Leading article: A chapter ends, but the Chancellor's woes continue

Share
Related Topics

Queues of desperate savers waiting outside bank branches in the hope of rescuing their savings provided scenes whose like had not been seen in living memory. Five months later, the Government has finally accepted what had increasingly appeared inevitable. Northern Rock isto be nationalised forthwith. A Bill will be introduced in the Commons today to give the decision legislative effect.

It is easy, with the benefit of hindsight, to ask what took the Government so long. That this is the obvious question, however, does not make it either untimely or wrong. It was certainly the question Alistair Darling was most concerned to try to answer when he spoke from the Treasury yesterday. And his answer was clearly weighed with exceptional care. The considerations behind the nationalisation and the time it took, he said, were three: preserving financial stability, safeguarding depositors' money, and protecting the taxpayer.

Even if the explanations are accepted, however – and the first, at least, could be translated less altruistically as government self-interest – the whole process took an unconscionably long time. Having decided against a bail-out early on, the Government has ended up, half a year later, exactly where it started, with a large amount of taxpayers' money spent in the meantime.

We have clearly come a long way from the "moral hazard" argument that so troubled the Bank of England when Northern Rock's difficulties first surfaced. After rejecting bids for the bank on the grounds that the offers would disproportionately benefit the rescuers at the expense of taxpayers, the Chancellor had no choice but to nationalise. Northern Rock was judged – to use the term applied to the insolvent New York hedge fund LTCM a decade ago – just "too big to fail".

But Northern Rock was not only too big to fail. It was too significant to fail. Size was an issue, given the importance of the bank to the North-east, the particular demographic group that relied on the bank for loans, and the jobs that depended on its charitable foundation. But size was not everything. The first run on a British bank for a century had other implications, political as well as economic.

New Labour, under Tony Blair, had made much of its sound economic credentials, and the man held up as the steward of success was the Chancellor, Gordon Brown. He had scarcely realised his life's ambition of becoming Prime Minister when the whole glorious decade looked in danger of unravelling. For him, Northern Rock threatened at once political and personal consequences.

It was not only that shockwaves from the US sub-prime mortgage crisis had reached our shores, but that the extent to which our recent prosperity had been built on credit made us especially vulnerable. And, with so much of Britain's success synonymous with the City of London and reliant on financial services, the failure of a single bank jeopardised our international reputation, too. Northern Rock threatened to become a metaphor for the economy as a whole: over-dependent on house prices, leveraging, and easy money.

Nationalisation concludes a chapter in Northern Rock's fast-lived life, and probably – despite Mr Darling's insistence that public ownership will be temporary – spells its end as an independent business. It will not, however, end the woes of either the Chancellor or – more cruelly – the Prime Minister, who Mr Darling pointedly associated with yesterday's decision. From now on, it will be hard for Mr Brown to boast of Britain's economic success or its superiority as a financial centre without someone glimpsing the sharp contours of Northern Rock behind him.

React Now

Latest stories from i100
iJobs Job Widget
iJobs General

Process Improvement Analyst (Testing)

£40000 - £45000 Per Annum: Clearwater People Solutions Ltd: Our client is curr...

Service Delivery Manager - Derivatives, Support,

Negotiable: Harrington Starr: Service Delivery Manager - (Derivatives, Support...

Technical Account Manager - Java, FIX Protocol, FIX 5.0, C++

£30000 - £55000 per annum: Harrington Starr: Technical Account Manager - Java,...

WPF .NET Developer

£300 - £350 per day: Harrington Starr: WPF Analyst Programmer NET, WPF, C#, M...

Day In a Page

Read Next
 

The daily catch-up: heatwave update; duck tape and market socialism

John Rentoul
David Cameron's 'compassionate conservatism' is now lying on its back  

Tory modernisation has failed under David Cameron

Michael Dugher
Backhanders, bribery and abuses of power have soared in China as economy surges

Bribery and abuses of power soar in China

The bribery is fuelled by the surge in China's economy but the rules of corruption are subtle and unspoken, finds Evan Osnos, as he learns the dark arts from a master
Commonwealth Games 2014: Highland terriers stole the show at the opening ceremony

Highland terriers steal the show at opening ceremony

Gillian Orr explores why a dog loved by film stars and presidents is finally having its day
German art world rocked as artists use renowned fat sculpture to distil schnapps

Brewing the fat from artwork angers widow of sculptor

Part of Joseph Beuys' 1982 sculpture 'Fettecke' used to distil schnapps
BBC's The Secret History of Our Streets reveals a fascinating window into Britain's past

BBC takes viewers back down memory lane

The Secret History of Our Streets, which returns with three films looking at Scottish streets, is the inverse of Benefits Street - delivering warmth instead of cynicism
Joe, film review: Nicolas Cage delivers an astonishing performance in low budget drama

Nicolas Cage shines in low-budget drama Joe

Cage plays an ex-con in David Gordon Green's independent drama, which has been adapted from a novel by Larry Brown
How to make your own gourmet ice lollies, granitas, slushy cocktails and frozen yoghurt

Make your own ice lollies and frozen yoghurt

Think outside the cool box for this summer's tempting frozen treats
Ford Fiesta is UK's most popular car of all-time, with sales topping 4.1 million since 1976

Fiesta is UK's most popular car of all-time

Sales have topped 4.1 million since 1976. To celebrate this milestone, four Independent writers recall their Fiestas with pride
10 best reed diffusers

Heaven scent: 10 best reed diffusers

Keep your rooms smelling summery and fresh with one of these subtle but distinctive home fragrances that’ll last you months
Commonwealth Games 2014: Female boxers set to compete for first time

Female boxers set to compete at Commonwealth Games for first time

There’s no favourites and with no headguards anything could happen
Five things we’ve learned so far about Manchester United under Louis van Gaal

Five things we’ve learned so far about United under Van Gaal

It’s impossible to avoid the impression that the Dutch manager is playing to the gallery a little
Screwing your way to the top? Good for Lana Del Rey for helping kill that myth

Screwing your way to the top?

Good for Lana Del Rey for helping kill that myth, says Grace Dent
Will the young Britons fighting in Syria be allowed to return home and resume their lives?

Will Britons fighting in Syria be able to resume their lives?

Tony Blair's Terrorism Act 2006 has made it an offence to take part in military action abroad with a "political, ideological, religious or racial motive"
Beyoncé poses as Rosie the Riveter, the wartime poster girl who became a feminist pin-up

Beyoncé poses as Rosie the Riveter

The wartime poster girl became the ultimate American symbol of female empowerment
The quest to find the perfect pair of earphones: Are custom, 3D printed earbuds the solution?

The quest to find the perfect pair of earphones

Earphones don't fit properly, offer mediocre audio quality and can even be painful. So the quest to design the perfect pair is music to Seth Stevenson's ears
US Army's shooting star: Lt-Col Steven Cole is the man Hollywood calls when it wants to borrow a tank or check a military uniform

Meet the US Army's shooting star

Lt-Col Steven Cole is the man Hollywood calls when it wants to borrow a tank or check a military uniform