Taxpayers to lose over £400m as Branson nets Northern Rock

The sale will recoup between £747m and £1bn for the Treasury, but falls short of the £1.4bn pumped in by taxpayers.

Chancellor George Osborne said the sale was “an important first step in getting the British taxpayer out of the business of owning banks”.

“It represents value for money; will increase choice on the high street for customers; and safeguards jobs in the North East,” he said.

Newcastle-based Northern Rock became an emblem of the credit crunch when depositors queued outside its branches in September 2007 to withdraw savings. It was nationalised in February 2008.

Virgin Money will drop the Northern Rock brand and could attempt a flotation of the merged business as early as 2014.

Virgin Money, which is backed by US private equity investor Wilbur Ross and an Abu Dhabi fund, pledged not to make any more compulsory redundancies for the next three years.

The company tried and failed to buy the Rock in 2007, following its collapse. Founder Sir Richard said the enlarged bank would be a “new force in the market”.

Virgin will own more than 70 per cent of the enlarged bank.

“Banking in the UK needs some fresh ideas and an injection of new competition,” he said. “Virgin has a history of entering new sectors to improve service and provide value for customers. We plan to do the same in banking.”

Virgin is buying a business with 75 branches, 2,100 staff, one million customers, £14bn of mortgages and £16bn of savings. Together they will form a business with about four million customers.

Labour leader Ed Miliband questioned the timing of the deal. “There will be serious questions asked about the deal done to sell Northern Rock today, and in particular about the losses to the taxpayer,” he said.

“But whatever the right decisions about the timing of that – and we will scrutinise it – there does need to be greater competition in the market.”

TaxPayers’ Alliance director Matthew Sinclair blasted it as “a terrible deal” for taxpayers. “It is good to get millions back, and see some fresh competition in the banking sector, but taxpayers have had a terrible deal overall,” he said.

The merged lender’s headquarters will be in Newcastle, a base it also shares with about 750 staff from UK Asset Resolution – a separate business owned by the Government, which manages the toxic loan books of Bradford & Bingley and Northern Rock. UKAR, based in Crossflatts, near Keighley, said it was “business as usual”.

Mutuals, including Yorkshire Building Society, had called for the Government to return the Rock to its building society roots by remutualising it. However, Financial Secretary to the Treasury Mark Hoban said no plan to remutualise the bank was tabled.

“We reached out to the mutual sector... saying come forward with a workable plan to remutualise Northern Rock and sadly no one did, so that’s why we have had to go down this route,” he said.

The enlarged lender will launch current accounts in 2013 and lend to small businesses in due course. It hopes to lend £45bn over the next five years.

The Government will receive £747m on completion of the deal and another £50m within six months. An extra £150m comes in the form of a financial instrument, while up to £80m will be paid if the business is sold or floated in the next five years.

Deal may pay off for consumers too: Page 15.