17 February 2008

Northern Rock: the biggest step forward for industrial policy in 30 years

Hooray! They've finally taken Northern Rock into public ownership.

It's about time too. The Government spent far too long faffing about with private sector "rescue" packages which basically seemed to involve giving billions of pounds to either private equity firms or Richard Branson, neither of whom floated my boat.

Still, while the Government was faffing about the share price was drifting down and down... so they (we) got a bargain.

Not since the heady days of British Aeropace and Shipbuilding in 1976 has nationalisation been used as a policy instrument in the UK. And it's nice to see it back. Primarily because, if done properly, Northern Rock could be the template for a new kind of bank... one that actually treats customers with respect rather than ripping them off with sky-high charges and piss-poor customer service at every turn. Despite being ostensibly competitive, the banking sector's record for customer satisfaction is appalling, and an innovatively-run public sector bank would have a lot to recommend it.

We won't get an innovatively run public sector bank, of course: we'll get a badly run approximation of a private sector bank. That's because this is a strictly temporary move, until market conditions return to "normal", at which point the bank will be sold off to the private sector. Which makes some sense from a public finances point of view, but is a real missed opportunity from the perspective of industrial policy. In fact, it's the fact that they were run just as badly as the private sector companies they were intended to improve upon which eventually gave nationalised industries a bad name in the 1960s and 70s.

What does any of this mean for the customers? Very little, probably. But in a pinch, they're probably safer with a government-run concern than with RIchard Branson. Now then, how long will it take for the public to get its £50 billion back? Still, more chance of getting that back than all the money that's been pumped into the railways to go to National Express shareholders...

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