Is the Rock Virgin territory?

Branson is a shrewd businessman and there are advantages to his acquiring Northern Rock. But the pro

Sir Richard Branson has long had a reputation as a maverick. Though he regularly tops polls of the public for Britain's favourite business person, he is viewed with caution by the financial establishment. It is only relatively recently that his achievements have received government recognition - with a knighthood in the 2000 New Year Honours and membership of Gordon Brown's high-level business group earlier this year.

At times, Whitehall has had an allergic reaction to any Branson exercise. He was twice thwarted in attempts to run the National Lottery. In sight of victory in 2001, he was denied a licence by the chairman of the National Lottery Commission, the former Treasury mandarin Lord Burns. Branson threatened to seek a judicial review, but retreated amid the flood of publicity surrounding the serialisation of Tom Bower's critical biography.

Given the difficulty his People's Lottery had in winning the support of the Lottery Commission, it seems odd that the very same businessman has now emerged - from a crowded field of expert financiers with experience of turning around failed banks - as a preferred buyer of Northern Rock. It may well turn out that the Branson bid was no more than a hare set loose by the Treasury and its investment banking advisers, to tempt rival bidders to make better offers. This is now happening.

But it is my distinct impression that, despite the City scepticism that greeted Branson's publicity-fuelled intervention, the Virgin offer was always a favourite.

For a government up to its neck in the economic mire, ranging from the row over the proposed single-rate capital gains tax of 18 per cent to the disastrous loss of child benefit data disks by HMRC, the Virgin Money rescue looked like manna from heaven.

It ticked most boxes. Shareholders, including an estimated 150,000 private investors, would be able to keep an interest so there would be no parallel with Railtrack (when the government refused to worry about "grannies losing their blouses"). Rather than shrinking the business and adopting a more realistic model, Virgin Money talks enthusiastically about creating a new force on the high street.

Critically, this would mean saving the 6,500 or so jobs, many of them in the north-east, a Labour heartland where 28 out of the 30 parliamentary seats are in government hands. Aside from rebranding the existing branches and accounts, the Northern Rock model would remain intact.

Virgin would seek to strengthen the balance sheet through a rights issue of shares to existing investors and has come up with £10bn or so of commercial funding, which would replace around one-third of the existing £29bn of taxpayer funds. Branson has also given an air of respectability to his offer by recruiting the former Lloyds TSB veteran Sir Brian Pitman, regarded as Britain's most brilliant banker of modern times, to be chairman.

So what is the downside? Most serious is whether Branson, who never managed to win the support of the Lottery authorities, is a "fit and proper" person to control a bank. Branson, to be fair, has accumulated a fortune, largely through two great business coups: the sale of Virgin Music Group to EMI and the sale of half his long-distance carrier Virgin Atlantic to Singapore Airlines. Between them, these two deals alone netted the entrepreneur more than £1bn.

But, within the opaque structure of the Branson empire, the world is largely clueless as to where the money really lies. Ownership of his operating companies is hidden in a complex network of subsidiaries that can be traced back to the Virgin Islands. Profits, losses and assets move among these companies stealthily.

When the music occasionally stops and accounts of parts of the empire are lodged at Companies House - invariably reporting losses - protests are lodged by Branson's cohorts arguing that what has been seen is only a partial picture. That is because the larger landscape is a Turner-like haze.

One thing is certain. When Branson lends the "Virgin" brand to an enterprise, it is never an altruistic exercise. In the case of the Rock, Branson is asking for an annual licence fee of up to £10m a year, as well as demanding that the government/Rock covers his advisory fees. A similar licence fee was paid when Branson injected Virgin Mobile into the NTL cable company to create Virgin Media.

This is no doubt shrewd business practice. But a rescuer for the Rock who demands such privileges also needs to be thoroughly scrutinised. Savers and borrowers need to have trust in a bank, particularly one that has been in the wars and is supported by massive government loans.

Ceding control to Virgin Money - just because it limits Labour's political exposure - is not an acceptable outcome. There is now recognition that it must be a more thorough and open process.

Alex Brummer is City editor of the Daily Mail

This article first appeared in the 10 December 2007 issue of the New Statesman, How New Labour turned toxic