Alistair Darling, the UK's Chancellor of the Exchequer has spoken out this week to assure taxpayers that they will not be expected to pick up the entire bill for the recent nationalization of banking giant Bradford and Bingley.
The Treasury announced on Monday morning that under the Banking (Special Provisions) Act 2008, Bradford & Bingley’s UK and Isle of Man retail deposit business along with its branch network has been transferred to Abbey National plc.
This transfer follows a competitive auction process for this part of the business, conducted by Morgan Stanley on behalf of HM Treasury. The remainder of Bradford & Bingley’s business will be taken into public ownership.
This action by the Tripartite Authorities protects savers’ money by transferring their money to Abbey National, part of Spanish banking group Santander. Bradford & Bingley’s branches, call centres and internet operations will be open for business as usual to provide continuity of service to customers.
Following recent turbulence in global financial markets, Bradford & Bingley has found itself under increasing pressure as investors and lenders lost confidence in its ability to carry on as an independent institution. The FSA determined on Saturday morning that the firm no longer met its threshold conditions for operating as a deposit taker under the Financial Services and Markets Act 2000 and FSA rules.
However, in a bid to minimise the burden on taxpayers and prevent them from ending up in a similar bail-out situation as the one imposed upon them by the Northern Rock meltdown earlier this year, the government, on the advice of the FSA and the Bank of England, have acted immediately to maintain financial stability and protect depositors.
However, in light of the Treasury's announcement, Shadow Chancellor George Osborne has speculated that taxpayers might end up losing more than they expect from the government's decision, as taxes will inevitably have to increase in order to cover the losses made.
Speaking out in light of Monday morning's announcement, Mr Osborne criticised the government for placing Bradford and Bingley under nationalization, stating that they could have instead passed it over to the Bank of England under a special resolution regime which would have left taxpayers out of the picture altogether.
Mr Osborne explained:
"I don't think, in the end, that the taxpayer should pick up the bill that really should be borne by the City.
"What is really being saved here are not the depositors or the jobs - it is the large institutions that lent lots of money to Bradford & Bingley and made money out of that when times were good and now that times have turned down are asking every single person in the country to pay more in their taxes to bail out this bank."
He added: "There are people who lent these banks very large sums of money in the good years - banks like Bradford & Bingley and Northern Rock. That's how they grew so quickly and were able to offer those cheap deals.
"Under nationalisation, the taxpayer steps in and says: 'We are going to give you your money back'. I'm not sure that's fair.
"I don't think people on GBP12,000 or GBP20,000 a year should see their taxes go up in order to support people who are getting bonuses of GBP1m or GBP2m a year.
"I think we could put banks like Bradford & Bingley into a special resolution regime where the Bank of England would take charge of it and run the bank down.
"That's what's going to happen anyway, but the way the Bank of England would do it would mean it is not the taxpayer who would take the hit; it's the big institutions that lent Bradford & Bingley very large sums of money," he added.
Yet, the Treasury with the other Tripartite Authorities, acting in their respective capacities, maintain that they have sought a range of private sector solutions before deciding upon this course of action, concluding that this option best delivered the objectives of maintaining financial stability, protecting consumers and protecting taxpayers.
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