Remember September, when Northern Rock nearly collapsed? Savers withdrew around £2bn in savings, prompting the government to guarantee customers’ money up to a total of £100 000 per person. Estimates at the time suggested the taxpayer was crediting Northern Rock to the tune of about £20bn. But Northern Rock (naturally) lends out far more than people put into it. After all, not many people have the equivalent of a mortgage in savings. So, in a bid to reassure creditors and save the bank from collapse again, the government has guaranteed much of the bank’s borrowing too. The total guarantee is now about £60bn.

So, of course, the red tops scream about a “£60bn bill to save Northern Rock“. I can hardly believe the scale of this contemptible scaremongering. When the government guaranteed the savings in the bank, the move was widely applauded, and the government shot to an 11 point lead in the polls. Now that people have discovered the necessary guarantees add up to quite a lot, the government is 11 points behind in the polls. Few would dispute that Northern Rock has had a hand in this bizarre turnaround.

But a guarantee is not a bill. No one has lost £2000. Even if Northern Rock was wiped off the face of the Earth by a meteor tomorrow, no one would lose £2000. All the loans are also guaranteed against the mortgaged houses of Northern Rock’s borrowers, so charges to the taxpayer will only arise if lenders call back the loans and the houses have lost value. This will probably happen. But the costs will not be £2000 per taxpayer. Your payment towards the Northern Rock fiasco is likely to be dwarfed by the fall in value of your house. It’s worth a gamble now to preserve a dollop of market confidence, which might save everyone a whole lot more money in the long run.

Filed under: gambling, gordonbrown, jonathanbirch, labour, ukpolitics on December 24th, 2007