The Office for National Statistics has told the Government it must put the £26bn loaned to Northern Rock by the Bank of England in the national accounts.
In a move which Tory Shadow Chancellor George Osborne claims breaches Gordon Brown’s rule on keeping public debt below 40 per cent of GDP, the ONS has said the bank must be classified as part of the public sector from October 9, 2007.
This is because the public sector has the power to control the collapsed bank’s general corporate policy. While the BoE’s loan is outstanding, Northern Rock requires permission before undertaking most business activities.
The ONS estimates that Northern Rock’s liabilities total at least £90bn.
Osborne says classifying Northern Rock as a public financial corporation breaches Brown’s sustainable investment rule by raising public debt to more than 42 per cent of GDP.
He says: “Gordon Brown has staked his reputation for competence on meeting his own fiscal rules. Today those rules have been blown to pieces as a result of his economic incompetence. Brown has effectively saddled every taxpayer with a second mortgage as a result of his mishandling of the Northern Rock crisis.”
The Treasury says the situation is temporary and should have no bearing on tax and public spending decisions.
LibDem Shadow Chancellor Vince Cable says: “The impact on the national accounts may prove embarrassing but at least in the short term it ensures that the Chancellor cannot use his absurd bond proposal to hide the true impact of bailing out Northern Rock.”