Questions still hanging over the Northern Rock deal

Richard Branson and his wealthy backers have bagged a bargain. That seems to be the consensus gathering amongst city commentators as well as Labour Co-operative parliamentarians who yesterday asked tough questions of the Treasury in an oral statement on the Northern Rock sale.

Not only was Northern Rock sold for £400 million less than taxpayers put in, but £250 million of the deal was taken from within the Rock itself – a deal Simon Hoggart described today as “the equivalent of a starving man eating his body parts in order to survive”.

Not only does this deal seem poor value in the short term, but there is every chance it could be poor value in the long term. There are no guarantees against the Virgin Consortium taking further equity out of Northern Rock in future, ‘asset stripping’ to re-claim the money they put in. Equally, given that the government has resurrected the failed mid-sized mortgage bank model of Northern Rock before the crisis, the bank is exposed to future seizures in the credit markets. One analyst has suggested that a future collapse of Northern Rock could cost taxpayers £10 billion – clearly this deal is not learning the lessons of the past.

The Co-operative Party has campaigned since 2008 for Northern Rock to be returned to the ownership of its customers in a new building society. Mutual ownership was more resilient to the last financial crisis than shareholder ownership and injects a dose of democracy into the heart of financial services.

Co-operative Party MPs in the House yesterday, including shadow city minister Chris Leslie, asked some difficult questions of the government. We feel that these questions need answers before the sale goes ahead on 1^st January.

• Is the Virgin deal the most stable and sustainable model of banking for Northern Rock’s customers and British taxpayers in the future?
• Does this deal learn the lessons of the banking crisis, in which all of the demutualised building societies failed?
• How does this sale live up to the Coalition’s promise to ‘foster diversity and promote mutuals’?
• Is this the best deal to increase mortgage lending across the economy at a time it is desperately needed?
• When will the government publish its advice from Deutsche Bank which was used to rule out the option of remutualisation?

Find out more about the Co-operative Party’s ideas about a mutual economy at www.thefeelingsmutual.org.uk

Pete Jefferys is Policy and Campaigns Officer at the Co-operative Party