George Osborne has announced that Northern Rock is to be privatised: good. That should end the talk that it should be given away to the politically favoured.
Northern Rock is to be sold rather than remutualised or floated on the stock market, the Chancellor has confirmed.
There’s been a campaign, led by Compass and Chuka Umunna, to have it “remutualised”. To turn it back into a Building Society rather than leave it as a shareholder owned bank which is sold off.
The only problem with such a remutualisation pan is that it would be a direct gift from the taxpayer to the new owners. A Building Society, as a mutual, is owned by the depositors in the organisation.
Northern Rock, at present, is owned by the taxpayers and is worth some £1 billion.
So, if we remutualise it, then we’re making a gift of that £1 billion in value to those who are depositors at Northern Rock. The taxpayer loses the £1 billion they’re not going to get from the sale.
Of course, this is good politics: that is the art of the game after all, to reward your voters and favoured groups with money plucked from the pockets of those who do not vote for you. But other than that there seems to be very little to be said for the taxpayer not getting their £1 billion back. Which is why a sale rather than remutualisation makes sense.
Originally published in Forbes.