Treasury fails taxpayer over Northern Rock

Treasury "slow off the mark" in nationalising Northern Rock.

The most senior civil servant at the Treasury has told MPs that the government should have acted more quickly to take Northern Rock into public hands after the run on the bank in 2007.

Sir Nicholas Macpherson was answering questions from the Public Accounts Committee, which is investigating claims that taxpayers will end up losing £2bn from the collapse and rescue of Northern Rock.

Customers started queueing in large numbers to pull out their money in mid-September, 2007, but it was not until the following February that the Chancellor Alistair Darling nationalised the stricken bank.

Sir Nicholas said that the Treasury was "slow off the mark in addressing the problem" and "we should have nationalised it earlier".

"There was a five month period of drift," he added, "And that made it quite likely that we would lose money on Northern Rock."

Officials spent the time assessing the state of Northern Rock and looking at the possibility of a rescue from one of several potential bidders, including Sir Richard Branson's Virgin Group.

After nationalisation Northern Rock was spilt into a so-called Good Bank, including customer deposits, branches and some mortgages, and a Bad Bank with billions pounds of problem mortgages.

Virgin Money ended up buying the Good Bank from the government last November.

A National Audit Office report earlier this year suggested that the taxpayer would lose £2bn once all the mortgages were paid back.

The chair of the Public Accounts Committee, the Labour MP Margaret Hodge, said there was "A big question mark" over whether the public had received the best value .

Sir Nicholas explained that estimates of the scale of the losses depended on forecasts of interest rates over a number of years, but that Northern Rock's borrowers were proving more reliable.

"These people are generally paying their mortgages and the money's coming in," he said.

Sir Nicholas Macpherson was already Permanent Secretary to the Treasury during the financial crisis. The role makes him, effectively, the Chancellor's chief policy adviser.

He admitted to MPs that officials had failed to anticipate the seriousness of Northern Rock's crisis in the summer of 2007.

"There was a monumental collective failure of which the Treasury was part," he told the committee.