38 The crisis at Northern Rock presented the Treasury, and other members of the Tripartite, with a situation that had not been experienced in recent times in the UK. The failure of Northern Rock could have had adverse consequences for the economy through its wider impact on consumer confidence. Once the initial run had started, the announcement of the initial guarantee arrangements slowed the outflow of retail deposits. It took several extensions to the scope of taxpayer support to stabilise the company. The public support protected customers and prevented the liquidity problems experienced by Northern Rock at the time causing wider disruption to financial stability.
39 The Treasury undertook a comprehensive review of a range of options for the longer term resolution of Northern Rock's difficulties. The search for a solution to Northern Rock's problems took place against a backdrop of deteriorating conditions in the financial markets. Public ownership was eventually chosen because it offered the best prospect of protecting the taxpayer from the risk that over £50 billion of public support that had already been provided to Northern Rock would be called upon or not be repaid. The analysis of options that resulted in Northern Rock being brought into public ownership was sufficiently robust. Nevertheless, the action needed to resolve Northern Rock's difficulties stretched the capacity of the Treasury to handle the complex issues involved.
40 Following public ownership, the Treasury put in place adequate systems to monitor the progress of Northern Rock in repaying the public support provided. But the Treasury did not carry out sufficient testing of the company's initial business plan. In light of an increasingly difficult economic context, additional public support has had to be provided to the company. Under the original business plan, the Treasury had expected the emergency loans to be repaid by 2010 and then to be in a position to return the company to the private sector when market conditions stabilised. Any sale and the eventual cost to the taxpayer are dependent on the company's performance in managing its existing mortgage portfolio, its future lending activities, as well as the performance of the UK housing market.