Last bid to stop Northern Rock nationalisation fails

A last-ditch Conservative Party bid to reverse the nationalisation of Northern Rock was thwarted in the British parliament today.

MPs voted by 322 to 124 not to annul the order transferring the Rock's shares to public ownership.

The vote result came as the European Commission launched a formal investigation into the bank's business plan to see if it complied with state aid rules.

In a debate on the share transfer order on Monday, shadow Treasury minister Mark Hoban said the Government had "gambled our future" on the bank's new management team.

He cast doubt on the bank's plan to repay the £24bn (€30.45bn) public debt by 2010 and warned that many of the firm's highest quality mortgage customers would be lost over the coming years.

The Rock's business strategy, unveiled by new executive chairman Ron Sandler this week, revealed details of an operating plan under which the bank has promised to repay the Government loans by the end of 2010.

The recovery plan includes the bank halving its balance sheet to £50bn (€63.44bn) by the end of 2011 by stopping all business lending and accelerating mortgage redemptions for existing customers.

Mr Sandler warned of "significant losses" this year as the credit market turmoil continued, adding that the earliest the bank could become profitable was by the end of 2012.

The European Commission said it would look into the Government's plans to keep state funding in place until at least 2011.

The Rock must not be run with unfair advantage in the market and must also be managed with a view to eventually operating without state aid support, under the Commission's rules.

On Monday Mr Hoban told MPs: "The Government has gambled our future and our money on Ron Sandler and his management team."

He said efforts to shrink the mortgage book would leave the Rock - and therefore taxpayers - with lower quality loans as people with good credit ratings move to other lenders.

"The overall quality of the loan book will deteriorate as people who can't find an alternative are forced to stick with the standard variable rate that Northern Rock offers."

Treasury Chief Secretary Yvette Cooper defended the period of "temporary public ownership" and said: "With regards to the overall financial position for Northern Rock and for the taxpayer, once again what we have made clear is this approach gives us the best deal for the taxpayer."

She said the Conservatives' plan to reverse the share transfer was "an utterly irresponsible approach" - especially given the continued credit squeeze and turbulence in global financial markets.