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28 February 2024

UK parliament approves plan to nationalise Northern Rock

By Agencies


The British parliament passed legislation on Thursday that the government needs to make Northern Rock the first sizable British bank to be nationalised in 25 years.


News of an emergency loan to the struggling Northern Rock from the Bank of England last September had triggered the first run on a British bank in more than a century.


On Thursday night, the House of Commons approved the nationalization legislation by a margin of 126 votes. The bill then went back to the House of Lords, where its legislators first rejected three provisions of the bill. They later dropped their opposition without a vote.


The Lords had wanted an independent audit of the bank’s accounts within three months, followed by annual checks.


They also had opposed exempting Northern Rock from the Freedom of Information Act and wanted the bank to undergo regular assessments by the Office of Fair Trading to ensure government backing did not give the lender a competitive advantage over its rivals.


The opposition Conservative Party had accused the government of covering up the fact that it will not acquire a separate trust held by investors, which packages Northern Rock mortgages into tradable securities, when it takes control of the bank.


The Conservatives and opposition Liberal Democrats had suggested that Granite, an off-balance-sheet vehicle, may siphon off assets from Northern Rock.


“Taxpayers must know the full picture at Northern Rock, including Granite and ... dodgy unsecured loans,” Liberal Democrat Treasury spokesman Matthew Oakeshott said on Thursday.


“Making Northern Rock subject to freedom of information requests will stop any Treasury cover-up,” he added. “Why shouldn’t taxpayers know if Northern Rock bosses get massive bonuses or golden goodbye payments?”


The nationalization plan has caused a political and public backlash in Britain, despite Prime Minister Gordon Brown’s assertion that state control is the best option for taxpayers who have already funded subsidies to Northern Rock to the tune of £55 billion (Dh397bn).


While rival mortgage lenders fear that the government support will give the bank an unfair advantage, unions fear large-scale job losses among its 6,250 employees and shareholders are angry that they will receive either very little or nothing for their investment under the proposed nationalisation structure.


Analysts expect Northern Rock to be downsized to meet European Union rules on state aid.


Brown said on Thursday that Britain, which must submit a report to the EU on its plans for Northern Rock by the end of March, would fully comply with its rules.


“We will meet the conditions of the state aid regime in the European Union,” he said in Brussels, where he was paying his first visit to the EU’s executive European Commission since he became prime minister last year. (AP)