Northern Rock should have been nationalised ‘quicker’
Sir Nicholas Macpherson, permanent secretary to the Treasury, admitted five months of “drift” at the Treasury as the crisis unfolded.
While answering questions from the Public Accounts Committee, Sir Nicholas said the Treasury was “slow off the mark in addressing the problem” and admitted that it should have nationalised the bank before February 2008.
“The main damage which was done on Northern Rock goes back to 2007/08. With the benefit of hindsight, the Treasury was slow off the mark.
“From the point there was a run on Northern Rock in September through to nationalisation there was a five-month period of drift, and that made it quite likely that we would lose money on Northern Rock … it was certainly not inevitable at the point we took a majority holding in RBS.”
Asked what should have been done better, he added: “I would have wanted to nationalise it earlier. We spent a long time coming up with ever more sophisticated ways in effect to bribe private companies to buy it. That failed.”
The National Audit Office (NAO) estimates the taxpayer loss on Northern Rock at about £2bn, following its separation into a “good bank” and a “bad bank”.
Virgin Money last year won the bidding process to buy the good bank, Northern Rock Plc, a sale that is estimated to have lost the taxpayer at least £400m. The bad bank has been put into run-off, with current forecasts suggesting losses on state loans of more than £1bn.
Sir Nicholas conceded there was an element of luck that the sale of Northern Rock appeared to have been well-timed and said he believed that the decision to split it into a ‘good’ bank and ‘bad’ bank was the right one.
He told the Committee that performance of mortgages in the ‘bad’ bank have been good with the majority of people paying back their loans.