After months of dithering in which repeated attempts were made to sell Northern Rock to someone – anyone- willing to take on the stricken bank, Darling has announced that it is to be nationalised.
The problem for Darling is that the decision leaves the Government facing years of litigation from angry Northern Rock investors. Any legal case would be led by the two hedge funds, SRM and RAB Capital, which invested about £150m for a 20 per cent stake in the bank when rescue seemed a possibility, albeit at a distressed price. Unfortunately for the hedge funds, the paper value of that stake is barely £80m.
Then there is the question of how to deal with thousands of angry Northern Rock employees who now face being made redundant as the bank cuts back its operations. Newspaper reports have spoken of 6,000 employees, yet as recently as 2003 there were only 3,500 staff. As the bank turns its back on its ill-conceived homeloan operation, it is inconceivable that it will maintain those staffing levels.
Finally, what about savers and borrowers? A few weeks ago, it was announced that Northern Rock had finally managed to halt the outflow of funds by savers who were refusing to trust the bank with their money. It is impossible to say whether there will be massive queues outside its branches all over again but one thing that is unlikely to continue is its ability to offer staggeringly high rates of interest guaranteed by the Government.
As for mortgages, how will other lenders react if Northern Rock were to offer market-leading rates to customers?
What we are about to see is either Northern Rock in run-off or its customers placed in limbo for a few years until the bank has repaid its debts to the Bank of England. If it were my money, I would be looking for a new home for it right now. If it were my mortgage, as soon as any special deal ends, I would be looking for a new lender.
The problem for Darling is not only that he has messed up completely with Northern Rock. Nothing before or since then has convinced anyone that he is the right person to be Chancellor.
The most difficult part of being promoted into a high powered job is facing up to the challenge of how to be better than the previous incumbent. For Darling, the challenge is greater in that the person he replaced was Gordon Brown.
Not only does he have an incredibly tough act to follow but Darling appears to have been unable to answer two simple questions – why did the tripartite regulatory system, involving the Treasury, the Bank of England and the FSA, fail so spectacularly in the case of Northern Rock and why did it take him a full weekend last year before guaranteeing that all savers’ money would be safe?
As news broke last September of the Bank of England’s emergency loan, queues of customers formed outside Northern Rock branches to withdraw their savings. Critics argue that Darling should have acted far sooner.
This is not the only botched challenge that Darling has had to face. We saw a foretaste of his panic reaction last year, when barely a week after the Conservatives announced at their party conference that they would scrap inheritance tax on all assets below £1m, Darling was forced to announce, in a pre-Budget speech brought forward when Labour harboured plans for an early general election, a doubling of IHT allowances to £600,000 for married couples.
To make matters worse, in trying to fund his IHT giveaway, the Chancellor announced that the present system of taper relief on capital gains tax would be scrapped. Instead, there will be a single CGT rate of 18 per cent from April. Earlier this year, Darling was forced into an embarrassing U-turn with a 10 per cent rate on gains of up to £1m for entrepreneurs.
Then there was the climbdown on non-doms, where the Chancellor backed away from requiring them to make additional disclosures about their income and gains from abroad, nor will his tax measures apply retrospectively.
Even if Darling manages to survive the Northern Rock row, all it would take is one or two more Tory vote-grabbing proposals, like raising the £125,000 level at which struggling first-time homebuyers pay stamp duty, and he could be forced into another U-turn.
One could argue that the Chancellor has merely been the unlucky holder of office at the time. I suspect, sadly, that at a time when we need someone who is both talented and lucky, we have ended up with someone who is neither.
Nic Cicutti can be contacted at