Watchdog backs Branson sale but has harsh words for Treasury

THE SALE of Northern Rock to Sir Richard Branson’s Virgin Money last year was the best way to draw a line under taxpayer losses from the bank’s 2007 state bail-out, Britain’s public spending watchdog claims today.

However, the report from the National Audit Office (NAO) criticises the Treasury for not being analytical enough on the consequences for the taxpayer when the Labour government decided to split Northern Rock into “good” and “bad” banks in 2009.

The findings come after, Northern Rock Plc, was sold last November to Virgin Money in a deal that is expected to mean a £480 million loss for the taxpayer.

The NAO says UK Financial Investments (UKFI), the semi-quango set up by the Treasury to manage state holdings in bailed-out banks, ran the sales process well.

However, the watchdog warns that the former bad bank’s assets, which remain in public ownership under Northern Rock Asset Management, could lead to a net cost to the taxpayer of £2 billion.

UKFI earlier this year said the bank’s period of public ownership should generate a profit of up to £11bn for the taxpayer over the next ten to 15 years.

Amyas Morse, head of the NAO, said: “A sale of Northern Rock plc at the earliest opportunity was the best option to minimise losses on the £1.4bn of public money invested in the bank.

“But most of the former Northern Rock’s assets will be in public ownership for many years to come and there could be a net cost for the taxpayer of some £2bn by the time these assets are finally wound down.”

The NAO says the Treasury’s decision to support mortgage lending by splitting the company in two was “reasonable” but “based on a business plan prepared by Northern Rock management which events quickly showed to have been optimistic”.

However, the NAO argues that the alternative – selling the deposits and closing down the business – “was unlikely to have been significantly better in financial terms and would not have [supported] mortgage lending”.