The rescue of the embattled Northern Rock could cost the taxpayer millions of pounds, thrusting the Chancellor, Alistair Darling, into the spotlight once more over his handling of the banking crisis.
As 21 per cent was wiped off the bank's share values, Mr Darling came under sustained fire in the Commons yesterdaywhen he faced Opposition accusations of "incompetence and weak leadership" in the management of Britain's first run on a bank for nearly 150 years.
George Osborne, the shadow Chancellor, said Mr Darling's job was "on the line" as the Chancellor made a statement to the Commons. Brushing aside the criticism, Mr Darling said the Government would have a veto over any rescue plans for the mortgage lender, which sought emergency funding from the Bank of England in September.
Treasury officials said that "nationalisation" of Northern Rock had not been ruled out, but signalled a buy-out was the preferred option. Vowing to protect the interests of both taxpayers and savers, a defensive Mr Darling refused to admit how much taxpayers' cash was at risk, although he did deny reports that it could be as much as 500m. "The sum concern is nothing like that," he said. "It is a very small amount of money."
In a statement yesterday, Northern Rock said the rescue proposals it had received from various companies were all "materially below" the market value. Senior Treasury officials, however, did not deny the sum at risk could run into hundreds of millions of pounds. The money is owed to the taxpayer for interest at penalty rates on the 24bn loan provided by the Bank of England to prop up Northern Rock because of its exposure to sub-prime loans in the United States.
The Treasury has not made any loans to the bank but it has demanded the interest payments which could be at risk. The bank's share value plummeted after the Newcastle-based lender revealed it had received bids from would-be suitors including Richard Branson's Virgin group which were "materially below" the value of the company. …