Peter Hoskin

Osborne sells off the Rock

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‘Sir Richard Branson set to buy Northern Rock.’ So read the headlines in November 2007 — and now they're finally true. It has been announced this morning that Virgin Money is going stump up £747 million to return the bank to the private sector. This, says George Osborne, ‘is an important first step in getting the British taxpayer out of the business of owning banks.’

By the looks of it, Virgin will be paying less than they would have done four years ago, but they have also had to make various assurances about how they will handle the Rock. When Branson's bid failed in 2007, and the bank was nationalised, it was because the government started worrying about what they saw as 'extortion' on Virgin's part. Now, Virgin Money are emphasising that they will safeguard jobs and maintain a new HQ in the North East.

What does all this mean for taxpayers? First, don't forget, this is only the ‘good’ part of Northern Rock that has been sold off: the state still operates Northern Rock (Asset Managements), into which all the bank's poisonous debts were poured, and which owes the Treasury £21 billion. But so far as that 'good' part goes, it is neither a brilliant nor terrible deal. As Laura Kuenssberg explains here, the £747 million is less than the £1.4 billion that we taxpayers handed over directly to Northern Rock, but it's likely to rise to over £1 billion thanks to an ongoing government interest in the banks' profits. So a loss of around 30 per cent, but that's sadly how it is after years of economic malady.

Osborne's calculation will be that it's better to sell now, at that price, than keep hanging onto the Rock. It will help him argue that the banking sector is returning to normalcy. And he'll hope that that will boost confidence, as well as competition, all round.