A bank by any other name

WHEN the once-unthinkable finally happened, there was a weary inevitability about it. In the six months since Northern Rock's cash dried up and it turned to the central bank for help, would-be rescuers of the stricken mortgage lender had fallen one by one by the wayside. By the time Alistair Darling, the chancellor, announced on February 17th that Northern Rock was to be nationalised, only the Sunday timing was unexpected. And for all the party-political outcry that erupted on the news, there was little doubt that Parliament would pass a law bringing the bank into public ownership.

The truth is that there was never much chance a private-sector buyer could be found willing and able to get the bank on an even keel and to repay the government promptly its £55 billion ($108 billion) in loans and guarantees. So two things are interesting now. The first is what sort of fist the bank's new managers will make of things (see article). The second is how much damage his reluctant decision to nationalise it will do to Gordon Brown, the prime minister.

For nationalisation is, in the New Labour lexicon, the economic policy that dares not speak its name. The very word summons up the dark days of the 1970s, when Labour presided over failing state-owned firms and bitter strikes, and was then voted out of office for 18 years. The party's right wing fought for decades to expunge nationalisation from the movement's creed, but not until Tony Blair was leader did they manage to ditch the commitment to “common ownership of the means of production”. Labour politicians of Mr Brown's generation particularly are scarred by the experience; economic policy during his time as chancellor was resolutely market-oriented.

Now his opponents are keen to use Northern Rock to show that the chancellor's economic management is not all it is cracked up to be, and to suggest that Britain is backsliding. The Tories call Northern Rock “Labour's Black Wednesday”, recalling their own humiliation in 1992 when sterling was ejected from the European exchange-rate mechanism and the Conservative government's reputation for economic competence torpedoed. They cite Mr Brown's delay in deciding the bank's fate as another sign of his propensity to dither, a charge he has been unable to shake since he allowed prolonged speculation over a snap election last autumn. Yet so far voters are having none of it.

As polling conducted for The Economist by YouGov shows, the Tories do not seem to have gained from Labour's woes. Only 5% of people blame the government for Northern Rock's difficulties; over a third think its handling of the crisis has been fair or good (see chart). And critics say the Tories' own response has been shrill. Conservatives pretend to believe that this view does not resonate beyond parliamentary sketch-writers and other denizens of the Westminster village—but only a fifth of voters say the main opposition party would have handled the crisis any better than the government. Almost two-thirds think the Tories are playing politics by opposing nationalisation; their own proposal—putting the bank into administration by the Bank of England and winding it down—is not all that different.

By common consent, the only politician to have emerged from the Northern Rock saga with much kudos is Vince Cable, the Liberal Democrats' Treasury spokesman, who impressed as the party's caretaker leader before Nick Clegg was elected to the job in December. An economist by background, Mr Cable was among the first to suggest that public ownership was the “least worst” option for the bank.

But although Mr Brown and his team have escaped harsh popular censure, the belated decision to nationalise Northern Rock has nevertheless wounded them. For this is not their only economic woe. Mr Darling has been forced into embarrassing retreats on the taxing of capital gains and non-domiciled residents; next month's budget is expected to bring bad news on growth and inflation. And Northern Rock echoes the government's own profligacy: the Conservatives note the irony of an insolvent bank being “rescued” by a government with a budget deficit of around 3% of GDP. The Tories have enjoyed for some time now a small but steady poll lead on the issue of economic competence.

The biggest problem for the government, however, is that Northern Rock is likely to remain a thorn in its side for years to come. Few expect the bank to be sold before the next election, which is due by May 2010, and a steady drip of bad news could continue until then.

Many of the bank's staff work at its headquarters in the north-east, a Labour heartland. Though Mr Brown and Mr Darling have been at pains to stress that Northern Rock will be run at arm's length from the government, they may not be able to escape blame for tough decisions, such as job cuts and home repossessions. These will be especially unpopular against the backdrop of well-remunerated managers and interested parties: Ron Sandler, Northern Rock's new boss, will earn £90,000 a month, and Goldman Sachs, an investment bank, and Slaughter and May, a law firm, are among the advisers that will get fat fees for their counsel.

However ominous the symbolism, Britain's first nationalisation for a generation has not killed Mr Brown's government in the way that Black Wednesday finished the Tories. But it could prove one of the thousand cuts that do.