Treasury failure lost billions on bank bailout

Tim Wallace
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FAILURES at the Treasury meant the state lost billions of pounds in the Northern Rock bailout while simultaneously failing to boost lending as planned, despite running the institution, according to a damning report published today by MPs.

The “monumental failures” by the department also mean the government is likely to lose money on the far larger rescues of RBS and Lloyds, the Public Accounts Committee (PAC) found.

Northern Rock was nationalised in 2008 after a run on the retail bank in late 2007.

But the PAC found the government and its agents were both slow to bail the bank out and poor at running the institution once they owned it.

“The decision to split the bank was intended to generate lending, but in public ownership the new bank lent only £9.1bn against a target of £15bn,” the report found.

“UKFI took over management of the shares in 2010 but Northern Rock plc still lost money in 2011, and its strategy should have been challenged sooner,” it said.

The lack of competition to buy the bank is also a worry for MPs.

Virgin Money bought the institution for £931m, leaving the Treasury sitting on a direct loss of £469m and an “economic loss” of an estimated £2bn as the funds were put at risk when they could have been used elsewhere.

Virgin was one of only two bidders, and the PAC believes the government was lucky to have even that level of interest – indicating a much bigger loss will be made on the £66bn bailouts of RBS and Lloyds.

To guard against such huge losses in future, the PAC wants the Treasury to keep on board the staff with knowledge of the bank rescues and sales in case they are needed again.

“It is vital that the final decisions on the wholly owned banks are made with value to the taxpayer taking precedence over speed of exit,” advised committee chairperson Margaret Hodge.

But the Treasury was praised for ensuring its interest as a shareholder now comes before other policy objectives for the bailed out banks.