Thrifty Loans

The Northern Rock fiasco looks likely to add £100bn to the national debt, and Labour’s economic competence is under question as a result.

The Office for National Statistics has given the figure – which calculates to around £3,000 for every family in Britain – to the Government, and it could mean that Gordon Brown’s golden rule is broken – the one that says that public sector debt should be no more than 40% of gross domestic product.

That debt is forecast to be 38% for 2008, but the ailing bank’s liabilities could add another £98bn, or 6.7%.

Shadow Chancellor George Osborne said: “Gordon Brown has staked his reputation for competence on meeting his own fiscal rules. Today those rules have been blown to pieces as a result of his economic incompetence. Gordon Brown has effectively saddled every taxpayer with a second mortgage.”

Chief Secretary to the Treasury Yvette Cooper said any breach of fiscal rules would be temporary and claimed that Mr Osborne was talking nonsense, saying: “’Every penny lent to Northern Rock is secured against its assets. Not a single penny of guarantee has been called in.”

Meanwhile the bank’s rescue plan is gaining support from shareholders, and it is seeking a new chairman as it looks to beat the rival bid from Richard Branson’s Virgin’s consortium. The internal management plan now has the backing of SRM Global and RAB Capital hedge funds, as well as Legal & General and Schroders.

Olivant has not been tempted back into the bidding as yet and is unlikely to do so.

Non-executive director at the bank Paul Thompson wants to minimise compulsory redundancies and pay back the government loan within three years. The Government would want to keep job losses to an absolute minimum.

Shareholders are not keen on the Virgin bid as it means a dilution of their holdings in the company