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News, gossip and insight from PoliticsHome Editor Paul Waugh

Why the Treasury feeling isn't mutual

George Osborne certainly livened up a slow news day with his announcement that he was selling off Northern Rock to Virgin Money.

But why, despite all Steve Hilton's emphasis on the Big Society and David Cameron's warmth towards 'co-ops', wasn't it turned into a mutual? 

Well, I'm told that the only 'credible' mutual bid came from a private equity company. Politically, that wouldn't have gone down too well and Treasury officials also estimated it would have cost taxpayers more hundreds of millions. It's curious that another building society didn't make a proper offer and maybe we will learn details of that later.

Yet the main obstacle to mutualisation was probably the Treasury's institutional conservatism. 

Soon after Northern Rock was first nationalised in 2008, some Treasury ministers began to lobby Alistair Darling to turn it into a mutual. Sarah McCarthy-Fry and TSC chairman John McFall (both members of the Co-Op Party) led the way and Ed Balls was warm to the idea too.

However, I'm told that Darling decided not to push ahead with any plans because Treasury officials were not keen. Civil servants knew only how to nationalise or privatise, they had no rulebook or expertise in this curious halfway house of mutualisation.

Having come through many late nights in the financial crisis, the then Chancellor trusted his officials and went with their judgement. Darling was of course innately cautious too. One possible extra complicating factor was that because Balls was in favour and Darling knew Brown wanted him installed in the Treasury, the Chancellor dug in even more.

Another reason mutualisation wasn't pushed was because Darling's special adviser Geoffrey Spence was very lukewarm. Spence had a banking background, but in a bank not a building society and was unconvinced.

Eventually, Gordon Brown came on board to get the idea of mutualisation Northern Rock into the party manifesto.  A certain Ed Miliband and Patrick Diamond managed to get the PM to support it. 

Before the last election, the Conservatives made great play of plans for a 'People's Bank' with 'people's bonuses'. Yet this summer it became clear that Osborne was heading for privatisation.

In fact he made a speech on the topic just a week before officials were due to explore again a possible mutualisation model. The meeting was academic given Osborne's clear direction of travel.

And so today we have Virgin Money as the big winner. There's lots of talk about creating a genuine high street rival to the big banks, but we'll see if that materialises.

One thing that really ought to give the Chancellor pause for thought is Richard Branson's record when he tags his brand onto a business.

Tom Bower has repeatedly pointed out that Branson is the last person you would want to run Northern Rock or indeed any other state enterprise.

The Chancellor is known, like many Tories, to be a keen student and admirer of Bower's book on Gordon Brown.

I wonder if he (or his Treasury officials) has read Bower's even more scathing tome, 'Branson'...?

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