Nationalisation 'best option' for Northern Rock

Taking the stricken bank Northern Rock into public ownership would offer the best deal for taxpayers, the Treasury has reportedly conceded.

Although the Virgin-led consortium is apparently the Treasury's favourite buyer for Northern Rock, neither it nor the bid led by Northern Rock's management board include a sufficient stake for the taxpayer, according to reports.

The Treasury is yet to formally announce a preferred bidder, but Sir Richard Branson's consortium is reportedly the favourite option, although he has been told to improve his rescue plan.

According to the BBC, the government wants Virgin to do more in return for the billions of pounds of government guarantees in support, including a bigger stake for the taxpayer in the form of a warrant over shares.

The internal bid led by Paul Thompson has reportedly been told their proposals are significantly inferior.

Consequently, sources close to the deal told the BBC the Treasury would opt for nationalism if it was forced to take a decision today.

But Vince Cable, Liberal Democrat economic affairs spokesman, doubted whether the government ever would accept nationalisation.

He said: "I would like to believe that the government has finally seen sense and recognised that in the current market conditions temporary public ownership is the best way to safeguard taxpayers' interests.

"I fear however that the government is determined to make a private sale to Richard Branson's consortium and may just be talking tough in order to extract some last minute concessions."

Gordon Brown, who is reportedly overseeing the arrangements, is no longer said to want to avoid nationalisation at any cost.

Both the prime minister and Alistair Darling have been saying for some weeks that all options will be considered to save the troubled lender.