Chancellor claims Rock sale best for taxpayers

Chancellor George Osborne says he has put Northern Rock up for sale to deliver the best value for taxpayers and rebuild the reputation of Britain’s financial industry.

In his Mansion House speech last week Osborne told the audience that returning the nationalised bank to privatisation would help taxpayers get some of their money back and potentially increase competition in high street banking.

The government will continue to own Northern Rock Asset Management, the so-called bad bank, while the good bank Northern Rock plc is being prepared for a sale with a reported £1bn price tag.

Osborne says: “Any interested parties can bid for it, including mutuals, which this government is actively committed to promoting.”

Northern Rock was bailed out by the government for £1.4bn so a sale of £1bn would appear to generate a loss for taxpayers, but revenue will continue to be generated by the bad bank as it runs down its loan book.

Parties that have expressed an interest in bidding for the bank include Virgin Money and Coventry and Yorkshire Building Societies.

The Building Societies Association, which has been calling for the remutualisation of Northern Rock, says it is disappointing that the government has not chosen this option.

A spokeswoman for the BSA says: “This standalone route is not the only path to remutualisation a mutual could still purchase Northern Rock.

“If the bank was to be remutualised it would strengthen competition and diversification in the financial services industry as well as help lower the level of risk banks are exposed to.”

In his speech Osborne also confirmed that banks will have to ringfence their retail deposits from their investment banking activities.

They will also have to increase the capital they hold against their assets to mitigate risk, a strategy proposed by the Independent Commission on Banking in its interim report in April.