Darling unveils Rock rescue plans

Mr Darling will make a statement to the Stock Exchange before briefing MPs on how he wants to handle the sale.

He is to announce the £24bn given to the bank in Bank of England loans will be converted into government bonds.

The BBC understands that under the proposals, the government would end up owning part of the bank.

The plans, drawn up by investment bankers Goldman Sachs, would mean the converted government-guaranteed bonds would be sold off in small parcels to investors over a period of time.

'Element of nationalisation'

BBC business editor Robert Peston said the decision to provide such a guarantee for the bonds meant Prime Minister Gordon Brown was promising the taxpayer would finance the bank for up to five years or until financial markets recovered.

This means the risks at Northern Rock would be shared between any potential rescuer and the taxpayer.

"It looks like the British people could be billions of pounds in the red for years to come thanks to...economic incompetence"
Shadow chancellor George Osborne

"Make no mistake there's an element of nationalisation in this," our correspondent said.

He added that he expected Mr Darling to say that the government may end up owning a "piece of the Rock" and that the Chancellor would be the one to take the final decision on any rescue plan.

The government was forced to take action on Northern Rock after the leading suitors for the bank, Sir Richard Branson's Virgin Group and Olivant group, led by former Abbey boss Luqman Arnold, could not raise enough funds due to the current global credit crunch.

'Mishandled'

Shadow chancellor George Osborne accused Mr Brown of "mortgaging the taxpayer to try to get him out of the political hole he's dug for himself".

"It looks like the British people could be billions of pounds in the red for years to come thanks to his economic incompetence," he said.

Vince Cable, the Liberal Democrat treasury spokesman, said the Northern Rock crisis had been "dreadfully mishandled" by the government.

"This is not a private sector solution. The private sector isn't taking any risks. It is the taxpayer that is taking all of the risks," he said.

Northern Rock became Britain's most high-profile casualty of the global credit crisis when it ran into trouble in September last year.

It was forced to go to the Bank of England for a cash lifeline when money markets seized up, as it was no longer able to raise the required funds to run its mortgage business.

It has been given about £26bn of Bank of England emergency loans, but with government guarantees to savers and other lenders, the total aid package underwritten by the taxpayer comes to more than double that.

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