Northern Rock

My right honourable friend, the Chancellor of the Exchequer (Alistair Darling) has made the following Written Ministerial Statement. As I have previously announced, continuing to support Northern Rock will require the approval of the European Commission under state aid rules. On 5 December 2007, the European Commission announced that it had authorised, under state aid rules, the Government's package of measures to support Northern Rock. Also in line with the rules, the Government were obliged to notify by 17 March 2008 a restructuring plan for Northern Rock. Accordingly, the Government yesterday formally notified the European Commission of their proposals to continue to provide state aid to Northern Rock to support a restructuring of the company during the period of temporary public ownership. The board of Northern Rock is today setting out in general the future direction of the business during the period of temporary public ownership. The company will submit a final business plan to HM Treasury for approval by the end of March. Thereafter, I will report to the House further. I have placed in the Library of the House a copy of the statement issued today by Northern Rock. This sets out the basis for the removal of Government support through the creation of a smaller, more focused, financially viable mortgage and savings bank, which will be returned to the private sector. On this basis, the Government's state aid notification sets out that Northern Rock's future will be based around four strategic priorities: contracting to a smaller, sustainable business through a reduction of around half in the asset base by 2011, while maintaining a modest level of new loan origination; progressive repayment of the Bank of England loan and release of the Government guarantees over the next three to four years, while increasing the level of retail deposits modestly to form a larger share of total funding; restructuring the organisation and its operations so that these are aligned to the business objectives. The company's initial assessment is that this will involve staffing levels falling by around a third by 2011, with the majority of the reduction likely to occur in the first year. The final figure will depend on the business plan ultimately adopted, and the evolution of the business in the light of market and economic developments; and strengthening risk management in key business areas. Northern Rock has said that it is committed to doing all it can to communicate openly with staff and provide the best possible support through the changes ahead, including working closely with UNITE and other employee representatives. The bank proposes to provide outplacement services to help affected staff find alternative employment in the region, working closely with local agencies. The Government are mindful of the impact on the employees of this important regional employer and will support the implementation of the plan. To help those people affected I have asked the chief executive of the Regional Development Agency, One NorthEast, to lead the Government's response. One NorthEast has already begun constructive discussions with Northern Rock and will work with local authorities, Jobcentre Plus, Business Link NorthEast, the Learning and Skills Council and Northern Rock's management to co-ordinate the Government's support for those involved. As set out in Budget 2008, the Bank of England financing arrangements for Northern Rock will remain in place for an interim period, and will be replaced by a direct Treasury loan over the course of 2008-09. The Government will set out the arrangements for the repayment of the loan when the business plan is finalised. The existing Government guarantee arrangements remain in place. Depositors' money continues to be safe and secure. I will continue to keep the House informed and will report further when the business plan is completed.