Government takes on Northern Rock debts

Updated 11.38 Thu Feb 07 2008
Keywords: bank of england, gordon brown, alistair darling, politics, debt, northern rock, money, business

The Office for National Statistics insists Northern Rock has not been nationalised, even though billions of pounds lent to the bank have been brought onto the Government's books.

Both Northern Rock and the Bank of England are to be reclassified as public companies, so £25 billion already lent by the taxpayer has been added to the national accounts, along with £50 billion of securitised debt.

"A second mortgage has been taken out on behalf of every citizen in this country " - George Osborne MP

The reclassification also means any funds used to bail out commercial banks and lenders in future are also likely to be included on the national accounts.

However, the Office for National Statistics (ONS) claimed Northern Rock has not been nationalised.

In a statement, the ONS said: "The decision is based on a judgment that the public sector has the power to control Northern Rock Plc's general corporate policy. The financial liabilities of Northern Rock are substantial."

The reclassification will be backdated to 9 October 2007, which means the Treasury will almost certainly break its own debt proportion limit of 40 per cent of GDP, but the Government said the move would have only a temporary impact on public finances and insisted its fiscal rules are flexible enough to deal with such cases.

A Treasury spokesman said: "Any impact will be temporary and exceptional. The code for fiscal stability has provision for such situations."

The exact impact of the move on public finances is unclear and the changes will not be incorporated until March at the earliest.

Shadow Chancellor George Osborne MP said: "In effect, a second mortgage has been taken out on behalf of every citizen in this country because of mistakes made by the Government."

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