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.”

Start your day with The Independent, sign up for daily news emails
Voices
There will be a chance to bid for a rare example of the SAS Diary, collated by a former member of the regiment in the aftermath of World War II but only published – in a limited run of just 5,000 – in 2011
charity appealTime is running out to secure your favourite lot as our auction closes at 2pm today
News
people
News
Elton John and David Furnish exchange marriage vows
peopleSinger posts pictures of nuptials throughout the day
News
File: James Woods attends the 52nd New York Film Festival at Walter Reade Theater on September 27, 2014
peopleActor was tweeting in wake of NYPD police shooting
PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Sport
Martin Skrtel heads in the dramatic equaliser
SPORTLiverpool vs Arsenal match report: Bandaged Martin Skrtel heads home in the 97th-minute
News
newsAstonishing moment a kangaroo takes down a drone
Arts and Entertainment
The Lord of the Rings and The Hobbit director Peter Jackson with his star on the Hollywood Walk of Fame
film
Life and Style
tech
News
people
News
Billie Whitelaw was best known for her close collaboration with playwright Samuel Beckett, here performing in a Beckett Trilogy at The Riverside Studios, Hammersmith
people'Omen' star was best known for stage work with Samuel Beckett
Latest stories from i100
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

Ashdown Group: IT Support Analyst - Chessington

£25000 per annum: Ashdown Group: IT Service Desk Analyst - Chessington, Surrey...

Recruitment Genius: Technical Support Analyst / Helpdesk Support Analyst

£16000 - £19000 per annum: Recruitment Genius: Our client is the UK's leading ...

The Jenrick Group: Finance Manager/Management Accountant

£45000 - £55000 per annum + benefits: The Jenrick Group: Finance Manager/Manag...

Recruitment Genius: Manufacturing Manager

£35000 - £38000 per annum: Recruitment Genius: This is a rare opportunity for ...

Day In a Page

Surrounded by high-rise flats is a little house filled with Lebanon’s history - clocks, rifles, frogmen’s uniforms and colonial helmets

Clocks, rifles, swords, frogmen’s uniforms

Surrounded by high-rise flats is a little house filled with Lebanon’s history
Return to Gaza: Four months on, the wounds left by Israel's bombardment have not yet healed

Four months after the bombardment, Gaza’s wounds are yet to heal

Kim Sengupta is reunited with a man whose plight mirrors the suffering of the Palestinian people
Gastric surgery: Is it really the answer to the UK's obesity epidemic?

Is gastric surgery really the answer to the UK's obesity epidemic?

Critics argue that it’s crazy to operate on healthy people just to stop them eating
Homeless Veterans appeal: Christmas charity auction Part 2 - now LIVE

Homeless Veterans appeal: Christmas charity auction

Bid on original art, or trips of a lifetime to Africa or the 'Corrie' set, and help Homeless Veterans
Pantomime rings the changes to welcome autistic theatre-goers

Autism-friendly theatre

Pantomime leads the pack in quest to welcome all
The week Hollywood got scared and had to grow up a bit

The week Hollywood got scared and had to grow up a bit

Sony suffered a chorus of disapproval after it withdrew 'The Interview', but it's not too late for it to take a stand, says Joan Smith
From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?

Panto dames: before and after

From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?
Thirties murder mystery novel is surprise runaway Christmas hit

Thirties murder mystery novel is surprise runaway Christmas hit

Booksellers say readers are turning away from dark modern thrillers and back to the golden age of crime writing
Anne-Marie Huby: 'Charities deserve the best,' says founder of JustGiving

Anne-Marie Huby: 'Charities deserve the best'

Ten million of us have used the JustGiving website to donate to good causes. Its co-founder says that being dynamic is as important as being kind
The botanist who hunts for giant trees at Kew Gardens

The man who hunts giants

A Kew Gardens botanist has found 25 new large tree species - and he's sure there are more out there
The 12 ways of Christmas: Spare a thought for those who will be working to keep others safe during the festive season

The 12 ways of Christmas

We speak to a dozen people who will be working to keep others safe, happy and healthy over the holidays
Birdwatching men have a lot in common with their feathered friends, new study shows

The male exhibits strange behaviour

A new study shows that birdwatching men have a lot in common with their feathered friends...
Diaries of Evelyn Waugh, Virginia Woolf and Noël Coward reveal how they coped with the December blues

Famous diaries: Christmas week in history

Noël Coward parties into the night, Alan Clark bemoans the cost of servants, Evelyn Waugh ponders his drinking…
From noble to narky, the fall of the open letter

From noble to narky, the fall of the open letter

The great tradition of St Paul and Zola reached its nadir with a hungry worker's rant to Russell Brand, says DJ Taylor
A Christmas ghost story by Alison Moore: A prodigal daughter has a breakthrough

A Christmas ghost story by Alison Moore

The story was published earlier this month in 'Poor Souls' Light: Seven Curious Tales'