Gordon Brown has come under fire yet again over the Northern Rock fiasco after experts warned that its nationalisation could be in breach of EU competition regulations, while reports of possible jobs cuts and branch closures have seen further criticism heaped on an already battle-weary Labour Government.
Following yesterday's confirmation from the Treasury that taxpayers' money will be used to guarantee all savers' deposits with Northern Rock, regardless of their value or when they are made, questions are being raised as to how the Newcastle-based mortgage lender is able to offer savers 6.49 per cent interest rates – more than a fifth higher than the current Bank of England base rate.
Under the Financial Services Compensation Scheme, deposits with other financial institutions are only guaranteed up to a maximum loss per customer of £35,000; however, the EU competition Commission, who approved the Treasury's bailout bid in November, has yet to comment.
Speaking yesterday, Adrian Coles, Director General of the Building Societies Association said: "It is crucial that we do not have a taxpayer-funded institution competing for retail deposits with institutions that have not failed or needed Government support."
His sentiments have been echoed by Nigel Frudd, Head of Financial Services at Rosenblatt Solicitors: “The Government’s retrograde decision to nationalise Northern Rock is inconsistent with EU subsidy regulations. It provides Northern Rock with a guarantee that other banks cannot match and, in fact, could indirectly have exactly the opposite effect of what the Government was trying to avoid – another run on the banking system.
“It also begs a couple of other questions. Why should anyone have deposits with any other bank other than Northern Rock as it is guaranteed by HM Treasury and, thus, why save with National Savings and Investments?” added Mr Frudd.
However, while it seems that few will benefit from the nationalisation, Northern Rock's troubles have been particularly concerning for the local economy. As one of the large employers in the North East, plans for the bank's overhaul currently being considered by newly appointed Director, Ron Sandler, are widely expected to involve a number of branch closures and heavy job losses.
Despite Prime Minister Gordon Brown claiming that nationalisation is in the best interests of the taxpayer, he has conceded that it may take years for the bank to repay the £55 billion of emergency funding provided in the form of Government loans and guarantees. Conservative leader, David Cameron, has called for the dismissal of Chancellor Alistair Darling while Shadow Chancellor, George Osborne has said that the nationalisation of Northern Rock could cost each British family £3,500.
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