George Osborne reveals Northern Rock is to be privatised

GEORGE Osborne has announced he is to sell off Northern Rock three-and-a-half years after the bank was nationalised.

In his annual Mansion House speech in the City of London last night, the Chancellor unveiled a series of measures which he hopes will draw a veil over the banking crisis of 2008 which triggered the economic slump.

He also announced the creation of three new bodies, including one to protect ordinary customers, which he said would help prevent another banking crisis and provide regulation which would not block the UK being the leading international centre for financial services.

"Images of the queues outside Northern Rock branches were a symbol of all that went wrong, and its chaotic collapse did great damage to Britain's international reputation," Mr Osborne said.

"Its return now to the private sector would help to rebuild that reputation.

"It would be a sign of confidence and could increase competition in high street banking. We could start to get at least some of our money back."

Contenders for the business include Sir Richard Branson's Virgin Money, the Coventry and Yorkshire building societies, investment groups NBNK and Olivant and Tesco Bank.

But even as he announced his intent to privatise Northern Rock, Mr Osborne was warned by his predecessor, Labour Edinburgh South West MP Alistair Darling, that his proposals would not prevent a new banking crisis.

The Chancellor's speech also included a strong defence of his economic policy at a time when unions are voting for strike action over cuts and growth has appeared to flatline.

Mr Osborne said growth in the UK was actually above average since he became Chancellor if the contraction in the financial sector was taken out of the equation.

Meanwhile, Bank of England governor Sir Mervyn King defended the monetary policy committee's decision not to raise interest rates to tackle inflation, arguing that it would stifle growth.

Mr Osborne started his speech by describing the British dilemma on banks. "As a global financial centre that generates hundreds of thousands of jobs, a successful banking and financial services industry is clearly in our national economic interests," he said.

"But we cannot afford to let it pose a risk to the stability and prosperity of the nation's entire economy."

He then announced the creation of three new quangos, beginning with the Financial Policy Committee in the Bank of England to monitor risks to the financial sector.

There will also be a new Prudential Regulation Authority to "assess the safety and soundness of individual firms" and a Financial Conduct Authority, to protect consumers, headed by Martin Wheatley, the former regulator for the Hong Kong market.

The changes are part of an overall package which sees Mr Osborne accepting parts of the Vickers Report that called for banks to be forced to separate their high street businesses from their "casino operations", protecting savings and mortgages.

It is understood that Mr Osborne hopes to raise 1 billion from the sale of Northern Rock, less than the 1.4bn spent on bailing it out. But with the bank's mortgages still owned by the government it means that in the long term the taxpayer should still make a profit.Mr Osborne told his audience that he had created "a new culture of regulation that judges unacceptable risks, while creating the space for innovation and commercial success".

Mr Darling said the announcements justified his actions as Chancellor, which at the time were opposed by Mr Osborne.

"For everybody who condemned us nationalising (Northern Rock] - and George Osborne was one of my foremost critics - here we are, three years down the line, and we will certainly be able to sell what is now known as Northern Rock and I am sure we will get more money back, if not make a profit, on the rest of this bank."

"The rescue did work. It was the first of many things we had to do to avoid a complete meltdown."