If Sir Richard Branson had thought that it would be a simple mission - make bid for Northern Rock, brush all rivals aside, accept plaudits of grateful shareholders and thanks of relieved Government – he was quickly disabused.

Hurdles began to appear as soon as he had announced his audacious plans: an injection of £1.3 billion in cash in return for a stake of no more than 55 per cent in the bank, which would be rebranded as part of Virgin Money .

First, a team led by Luqman Arnold, the former boss of Abbey National, moved to secure support for its own proposal to save the Rock.

Then those whom Sir Richard was supposed to be rescuing declared that they were unimpressed with his bid. RAB Capital, one of Northern Rock’s biggest shareholders, said that it would probably oppose Virgin unless the terms improved. Other rivals, including J C Flowers, the American private equity group, are thought to be considering whether to improve their offers for the bank.

Although the Government gave Sir Richard tentative support, the Conservatives and Liberal Democrats waded in to claim that the bid was too vague and too risky, that billions of pounds of taxpayers’ money could “go up with one of his balloons”.

At least the fuss boosted the bank’s shares: having spent last week in free-fall, they soared yesterday to 24 per cent higher, closing at 110p.

Downing Street said that the offer from Sir Richard was still at “an early stage in the process”, but the Prime Minister’s spokesman said that it appeared to meet criteria set out by the Chancellor of protecting the taxpayer and the Rock’s depositors while being consistent with wider financial stability. “The Treasury has been making it clear that it backs the Virgin bid on the ground that it meets these three principles,” a spokesman said.

Any rescue deal for the Rock requires government approval, and as such it is of enormous political significance. George Osborne, the Shadow Chancellor, said that he would be watching to make sure that taxpayers got their money back. “We have said all along that we wanted the crisis at Northern Rock to be resolved by a private sale rather than nationalisation. I hope that a deal can be struck, but the primary concern in the negotiations that will follow must be the interests of taxpayers.

“We will be scrutinising any deal to ensure that taxpayers are protected and that they get their money back.”

Vince Cable, acting leader of the Liberal Democrats, said that Virgin’s offer risked leaving the taxpayer more, not less, exposed. “They [Virgin] are making very firm undertakings in respect of the secure assets and very vague claims about those that are much less secure,” he said.

“I suspect that they will run rings around the Treasury, leaving billions of pounds of taxpayers’ money at risk. There is a real risk that the rest of it will go up with one of his balloons.”

He also demanded that trading in Northern Rock shares be suspended. “It is scandalous what’s going on. There is an enormous amount of speculation going on by all the spivs and sharks in the City. Some of them have inside information. It is a false market,” he told The World at Oneon BBC Radio 4. “The small investors are potentially losing a lot of money at the expense of the hedge funds and this is not acceptable.”

It is understood that Olivant, Mr Arnold’s investment vehicle, will hold talks today with the Bank of England, the Treasury and the Financial Services Authority to try to convince regulators of the merits of its own plan. Mr Arnold turned round Abbey National before selling it to Banco Santander.

Olivant aims to pay market prices to buy a 15 per cent stake in Northern Rock and parachute in its own management experts to the ailing lender. Northern Rock’s board has assessed – and rejected – Olivant’s preliminary proposals but Olivant is still keen to be viewed as a serious buyer of the bank.

Virgin, which has valued its financial services arm at £250 million for the purposes of the bid, aims to to repay £11 billion of the Rock’s emergency borrowings from the Bank of England immediately, with a further £13 billion to be repaid by the end of the decade.

Jayne-Anne Gadhia, Virgin’s proposed new chief executive, defended the bid after it emerged that Sir Richard’s group would be contributing only £200 million of capital to the deal. She told The Times that its offer was in the best interests of all stakeholders in the bank. “We absolutely believe that ours is the best possible offer for shareholders. I can’t imagine a better one.” She indicated that Virgin had room to manoeuvre.

Michael Fallon, the most senior Conservative member on the Commons Treasury Select Committee, said that it looked as if Virgin were buying the best part of Northern Rock’s loan book, leaving the taxpayer liable for the riskiest debts. “We are in a buyers’ market but this looks a fairly rickety deal for the taxpayer,” he said.

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