Northern Rock lending blunder lands taxpayers with £270m bill

Nationalised bank’s failure to follow new rules means borrowers are entitled to refund

Taxpayers are to fund a £270m “Christmas bonus” for about 152,000 customers of Northern Rock because of a blunder in which they were not 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.

The compensation bill will increase public borrowing in the current financial year and was not included in the figures announced by George Osborne in his autumn statement last week. Luckily for the Chancellor, the setback does not alter his surprise announcement that borrowing will fall this year, which wrong-footed Labour.

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 (NRAM) 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. Most of those affected used a “Together” scheme combining a mortgage and a loan.

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. The Treasury is not aware of the blunder being repeated by other banks but an independent inquiry will be conducted by the consultants Deloitte into how it happened and what lessons can be learned.

Brooks Newmark, a Conservative  MP, told the Commons: “This is yet another example where the previous Government's total failure to regulate the banking system properly has cost this country dearly.”

Mr Osborne told MPs: “Some customers with certain types of mainly unsecured personal loans were not given all the mandatory information in their statements which they were entitled to by law. As a result, interest payments on these loans are not legally enforceable.”

Ed Balls, the shadow Chancellor, accused Mr Osborne of trying to “slip out” the  news during Commons questions rather than making a proper statement ”to avoid any proper scrutiny or questioning“ from MPs.

Sajid Javid, the Economic Secretary to the Treasury, said in a written Commons statement that refunds would be paid into customers' accounts. “Where redress is required, this will be made by correcting a customer's account balance to reverse the consequences of them being charged any interest over the period in which the documentation is non-compliant,” he said. “There is no need for customers to take any action at this time.”

The problem was discovered by UK Asset Resolution (UKAR), a new public body which owns NRAM and the nationalised mortgages of Bradford & Bingley.

Richard Banks, UKAR’s chief executive, said: “NRAM is acting in accordance with its legal responsibilities and we are determined to do the right thing for customers and the taxpayer.  We will be writing to all customers who are affected and advising them on next steps. We have not received any complaints or claims as a result of this matter and as far as we are aware, it has not resulted in financial loss for customers.”

PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
News
ebooksAn evocation of the conflict through the eyes of those who lived through it
News
i100
News
Tim Vine has won the funniest joke award at the Edinburgh Festival 2014
peopleTim Vine, winner of the Funniest Joke of the Fringe award, has nigh-on 200 in his act. So how are they conceived?
News
people
Life and Style
techApp to start sending headlines, TV clips and ads to your phone
Arts and Entertainment
Taylor Swift crawls through the legs of twerking dancers in her 'Shake It Off' music video
musicEarl Sweatshirt thinks so
Life and Style
tech
Arts and Entertainment
Daniel Radcliffe and Zoe Kazan in What If
filmReview: Actor swaps Harry Potter for Cary Grant in What If
News
Our resilience to stress is to a large extent determined by our genes
science
Travel
travel
Sport
sportBesiktas 0 Arsenal 0: Champions League qualifying first-leg match ends in stalemate in Istanbul
News
Pornography is more accessible - and harder to avoid - than ever
news... but they still admit watching it
Independent
Travel Shop
the manor
Up to 70% off luxury travel
on city breaks Find out more
santorini
Up to 70% off luxury travel
on chic beach resorts Find out more
sardina foodie
Up to 70% off luxury travel
on country retreats Find out more
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

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

iJobs Job Widget
iJobs General

Systems Developer Technical Lead

£65000 - £70000 Per Annum: Clearwater People Solutions Ltd: Our client based i...

Energy Engineer

£25000 - £30000 Per Annum: The Green Recruitment Company: Job Title: Energy En...

Techincal Accountant-Insurance-Bank-£550/day

£475 - £550 per day + competitive: Orgtel: Senior Technical Accountant-Insuran...

Sales Representative, Leicester

£25-£30k Plus Car: Charter Selection: Major well established nationwide market...

Day In a Page

Ferguson: In the heartlands of America, a descent into madness

A descent into madness in America's heartlands

David Usborne arrived in Ferguson, Missouri to be greeted by a scene more redolent of Gaza and Afghanistan
BBC’s filming of raid at Sir Cliff’s home ‘may be result of corruption’

BBC faces corruption allegation over its Sir Cliff police raid coverage

Reporter’s relationship with police under scrutiny as DG is summoned by MPs to explain extensive live broadcast of swoop on singer’s home
Lauded therapist Harley Mille still in limbo as battle to stay in Britain drags on

Lauded therapist still in limbo as battle to stay in Britain drags on

Australian Harley Miller is as frustrated by court delays as she is with the idiosyncrasies of immigration law
Lewis Fry Richardson's weather forecasts changed the world. But could his predictions of war do the same?

Lewis Fry Richardson's weather forecasts changed the world...

But could his predictions of war do the same?
Kate Bush asks fans not to take photos at her London gigs: 'I want to have contact with the audience, not iPhones'

'I want to have contact with the audience, not iPhones'

Kate Bush asks fans not to take photos at her London gigs
Under-35s have rated gardening in their top five favourite leisure activities, but why?

Young at hort

Under-35s have rated gardening in their top five favourite leisure activities. But why are so many people are swapping sweaty clubs for leafy shrubs?
Tim Vine, winner of the Funniest Joke of the Fringe award: 'making a quip as funny as possible is an art'

Beyond a joke

Tim Vine, winner of the Funniest Joke of the Fringe award, has nigh-on 200 in his act. So how are they conceived?
The late Peter O'Toole shines in 'Katherine of Alexandria' despite illness

The late Peter O'Toole shines in 'Katherine of Alexandria' despite illness

Sadly though, the Lawrence of Arabia star is not around to lend his own critique
Wicken Fen in Cambridgeshire: The joy of camping in a wetland nature reserve and sleeping under the stars

A wild night out

Wicken Fen in Cambridgeshire offers a rare chance to camp in a wetland nature reserve
Comic Sans for Cancer exhibition: It’s the font that’s openly ridiculed for its jaunty style, but figures of fun have their fans

Comic Sans for Cancer exhibition

It’s the font that’s openly ridiculed for its jaunty style, but figures of fun have their fans
Besiktas vs Arsenal: Five things we learnt from the Champions League first-leg tie

Besiktas vs Arsenal

Five things we learnt from the Champions League first-leg tie
Rory McIlroy a smash hit on the US talk show circuit

Rory McIlroy a smash hit on the US talk show circuit

As the Northern Irishman prepares for the Barclays, he finds time to appear on TV in the States, where he’s now such a global superstar that he needs no introduction
Boy racer Max Verstappen stays relaxed over step up to Formula One

Boy racer Max Verstappen stays relaxed over step up to F1

The 16-year-old will become the sport’s youngest-ever driver when he makes his debut for Toro Rosso next season
Fear brings the enemies of Isis together at last

Fear brings the enemies of Isis together at last

But belated attempts to unite will be to no avail if the Sunni caliphate remains strong in Syria, says Patrick Cockburn
Charlie Gilmour: 'I wondered if I would end up killing myself in jail'

Charlie Gilmour: 'I wondered if I'd end up killing myself in jail'

Following last week's report on prison suicides, the former inmate asks how much progress we have made in the 50 years since the abolition of capital punishment