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bank of england 1946, northern rock 2008 February 18, 2008

Posted by Bradley in : Uncategorized , trackback

In 1946, the Bank of England was nationalised by the Labour Government. In 2008, the Labour Government will nationalise Northern Rock (the draft Bill is here). The decision to nationalise Northern Rock is described as being about delivering value for money for the taxpayer, and as being a temporary measure. The Chancellor’s statement describes the decision as follows:

under public ownership the Government will secure the entire proceeds from the future sale of the business in return for bearing the risks in this period of market uncertainty.

Robert Peston argues that shouldering these risks will cost British taxpayers more than £3500 each.

The UK Shareholders Association (UKSA) promised to fight the move,stating:

It seems the only reason that the Government has chosen nationalisation is because “it offers better value to the taxpayers”. This is equivalent to a thief telling you it offers better value to him to steal from you, than to enter into a commercial transaction with you.
Note that the Government has already made it clear that shareholders will receive no compensation for the value of their shares as they have set the terms of reference for an independent valuation to be on the basis that the Government loans have been withdrawn. In that case Northern Rock would clearly not be a going concern and hence would have no value. Why the Chancellor did not make this plain in his statement today is unclear.

Although the Chancellor says that Northern Rock will be operated on a commercial, arm’s length basis, historically nationalised industries in the UK weren’t terribly well managed, and when they were privatised there was usually a windfall to the new owners.

Meanwhile, a nationalised bank will be treated as an emanation of the state for the purposes of European Community law rules – rules of EC law which cannot as a practical matter be enforced against non-state-owned banks in the UK will be enforceable against a nationalised Northern Rock.

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