Joe Cox and William Cass make the case for re-mutualising Northern Rock - rather than privatising the rescued bank.
By Joe Cox and William Cass
Northern Rock has now been in public ownership since February 2008 when it was nationalised in an attempt to safeguard the deposits and 6,500 jobs in the north east; since then, debate has raged about what the government should do with it.
In March 2011 UKFI appointed Deutsche Bank to undertake a feasibility study on the:
“…strategic options for returning the company to private ownership.”
The two main options are privatisation and re-mutualisation. In practical terms, re-mutualisation involves converting Northern Rock into a financial institution owned by its members, those people who hold bank accounts and/or mortgages with it.
Up until now the central argument against re-mutualisation from both the right and the left (including Kitty Usher, director of Demos) has been that privatisation would offer a better deal for the taxpayer. This argument has been rebuffed this week by a report from Landman Economics. The report makes the economic case for re-mutualisation of Northern Rock.
The central argument is that re-mutualisation of Northern Rock would reduce the chances of another financial meltdown by:
• Increasing the size of the mutual sector relative to the plc sector;
• Broadening the diversity and competition in the sector.
Re-mutualisation would also have numerous other benefits including:
• Increased lending to businesses;
• Improving the customer experience;
• Providing stable regional employment.
Money could also be recouped for the taxpayer in the medium to long term through profit participating deferred shares.
With Barclays’s Bob Diamond signalling this week that Barclays must increase its risk appetite, the government needs to think twice about the long term implications of selling Northern Rock to the private banking sector.
If the private banking sector encourages high risk investment strategies, re-mutualisation offers the opposite. Mutually owned building societies did not cause the financial crisis and on the whole have weathered it more successfully. It is in the interests of all taxpayers to see them play a greater role in our financial system.
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11 Responses to “‘Return the Rock’: Re-mutualise or privatise?”
neilrfoster
RT @leftfootfwd: ‘Return the Rock’: Re-mutualise or privatise? http://bit.ly/eXQ9SI by Joe Cox and William Cass
Mark Stevo
I’m sorry, but to describe the piece by Landman as a report is nonsense. The document is nothing more than a ideological piece that makes claim after claim without any supporting evidence.
There is, in my view, likely to be merits and demerits associated with both privatization and remutualization. There is almost certainly a price for which NR can be sold above which it makes sense to sell to a private body, and below which it makes sense to remutualize. I don’t claim to know the answer, but I’ve yet to see a single argument from Chuka, Landman or anyone else, as to what the quantifiable benefit from mutualization would be. Their argument has been entirely ideological.
LFF professes to be “evidence-based” and I’m afraid the so-called report from Landman does not satisfy that criteria.
Stephen W
The supposed benefits of mutualisation are entirely possible conjecture without any real basis in evidence or actual established facts. It’s all if-we’re-lucky many years down the road.
The downside is very real and immediate though. Mutualisation means giving Northern Rock away to its customers, since they’re unlikely to be able to raise the money between them to buy it on mutual terms. This means never recovering the billions spent nationalising it. Basically ever other taxpayer suffers to benefit customers of Northern Rock. I can’t see how that’s fair.
If I’m wrong and there’s actually a practical scheme for selling Northern Rock to its current customers then I’m all for it. But if it means just giving away tens of billions of pounds of public money then I’m against it.
Mark Stevo
While I don’t disagree that in all likelihood remutualization is unlikely to benefit the taxpayer net, NR is worth a long way short of tens of billions.
Compass
RT @leftfootfwd: ‘Return the Rock’: Re-mutualise or privatise? http://bit.ly/ggRj8T