Darling told to go easy on Rock bidders

Feb 7 2008 by Adrian Pearson, The Journal

PRESSURE is mounting on the Government to relax its expectations on how soon Northern Rock bidders would have to pay back loans of £25bn.

The calls came as Virgin revealed it could have to cut 1,000 jobs to make the repayments within three years if it takes over the bank.

Treasury bosses want the taxpayers’ money repaid as quickly as possible, with many estimating a three-year deadline is the most appropriate.

This self-imposed deadline could see massive job losses unless the Chancellor Alistair Darling can find a way to stretch state aid and get the European Union to agree to let the bank run as a more competitive business.

Newcastle MP Doug Henderson said the Government should consider the impact on the workforce of its “shrink radically and quickly” insistence.

He said: “One of the key things the Government has to consider is what is best for jobs with Northern Rock and the future of the business. Mr Darling must consider what each bid means for the workforce.”

When whoever ends up running the bank tries to pay back the debt they will find themselves severely restrained by European Union state aid rules.

The EU wants to avoid any one company having an unfair advantage thanks to the Government backed bonds and taxpayer loans – and their strict rules mean an end to the very competitive Northern Rock mortgages.

The Virgin-led bid is currently battling against a Northern Rock in-house management bid for control of the troubled bank.

Virgin’s plans would see Northern Rock, which employs around 5,000 people in the North East, re-branded as Virgin Bank and jobs lost as the bank is forced to slim down and repay £25bn in taxpayers loans.

Both Virgin and Northern Rock have notified the Treasury of expected redundancies, though both hope to achieve a large part of this through a hiring freeze.

Virgin Money boss Jayne-Anne Ghadia, who would run the bank if a Virgin rescue was accepted, said nothing could be ruled out.

“We are confident we can make full repayment of the taxpayer in less than three years and part of the solution to that is reducing the size of the bank moving forward.

“We can’t continue to make the promise that there will be no redundancies, but we would aim very much to minimise redundancies.”

Union bosses backed calls for the Government and the two bidders to do more to secure jobs.

Graham Goddard, Unite deputy general secretary said: “Unite the Union is deeply concerned to learn that Virgin has abandoned their commitment to avoid redundancies at Northern Rock.

“This news will add to the anxiety already felt by Northern Rock employees. The union will meet with Virgin tomorrow to discuss their bid and get clarification on the impact on staff. Unite will oppose any compulsory redundancies.”

A Virgin spokesman said the consortium would look at job losses of “less than 1,000.”

A spokesman for the Treasury said the three-year target was in part imposed by the bidders as a reflection of the Government’s desire for the loans to be repaid “as soon as is possible”.

He said: “The test period is a three-year repayment but we are open to negotiations.”