£66bn of taxpayers' cash at risk, banking committee warns

The Advertiser Series: Customers outside the Northern Rock branch on High Row in Darlington September 2007 Customers outside the Northern Rock branch on High Row in Darlington September 2007

A PROBE into the Treasury’s handling of the Northern Rock crisis has warned that £66bn of taxpayers' cash may never be recovered.
The Parliamentary watchdog, which includes North-East MPs James Wharton and Ian Swales, criticised civil servants for lacking the skills and experience to act quickly enough when the banking crisis hit. 
The rescue of Northern Rock is expected to cost the taxpayer some £2bn but those losses could be dwarfed when the Government attempts to find buyers for the part-nationalised Royal Bank of Scotland and Lloyds, said Labour MP Margaret Hodge, who chairs the cross-party Committee of Public Accounts.
The Treasury accepted its role in a “monumental collective failure” to understand and respond to the banking crisis, according to the report which is published today (Friday). A specialist team, UK Financial Investments (UKFI), now manages taxpayers’ investment in banks.
"UKFI took over management of the taxpayers’ shares in 2010, but it was also too slow to challenge the strategy of Northern Rock even though the bank was losing money,” added Mrs Hodge.
"Once UKFI decided to sell the bank, the sale was handled well, but the taxpayer still lost nearly half a billion pounds.
"There were only two bidders and it was fortunate that Virgin Money was particularly keen to buy.
"The lack of competition does not fill us with confidence that the taxpayer will make a profit on the sale of the two banks which remain in public ownership, RBS and Lloyds.
"There is a risk that the £66bn invested in RBS and Lloyds may never be recovered," she warned.
The run by customers of Northern Rock in September 2007 was one of the defining moments in the financial crisis which led to global recession. The Treasury has been criticised for being slow to find a buyer for the lender or to nationalise it. 
Sir Nicholas Macpherson, permanent secretary to the Treasury, admitted to the Committee that it should have been nationalised sooner but he said his team had been reluctant to rush into a decision because of the potential impact on North-East jobs.

Mr Wharton, Conservative MP for Stockton South suffered a personal loss during the crisis when his shares in Northern Rock became worthless. He told The Northern Echo that he was reluctant to point the finger at civil servants who had faced  “a very difficult situation.” He added: “What the Treasury was dealing with was largely unprecedented and it would be unfair to heap criticism upon them. With hindsight, however, some matters could have been handled more swiftly.”    

The report into the Northern Rock crisis said:

  • £66bn taxpayers' cash invested in RBS and Lloyds may be lost.
  • Treasury admitted its part in a “monumental collective failure.” 
  • Civil servants lacked skills and understanding to handle the crisis.
  • Northern Rock should have been nationalised sooner.  

 

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