How much Gordon?

A panicked decision to buy Northern Rock has already cost the taxpayer £2bn and there's another £66bn we could be stuck with

We haven't forgotten yet, Gordon
Simon Miller
On 16 November 2012 14:32

It is said that there are only two things that are guaranteed in life, death and taxes, but I would like to add another one - civil servants being out of their depth.

From dealing with Europe, to running the NHS, civil servants appear to have part of their brain missing when it comes to efficiencies and achieving the best for the country.

Maybe this is deliberate - certainly there is a form of institutionalisation going on in terms of europhilia and a dogmatic reaction in serving the NHS - but unfortunately I suspect that a combination of jobs-worthiness and poor skills are more likely.

Today saw the publication of the Public Affairs Committee’s investigation into the sale of Northern Rock and, shock horror, the report found that the Treasury “lacked the skills” to understand Northern Rock.

Let me take you back to those heady days of the financial crash. Aided and abetted by some unhelpful leaking to the BBC, our TV screens were full of people queuing up outside Northern Rock to get their money out, ignoring that their money was, in the main, covered by the government.

In Whitehall, they were panicking - although the cynic in me suggests that if the bank was called Southern Rock it would have gone to the wall - and had been trying to sell the bank.

It took them five months to realise that no-one wanted the bank. As a result it became the first bank to be nationalised.

The report is somewhat damning saying that the rescue of Northern Rock is currently estimated as a £2bn loss to the tax payer.

This was because there is a symptom in government institutions where there is always a failure to challenge the leaders. Whether it is the BBC and the farce following the Jimmy Saville row or the government, when confronted, the tendency is to back away and not challenge something that needs to be questioned.

And so it was with Northern Rock. The committee found that firstly the Treasury and then UKFI, failed to challenge the bank. The Treasury failed to challenge the business plan to split the bank despite its own advisers and the committee warning that the plan was too optimistic.

It got even worse when UKFI took over. It took almost a year for it to challenge the bank’s strategy, it took until early 2011 to invest in gilts to increase profitability. And, this is good, the reason it had the money to buy gilts was that it only lent £9.1bn against a target of £15bn - a failure of the optimistic business plan.

And the report got better still, actually saying it was lucky, yep lucky, that Virgin Money was interested in buying the bank. There was only one other interested party and in the sale alone the taxpayer lost half a million.

So the panic-induced plan ended up with a role of a die, a turn of a wheel. I mean come on, we all need luck but when it is our money you are playing with, we'd like a bit more strategy.

I mean, why did we buy the bank in the first place? It should have gone to the wall. As I said above, it wasn’t Southern Rock. Petty politics from a petty politician took precedence and outweighed the logical thought that as a relatively small institution, it could have sent the correct signals to the rest of the banking world and the sharp correction could have avoided this dull zig-zag that we are currently in.

But maybe I am being too harsh on UKFI. After all it only has 12 staff. I mean, that’s fine when you are dealing with a large institution like the Royal Bank of Scotland right? They wouldn’t let their head of wholly-owned investments leave and not replace them, leaving just a team without the direct knowledge base that person had learned would they? Oh, that’s right, they did.

And the committee warned that the taxpayer is likely to hold its stake in RBS and Lloyds fort many years. Indeed it warns that the £66bn that’s been chucked into these institutions may never be recovered.

You see, the issue is that the Civil Service is that strange place where you can actually get promoted for doing nothing but keeping schtum. It is a place where mediocracy reigns and those that are actually intelligent, appear to get downed put by endless “strategy” meetings and briefing papers.

The best thing about this is that we are still not sure whether the Treasury has learned the lessons for the next crisis. While, I am sure that managers are assuring bosses that they have, I cannot help but feel that we are going to see the same incompetencies happen again and again as this institutionalised culture, where they get the Queen's birthday off for instance, continues.

Unless they recruit people with real private business experience, the civil service will continue to confuse strategy meetings and working papers with decision making.

So that’s fine then. A combination of failure, ignorance and naivety has not only already cost us around £2bn but has also left us with seemingly permanent nationalised banks.

Thanks Gordon.

Simon Miller is a Contributing Editor to The Commentator

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