As George Osborne announced earlier this year, Northern Rock Plc is to be sold to ‘maximise value to the taxpayer’. We now know that this sale will not go to an existing mutual, as the main interested building societies have pulled out of the race. We believe that the taxpayer is set to get very poor value from the sale and that the chancellor has not properly considered a mutual future for Northern Rock. A recent report from UKFI (who manage the taxpayer stake in Northern Rock Plc) suggests that the Cooperative party’s option of a customer-led remutualisation which would raise money for taxpayers has not been considered.

We think that the chancellor should halt the sale process and re-examine the best way to return Northern Rock as a mutual – which is the best value option for taxpayers. Take a moment to sign our petition here.

What is our case?

First, the government’s failure to properly consider the case for remutualisation shows a total failure to learn from the past. The mortgage bank model – as epitomised by shareholder-owned Northern Rock – has been judged a failure by the markets. All demutualised building societies failed or were absorbed by other banks during the financial crisis: including Bradford and Bingley, Halifax, Alliance and Leicester and Northern Rock. The government’s sale of Northern Rock to private equity is simply the resurrection of that failed experiment. The Tory-led government have not learnt the lessons of Thatcher’s demutualisation policy.

Second, the best value for money for taxpayers is to make Northern Rock a mutual. Recent headlines have claimed that the government will lose £400 million on the sale of Northern Rock, given that a sale will generate £1 billion at most and Labour put £1.4 billion of capital into Northern Rock Plc. This is nonsense. The mortgage bank part of nationalised Northern Rock is highly profitable. Last week, UK Asset Resolutions – which manages the mortgages from the ‘bad’ bank of Northern Rock and nationalised Bradford and Bingley – announced half-year profits over £400 million. In fact, we calculate that the sale of UKAR could raise over £5 billion and the remutualisation of Northern Rock Plc would raise a further £300 million. Excellent value for the taxpayer. The most important element of all, though, is that a new Cooperative Building Society would have been created, which would be much less likely to cause significant danger to the UK taxpayer in future. The Cooperative Party’s call for remutualisation learns the lessons of the banking crisis, unlike the Tory-led government.

Finally, the coalition’s failure to properly consider a mutual future for Northern Rock fails to live up to its own commitments. In the coalition agreement, the Tories and Lib Dems promised to ‘foster diversity in financial services [and] promote mutuals’. The policy of selling Northern Rock to private equity fails to live up to these promises.

The government could be doing much more to support the existing mutual sector, foster the creation of new mutuals (such as Northern Rock) and promote diversity. As a recent APPG report states: ‘the government has not yet developed a clear strategy to promote mutuals.’

The Cooperative party is continuing its call for the remutualisation of Northern Rock. The government should publish its advice from the city on the options for the Rock in full; it should open a public consultation on its future and it should do much more to promote mutuals and fairer financial services. Crucially, the government should halt the sale of Northern Rock and give proper consideration to a mutual option. Until then, it will be clear that the coalition is prepared to promote the sorts of risky models that led to the banking crisis and cost us billions.

Sign our petition here

Read more about our campaign here 

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Pete Jefferys is policy and campaigns officer at the Cooperative party

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Photo: Dominic Alves