Rock All

Liberté d'expression peut être attaqué mais il ne peut être détruit......

 

You would be forgiven for thinking that recent action to sell off tax payer owned Northern Rock was a huge success in which billions were made by the Government for the greater good of taxpayers. Such was the success of the spin by George Osborne’s team, Tommy Roe would have been proud (if you are under 40 then replace Tommy Roe with Vic Reeves and The Wonderstuff).

 

But beneath all of the spin, there is a real story that will leave the taxpayer £125 million worse off every year.

 

The Story

 

The Government owned (on behalf of the taxpayer as part of the Northern Rock rescue package) a book of mortgage debt that they sold last week for a ‘gain’ of £13 billion.   

 

The key here is who it was sold to (Cerberus Capital Management LP) and our definition of ‘gain’.

 

Cerberus Capital Management LP

The bulk of the loans sold to Cerberus Capital Management LP pay interest at 4.79% (Source: Financial Times). Calculating 4.79% of £13,000,000,000 on your standard eight digit pocket calculator is a little tricky but the power of google scientific calculator highlights that this generates £623 million per annum of interest income. If that income were subject to UK Corporation Tax it would generate UK Corporation tax receipts of £125 million per annum (less any expenses of course).

 

A great stroke of ingenuity by George Osborne I hear you cry…..£125 million per annum……the gift that keeps on giving we all yell. Well, actually no……Cerberus Capital Management LP are based in Ireland and the UK will not see a penny (or cent in this case) of tax revenue.

 

Gain

The word ‘gain’ refers to the fact that the price achieved represented a £280 million surplus over ‘book value’. And before you rejoice at the amazing return achieved, consider this……If I have an asset worth 100, write it down in my books to 10 and then sell it for 30, I can say I’ve made a ‘gain’ on book value of 20 even though actually I’ve lost 70.

 

But here is the thing……we do not know what the ‘book value’ was as it has not been disclosed by the Government. Call me sceptical, but I would be shocked if my example wasn’t far off the mark.

 

 

So there you have it……Northern Rock brushed under the carpet with little fuss. Far from getting a great deal for taxpayers, the Treasury will be worse off in the long run.

 

What a shame.