Rock report adds to ammunition

By David Thompson
BBC News political correspondent

Criticisms in the report centre around due dilidence

Incompetence. Complacency. Reckless.

These are just some of the words the Tories and the Lib Dems have thrown at the government - based on a report which says that, ultimately, it did the right thing.

But the fact that the National Audit Office's examination of the role of ministers in the rescue of Northern Rock concludes that nationalisation was the correct choice gets somewhat lost in the mix.

The level of risk to which billions of pounds of taxpayers' cash was exposed troubles the NAO.

That - and the fact that internal processes within the Treasury made getting to the right answer more hazardous than perhaps it needed to be.

Carrying on

The financial criticisms contained within the report centre on the level of due diligence carried out by government before deciding to plunge huge amounts of money into Northern Rock - not nearly enough, says the NAO.

There is also surprise that the bank was allowed to carry on with its infamous Together mortgage six months after the bailout began.

That was the deal where borrowers could access up to 125% of the value of their house - precisely the kind of high-risk loan which got Northern Rock into trouble in the first place.

But perhaps the biggest political damage is caused to the government by the revelation that, back in 2004, the Treasury, the Financial Services Authority and the Bank of England "war-gamed" their response in the event of the collapse of a High Street lender like Northern Rock.

At the time, the economic outlook was sunny - so much so that the Treasury decided that such a scenario was relatively unlikely and decided to give the work a low priority.

Five years later, the problem for Prime Minister Gordon Brown is that the man in charge of the Treasury at the time was... Gordon Brown.

And it is that which has opposition parties scenting blood.

So far, the prime minister has stuck to his mantra that, while he is not denying that some things could have been done better, overall, the financial crisis has been the consequence of events in the wider world, primarily in America, where the collapse of the sub-prime market poisoned the global economic well.

This report gives ammunition to those who claim that, while that may be the case in part, preparations for just such a rainy day were ignored.

As such, this report will make unwelcome reading, not just in 11 Downing Street, but next door at Number 10 as well.