Darling under fire as Northern Rock is nationalised

Chancellor admits failure in attempts to find a buyer
Phillip Inman, Larry Elliott and David Hencke
The Guardian,
Sunday February 17 2008

This article appeared in the Guardian on Sunday February 17 2008 on p1 of the Top stories section. It was last updated at 21:14 on February 17 2008.

The chancellor, Alistair Darling, moved to end six months of turmoil over the fate of Northern Rock today when he admitted his efforts to find a buyer for the stricken bank had failed and he was forced into the first nationalisation of a British company since the 1970s.
With Labour desperate to minimise the political fallout from the decision, government sources insisted that a "temporary" period of public ownership did not represent its "Black Wednesday moment" but was the best outcome for the taxpayer.
Opposition parties were, however, quick to exploit the chancellor's embarrassment after he used a press conference at the Treasury to admit that the failure of talks with Sir Richard Branson's Virgin Group - the preferred private bidder - had left the government with no alternative.
Darling and the prime minister, Gordon Brown, had previously described this as the "least favourable option". Since it emerged five months ago that Northern Rock had sought help from the Bank of England, it has relied on £55bn of taxpayers' guarantees to stay in business.
Darling said: "At the end of the day the biggest issue is the safeguarding of taxpayers' money. If nationalisation saves that money, that has to be the correct step in the long term."
He defended his handling of the crisis, saying the collapse of the bank was the fault of its directors. The government only stepped in to prevent a domino effect in the industry, he said.
"I would have been quite wrong to do this last September. It was right to allow the board of the bank and the shareholders time to see if a private sector solution could be found. It was absolutely right to explore all the possibilities."
But the shadow chancellor, George Osborne, accused the prime minister of "dithering" over the decision and said today was the day that "Labour's reputation for economic competence died".
"Now the taxpayer will bear the full risk of lending £100bn of mortgages in an uncertain market. We will not back nationalisation. We will not help Gordon Brown take this country back to the 1970s."
Liberal Democrat Treasury spokesman, Vince Cable, who had campaigned for the bank to be nationalised, said the right decision had finally been made. He said: "This is the option the Liberal Democrats have argued for from the outset, unlike the Tories who have no alternative to offer.
"The first priority must be to work out the seriousness of the problems at the bank with an independent audit of its loan book. This must be conducted under the auspices of the Bank of England, not the FSA. Secondly, the bank must stop irresponsible lending at more than the value of property, and aggressive deposit-taking.
"Thirdly, there will be difficult times ahead, especially for the employees, as the bank is downsized. However, there is now hope for the long-term future of the bank when it is eventually sold in more satisfactory conditions."
Cabinet colleagues were rallying round Darling, saying the crisis had been handled well by the Treasury given the turmoil on global markets. They said this move had showed Darling was prepared to make difficult decisions.
The prime minister's spokesman rejected the idea that this represented Labour's ERM moment as false. "That was an intervention that failed. This was an intervention that succeeded."
Downing Street said it had been a commercial decision taken after a full evaluation of the options. "This is not a political decision. It was taken in the best interests of the taxpayer," the spokesman added. "All comparisons with the 1970s are absurd. The man running it has credibility in the City, it will be run on a commercial basis and at arms' length from the government.
Darling said the plans put forward by Branson's Virgin Group would have made the government wait too long to get its money back, while the inhouse management team was unable to inject enough funds to sustain the bank.
The government remains nervous, however, that powerful shareholder groups will take their case to the courts should they be offered a low price for their shares. Several groups said they were consulting lawyers.
Their cause was supported today by Branson, who said. "We were very clear the business plan we put forward was robust, conservative but ultimately capable of rescuing the interests of all stakeholders. However we must accept the decision with good grace."