Parliamentary Committees and Public Enquiries
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Lessons for whole of Government from successful assets sell-off

The Public Accounts Committee report says that the Treasury should review lessons learned from the sale of former Northern Rock assets and ensure these are shared across government.

Report findings

In a new Report, the Committee concludes there are "many positives" from the sale but identifies areas for improvement, "particularly during the preparation phase".

The Committee recommends that the Treasury "should conduct a post-sale review for this, and all other major sales, setting out lessons learned and ensure these are shared across government to increase corporate finance knowledge and skills".

Northern Rock was nationalised during the financial crisis in 2008 and, in March 2015, UK Asset Resolution (UKAR) 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.

Lack of formal business case for the sale "concerning"

The Committee finds UKAR "took advantage of good market conditions and strong investor demand" to sell loans to the value of £13.3 billion; the transaction was completed within a tight timeframe, and competitive tension between bidders was achieved.

However, the Committee is concerned by the lack of formal business case for the sale and that alternative sale options were not valued "until very late in the sale process".

It urges the Treasury to ensure formal business cases are produced for every asset sale, to include a timely valuation of all potential sale options, and that business cases be updated throughout the sale process.

Risk assets could have sold for less than inherent worth

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.

Winning bidder has "complicated company structure"

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.

HM Treasury should also produce unambiguous guidance, for both selling departments and potential bidders on if, and how, tax will be taken into consideration as part of a sale or a contract award."

Chair's comments

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."

Report summary

UK Asset Resolution (UKAR) took advantage of good market conditions and strong investor demand to sell £13.3 billion of former Northern Rock loans in the UK government's largest ever financial asset sale.

The transaction was executed successfully within a tight timeframe. Competitive tension between bidders was achieved resulting in a final price that was slightly more that the outstanding value of the loans sold.

While there are many positives from the sale there are also areas for improvement particularly during the preparation phase: there was no formal business case for the sale bringing together in one document all the information needed to make critical decisions; the potential value of alternative sale options was not quantified before the transaction began; and the financial adviser was selected without an open competition.

HM Treasury should also have done more to consider the wider implications of the sale by scrutinising the impact on customers and tax revenues more thoroughly.

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