LONDON — Prime Minister Gordon Brown’s government faced accusations of mismanagement Monday as it began nationalizing stricken mortgage lender Northern Rock PLC — the first time in 20 years that a private company has been taken into public ownership.
The government repeatedly insisted a private sale was its preferred option. But after five months of intense speculation about the future of Britain’s most public casualty of the global credit crunch, Brown said that nationalization was the best choice.
The opposition Conservative Party said Britain’s reputation as a major financial services center had been dealt a serious blow.
“The nationalization of Northern Rock is a disaster for the British taxpayer, a disaster for this government and a disaster for our country,” said Conservative Party leader David Cameron.
The government’s troubles were compounded by the threat of a drawn-out legal battle with unhappy shareholders and the potential of hundreds, or thousands, of workers losing their jobs.
Brown’s reputation as a guardian of financial stability in Britain has been dented, eroding some of the plaudits he received for presiding over an unprecedented stretch of economic growth as treasury chief before becoming prime minister.
On the defensive Monday, Brown and his successor in the treasury office, Alistair Darling, disputed that Britain’s international reputation has been tarnished.
“What we don’t accept is that London or Britain has been uniquely affected by world events,” Brown said, referring to the credit troubles that swept global markets in the late summer and led Northern Rock to seek emergency funding from the Bank of England, triggering Britain’s first bank run in 150 years.
London would remain the world’s “pre-eminent financial center,” Darling added.
The government had rejected two private proposals from Richard Branson’s Virgin Group and an in-house bid from the bank’s management team because they involved too many risks for taxpayers and a very significant government subsidy.
Brown said Northern Rock will be run “at arm’s length from the government under professional management until adverse market conditions change and then the bank can be returned to the private sector.”
