Northern Rock debt to enter UK government books
Northern Rock and the Bank of England will be reclassified as public companies, the United Kingdom’s Office for National Statistics said on Thursday, meaning money lent to the stricken mortgage lender will come onto the government's books.
The decision was widely expected following a government rescue package for the lender, hit by the global credit crunch, which has already cost the taxpayer around 25 billion pounds ($49.07 billion, Dh179.10 billion).
The reclassification of the central bank means that any future bail out it conducts for commercial banks and lenders is also liable to be included on the national accounts.
The ONS made clear the move did not mean Northern Rock had been nationalised.
The move, which will be backdated to October 9, will almost certainly mean the government breaches its fiscal rule of keeping net debt below 40 per cent of gross domestic product.
"The decision is based on a judgment that the public sector has the power to control Northern Rock Plc's general corporate policy," the ONS said. "The financial liabilities of Northern Rock are substantial."
The government said the move would have only a temporary impact on Britain's public finances and insisted its fiscal rules were flexible enough to deal with such cases.
"Any impact will be temporary and exceptional," a Treasury spokesman told Reuters. "The code for fiscal stability has provision for such situations."
Analysts said there was a good chance the government would have breached its fiscal rules in any case.
"It obviously means a breach to the debt rule but I think it will be presented as a temporary measure," said Ross Walker at RBS. "The government will continue to apply their rules excluding Northern Rock."
The statistics office said the exact impact of the move on public finances was unclear at present and the changes would not be incorporated until March at the earliest.
Northern Rock's securitised debt is estimated at around £50 billion (Dh358.26 billion) and will also be included on the government's books, it said. (Reuters)
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