"In future sales I would like to see stronger steps taken to protect affected mortgage-holders from the impact of subsequent changes to the Bank of England base rate"
Northern Rock was nationalised during the financial crisis in 2008 and, in March 2015, UK Asset Resolution publicly launched a sale of £13 billion of former Northern Rock assets.
The process was completed in May 2016 and represents the UK government’s largest ever financial asset sale.
The Committee has now raised concerns over the lack of formal business case for the sale and that alternative sale options were not valued “until very late in the sale process”.
Among its other conclusions, the Committee finds the valuations of the assets sold “erred on the side of caution and the assumptions on which they were based were not well evidenced”.
This, says the Committee, created a risk that UKAR could have sold the asset for less than its inherent worth.
The Committee also highlights that the Treasury “did not consider the tax domicile and its impact on expected tax payments of bidders during the sale”, even though these could affect the overall taxpayer value of a transaction.
The winning bidder Cerberus has a complicated company structure with companies based in the Netherlands and the Cayman Islands.
The Committee is concerned the Treasury’s approach in relation to tax put UK domiciled companies at a disadvantage and recommends that when an asset is sold, the Treasury “should require departments as far as possible to discount gains from tax avoidance that may be factored into bids".
The report also found that the process used by UKAR to appoint Credit Suisse as its financial adviser for the sale "did not follow good practice" as Credit Suisse’s fee more than doubled and there was a potential conflict of interest.
Credit Suisse, which had previously advised UKAR on another sale, was selected to be UKAR’s financial adviser after a limited competition with two other firms. After Credit Suisse was appointed, when it became clear that the sale size would be larger than had been originally anticipated, UKAR agreed to increase the transaction fee from £2 million to £4.5 million without any competition.
Another concern raised was that ex-Northern Rock customers whose mortgages were sold to Cerberus are paying more for their mortgages than those whose mortgages remain with UKAR.
The 0.25% Bank of England base rate cut in August 2016 was passed on in full from 1 September 2016 by UKAR to its ex-Northern Rock customers with Standard Variable Rate mortgages. However, customers whose SVR mortgages were sold to Cerberus only received a reduction of 0.15%, from 1 October 2016.
Cerberus told the Committee that its funding model meant that it did not benefit from the base rate cut to the same extent as banks did and that as a result it could not pass on the rate cut in full to its customers.
Meg Hillier MP, Chair of the PAC, said: “Achieving value for money for taxpayers must be the driving ambition of all public asset sales. There are valuable lessons the whole of government can take from the strengths and weaknesses of the sale process examined in our Report and the Treasury must ensure these are shared.
“In particular, government must put more work into establishing and maintaining solid foundations for asset sales. We would also like to see far greater clarity around the tax implications of proposed sales and how government will address the potential impact of these on the public purse.
“There were also consequences for individuals from this sale. Former Northern Rock customers whose mortgages were sold to Cerberus are paying more for these than those whose mortgages are still with UKAR.
“In future sales I would like to see stronger steps taken to protect affected mortgage-holders from the impact of subsequent changes to the Bank of England base rate – in whatever direction these may be.”
