Northern Rock Rescue 'Costs Taxpayer £2bn'

The rescue of the collapsed bank Northern Rock is likely to cost the taxpayer at least £2bn, a report has revealed.

The estimated losses are highlighted in a National Audit Office (NAO) report into the nationalisation of the bank in 2008 and its subsequent part sale.

The report criticises former chancellor Alistair Darling, for failing to look at the full consequences to the taxpayer.

After nationalisation, the bank was split into a mortgage lending and savings arm, Northern Rock PLC, and a "bad bank" of sub-prime assets, Northern Rock Asset Management (NRAM).

The NAO said it could be years before the assets of NRAM were wound down, but its current estimate is that the taxpayer is sitting on a £2bn loss.

On top of that, the NAO said that taxpayers lost about £480m on the sale of Northern Rock PLC to Virgin Money last year.

However, the report said the sale - attacked by some as too early - helped to reduce overall losses for the taxpayer.

UK Financial Investments (UKFI), the body set up by the Treasury to manage state holdings in bailed-out banks, ran the sale process well, the NAO added.

Amyas Morse, head of the NAO, said: "A sale of Northern Rock plc at the earliest opportunity was the best option to minimise losses on the £1.4bn of public money invested in the bank.

"But most of the former Northern Rock's assets will be in public ownership for many years to come and there could be a net cost for the taxpayer of some £2bn by the time these assets are finally wound down."

The watchdog also hit out at the Treasury for failing to look at the full consequences to the taxpayer when it decided to split Northern Rock in two.

The NAO said the decision was "reasonable" but based on a business plan prepared by Northern Rock management which events showed to have been "optimistic".

However, the NAO said the alternative - selling the deposits and closing down the business - was unlikely to have been significantly better in financial terms.

Sir Richard vowed to challenge the banking industry's "big five" when he agreed the deal for the Newcastle-based business.

The business boasts 75 branches, one million customers and holds £14bn of mortgages.

Chancellor George Osborne insisted the price was the best available for taxpayers.

Taxpayers have owned the business since the first run on a UK bank in 150 years forced the Rock into public hands in February 2008.

Matthew Sinclair, director of the TaxPayers' Alliance pressure group, which campaigns for lower taxes, said: "Investors were hardly queuing up to put their own money into Northern Rock, but politicians kept telling us they knew better and we would make a profit bailing them out.

"Instead, taxpayers are left stumping up for huge losses while those responsible for ordering this bailout remain in denial."