Blog: Lloyds deal holds key to recovery

There is, so they say, no such thing as a free lunch. When you want something you pay for it in one way or another writes business editor Thom Kennedy.

So when Northern Rock was sold to Virgin Money in a deal which left the taxpayer £400million out of pocket, I for one was willing to let that shortfall slide because of the knock-on effect of having another lender willing to inject capital into the economy.

Now we're facing some familiar territory as the government continues to dispose of the banking assets the nation acquired at the height of the financial crisis in 2008.

The Co-operative Bank's acquisition of more than 600 high street branches has left the government looking a little like it just traded its best cow for a pocket full of magic beans.

The banks' sale was expected to bring in a £1.5billion windfall for the nation, but instead, it has been sold for a down payment of only £350million.

Okay, in time that could eventually bring in £750million, but I don't think I'd be alone in feeling that in a time when the country is reducing its borrowing, maximising income against assets is one of the least painful ways to do that.

The hope, if you'll allow me to draw out the comparison a little further, is that the magic beans will eventually grow into a beanstalk, at the top of which is a goose that lays golden eggs.

Virgin has already committed to doubling its mortgage outlay, and when many high street lenders are more reluctant than ever to hand out money to either individuals or businesses, that comes as a welcome relief.

The Co-op's bank has a reputation for being one of the most customer friendly on the market - no surprise given its genesis as a customer driven entity in Rochdale in the late 19th century. If it can spread that ethos across a business which will account for an impressive 10 per cent of high street banking, then the consumer is onto a winner.

If lending for businesses and individuals increases, more money circulates in the economy, and the country can finally pull its feet from this treacly bog of a recession through which we are endeavouring to wade.

Much as we have probably been sold short on the price we have been paid for this huge swathe of assets from across Britain's high streets, it's almost nice to see the government take a gamble to get money injected into the economy.

It was important to get so many high street banks into the hands of an enthusiastic lender, even if it came at a cost of immediate capital.

But one has to wonder why the government thinks it right to dispose of an asset when it is not maximising its value, but is not willing to toss the dice when it sees the rest of the country struggling so badly.

If the £750million the treasury has missed out on is considered to be a small hit to help the rest of the economy get moving, surely it's time to increase the central authority's own spending. That deficit won't come down on cuts alone, only by generating wealth across the country, and that's going to require investment.

Today's news shows that there is room for manoeuvre if it is for the good of the economy as a whole.

Let us hope it is a lesson that is heard in the corridors of power.