A UK troops set for Basra handover ...
Bad weather delays tourist return ... consortium led by the Virgin group was leading bids to run the beleaguered bank, while a management buyout had also been considered.

But ministers have decided that nationalisation - the first such move since the 1970s - was the only option.

"They felt that the offers on the table did not offer enough to the taxpayer," Mr Peston said.

"It's a momentous moment. Nationalisation has become a dirty word associated with industrial failures of the past," he went on.

"Financial services, by contrast, have been considered the great British success story - so for such a seemingly growing bank to end up being nationalised is a big moment for the City and a big moment for the government."

Northern Rock got itself into financial difficulties last year because its business model left it ill-prepared for the global credit crunch.

It was forced to ask the Bank of England for emergency funding, triggering the first run on a British bank in more than a century.

Job threat

UK taxpayers are now subsidising the bank in loans and guarantees to other lenders to the tune of about £55bn.

The Treasury now feels that nationalisation offers the most certainty of securing these guarantees, Mr Peston said.

The Treasury will announce its plans for the Northern Rock at 1600GMT.

It is thought that the business model it proposes will be similar to those put forward by the Virgin Group and the in-house management consortium.

These were likely to see a downsizing of the bank, with job cuts likely, observers say.

The Treasury had already recruited the former boss of Lloyd's insurance market, Ron Sandler, to lead Northern Rock, in case the bank was nationalised.

Mr Sandler is widely regarded as having restored confidence in Lloyd's after its years in financial disarray.

The former boss of Lloyd's of London is well known to Prime Minister Gordon Brown, and worked for the Treasury in developing the so-called stakeholder pension and investment products that were intended to help those on lower incomes save for retirement.

Chairman of the Treasury Select Committee, John McFall said that he welcomed the Government's decision to nationalise.

"They have explored every avenue At the end of the day the biggest issue is the safeguarding of taxpayers' money. If nationalisation saves that money, that has to be the correct step in the long term."

Have you been affected by this story? Are you a Northern Rock customer or shareholder? Send us your comments using the form below:

(BBC)

<< Back