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
ebooksAn unforgettable anthology of contemporary reportage
CSKA Moscow celebrate after equalising with a late penalty

Arts and Entertainment
Life and Style
Designer Oscar de la Renta takes a bow after showing his Spring 2015 collection in September, his last show before his death
fashionThe passing of the legendary designer has left a vacancy: couturier to America’s royalty, says fashion editor Alexander Fury
Life and Style

Company reveals $542m investment in start-up building 'a rocket ship for the mind'

Bourgogne wine maker Laboure-Roi vice president Thibault Garin (L) offers the company's 2013 Beaujolais Nouveau wine to the guest in the wine spa at the Hakone Yunessun spa resort facilities in Hakone town, Kanagawa prefecture, some 100-kilometre west of Tokyo
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

Helpdesk Analyst

£23000 per annum + pension and 22 days holiday: Ashdown Group: An established ...

Senior Helpdesk Analyst / Service Desk Co-ordinator

£27000 per annum + pension, 22 days holiday: Ashdown Group: An established ind...

Senior Pensions Administrator

£23000 - £26000 Per Annum: Clearwater People Solutions Ltd: Our client is curr...

Corporate Actions Administrator / Operations Administrator

£25 - 30k: Guru Careers: A Corporate Actions Administrator / Operations Admini...

Day In a Page

Two super-sized ships have cruised into British waters, but how big can these behemoths get?

Super-sized ships: How big can they get?

Two of the largest vessels in the world cruised into UK waters last week
British doctors on brink of 'cure' for paralysis with spinal cord treatment

British doctors on brink of cure for paralysis

Sufferers can now be offered the possibility of cure thanks to a revolutionary implant of regenerative cells
Let's talk about loss

We need to talk about loss

Secrecy and silence surround stillbirth
Will there be an all-female mission to Mars?

Will there be an all-female mission to Mars?

Women may be better suited to space travel than men are
Oscar Pistorius sentencing: The athlete's wealth and notoriety have provoked a long overdue debate on South African prisons

'They poured water on, then electrified me...'

If Oscar Pistorius is sent to jail, his experience will not be that of other inmates
James Wharton: The former Guard now fighting discrimination against gay soldiers

The former Guard now fighting discrimination against gay soldiers

Life after the Army has brought new battles for the LGBT activist James Wharton
Ebola in the US: Panic over the virus threatens to infect President Obama's midterms

Panic over Ebola threatens to infect the midterms

Just one person has died, yet November's elections may be affected by what Republicans call 'Obama's Katrina', says Rupert Cornwell
Premier League coaches join the RSC to swap the tricks of their trades

Darling, you were fabulous! But offside...

Premier League coaches are joining the RSC to learn acting skills, and in turn they will teach its actors to play football. Nick Clark finds out why
How to dress with authority: Kirsty Wark and Camila Batmanghelidjh discuss the changing role of fashion in women's workwear

How to dress with authority

Kirsty Wark and Camila Batmanghelidjh discuss the changing role of fashion in women's workwear
New book on Joy Division's Ian Curtis sheds new light on the life of the late singer

New book on Ian Curtis sheds fresh light on the life of the late singer

'Joy Division were making art... Ian was for real' says author Jon Savage
Sean Harris: A rare interview with British acting's secret weapon

Sean Harris: A rare interview with British acting's secret weapon

The Bafta-winner talks Hollywood, being branded a psycho, and how Barbra Streisand is his true inspiration
Tim Minchin, interview: The musician, comedian and world's favourite ginger is on scorching form

Tim Minchin interview

For a no-holds-barred comedian who is scathing about woolly thinking and oppressive religiosity, he is surprisingly gentle in person
Boris Johnson's boozing won't win the puritan vote

Boris's boozing won't win the puritan vote

Many of us Brits still disapprove of conspicuous consumption – it's the way we were raised, says DJ Taylor
Ash frontman Tim Wheeler reveals how he came to terms with his father's dementia

Tim Wheeler: Alzheimer's, memories and my dad

Wheeler's dad suffered from Alzheimer's for three years. When he died, there was only one way the Ash frontman knew how to respond: with a heartfelt solo album