Stand Rock solid – TUC

Apr 3 2008 by William Green, The Journal

EUROPEAN competition chiefs were yesterday urged to support Northern Rock after launching a formal probe into whether its business plan meets state aid rules.

The call from the North East TUC came as the Treasury expressed confidence that plans for the nationalised Rock would be acceptable – although Tory Euro-MP Martin Callanan warned the inquiry could go “either way”. The European Commission will examine plans for the Rock to keep state funding until at least 2011 and has asked for more details. Taxpayers are subsidising the bank by around £55bn – although it has pledged to repay a £24bn loan by 2010 with Government guarantees gradually released.

Brussels warned aid must not undermine competition in the European banking sector and that it may impose “specific conditions and obligations” on the bank with the inquiry expected to take four to five months.

State aid is only allowed for six months unless it is part of an approved restructuring scheme, with a clear path to repayment as soon as possible.

The Commission has been in discussions with the Government since the crisis at Northern Rock hit last autumn and an investigation was always likely because of state aid regulations, although Government help will remain in place while the inquiry is completed. The probe comes after Danish banks are said to have complained, although the Rock has closed its Danish savings operations. It is also cutting up to 2,000 jobs and halving its mortgage book as it aims to return to the private sector.

Rock boss Ron Sandler has pledged to compete fairly, promising not to take more than 1.5% of all UK retail deposits and no more than 2.5% of overall new mortgages.

It will also not appear in the top three rankings of “best buy” tables for 2008.

TUC regional secretary Kevin Rowan said the Rock’s plans took the company forward and kept a “decent” number of jobs in the North East.

“The last thing anyone in this region wants to hear is the European Commission being anything other than supportive,” he added.

A Treasury spokesman said: “We don’t want to pre-empt what the European Commission says, it is a decision for them, but we are confident the plan is in line with state aid guidelines.”

Tyne Bridge MP David Clelland said: “We are members of the European Union. It has rules regarding these issues and therefore it is duty-bound to look at the situation, but I don’t think there is anything to get overly concerned about.”

But Mr Callanan, who represents the North East, warned the Commission’s decision could go either way.

“It is complicated and the Commission will have to be satisfied there is no distortion of the market and the British Government has left it all to the last minute by dithering on their original proposals.”

A Northern Rock spokesman said: “We will continue to co-operate closely.”