Virgin Group's Plan to Cut Jobs At Northern Rock
This Monday marked the deadline for all interested parties in the running for the Northern Rock takeover bid to put forward their rescue plans.
Richard Branson's Virgin Group, seen from the start as the front runner, is said to have included the possibility of cutting up to 1000 jobs in their proposed plan. This comes as a complete u-turn from their initial proposal to avoid any redundancies within Northern Rock.
For fear of any job losses, should the Treasury accept Virgin's rescue proposal, the current management at Northern Rock has submitted a rival plan. Their chief executive David Baker along with union leaders has strongly criticised Virgin’s plans stating they will fight to prevent any job cuts.
"We are determined to get Northern Rock back on its feet. We are going to build up new business lines and that will go some way to mitigate any reduction in job losses." he said.
According to sources, Branson's Virgin Group has considered the job cut option because the government-backed bonds to be issued by Northern Rock have to be repaid within a 3 year period. Virgin Money boss Jayne-Anne Ghadia, set to run Northern Rock should Virgin's proposal be accepted by the Treasury, has explained how job losses would be unavoidable. Estimated job losses are expected around the 1,000 mark bringing employee figures down from 6,000 to 5,000.
She said, "We are confident we can make forward payment to the taxpayer in less than 3 years and part of that solution is reducing the size of the bank going forwards."
Last Friday the government expressed its wishes to make repayment of taxpayer's loans a priority, even if it meant putting jobs on the line. It has been made clear to all potential rescue parties that up to £40bn of Treasury-backed bonds to be issued by Northern Rock would have to be repaid between 1 to 3 years time. But redundancies that come about as a result may just put the government in an embarrassing position as any job losses would stem from financial conditions imposed by the Treasury.
The proposed solution to guarantee repayment of government-backed bonds would be to reduce the size of the mortgage book from its current £100bn plus to about £60bn. Naturally then, the smaller the size of the business the less staff it would require to service the mortgages.
However, the Unite union, the UK's largest union with over 2 million members in both the public and private sectors, has scheduled a meeting this Thursday with Virgin in order to discuss the potential job cuts. Should Virgin win the bid, the result of its proposals will have quite an impact regarding redundancies in Newcastle.
Unite's deputy general secretary Mr Graham Goddard said in a statement, "The staff of the Northern Rock bank remain their greatest asset and it is vital that all bidders recognise this."
So far the Virgin Group and the internal rival plan by Northern Rock are the two main rescue proposals that have been submitted. With regards to the investment fund Olivant, it is thought that the government's tight repayment deadline has pushed it out of the takeover race for Northern Rock.
Published on February 8, 2008
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