Rock response was right, says PM

Gordon Brown has defended his handling of Northern Rock, after criticism that the bank kept offering risky mortgages after its taxpayer-funded bail-out.

He said he had taken the "necessary" steps to save the bank, which would otherwise have gone into receivership.

The National Audit Office said the bank lent £800m in high risk mortgages up to six months after it was rescued.

The Tories said failing to end 125% mortgages immediately was "inexcusable" - the Lib Dems called it a "disgrace".

Speaking in Brussels, where EU leaders have agreed a package of measures to support the global economy, Mr Brown said ministers had taken the right action in nationalising the bank.

We acted when Northern Rock got into difficulty Gordon Brown Treasury slated over Rock lending

"We acted when Northern Rock got into difficulty, we've taken the actions necessary by bringing Northern Rock into public ownership," he said.

"I think the NAO agrees this was the necessary course of action."

He said the regulator, the Financial Services Authority, had "already said that it made some mistakes in its dealings with Northern Rock earlier on".

He said that, while he had not read the report in detail, it agreed that "nationalisation was the better option and the alternative was to allow it to go into receivership".

Risk assessment

He also said Northern Rock had since paid back about £16bn in loans it had been given, enabling it to start lending again to new customers.

The NAO report concluded that nationalising the bank was the best route to protect taxpayers' interests.

But it found the Treasury failed to carry out a thorough assessment of the risks the taxpayer was taking on prior to the bail-out or proper scrutiny of the bank's lending policies after it.

Taxpayers will find that truly shocking Philip Hammond, shadow chief secretary to the Treasury Rock report adds to ammunition

Northern Rock offered borrowers loans of up to 125% of the value of their properties from the time of its emergency support from the Bank of England in September 2007 until it was on the brink of public ownership in February 2008.

The Conservatives said the failure to end high risk mortgages immediately after billions of pounds of public money were injected could not be "excused" by the urgency of the situation.

Officials failed to "ask the right questions" about the quality of loans Northern Rock was offering, said shadow chief secretary to the Treasury Philip Hammond.

"It is really astonishing to discover that the Treasury did not clamp down on that immediately," he told BBC News.

"Taxpayers will find that truly shocking".

In denial

He compared it to the failure to limit the scale of the pension taken by Sir Fred Goodwin.

The Lib Dems said the Treasury's handling of Northern Rock in the months after the bail-out was a "total disgrace".

Treasury spokesman Vince Cable said he had warned Chancellor Alistair Darling several times about the need for Northern Rock to curtail 125% mortgages.

The evidence over who is responsible for the economic crisis and the regulatory failures which contributed to it all lead back directly to Downing Street Stewart Hosie SNP

"We repeatedly warned the government that this was a terrible waste of taxpayers' money," he told BBC News.

"The government did nothing, saying this was a commercial matter. It should have intervened and stopped it."

The BBC's business editor Robert Peston said at the time of the Northern Rock rescue almost all the authorities were in denial about the scale of the financial crisis and underestimated the scale of falls in the housing market.

And he said, as the NAO pointed out, that at the time of the Northern Rock crisis there were only 24 staff at an over-stretched Treasury working on the problem and the priority was propping up the bank.

Treasury minister Stephen Timms said "lessons needed to be learnt" about the handling of Northern Rock.

But he insisted the report had "vindicated" ministers in their actions in saving the bank.

The Conservatives and Liberal Democrats supported the September 2007 bail-out of Northern Rock.

But both were critical of the government's handling of the crisis, which led to the first run on a British bank for more than 100 years.

Subsequently, the Conservatives said more efforts should have been made to find a private sector buyer while the Lib Dems said the bank should have been nationalised sooner.

The Scottish National Party highlighted suggestions in the NAO report that the Treasury was warned in 2004 that the regulatory regime was not equipped to handle an institution in trouble.

"The evidence over who is responsible for the economic crisis and the regulatory failures which contributed to it all lead back directly to Downing Street," said Stewart Hosie, the party's treasury spokesman.

The government said the issue had been "considered in depth" and "a good deal of detailed work was carried out from 2004 and through 2005 and 2006".

E-mail this to a friend

Printable version