Virgin Northern Rock

George Osborne has sanctioned the sale of Northern Rock to Richard Branson’s Virgin Group claiming this represented ‘value for money’. Taxpayers exit some £400m poorer, so it would appear Branson has acquired ‘value for money’. The Virgin consortium allegedly plan to raid the business of its own cash in order to pay for the purchase” then “hope to sell out a few years down the road” or “buy it cheap, strip it of asset” then “flog it dear” (chief investor, American financier Wilbur Ross).

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Richard Branson is claimed to keep himself in homes in Holland Park and Necker Island by taking taxpayer subsidies and operating heavily protected businesses. After all, you don't get much safer than a small mortgage lender that's had all its rubbish assets taken off it by the Treasury, in a market where the big banks are keeping their eyes down and their fingers crossed. Think about the great Branson triumphs and you'll see what I mean. Virgin Rail? A monopoly on the West Coast main line, complete with initial subsidies worth hundreds of millions. Virgin Radio and Virgin Mobile? Both granted government licences to operate in a heavily restricted market. Virgin Airlines? The beneficiary of regulators' decision to strip British Airways of landing slots between London and New York and award them to the number two player. Again, a closed market where Branson has tried to keep the door shut tight against further competition.

Despite all the awards and the cosy relationships with whoever's in Downing Street, the Virgin boss neither makes anything, nor changes anything. He's no radical. The Northern Rock purchase is typical of his style: he fronts up a deal where the real money tends to come from someone else (in this case, an American and an Abu Dhabi investment firm), slaps the Virgin name everywhere and then cashes out as soon as possible. Branson isn't an entrepreneur; he's a carpetbagger.

Early in Tom Bower's splendid biography of Branson, there is a scene in which he is giving a Millennium Lecture at Oxford University in November 1999. The "lighthouse for enterprise" is asked what his great hope is for the new century, and a hush falls over the audience. What might he say? Were this Bill Gates, a picture would be painted of a software revolution. The head of Nissan might summon up a vision of Africans and Asians gaily driving about in cheap new hatchbacks. What does the bearded visionary have in mind? "To run the national lottery." A government-gifted licence to get his brand name plastered everywhere - the sort of thing Branson is always after.

But here's the thing: in his desire for sheltered money-makers, the Virgin boss differs from the rest of British business only in his desire for publicity. Look at our household names: take out retail, banks and commodities and the things you're left with bear names such as Wessex Water or Centrica or Arriva. In other words, they do things the public sector used to do – pump water or pipe gas or lay on public transport. Alternatively, they're outfits such as Serco, or Capita and they're bidding for contracts from the government; or they're engineers bidding for PFI projects. Now look at the big names in America or Germany: there are firms such as Google or Siemens.

Over here much of the private sector isn't adding anything or innovating - indeed, it's tricky to do that when you're running an administrative office or supplying water. They're simply taking contracts and cutting staffing costs. This is a picture of lazy British business, either seeking business from the state or the protection of sheltered industries. And yet if you listen to the Conservatives, the problem with the economy is that the labour markets are too heavily regulated. No 10 lets it be known that it's taking seriously ideas to scrap laws around unfair dismissal, so that employees can be sacked without explanation. The implication of all this is that Cameron and Osborne think the workers are to blame for the malaise of the British economy. Look at the Northern Rock deal, however, or flick through the business pages, and the opposite appears to be the case: it's business that needs to be prodded into working harder.

A fair amount of nonsense was talked yesterday about the Northern Rock deal, most of it from the two parties involved. George Osborne was touting the sale of the first casualty of the credit crunch as "value for money". The description makes one wonder just how the chancellor approaches his own Christmas shopping. The Newcastle bank had £1.4bn of taxpayer money pumped into it, and its main part is now being sold for £747m, which with time and luck might rise to £1bn. However one holds this deal up, it still represents a loss to the state. Even if everything goes to plan (a big if, given the state of the financial world), taxpayers have just handed over £13 each to the billionaire Virgin boss Richard Branson. They, rather than the chancellor, can judge whether that is a bargain.

The second dollop of nonsense came from Virgin Money chairman David Clementi, who said the change of ownership would create "a significant banking competitor in the UK". Not with 70 branches it won't. Northern Rock was always a small regional player – part of what led to its downfall was Adam Applegarth's desire to vault into the banking premier league. Since nationalisation, the Rock has shrunk its business and halved its staff. It is hard now to see the institution troubling the Big Four high-street names. Indeed, so concerned was John Vickers about getting more serious competition into the banking industry that he proposed putting the Rock together with the 2,500 branches to be disposed of by the engorged Lloyds-HBOS. That would have been an imaginative way of breaking up Britain's retail-banking oligarchy; this is not.

What yesterday's deal emphatically is, however, is a very curious one. Why was the news sprung now? The chancellor did not explain. How far did the government and its bank-holding agency UK Financial Investments explore alternatives such as turning the Rock back into a mutually owned building society? Again, the voter is left none the wiser. That is so even though the voter is also the taxpayer, who also has yet another alias as the selling stockholder in this venture – and thus a powerful reason for wanting to know what is going on with their investment. The distinct impression left is of a chancellor a bit short of good news and cash pushing through a deal that provides a little giveaway fund for this month's autumn statement. This may be wrong, of course, but the sudden haste with which Mr Osborne has acted, and the murk that surrounds this decision, is puzzling. It is all rather reminiscent of another recent chancellor big on tactics and short on strategy, a certain Gordon Brown. This matters because the coalition had a chance here to try to reshape the banking sector – to make it more diverse, perhaps, or simply more competitive. What it has opted for instead is business as usual. True, ministers will rightly argue that they had little option – that the previous Labour government mandated UK Financial Investments simply to return the maximum amount to the taxpayer. But it does not augur well for how the government treats its much weightier stakes in Lloyds and RBS.

For Mr Branson this really is a sweet deal: he finally gets the prize he has been coveting for years. Arguably, the dessert is all the sweeter for the waiting. When Virgin first sniffed around Northern Rock three years ago, it was a chain of high-street branches with a massive bad debt around its neck. In the intervening period, public officials have taken away the bad debt and tidied up the company. Mr Branson gets a prettified bank, which he can now rename Virgin. He can also play the part of bearded white knight, which is always the tycoon's favourite role. Banking customers and the staff of Northern Rock can only hope that Mr Branson's latest venture does not go down the same inglorious route as Virgin Cola, Virgin Cars and Virgin Brides.

Aditya Chakrabortty claims we have built Virgin on the back of "taxpayer subsidies and [by] operating heavily protected businesses" (Is Richard Branson all he's cracked up to be?, G2, 22 November). This is, of course, complete garbage – 99% of our businesses have nothing to do with government at all and have been built in the face of ferocious competition. His article is vicious, claiming: "This is a picture of lazy British business." This is an insult to our 50,000 wonderful staff. In an attempt to prove his thesis, he writes: "Virgin Radio and Virgin Mobile? Both granted government licences to operate in a heavily restricted market." Let's take each in turn. When we entered the mobile phone sector, as a direct result of the fact that we had not been granted any government licences, we used our skills to innovate and launched the world's first ever mobile virtual network operator by piggybacking on other people's networks.

Virgin Radio was awarded a licence to operate – but on AM, which was by no means ideal when fighting for audience share with the major players on FM. A national FM licence we fought for but were never awarded. Regardless of that huge disadvantage, we went on to build an extremely successful radio station. As for Virgin Airlines, I wish the regulator had "strip[ped] British Airways of landing slots between London and New York" and awarded them to us. Sadly, not true. All three of our airlines have had to compete in fierce marketplaces.

On the issue of Virgin Rail  - where we did win a highly competitive bid to run the west coast mainline? - we have (more than) doubled passenger numbers from 14 million to 30 million and, far from receiving subsidies, we now pay more than £100m a year to the taxpayer.

Chakrabortty continues with a personal attack, saying: "The Virgin boss neither makes anything, nor changes anything. He's no radical." We happen to be building spaceships. I may not be but the people who work for Virgin certainly are. They have shaken up industries as diverse as music, transportation, leisure, health, financial services, mobile telephony – all for the benefit of the consumer. Chakrabortty's vitriol persists when he claims my vision was to run the National Lottery so I could get my "brand name plastered everywhere". Our bid to win the franchise was in fact a wholly not-for-profit organisation called The People's Lottery. As it turns out we – controversially – had our winning bid overturned, reducing the profits for good causes.

He concludes: "It's business that needs to be prodded into working harder." The team at Virgin Money are not afraid of hard work – they have built 3 million customers from a standing start against fierce competition, and in the future we expect to receive the same fierce competition from the major high street players. Alongside the incredible staff of Northern Rock, the Virgin Money team will work tirelessly to turn around a loss-making bank, return more money for the taxpayer, and offer UK consumers a different and better banking experience.