Northern Rock to be nationalised

The government is to unveil legislation today for the nationalisation of Northern Rock.

Trading in the troubled mortgage lender was suspended this morning as the firm was prepared to be taken into public hands, after chancellor Alistair Darling deemed neither private sector bidder – the Rock board or Virgin Group – could offer sufficient value for money for the taxpayer.

Mr Darling said yesterday: "A temporary period of public ownership better meets our objective of protecting taxpayers.

"So the government has therefore today decided to bring forward legislation to take Northern Rock into a period of temporary public ownership."

He added Northern Rock would be "open for business as usual" and savers' and depositors' cash would remain safe and secure.

Mr Darling said the bids from Virgin and Northern Rock itself failed to provide value for the taxpayer as the level of subsidies needed would be too high.

"By contrast, under public ownership the government will secure the entire proceeds from the future sale of the business in return for bearing the risks in this period of market uncertainty," he said.

Responding to the decision, Sir Richard Branson said: "All of us in the Virgin consortium are very disappointed that the government has chosen to opt for nationalisation.

"We were very clear the business plan we put forward was robust, conservative but ultimately capable of rescuing the interests of all stakeholders. However, we must accept the decision with good grace and hope that the Rock will somehow find better fortune in the future."

Conservative shadow chancellor George Osbourne has now called for the government to wind down Northern Rock, so the taxpayer can see cash returned.

He said: "This is the day when Labour's reputation for economic competence died. Gordon Brown has dithered his way to the disaster of nationalisation. Now the taxpayer will bear the full risk of lending £100 billion of mortgages in an uncertain housing market."

"We will not back nationalisation. We will not help Gordon Brown take this country back to the 1970s."

The Liberal Democrats have welcomed the decision to nationalize Northern Rock.

"Belatedly the government has made the right decision," said Liberal Democrat shadow chancellor Vince Cable.

"There will be difficult times ahead, especially for the employees, as the bank is downsized. However, there is now hope for the long-term future of the bank when it is eventually sold in more satisfactory conditions."

The new head of Northern Rock – former Lloyds of London head Ron Sandler – is heading to Newcastle today.

An independent valuer will deem how much compensation shareholders will receive.