Ripple effect of Northern Rock run still palpable
LONDON BRIEFING:SEPTEMBER is a month of grim anniversaries for the financial world – five years since the run on Northern Rock, four years since the calamitous collapse of Lehman Brothers and 20 years since “Black Wednesday”, the day Britain so spectacularly crashed out of the European Exchange Rate Mechanism.Five years on from Northern Rock, one of Britain’s most senior civil servants has been looking back on mistakes made by the then government in the months after fearful investors besieged its branches from the early hours of the morning of 14th September, desperate to withdraw their savings.
The crisis of confidence started in September but it was not until the following February that Northern Rock was nationalised. Testifying before MPs in Westminster last week, head of the treasury Sir Nicholas Macpherson described the gap as “a five-month period of drift”. The government was slow off the mark and the delay “made it quite likely that we would lose money on Northern Rock”, said Macpherson.
The eventual loss on the rescue of the bank has been put at about £2 billion by the National Audit Office. The final figure will depend on just how much of the mortgages are repaid which will, in turn, depend on the future path of interest rates and the health of the UK economy. MPs on the public accounts committee are now investigating those potential losses, hence Macpherson’s testimony.
Stressing his views were with the benefit of hindsight, Macpherson detailed the reasons for the delay, saying the treasury spent a long time attempting to come up with “ever more sophisticated devices, in effect, to bribe companies to buy it [Northern Rock]. That failed,” he told MPs. There were a number of potential bidders, including Sir Richard Branson’s Virgin group, which eventually bought up the “good bank” part of Northern Rock, taking in its branches and customers’ savings, following its split from the “bad bank”, made up of the problem mortgages. The bad bank still has about £36 billion of mortgages and owes the government £20 billion.
The legacy of Northern Rock spreads far wider than the looming £2 billion loss, however. The sight of savers queuing to withdraw their funds sent shock waves not just through Britain but through the rest of the financial world, although few knew at the time just how serious things would become.
And there has been a lasting impact on the UK housing market. According to property website Rightmove, house prices have stagnated since the run on Northern Rock in 2007, in stark contrast to the spectacular boom of the previous five years, when prices surged by more than 50 per cent.
The average price of a home coming on to the UK market five years ago was £235,176, says Rightmove, compared with £234,858 now. In real terms, though, once inflation is factored in, prices have effectively declined by as much as 15 per cent, to less than £200,000.
While the run on Northern Rock will long be remembered as the event that ushered in the credit crunch for Britain, its name has finally been erased from the high street. The last two branches bearing the once-proud fascia of the ambitious Newcastle-based bank, in the City of London and Milton Keynes, have just been rebranded under their new owner’s name, Virgin Money. If only the events of the past five years were so easy to gloss over.
WHEN THE armed forces caterer, the Naafi (Navy, Army and Air Force Institute) asked British troops serving overseas what they missed the most, the treats that came top were Greggs’ sausage rolls and steak bakes.
Now Greggs, Britain’s biggest bakery chain with more branches than McDonald’s, has been signed up by the military for a 12-week trial that will mean seven of its savoury products are served up at a base in Germany. They will be part-baked in the UK, then exported and served up by Greggs-trained Naafi staff at a Greggs-branded counter in the base. If the trial is successful, the service is likely to be extended to other overseas barracks.
Greggs serves six million customers a week and while its snacks aren’t the healthiest, its rock bottom prices have turned it into something of a British institution. As a Royal Navy veteran of the 1982 Falklands War, Greggs chief executive Ken McMeikan is delighted with the move into military catering. With 1,600 shops in the UK, Greggs is well on its way to a shop in every high street.
FIONA WALSHwrites for the Guardian newspaper in London