Protecting the taxpayer
Chancellor Alistair Darling refused repeated invitations in the Commons this afternoon to promise that the taxpayer would get back with interest all the money lent to Northern Rock. He spoke instead of doing what was "best to protect the taxpayer". When it was pointed out to a Treasury spokesman that there was a significant difference between these forms of words journalists were told that there were limits to what could be said in the middle of commercial negotiations over the possible sale of the bank.
In the Commons, shadow chancellor George Osborne suggested that Mr Darling had made an unequivocal promise to get all taxpayers money back when he appeared before the Treasury Select Committee. The record shows that, under pressure of questioning about the scale of loans to Northern Rock, the chancellor said "We fully expect to be able to get that money back" (see below) although it is far from clear whether he was referring to all the money including the interest. When a Tory backbencher pointed out that he'd studiously avoided giving clear guarantees the Chancellor repeated this form of words saying that: "The money leant by the Bank of England is secured against assets, such as mortgages, held by Northern Rock. So we fully expect to get it back."
To this non-expert observer, the gap between what some predict the taxpayer may pay and what the Treasury say is between the pessimists and the optimists. The pessimists assume we'll be lucky to get much of what's been loaned back. The optimists that we could, in theory, get it all back with interest.
Thus it is with my colleague Robert Peston's revelation this morning (which the Tories have picked up with glee and refer to as the story of the "secret Treasury loan"). Robert's calculated that if the Treasury don't get this bit of our money back (I'll leave him to explain what it is) it could cost taxpayers hundreds of millions of pounds. Whitehall sources say that, so far, this facility's only worth £20 to £30 million. There is, in fact, no contradiction between these two statements.
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Transcript of Alistair Darling before Treasury Select Committee on 25 October ()
Q822 Mr Mudie: What is the total you have agreed with them?
Mr Darling: What we have agreed - and again, Clive Maxwell will set this out in further detail - is that they have that facility but it is secured against collateral. We have also guaranteed various deposits but of course, we fully expect to be able to to get that money back"
I'm 
Comments
This looks like a sound position from Alistair Darling. People of all stripes are trying to paint him into a corner so they can score points or walk away with a bargain. So much for sound leadership from the opposition benches and banking industry. While they're fanning the flames of their own greed and fear it looks like the Chancellor is doing the right thing. Good man.
The Tories could equally have been forced into the same position had they been in power. The real problem and its an international one, is that Lifestyle economics has run its course and is now going into decline.
Governments have allowed a spend and be dammed attitude to prevail because it has had a sedative effect on electorates. Such has been the effect that risk has had no part to play in peoples daily lives. They have felt immune from it.
People need New Labour to provide more of the drug that keeps them happy. Their patience can only last so long before a severe withdrawal sets in.
The best way "to protect the taxpayer" would have been for the government to not give financial assistance to an ailing private institution in the first place.
I wonder whether this financial assistance has in fact led potential suitors to think that they can squeeze the government into writing off at least part of the loan.
Nick,
If the best that the optimists can come up with is that we 'could' get the money back with interest things aren't that good are they?
As a taxpayer it looks like I'm increasingly exposed to losses at Northern Rock. I'm less than impressed by the weak assurances given my Mr. Darling.
The government very correctly intervened as the collapse of NR could have had very adverse consequences for our banking sector, business confidence and the reputation of the City of London. However, they have still not adequately explained how this had been allowed to happen under their regulatory regime. How the BoE & FSA didn't anticipate this and intervene earlier.
Secondly and far worse for the government, their intervention and support of NR should not give the impression of state support to a failing business that has most of it's employees in the North of England (in safe Labour seats). There is a whiff of political calculation here....
The amount of money at stake here makes the Conservative ERM debacle very small beer.
Robert Peston beat me to it when he said that there was a possibility of the taxpayer losing out if the collateral (the property assets being funded through NR mortgages) dropped significantly in value.
I've often thought that when politicians talk about 'taking responsibility' that their minds would be wonderfully concentrated if they were made personally liable for any taxpayer losses caused by their decisions.
We can dream.
Anyway, some have complained that why should NR be bailed out with anything between £24Bn and £40Bn of taxpayers money, when the victims of collapsed pensions schemes and even more pitifully, the Farepak subscribers, are grudgingly offered minimal assistance.
The answer to that is brutal.
Your pensioners and Farepak fodder simply don't count in the great scheme/scam of things.
Whereas the slightly nebulous concept of probity and 'confidence' in the Banking system is paramount.
That is, we must pretend that they (the bankers) are still wearing clothes, or we'll all be up a creek, even feather-bedded politicians.
Some features of capitalism are not very attractive, unfortunately, the alternatives (so far) have proved even worse.
The Conservatives have every right to demand an explanation. The taxpayer has been left incredibly vulnerable by Labour's decision to intervene in the Northern Rock problems, which are increasingly looking like a cynical spot of political engineering rather than a sound and rational economic decision.
Dear Nick,
The people who have invested in Northern Rock, should without delay remove all thier money, and take it somewhere safe.This is going to be a massive failure for the Government, especially now that the one issue that has everybody on edge and thats a recesssion in the housing market, and that WILL happen.
There is a serious economic slide working its way around the world, and now add to that higher oil prices, then it just confirms that oil companies are feeling the pinch.Therefore they will target the pumps, and that will creat huge drops in the market world wide.
Under no circumstances should taxpayers money be used to bail out a private company. If this is the case, then perhaps Mr Darling would care to pay off my mortgage.
One point some people missing, Gordon Brown, in his role as Prime Minister, is also First Lord of the Treasury. Therefore, he has ultimate responsibilty.
Labour are playing the political game with Northern Rock, and making acompelte hash of it. People do not want to see the truth behind the headlines; all they can see is anything up to £40 billion being wasted propping up a company. That could pay off an helluva lot of private mortgages!
No way should the government have stepped in with cash to help Northern Rock. In fact if they had not intervened at all and have allowed the Bank of England to resolve the problem then perhaps there would not have been the loss of confidence and therefore this massive loan would not have been necessary. OK so the shareholders would have taken a massive hit then so they should.
I have lost money by owning A&L shares, I am a pensioner so should I now receive government aid to meet my losses?
ABSOLUTELY NOT!
You take the profits when things are good and you take the losses when they go bad.
This is a free market and a democracy we live in not a government run communist dictatorship!
Or have I got it wrong?
Forget Northern Rock! If the government wanted to protect the taxpayer (Which they don't!) they should start taking a look at PFI (Which they won't!)
Now that is one BIG black hole of a rip off.
The Government will get all it deserves, especially when we all realise how much it is costing us.A political decision, shortly before the election that never was, to bail out a non-systemically important bank because of its place in the Labour heartlands will destroy any belief in the alleged competence of this Government. I can't help thinking the non-election has been even more expensive than we first thought.
Poor Alistair,
Once upon a time he thought it a good idea to hang on to Gordon's coat-tails. Unfortunately, the coat is on fire, and the flames are creeping towards the new 'chancellor'. Alistair may end up with his fingers burnt, he may also realise a bit too late just who the fall guy will be? Meantime, GB is carrying on regardless with the full backing of individuals and groupings that ought to know better.
By the time that we get to sort out all of the mess that has been created by GB & TB, we may be paying an awful lot more than just £900. We may be paying with our loss of liberty as well. Is there anyone in the media who can help to rid us of this worthless and pointless government?
Have a nice day Nick.
It's time for the Government to own up. Northern Rock is being supported because of political motivation - little help was ever offered to those who lost savings in the collapses of BCCI and Bearings in the 1990s.
Similarly, since Labour took office -nothing has been done to protect those who lost money on other share collapses or those who lost out in the Farepack collapse last year.
Proping up the bank won't save it from collapse - and the tax payer should be spared from prolonging the agony.
Blair left at the right time and is probably laughing at Brown. Tony Blair convinced people to vote Labour and they could be trusted with the economy after the calamties of the 1970s, Brown seems to be doing his best to reverse that at the moment. Perhaps the image of the Iron Chancellor needs relooking at...
Black Wednesday cost the Treasury £3.4 billion back in 1992. Currently we are out for £40 billion in 2007 if we take into consideration that all deposits are treasury backed as well at this point. I'm not sure that incompetence is defined by any colour of government but the honour is certainly arriving with New Labour by the day.
The Chancellor could have sold Northern Rock to Lloyds TSB before all of this became necessary but his inability to act as any sort of mediator/businessman/human being has meant that thousands of people have lost money, people have been very worried about savings and we have had the first run on a bank in however many years.
Good work Darling!
Well this is a classic display of politicians being above the law. If for instance a charity directed money to prop up a non related business without consultation there would be criminal proceedings.
UK Plc may be defrauded out of billions and that will just mean a cosy return to the back bench for this idiot.
What a bunch of criminals this government is. Why do we keep putting up with this criminal deception day in day out.
Time for a revolution to install a government that works for the people of this country. Most hard working people don't agree on the amount we are taxed and possibly more important how it is spent. Where is the democracy????????????????
Legally HMRC do not have a duty of care to the taxpayer. This is a good illustration of this.
You cannot take HMRC to court and sue them for compensation for losses incurred by a negligen act on their part.
This makes the matter all that more serious.
I remember there was a time when people wore badges saying "Don't blame me I voted Labour"....mmm you dont exactly see them around now do you and I wonder why.
Following this latest fiasco, I could make a fortune on the next batch..."Don't blame me, I didn't vote Labour"
The HMRC fiasco prompted me to write to Channel4 as follows:-
In November 1997 you broadcast a programme entitled "Lie of the Land" (Mark Thomas) which dealt with secrecy surrounding Conditional Exemption from Inheritance Tax.
HM Treasury has ruled that Inheritance Tax data is subject to "taxpayer confidentiality", & HMRC has successfully maintained secrecy on this matter. This shows that HMRC knows how to protect data, & applied it rigorously to the conditional exemption scheme for the rich, but did not use that knowledge to the data relating to the ordinary taxpayer.
I wonder whether Mark Thomas would be interested in making a programme on the present HMRC fiasco, which might re-open the debate on access to the land etc which is subject to "conditional exemption