£55bn taxpayers' bill to support Northern Rock outstrips education budget

Taxpayer support for Northern Rock rose to an eye-watering £55billion yesterday as Alistair Darling announced plans for new bank rescue laws.

Another day of confusion about the fate of the stricken lender saw the Government nearly double the amount it has thrown at the crisis.

More than £15billion in additional protection was offered to cover the bank's liabilities, on top of £25billion in loans from the Bank of England and the Government guarantee for the Rock's remaining deposits - estimated at about £10billion.

Treasury sources said it was difficult to put a precise figure on the total potential liability, but said it was more than £50billion - the equivalent of the education budget.

The extra cash was supposed to reassure the markets and give two potential buyers more time to finance their bids on the money markets.

But speculation that the Rock will have to be nationalised intensified as Gordon Brown, his Chancellor and the Governor of the Bank of England all left the door open to state ownership.

Mr Darling told the Daily Mail he was putting the finishing touches on a package of proposals that will allow ministers to launch an emergency rescue if another bank runs into difficulty.

He said he would beef up protection for savers, and confirmed he will overhaul regulations to allow faster decisions when trouble hits.

"We need a system that can respond to difficulties in the future and problems that arise quickly.

"We need to make the Bank, the Treasury and the Financial Services Authority more responsive and clarify the responsibilities of all three," he said.

Legislation to be published next month will include creating a crisis committee similar to the Cobra emergency management system used to tackle terror incidents and natural disasters.

Mr Darling said: 'We are in a situation at the moment where Britain has an extremely strong economy and the world economy is growing. And that growth will help us deal with the practical problems we face.'

But the Government's attempts to draw a line under the affair were hit by George Osborne, the Shadow Chancellor, who accused Mr Brown of playing politics with the fate of Northern Rock.

Speaking in China, where he is on tour with David Cameron, he claimed the Prime Minister put off decisive action that could have averted the "disaster" because he was worried about the impact on an autumn election.

He also claimed that Downing Street blocked at least two chances to sell the crippled bank.

Mr Osborne accused the Treasury of going against "strong advice" to seek a quick private sale and avoid putting billions of pounds of taxpayers' money at risk.

"They didn't sell the bank and you speak to people in and around the Treasury and Downing Street at the time and they say, for some reason, Downing Street didn't want to know, they wanted it kicked into the long grass.

"And it's pretty obvious why that was; they had a looming Labour Party conference and a General Election.

"As a result the taxpayer is now heavily exposed."

He added: "If they end up with nationalisation that is a real disaster and if they are unable to honour the guarantee that they gave taxpayers that they would get all their money back that would also be a complete disaster."

Mr Cameron said every day that the Northern Rock crisis went on unresolved did more damage to Britain's international economic reputation.

"Every day that goes by is bad for Britain's image overseas because people in financial centres are looking at Britain and wondering what's going on," Mr Cameron said.

Bank of England Governor Mervyn King told MPs that nationalisation was "not inevitable", but would not rule it out. He predicted the lender would pass ' "very quickly" on to new management and then new ownership.

Last night Mr Brown left the nationalisation option open, saying: "While we've never ruled out any option, of course our preference has been all along for a private buyer and as you know a considerable amount of discussion is already taking place that has been facilitated by the announcements that have been made in the last few days."

Two bidders - a consortium led by Sir Richard Branson's Virgin and the Olivant investment group - are vying to take control of Northern Rock, which was hit by soaring borrowing costs in August.

The lender was at the centre of Britain's first bank run for nearly 150 years three months ago when the markets where it borrowed its cash seized up amid fears over bank losses on high-risk U.S. mortgages.