Shares in Northern Rock soared after the Chancellor, Alistair Darling, unveiled a rescue plan through the issue of £25bn in bonds guaranteed by the taxpayer.
The rescue will cost every family in Britain an estimated £2,000 according to George Osborne, the shadow Chancellor, who accused the Government of "mortgaging" the future with an open-ended commitment.
"No British government has ever provided taxpayers' support on this scale. It is bigger than British Leyland or British Steel," said Mr Osborne. "It is a second mortgage for every home to rescue the reputation of this Government." The Liberal Democrats' finance spokesman, Vince Cable, also attacked the Government's proposals, saying the risks had been nationalised and the profits had been privatised. It was, he said, "a private sector solution without private sector money".
Ministers were privately embarrassed by the 14 per cent rise in Northern Rock shares yesterday, suggesting that investors including hedge funds hope to cash in on the government guarantees. One minister raised his eyes to the ceiling and said: "No comment."
Mr Darling set a deadline of 4 February for competing bids. He insisted temporary public ownership of the bank remained an option if a private sector buyer could not be found. But there were misgivings from all sides about the company being taken over up by the Virgin boss, Sir Richard Branson, who accompanied Gordon Brown on his recent trip to China and India. Iain Duncan Smith, the former Tory leader, said it "smacked of impropriety".
The exact level of the taxpayers' support will not be known for a fortnight, but ministers did not deny it could amount to a direct subsidy of at least £1bn in addition to "backstop" guarantees of £25bn to pay off Northern Rock's debts with a new bond issue.
The Prime Minister insisted the Government would protect the interest of taxpayers. Mr Brown told a press conference in Delhi: "I can assure you that our aim in all of this is to secure the best deal for the British taxpayer and ensure the stability of the British economy amidst the global economic turbulence."
Sir Richard predicted that the £25bn of taxpayers' money loaned to Northern Rock by the Bank of England would be recovered. Speaking in Delhi, where he is one of 25 businessmen accompanying Mr Brown, he said: "The important thing from the taxpayers' point of view is that all the money that has been loaned to Northern Rock is paid back. We believe that will be possible and most jobs will be saved."
At Westminster, MPs on all sides raised concern about Sir Richard gaining the bank at the expense of the taxpayer. Dennis Skinner, the veteran left-wing MP for Bolsover, welcomed the prospect of nationalisation but said: "Some of us would rather see public ownership than handing over large sums of money to Goody Twoshoes Branson because we might not get it back." The former Tory chancellor Ken Clarke said Mr Darling had helped the hedge funds by giving their shares in Northern Rock a value with his package.
Saving the Rock
How the plan would work
Northern Rock would sell mortgages and other assets to a financing vehicle, which would fund the purchase by selling bonds backed by the assets to investors. The bank would pay the Treasury a fee in return for the Government guaranteeing the bonds and it would use money from the bond sale to repay its £24bn of Bank of England loans.
What is at stake?
Taxpayers are in effect accepting Northern Rock loans as security for the Bank of England's guarantee. Bidders could get hold of a widely admired lending machine with more than £100bn of assets for what would have seemed like peanuts a year ago. But it could be difficult to get the machine moving again. The Government gets its desired private sector deal.Reuse content