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Northern Rock could cost taxpayers £4billion

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The rescue of Northern Rock could cost the country up to £4billion, a report reveals today. 

The spending watchdog, the National Audit Office, says the projected loss reflected the fact taxpayers should have been better rewarded for pumping their money into the failed bank.

‘A private sector investor would require a higher rate of return as compensation for the risks taken on,’ its reports states. ‘The taxpayer has not been compensated for the risks assumed.’

Run on the bank: Savers queueing to withdraw their money from Northern Rock in September 2007

The Treasury however insisted that the NAO was wrong to claim that the poor return on investment helped toward a loss of between £2billion and £4billion.

The audit office also raises questions over the decision to sell the ‘good’ part of Northern Rock to Virgin last year.

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It says the price paid by Virgin for Northern Rock was ‘reasonable’ and describes the sale as ‘the best available option’ open to the Government.

But the sale of the ‘good’ part of the bank to Sir Richard Branson’s empire has lost the taxpayer ‘between £175million and £289million’, says the watchdog. 

In acquiring only the ‘good’ bits of Northern Rock, Virgin has obtained its 75 branches, one million customers, their £14billion of mortgages and £16billion of savings.

The deal leaves the taxpayer still liable for the ‘bad’ bank, known officially as Northern Rock Asset Management, which is dependent on a £21billion state bailout.

The NAO report also reveals how Virgin was able to use Northern Rock’s cash to help to pay for the purchase.

It states that it used an ‘internal transfer of assets’ – that is, it ‘swapped’ £253million of Northern Rock cash for shares in a Virgin subsidiary.

The NAO makes clear that it is highly unusual for cash to be removed from a company in order to help pay for the purchase.

It said: ‘In examining previous privatisations, the Committee of Public Accounts has recommended that sellers extract surplus assets, including cash, from a business before sale.’

Sale: Sir Richard Branson's Virgin empire bought the 'good' part of Northern Rock

Labour Treasury spokesman Chris Leslie said: ‘This report confirms that Virgin used our money to pay for the purchase. It’s a bit like buying a house and using the sellers’ savings to pay for it.’

He also raised questions about why ministers insisted there was such a rush to sell Northern Rock plc, when the deadline imposed by European state aid rules was not until December 2013.

Mr Leslie accused ministers of hiding behind an ‘artificial and eminently movable’ deadline after he had conversations with the European Commission which made clear it could be delayed.

It was in 2007 that fears surrounding Northern Rock led to extraordinary scenes of anxious savers queueing to withdraw their money.

Last night a Treasury source said: ‘It was Ed Balls who called for this investigation.

‘Yet it concludes that while Labour did not conduct proper due diligence when acquiring Northern Rock and were over-optimistic in their assumptions, the Coalition’s decision to sell the bank last year was taken at the right time and delivered the best value for taxpayers.

‘It confirms we were working under a Labour/EU-agreed secret deadline but, despite this, UK taxpayers are expected to recover all the support they put in.’

The case of Northern Rock raises fears over whether taxpayers will get back their money from the much larger rescues of Lloyds and Royal Bank of Scotland.

Experts say taxpayers have lost £45billion on the lifeline to keep afloat the two, now part-owned by the State, with no imminent chance of a sale.



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