James Forsyth

How the government plans to shift Northern Rock

How the government plans to shift Northern Rock
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The details of the government’s latest scheme for Northern Rock shows just how long the taxpayer will be left supporting the stricken bank. The government will guarantee £25bn plus of bonds designed to cover both the loans given by the Bank of England and the bank’s need for cash to cover its operations with these bonds taking five years to repay.

Rock shareholders are being increasingly sidelined. The BBC reports that once business plans re submitted by February 4th, it will be the Chancellor Alistair Darling who decides which bid to accept with the greatest emphasis being on which would allow taxpayer backing to be withdrawn soonest.  However, the government no longer seems to be demanding an instant repayment of a large chunk of the public money loaned to the Rock. 

Politically the risk is that the government is seen to be giving the bidders a chance to make a quick buck with taxpayer backing. Gordon Brown has two plans to defuse this issue. First, the FT reports that Brown is proposing a windfall tax on any profits made by the buyer. Second, the government will take an option on shares meaning that it would have the chance to share in any rapid turn around in the Rock’s fortunes.

What is certain is that Northern Rock won’t be disappearing from the political debate anytime soon. Both Vince Cable and George Osborne have criticised the proposal this morning and we can expect a tempestuous debate in the Commons today when Darling outlines these proposals.

Written byJames Forsyth

James Forsyth is Political Editor of the Spectator. He is also a columnist in The Sun.

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