‘Free Northern Rock to lead us out of recession’

Jan 12 2009 by William Green, The Journal

MINISTERS face mounting pressure from Parliament and business chiefs to use Northern Rock to kick-start the economy by allowing the bank to lend again.

The nationalised bank is currently required to repay a £26.9bn taxpayer loan, driving it to redeem mortgages and ask customers to seek loans elsewhere.

But it has already repaid £15.4bn and a review of the Rock’s business plan is under way.

The Journal has won widespread support for our call for the bank to be allowed to lend again to boost the UK economy.

Vince Cable, the Liberal Democrats’ respected finance spokesman, said: “The original business plan, where the central objective was to repay the Government loan as quickly as possible, made perfect sense when the bank was nationalised.

“But the economy is now in very different circumstances in a deteriorating recession and where there is a very serious crisis in bank lending. And it seems sensible that the Northern Rock bank could become a vehicle for new lending to sound borrowers.” Newcastle Central Labour MP Jim Cousins, who sits on the Commons Treasury Committee, also called for a rethink amid fears the Government’s current policy is depressing house prices.

Mr Cousins said: “The other providers are being much more wary about providing mortgages, so it is proving often difficult to re-mortgage elsewhere from Northern Rock.

“That is putting more pressure on mortgage providers. If you have an area with a large number of Northern Rock mortgages, there is a risk that house prices will be driven down there because mortgages in those areas will be harder to come by.”

He said a staggering amount had already been repaid by Northern Rock and stressed the need for a longer repayment period to boost the housing market.

He also called for the European Commission to finish an inquiry into state aid for Northern Rock at the same time, to reflect the transformed international environment, with governments across Europe now owning banks. “Revising the business plan now is clearly a priority and the European Commission must bring this state aid inquiry to an end to resolve it because both of those things are having a bad effect on Northern Rock’s future.

“And what is quite clear is that Northern Rock potentially has a very good future.

“The penalty regime that the European Commission has imposed on Northern Rock should be lifted and also the restrictions on its business can be lifted.”

Blaydon Labour MP Dave Anderson said the Rock had repaid money faster than many had expected and proved the business was in good shape.

“We should do anything we can to get the mortgage market moving and once one does it, the others will have to because they would fear being left behind.”

David Clelland, Labour MP for Tyne Bridge, said: “Given the changed circumstances and the fact that Northern Rock seems to have stabilised, yes, the Government should look at revising the business plan.”

North East Chamber of Commerce chief executive James Ramsbotham said: “We fully support The Journal’s campaign. Any moves to increase lending in the North East can only help the economy of the North East. Best of luck to The Journal and Northern Rock.”

Commenting on The Journal campaign, CBI regional assistant director Liz Mayes said: “Improving flows of credit is the best way to improve consumer confidence and the prospects for the economy. That is why the CBI is calling on the Government, the Financial Services Authority and the Bank of England to ensure banks do everything they can to get lending going.”

Last night, a Treasury spokesman said: “As the Chancellor has said, the Government is considering a range of options to further support lending in the economy and announcements are likely in the coming weeks.”

But sources told The Journal it was unlikely the focus of the Northern Rock business plan – agreed with the EU in line with state aid rules – would change.

The European Commission said its inquiry was continuing and no announcement was likely in the short term. Officials were still waiting for the revised business plan.

Click here to read Will Green's blog.

Page 2: Stalled housing market hits funds to affordable homes