Nationalising Northern Rock will damage Brown, warn Tories

Damage: PM Gordon Brown

George Osborne said taking a major bank into public ownership would shatter the Prime Minister's reputation for economic competence.

The Shadow Chancellor seized on signs that Downing Street is ready to authorise an emergency takeover of the ailing company in the New Year if plans for a sale fall apart.

It would mean rushing legislation through the Commons in a day, but would require the support of the Tories, who have so far refused to say if they will go along with the plan.

Mr Osborne said: "Every week, the Government's indecision on Northern Rock does more damage to Britain's economic reputation and puts more taxpayers' money at risk.

"Nationalisation would be a monumental failure on the part of the government."

With the global credit crunch intensifying, City experts predicted that Virgin and investment firm Olivant, which are vying to buy Northern Rock, will find it impossible to borrow the money and will have to pull out.

Chancellor Alistair Darling is still intent on securing a private sale but acknowledges that nationalisation may be necessary.

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Number Ten confirmed yesterday all options were being kept open.

Tory credibility on the economy was destroyed when John Major's Government threw away billions of pounds in an unsuccessful attempt to keep the pound in the European exchange rate mechanism in 1992.

Michael Fallon, the Tory deputy chairman of the influential Commons Treasury Committee, said: "This is their ERM.

"This will shatter forever the idea that Gordon Brown is a competent manger of the economy. His reputation will be in tatters."

Northern Rock has borrowed about £25billion from the Bank of England in emergency funding since being hit by the credit crunch in September.