Rock rescue bid: Darling under fire

The beleaguered firm's massive £24 billion taxpayer debt will be split into Government-backed bonds and sold off to investors as a "back stop" to fund a private sector rescue, Mr Darling said. But shadow chancellor George Osborne said the company's loans and guarantees - totalling £55 billion - amounted to a £2,000 "second mortgage" for every family in the country to "rescue the reputation" of the Government.

Liberal Democrat Treasury spokesman Vince Cable called it a "private sector solution without private sector money" and added that the taxpayer was "being taken for a very, very big ride".

Mr Darling said the Government-backed bonds were necessary because bidders, including Sir Richard Branson's Virgin and the Olivant investment group, had struggled to raise funding following the credit crunch. He said: "In the current market conditions a purely commercial solution was not possible."

The Chancellor said a private sector rescue was preferable to administration and a firesale of the group's mortgage assets, although "not at any cost". Nationalisation is still on the table if a deal cannot be agreed.

"If it does not prove possible to secure a proposal that meets our stated objectives and conditions, it would be necessary to take Northern Rock into temporary public ownership," Mr Darling said. The Chancellor said the proposals best met the three aims of protecting depositors, taxpayers, and ensuring wider financial stability.

Northern Rock's debt will be sold off in money markets via bonds underwritten by the Government. The plans were drawn up by the Treasury's financial advisers, investment bank Goldman Sachs.

The Treasury had originally hoped that private sector bidders would be able to pay off up to £15 billion of the lender's Bank of England debts up front, with the outstanding debt to be paid off within three years.

Although the new scheme will allow the whole debt - and interest - to be paid off immediately, the Treasury guarantee means the taxpayer will be exposed to potential losses for the same period as the term of the bonds - which could be five years.

News of the plans cheered investors in the beleaguered company, whose shares soared more than 46% on a torrid day of heavy falls on the London Stock Exchange.