.

Suggested Topics
Life and Style
food + drink
Arts and Entertainment
musicBand's first new record for 20 years has some tough acts to follow
Shoppers in Covent Garden, London, celebrate after they were the first to buy the iPhone 6, released yesterday
Liam Payne has attacked the media for reporting his tweet of support to Willie Robertson and the subsequent backlash from fans
peopleBut One Direction star insists he is not homophobic
Life and Style
healthFor Pure-O OCD sufferers this is a reality they live in
Arts and Entertainment
A bit rich: Maggie Smith in Downton Abbey
tvSeries 5 opening episode attracts lowest ratings since drama began
ebooksAn unforgettable anthology of contemporary reportage
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Trainee Recruitment Consultants - Banking & Finance

£20000 - £25000 per annum + OTE £40,000: SThree: SThree Group have been well e...

Quantitative Risk Manager

Up to £80000: Saxton Leigh: My client, a large commodities broker, is looking ...

COO / Chief Operating Officer

£80 - 100k + Bonus: Guru Careers: A COO / Chief Operating Officer is needed to...

Senior BA - Motor and Home Insurance

£400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...

Day In a Page

A roller-coaster tale from the 'voice of a generation'

Not That Kind of Girl:

A roller-coaster tale from 'voice of a generation' Lena Dunham
London is not bedlam or a cradle of vice. In fact it, as much as anywhere, deserves independence

London is not bedlam or a cradle of vice

In fact it, as much as anywhere, deserves independence
Vivienne Westwood 'didn’t want' relationship with Malcolm McLaren

Vivienne Westwood 'didn’t want' relationship with McLaren

Designer 'felt pressured' into going out with Sex Pistols manager
Jourdan Dunn: Model mother

Model mother

Jordan Dunn became one of the best-paid models in the world
Apple still coolest brand – despite U2 PR disaster

Apple still the coolest brand

Despite PR disaster of free U2 album
Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

Despite the result, this is the end of the status quo

Boyd Tonkin on the fall-out from the Scottish referendum
Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

Manolo Blahnik: Flats, Englishness, and Mary Beard

The shoe designer who has been dubbed 'the patron saint of the stiletto'
The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

Scrambled eggs and LSD

Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

'Normcore': Blending in is the new standing out

Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

New leading ladies of dance fight back

How female vocalists are now writing their own hits
Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments