Could Northern Rock kick-start the economy?
Nov 22 2008 by William Green, The Journal
NORTHERN Rock could be merged with Bradford & Bingley to form a “super” state bank. Liberal Democrat Treasury spokesman Vince Cable has raised the prospect of the Newcastle-based institution playing a key role in boosting the economy as other banks fail to free up lending and increase borrowing rates.
Mr Cable’s comments will be seen as significant because he has played an influential role since the credit crunch first erupted last year and led the way in calling for Northern Rock to be nationalised.
The Rock’s main job is currently to repay a taxpayer loan, with £15.4bn already returned, but a “fundamental” review of its business plan should be completed within weeks in light of changed market conditions.
Chairman Ron Sandler has promised any necessary “corrections” would be made – although the Treasury has remained tight-lipped about any developments over the company’s future role.
Tory leader David Cameron has also urged the Prime Minister to consider more direct measures to get lending to business restarted, including “new” institutions being established. Gordon Brown responded by saying he would take all “necessary” measures.
Last night, Mr Cable’s proposals were gaining ground among MPs, trade union chiefs and business leaders who stressed that freeing up lending was vital to reviving the economy.
Speaking to The Journal, Mr Cable said: “At the moment, Ron Sandler’s brief is simply to repay the Government.
“And I think what the Government is now going to have to do and think about is how to use its nationalised bank in a positive way to maintain lending flows into the economy.”
He said new banks would be needed to fill the vacuum, adding: “Why not use Northern Rock and Bradford & Bingley as the kernel of a mature, successful bank that is state-owned, which could eventually get back into the private sector.”
Peter Atkinson, Tory MP for Hexham, said: “Anything that will free up the market would of course be extremely desirable. There may be an issue with European state aid rules.
“It would certainty be a spur to lending. It is certainty something that should be explored.”
Labour’s Blyth Valley MP Ronnie Campbell said it would be a “superb” idea to use Northern Rock to free up lending and that it could pay back its taxpayer loan later.
TUC regional secretary Kevin Rowan said action was needed to help companies getting a hard time from banks in terms of flexibility and access to finance.
“If we can get the banks that have a degree of public ownership and influence to lead the way, then that has got to help,” he said.
Hugh Morgan Williams, a senior CBI member, said it was an “interesting concept” and Northern Rock could be used to channel funding from a £4bn European pot for lending to small firms if the bank had the necessary expertise in that sector.
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