There are several types of loans available. To name just a few: unsecured loans, secured loans, car loans and debt consolidation loans.

A loan is a type of credit – and therefore it must be repaid. Repayments are usually made on a monthly basis, and will continue until the loan (plus any interest) has been repaid.

Unfortunately, at a time like now, many people are finding repayments particularly hard to make, whether it’s because they’ve suffered a drop in income or because their essential expenditure has risen.

Help with your payments

However, there is help available. This help could come in the form of budgeting advice – in other words, advice on how to manage your finances more successfully.

Budgeting is all about managing, controlling and understanding your finances. It involves keeping track of your income (the money you receive/earn) and your expenditure (the money you spend).

• Your total income should include everything your household receives/earns: salary, benefits, grants, etc.

• Your total expenditure should include your priority debts and essential costs of living: your mortgage/rent, your utility bills, secured loan payments, etc. It should not, however, include the cost of servicing your non-priority debts (unsecured loans, credit cards, etc.).

By subtracting your total expenditure from your total income, you will be left with your disposable income. This is the money you can use to service your non-priority debts each month and (if you have anything left) to save and spend on non-essential goods and services.

If your disposable income is not enough to cover the cost of servicing your loan/debts, then you should take immediate action. You may wish to start by contacting a professional debt adviser.

A report by the Institute of Economic Affairs found that stimulus measures pursued by Western governments in response to the economic crisis did not work.

Shadow Chancellor Ed Balls has repeatedly called on the Government to soften its deficit reduction plans and embark on a ‘Plan B’, which would include more public spending in an attempt to boost growth.

But the institute’s study said Plan B would be disastrous for the British economy, and that all Western economies needed drastic fiscal and tax reform if they were to overcome their sovereign debt crises.

Mark Littlewood, director general of the Institute of Economic Affairs, said: ‘We must resist the calls of those who say that one last, big spending push could get the economy back to meaningful growth.

The opposite is true.

‘Many Western economies might well be tipping back towards recession partly because of these giant fiscal packages that were enacted in 2009, and the coalition Government must resist calls for any Plan B that involves more government borrowing and spending.

‘The Government must be firm on deficit reduction – in fact it should go a lot further, and should look to robust supply-side reform to boost growth.’

The study concluded that the negative effect of Labour’s stimulus package in 2009 might even be being felt now, and that the UK might be experiencing faster growth if Labour had not increased spending.

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Maybe not its total evaporation, but certainly shrinkage with peripheral or weak countries falling off the currency’s map and in all cases, according to the experts, with a heavy price to pay.

Analysts agree that no country would emerge unscathed, at least in the short term. As for the long term? Well, few even dare to imagine the fall-out.

In the view of London-based Capital Economics, even a limited re-drawing of the eurozone’s borders, with the exit of the bailed-out trio of Greece, Ireland and Portugal over the next two years, would trigger a drop in eurozone gross domestic product (GDP) of 1.0 percent in 2012 and 2.5 percent in 2013.

That would equate to the same sort of economic contraction endured between 2008 and 2009 following the financial crisis triggered by the collapse in the US home loan market.

In a recent note to investors, UBS bank calculated that if a “weak” euro country like Greece gave up the currency it would cost every man, woman and child there some 10,000 euros (more than 13,000 dollars) each in the first year, and thousands more over the adjustment period.

Even a “strong” country like Germany would see a loss of between 6,000 and 8,000 euros per head in year one — between one quarter and one fifth of the country’s annual economic output.

According to Jens Nordvig of Japan’s Nomura Securities, Germany’s currency would rise against the dollar, but Greece would lose 60 percent of its money’s value. Italy, Spain or Belgium would lose around a third each.

While scope for exports would improve, debt restructuring on that basis would mean a dramatic rise in borrowing costs for those governments who write off the most.

National banking systems would collapse, experts say, due to a loss of confidence in the value of the currency that replaced the euro.

This isn’t rocket science panicking over hard-earned savings, experience shows citizens pull out what they can and flee while companies would struggle to raise investment capital.

If the economy stopped functioning normally, there would then be the threat of widespread social unrest. Germany, meanwhile, would lose export business due to a rising national currency and also the emergence of new, cheaper European competition.

It would be no different in the event Italy or some other big eurozone economy left.

Jacques Cailloux, a Paris-based economist with the Royal Bank of Scotland, told AFP that were France to exit the eurozone, Germany would suffer because “its banking system would be staring at exposure to French banking debt worth some 200 billion euros”.

US banks would be looking at 10 times that amount, Cailloux added ominously. Looking further down the line, Capital Economics believes prospects for ex-eurozone economies “may be improved by the ability of (these) former member states to set their own policy and allow their currencies to fluctuate.”

Wages would not have to drop under a devaluation, while suddenly a bottle of ouzo would not cost as much for others to import, for example.

“It’s hard to put a price on it, but clearly it would mean a huge cost, if not quite apocalyptic,” Cailloux said of the price for even partial eurozone break-up.

British banks and Asian-based multinational companies are already engaged in prudent contingency planning for the worst-case scenario.

And as Cailloux says, the problem is “everyone is going to have to plan for this eventuality, that’s the issue for 2012″.

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According to the recent report by Standard Life “Your Commitments, Your Future”, UK credit card holders have been making £3,804 in payments during the course of a year, and spend around an hour a week thinking about their payments.

Contrast this to the nation’s savers, who manage to put away just £1680 during the year and spend an average of 24 minutes thinking about their savings.

Standard Life’s research discovered that over 40 years monthly savers will manage to put away £67,200 – equivalent to about £140 a month – while credit card holders will pay £152,160 or £317 a month, a difference of £84,960. However, overall there are less savers than are adults paying off their cards, 44% compared to 51%.

John Lawson, Standard Life’s head of pension policy, said: “Obviously paying off any credit card debt you have should always take precedence over savings.

However our research suggests that people are not thinking about their savings and ISAs as much as they could be, even though it’s our savings and investments that can prevent us from falling into debt in the first place.

Savings also help us feel more confident and financially secure about our future commitments. People are clearly thinking a great deal about their credit card payments, more than their savings.

But what we don’t know is if they are in a position to take control of their balance or simply worrying about a debt and how they are ever going to pay it off.”

“People always find it hard to set priorities, particularly when times are tough. Some consumers may be using their credit cards really effectively, paying them off each month and not splashing out when they really can’t afford to.

But if people are running up credit card debt, paying this off obviously has to become a priority, before savings and ISAs.

If they are spending over £152,000 on their credit cards on average, there’s a strong chance that some of this money could be better managed and invested for the future.”

A spokesperson for Scottish Debt Solutions Company, Trust Deed Scotland, doesn’t agree. “The government recently announced that the economy had ground to a halt and the retail sector is depressed with little growth.

This doesn’t tally with the idea that shoppers are spending nearly £4,000 a year on the high street. To my mind, what these figures say to me is that people don’t have enough money to save and invest and may have resorted to paying for basic bills using credit cards.

Otherwise we’d be seeing an upswing of the economy and retailers benefiting from all this credit card action.

“In truth, there’s a very good chance that the figures we are seeing are coming from some 6.2 million households who have been classified by the Financial Inclusion Centre as financially vulnerable with 3.2 million already in financial difficulty.”

Speaking in New York late on Tuesday, chief executive Vikram Pandit said that the bank has already made $1.4bn in savings this year but needs to respond to slow markets by reducing costs further.

City A.M. understands that the cuts in the Europe, Middle East and Asia (EMEA) region involve six per cent, or 99 staff of its 1,600 capital markets front-office staff being laid off.

That is in addition to cuts in investment banking and mid- or back-office roles, which are said to be in the several hundreds.

Those made redundant will have to clear their desks this week after notices yesterday and today.

They will get at least three months’ pay with potential for more and the possibility of stock options being paid out.

Citi has said the cuts will produce a one-off cost of $400m. They will fall across numerous divisions within capital markets, including equities, fixed income, sales and trading.

Those familiar with the bank said that equities is likely to be hit hardest because it has escaped being cut as much as fixed income so far.

Overall, Citi has about 10,000 staff in London and 267,000 globally, which means the cuts announced on Tuesday amount to two per cent of its headcount, with Europe likely to take larger cuts than others.

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The banking giant faces a total payout of £40million in fines and compensation, following the five-year savings product sales campaign by one of its subsidiaries, NHFA.

The Financial Services Authority said the bank ‘inappropriately’ advised 2,485 customers to invest in ‘unsuitable’ investment bonds between 2005 and 2010.

NHFA sold victims the bonds to fund their care. Typically, these invested in the stock market and required that investors commit their money for a minimum five years.

However, in a number of cases investors had a life-expectancy shorter than the period of the bond. This caused many bondholders to redeem their investments before the bond matured, triggering capital shortfalls and penalty charges.

The victims were elderly, with an average age of 83, and were either about to enter, or already in, long-term care. In many cases these elderly customers were reliant on the investments to pay for their care.

The FSA estimates NHFA customers will be paid a total of £29.5million in compensation.

HSBC has apologised for what happened at NHFA, which closed for new business in July, and reassured affected customers that they would be contacted within weeks.

A review by a third party of a sample of customer files found unsuitable sales had been made to 87 per cent of customers involving these types of investments, with the total amount invested in the period hitting £285million, the FSA said.

The watchdog said NHFA, the leading UK supplier of independent financial advice on long-term care products to help pay for care costs, had not considered the individual needs of its customers and failed to recommend suitable products.

The failings were deemed significant as the customer base was particularly vulnerable and a high number of customers suffered financially, with the average amount invested per customer coming in at £115,000.

Tracey McDermott, acting director of enforcement and financial crime, said NHFA, which had a 60 per cent market share in recent years, was trusted by its vulnerable customers.

She said: ‘HSBC, who owned NHFA, has now recognised the issues and taken steps to do the right thing. They have been given credit for that – but for some customers it will be too late.’

NHFA was acquired by HSBC in July 2005 and, until May 2010, was separately authorised and regulated by the FSA. NHFA sold investment bonds through their families or representatives in the majority of cases.

The products were single-premium life assurance contracts, under which a lump sum was invested for the customer until the bond was either cashed in or until the death of the last life assured.

Brian Robertson, HSBC Bank chief executive, said – ‘I fully accept that NHFA failed to give suitable financial advice to some of their customers. This should not have happened and I am profoundly sorry that it did.

We have high values here at HSBC and this runs contrary to everything that we stand for. That is why when we suspected something was not right at NHFA, we took action. We advised the FSA of our findings and closed NHFA to new business.

We are undertaking a full review of the advice given to impacted customers and I can guarantee that every customer who is found to have not been treated fairly will not be disadvantaged.

At this stage NHFA customers do not need to contact us. We will be contacting them directly during the coming weeks with the aim of putting things right as quickly as possible.

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The Living Earth Simulator Project (LES) aims to ‘simulate everything’ on the planet, using anything from tweets to government statistics to map out social trends and predict the next economic crisis.

Using vasts reams of data fed into the internet, trends can be spotted by analysing information with ‘the world’s most powerful computers’.

The man behind the idea has billed it as a ‘nervous system for the planet’, while academics have backed it as a replacement for current outdated economic models.

Professor Dirk Helbing, one of the leaders of the project at the Swiss Federal Institute of Technology in Zurich, told the Sunday Times: ‘The idea is to gather live information from a huge range of sources and then analyse it using the world’s most powerful computers.

Many problems we have today – including social and economic instabilities, wars, disease spreading – are related to human behaviour, but there is apparently a serious lack of understanding regarding how society and the economy work.

Professor Helbing said the LES would be able to predict the spread of infectious disease such as Swine Flu, identify methods for tackling climate change and even spot an impending financial crisis.
It would be filled with huge swathes of data, which would be assembled as-yet-unbuilt supercomputer hardware capable of data analysis on a mammoth scale.

Around 30 leading computer science centres worldwide have already pledged their support for the supercomputer, including three in Britain.

Oxford University, University College London (UCL) and Edinburgh University have also formed the FuturICT consortium to help push ahead with plans for the project.

The European Commission has also put the Living Earth Simulator at the top of its shortlist for £900m in funding.

However, the plans to recreate the entire world in a complex computer system have drawn criticism from some science experts who see the project as too ambitious and unrealistic.

Iain Begg, professor of European Studies at the London School of Economics, told the Sunday Times: ‘The complexity of the world is simply too great. We cannot even model the weather for more than a few days.

The social domain, people’s behaviour, is even harder to analyse, because social trends are not just complex, they also change with time.

We have to be sceptical as to whether even the most powerful computers could cope with it. The current economic crisis and eurozone meltdown was not foreseen by the financial models which most policy-makers use.

But the Living Earth Simulator Project would pre-empt such a disaster, which is why it has been given support by the European Commission. Supporters of the supercomputer idea say the need to forecast another worldwide economic crisis is greater than ever.

Steven Bishop, professor of non-linear dynamics at UCL’s mathematics department, who is a key figure in the Living

Earth Simulator project, said: ‘The modern banking system may have more disasters waiting to happen but they are buried in complexity, just as happened with the crisis of sub-prime mortgages.

We would hope to find the precursors of instability and disasters and maybe do that in time for politicians to stop them happening.

The only time a similarly ambitious computer scheme has been dreamt up was in The Hitchhiker’s Guide to the Galaxy, where the satirically-created Deep Thought spent 7.5million years pondering the ultimate question of life, the universe and everything.

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France is fighting desperately to retain its ‘triple-A’ credit status and has slashed spending and tightened up on tax revenues in an effort to stabilise its strained public finances but the markets are not convinced.

“Last week, the difference in yield between French and German 10-year government bonds breached 200 basis points, a euro-era record amid increased economic and financial market uncertainty in the region,” Moody’s Investors Service said.

“Elevated borrowing costs persisting for an extended period would amplify the fiscal challenges the French government faces amid a deteriorating growth outlook, with negative credit implications,” it said in a website statement.

Even though the spread between German and French borrowing costs has since narrowed slightly, France still pays “nearly twice as much as Germany for long-term funding.

“With the government’s forecast for real (gross domestic product) growth of a mere 1.0 percent in 2012, a higher interest burden will make achieving targeted fiscal deficit reduction more difficult,” it said.

The agency, one of the top three credit-rating groups, said “the domestic and external economic growth outlook presents significant downside risks.

“The French social model cannot be financed if the French economy’s potential is not preserved,” it said, adding that managing the eurozone debt crisis only makes the government’s task harder.

The crisis “will influence the value and credit quality of sovereign assets on French banks’ balance sheets and affect their funding costs and capacity to lend and bolster the economy,” it said.

At the same time, Moody’s said that despite the deterioration in the debt profile and the potential for increased costs, the rating level itself appeared safe for the moment.

The problems facing France were highlighted again on Monday as the financial markets faced fresh turmoil, finding no support in a right-wing government winning power in Spain and fearful that efforts to reach a bipartisan deal to tame the massive US debt were about to fail.

If the Washington talks do fail, as most feel is now likely, then the US debt problems would take centre stage, compounding the eurozone crisis.

Analysts in Paris said Moody’s warning was hardly surprising, highlighting the difficult situation France and the eurozone face as the crisis saps confidence and encourages investors to seek out safety at all costs.

Moody’s statement highlights the fact “that France no longer deserves its triple ‘A’ rating,” said Laurent Geronomi at Swiss Life Gestion.

“The markets are going even further and wonder now when France is going to lose its triple A — before or after the (May 2012 presidential elections,” Geronomi added.

President Nicolas Sarkozy, lagging in the opinion polls, says he will do everything possible to ensure France keeps its top rating.

The stakes could not be higher.

“France is caught up in the contagion spiral,” said Frederik Ducrozet, bond strategist at Credit Agricole.

“The government can announce all the austerity measures it likes but the country is trapped now in a vicious circle,” he said.

Edward Hugh, an independent economist based in Spain’s Catalonia, warned that until Germany, Europe’s paymaster and largest economy, puts up the money to back weaker eurozone states, “this is not going to stop.”

Paris faces a real problem, Hugh said. “The French banking system has 400 billion euros’ exposure to both public sector and private sector debt in Italy … so if anything happens to Italy, France has gone.” – AFP.

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Many aspects of the property and mortgage market have been encouraging in recent months, with Barclays relaunching into 90 per cent mortgages and Nationwide improving its availability of high loan to value (LTV) loans.

The story over the summer was one of improving mortgage rates and more competition in the market that was providing more opportunity for borrowers to make savings, says David Hollingworth from mortgage brokers London & Country.

Landlords have been rubbing their hands with glee over rising rents and lenders have been getting on board. The volume of buy-to-let mortgages has jumped by 16 per cent in the last quarter, according to the latest figures from the Council of Mortgage Lenders (CML), totalling 34,500 in the three months to September and marking its highest level in three years.

Nottingham Building Society currently offers a deal at 4.19 per cent, albeit with a hefty £1,299 fee, fixed until February 2014 for borrowers with a 25 per cent deposit. In one recent move in the buy-to-let market, Woolwich improved the maximum LTV it would offer to wannabe landlords to 75 per cent.

However, Mr Hollingworth says the trend for ever cheaper mortgage rates is one that is on the turn, and points to rate changes this week from Nationwide, Woolwich/Barclays, Skipton and ING.

Although lenders have been seemingly more competitive, he reminds homeowners that the amount of lending in the market has not increased and could fall back a little depending on how the eurozone pans out.

“The continued problems in the eurozone have resulted in an increase in funding costs for lenders and that is feeding through to the mortgage products in the UK,” says Mr Hollingworth. “Some may have come down a little but these tend to be the exception to prove the rule.”

New CML statistics also show that the number of loans dipped in September. There were 48,200 loans taken out for house purchase in September (worth £7.1bn), down 2 per cent on August, although up 3 per cent compared with September 2010.

For remortgaging, there were 34,200 (worth £4.3bn), representing a 1 per cent decline the month before, but a 25 per cent uplift on a year ago.

For anyone wanting to remortgage now, the experts say that this could be the ideal time to switch to a fix. Fixed-rate mortgages offer protection against future rises in interest rates anyone looking for security should act now.

“Several lenders have increased their rates in recent days, often with little or no notice at all, and I expect this to continue,” says Andrew Montlake from mortgage brokers Coreco. “With this in mind it seems that we have now passed the lowest point in the current interest rate cycle and it does seem sensible to look at locking into a rate now.”

He argues that even if the situation begins to settle and more competition returns to the market, it is still highly unlikely that rates will come back down below the current levels.

“The potential upside of rates getting lower is a small one, while the downside of rates getting ever more expensive once more is much larger and there are many, who feel they have ridden their luck long enough,” says Mr Montlake.

Even with no indication that we will see an upward movement in base rate soon, fixed rates still look appealing. Top deals include the 2.89 per cent fix (until November 2014) from Yorkshire BS at 75 per cent LTV with a £495 fee and for first time buyers (FTBs).

Skipton is offering a 95 per cent LTV deal costing 5.99 per cent until January 2014 with a £195 fee, and HSBC has a fee-free 4.89 per cent loan at 90 per cent LTV, fixed until January 2017.

Helen Adams from FirstRung Now.com has concerns about the future for new homeowners. Deposit demands are still a huge hurdle but this week first timers may have had some good news in the shape of Clydesdale and Yorkshire offering attractively priced mortgages with as little as 5 per cent deposit, at a rate of 5.49 per cent fixed for three years, with a fee of just £599 (although this rises steeply to 6.12 per cent for 95 per cent LTV loans). However, Ms Adams predicts that things could soon turn sour.

“I foresee more hesitancy from lenders towards FTBs,” she says. “The trend for parental help will continue. My advice: keep your head down, tighten your belt and save. You never know what’s round the corner.”

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Despite repeated assurances that the public purse would not be left out of pocket, the Treasury today confirmed that Sir Richard Branson’s company would be buying the firm at a knockdown price.

The Government has injected an estimated £1.4billion into the Newcastle-based bank since it was taken into public
ownership in February 2008 following its near collapse.

Chancellor George Osborne said that the sale represented ‘the best deal for taxpayers’, even though ministers had been hoping that Northern Rock would eventually make a profit for the State.

It is second time lucky for Virgin Money, which failed in a bid to buy the bank following its collapse in 2007.

The proposed acquisition, which gives Virgin a presence in the mortgage market for the first time, includes 75 branches and 2,100 staff, one million customers, a £14billion mortgage book and retail deposits worth £16billion. Virgin Money, which was founded in 1995, currently has around three million customers.

At the time the bank was nationalised, the Labour Government predicted that taxpayers would profit from the deal by selling Northern Rock at a higher price than they had paid for it.

In 2009, then Prime Minister Gordon Brown said: ‘At the end of the day banks will be paying money to the British public, not the other way round.’

But under the Virgin deal, which is expected to go through on 1 January 2012 – subject to regulatory approval – the State will lose at least £400million and potentially as much as £700million.

It was in 2007 that rumours that the bank was struggling to fulfil its obligations triggered huge queues outside its branches from customers trying to withdraw desposits, and threatened a bank run.

After its State takeover, Northern Rock was split into two parts, a solvent ‘good bank’ and a ‘bad bank’ which took on the company’s riskier liabilities, totalling around £21billion which taxpayers may never get back.

Only the ‘good bank’ will be bought by Virgin Money, the financial services group which is part of Sir Richard Branson’s business empire.

The ‘bad bank’ is still owned by the Government, and is unlikely to be sold on – even though it has in fact been turning a reasonable profit.

The operational headquarters of the new combined business will be in Newcastle, while Virgin Money has pledged no further compulsory redundancies beyond those already announced for at least three years.

Virgin Money chief executive Jayne-Anne Gadhia said the deal would create a ‘major new competitor’ in the UK retail banking sector.

She added: ‘The two businesses complement each other well and together they will create a strong bank with over four million customers.’

The deal comes at a time of high volatility in the banking sector as businesses struggle to react to the continuing debt crisis in the eurozone.

Mr Osborne said there would be a ‘powerful new presence on the High Street’ which would offer ‘real choice and competition’.

He added: ‘It’s also good for British taxpayers – we are getting some of the money back that we put into the banking system under the last government.

‘And it’s also good for the north-east of England, because we are seeking to protect jobs there and make sure that the headquarters of Virgin Money will be in Newcastle.’

He added that the Treasury had taken independent advice on the deal and looked carefully at all the figures.
‘It was clear to us that this was the best deal for the British taxpayer, we were getting more money back than any other deal on the table,’ he said.

But Mark Field, the Tory MP for the Cities of London and Westminster, said: ‘I’m very concerned about whether we are getting really good value as taxpayers for this. There has to be a sense that Richard Branson has got the deal he was craving four years ago for a song today.’

He said the poor price ‘doesn’t augur well for the huge stakes we hold in RBS and the Lloyds Banking Group’, saying that if these were hived off by the state on similar terms the taxpayer would lose ‘tens of billions’.

Deputy Prime Minister Nick Clegg insisted the sale was ‘good value’ for taxpayers despite leaving them at least £400million out of pocket.

Speaking at the Science Museum in London, he said: ‘The strong recommendation made to us was that this was the best value for taxpayers.

‘Of course we have an overriding duty to provide good value for taxpayers, that’s what we have sought to do through that decision.’

In selling Northern Rock back into private hands the Treasury has had to weigh up the benefits of a quick sale, securing much needed cash for Government coffers, versus holding out for an upturn in the economy and a profit on its bailout cash.

Estimates of the value of the ‘good’ bank at Northern Rock were around £1.5billion when the lender was divided up 18 months ago. A sale at that level would have recouped the Government its bailout money plus a £100million profit.

However, the economic picture has deteriorated in that time, making a profit from any sale far less certain.

David Buik, markets commentator at stockbroker BGC Partners, said – the sale price is a little less that the £1.5billion that many expected 18 months ago.

However in the current climate a bird in the hand is worth two in the bush. It also gave the Chancellor an opportunity to tell the aggrieved public that he was creating a more competitive environment for banking.’

Shadow chancellor Ed Balls welcomed news of the sale, but suggested that the Government could have secured a better deal if it had waited longer before selling off the bank.

He told BBC Radio 5 Live: ‘It was definitely right to take Northern Rock into public ownership in 2008 to stop a catastrophe, and it is good news it is now going back to the private sector.

‘We will need to look at the details. Given the original money put in from the taxpayer was £1.4 billion, we are going to get less back, we’re going to have a loss here.

‘There is a question for the Chancellor as to why he had decided to sell this bank now rather than at a later stage – would that lead to a smaller loss or a even a profit?’

Mr Balls added that the money from the sale should be used to repay some of the national debt, rather than a tax cut
for high earners.

But Mark Hoban, Financial Secretary to the Treasury, insisted the deal came at the right time.

The judgment we reached was that it was best to sell Northern Rock now, that holding onto it for a few more years wasn’t going to realise an increase in value for the taxpayer.’

He said today’s sale ended uncertainty over the bank, ‘removing a huge shadow’ from staff.
Co-operative Party general secretary Michael Stephenson claimed it was ‘a bad deal for the future of Northern Rock’.

He said: ‘George Osborne has missed a real opportunity to return the Rock as a new mutual, which would have signalled the Government had learnt crucial lessons from the banking crisis.’

Virgin Money is backed by Wilbur Ross, a billionaire Wall Street investor, as well as an Abu Dhabi investment fund.
Virgin reportedly pipped buy-out vehicle NBNK, which is led by Lord Levene and former Rock chief executive Gary Hoffman.

The American private equity firm JC Flowers was also reported to be involved in the auction process. Virgin currently offers credit cards, savings and investment products and general insurance products but no mortgages.

It employs around 500 people in Norwich, Edinburgh and London. Sir Richard said UK banking needed some fresh ideas and an injection of new competition.

He added: ‘Virgin has a history of entering new sectors to improve service and provide value for customers. We plan to do the same in banking.’

The Government will receive £747million on completion and a further £50million within six months. An additional £150million will be realised in the form of a financial instrument, while up to £80 million will be paid if the business is sold or floated in the next five years.

This could take the total proceeds for the Treasury to more than £1billion. Today’s disposal excludes Northern Rock Asset Management, which remains under Government ownership and holds a book of residential mortgages and unsecured loans.

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