Northern Rock: memories of Rolls Royce

Despite the recriminations this morning over the nationalisation of Northern Rock, the Government has actually taken the right decision, albeit very belatedly. The intriguing question is what changed Gordon Brown's mind? Until recently, his aversion to taking the stricken bank into public ownership could hardly have been more obvious.

The Chancellor, Alistair Darling, stressed in his statement that he was acting on advice that nationalisation offered the best deal for the taxpayer. Maybe, but the politics of rescuing Northern Rock changed dramatically two weeks ago when the Office of National Statistics unexpectedly classified it as already being in the public sector.

With the billions of pounds of taxpayers' support it has received firmly on the Government's books, a deal with Virgin or any other suitor that would inevitably have left

the taxpayer with the liabilities and risks of rescuing the Rock, while privatising the profit, seemed much less attractive politically.

Not that nationalisation will be simple. For one thing the shareholders will have to be dealt with. Without the Government's bail-out in September their company would be bust and their holdings worthless. However, faced with embarrassing litigation in the run-up to the next election Labour may well opt to buy them off with yet more taxpayers' millions.

Then there is the question of what to do with the Rock itself. Darling spoke of running it as a commercial concern prior to selling it off. But allowing a state-funded lender to compete with normal banks could just prolong the agony all round. The last emergency nationalisation was Rolls Royce in 1971, and it took 16 years to get most of that back into private ownership.

A cleaner solution would be to wind Northern Rock down, sell off its assets (which still seem sound) when conditions allow, and get the taxpayers' money back that way.