Gordon Brown will tomorrow promise to put mutualism and co-operatives, such as the John Lewis Partnership, at the heart of Labour\’s election manifesto. A Downing Street source said he wanted to draw heavily on the manifesto of the Co-operative party, an affiliate constituent of Labour, in preparing his own programme.
Sure, why not? A market in forms of ownership and forms of business structure. Absolutely fine with me and I can\’t see why anyone would object.
The Co-operative party wants Labour to turn Northern Rock back into a mutual,
Ah…..no.
Mutuals can indeed be lovely things however, the very point of them is that they are owned, in this case, by the depositors. That\’s fine too. But the \”good bank\” part of Northern Rock is worth something. It\’s worth what it could be sold for, a couple of £ billion or so maybe?
And currently that £ couple of billion of value belongs to us, the taxpayers. Because we\’re the people on the hook for the losses of the bad bank part of Northern Rock.
So simply sailing the good bank off into the market place as a mutual is a gift from the taxpayers to the depositors of a couple of billion £. It\’s exactly the same as simply giving the same bank and the same value to Richard Branson. It is taking from us to give to the new owners.
And whatever the value of having a mutual bank is, that\’s still a rip off of us.
The BSA report, on which I suspect most of this thinking is based, suggests the government’s equity in the Rock could be converted into profit-participating deferred shares or permanent interest-bearing shares in order to keep the books in balance. They’re both a sort of debt instrument, but with a passable coupon and as the most junior capital available (PPDS are more risky than Pibs), they are almost the equivalent of equity for a building society.
Potentially, the taxpayer could get its money back by flogging the instruments on the open market, or could hang onto them and keep the income. Either way, the taxpayer does not need to make the company a gift to its depositors.
So I should stick a few quid into a Northern Rock account, just in case?
I can’t believe it, as a Rock depositor I might actually come out of something ahead of the game?
“Turning it into a mutual”
That implies a destination in terms of ownership, but not a process of transformation.
So it is not clear that this request implies what you are criticising.
“What might be a way of turning Northern Rock into a mutual that would not involve ripping the taxpayer off? ”
Is that not the real question?
Why don’t they just post shares to everyone, pro rata to how much income tax they’ve paid this year?