Liberal Democrat Treasury spokesman Vince Cable has launched a stinging attack against Gordon Brown’s attempts to help a rescue of Northern Rock by using bonds backed by the government.

Cable accused Brown of “conning taxpayers” and a “cop-out” as it emerged that the Treasury is planning to sweeten hugely the terms it is prepared to offer bidders for the stricken bank.

The Treasury has started talks on proposals by Goldman Sachs, the investment bank advising the Treasury, to package up part of the £24 billion owed by Northern Rock to the Bank of England as bonds. These would be backed by a government guarantee – sold in effect as Treasury gilts.

Under the latest plan, the bonds would be offered to investors in small parcels. This could leave taxpayers propping up Northern Rock for years to come.

The government would still run a big risk because its guarantee would be backed by mortgage assets. In theory, it would have to pick up the cost of mortgage holders defaulting.

The plans are much more attractive to the two bidders, investment group Olivant and a consortium led by Sir Richard Branson’s Virgin Group. Before Christmas, the government had insisted bidders immediately repay between £10 billion and £15 billion of the Bank’s loans. Olivant and Virgin have both struggled to raise finances for their bids given the turmoil in the credit markets.

Speaking today, Cable slammed the new financing package: “Brown seems to suffer from a pathological inability to admit failure. He must not waste billions more of taxpayers’ money to save himself from the political embarrassment that would arise if Northern Rock was to be taken into public ownership.

“By underwriting Northern Rock bonds, the government will ensure that the liabilities of this bank remain the responsibility of the British taxpayer for many years to come while all the assets and control of the company remain in private hands.

“Giving a private company a free seat at the roulette wheel to gamble in a game it can’t lose at the expense of the taxpayer is surely a recipe for disaster.”

This weekend, Brown revealed the government had started detailed talks with bidders for Northern Rock, but insisted that all options, including nationalisation of the stricken bank, remained “on the table”.

Speaking at a press conference in Shanghai, the prime minister said: “Discussions have already started with private firms that are interested in looking ahead.”

Brown, who is visiting China and India, said that Alistair Darling, the chancellor, will make a statement on Monday.

Darling is expected to say that if Northern Rock were nationalised, the value of the bank would be based on what the business would be worth without the £55 billion in loans and guarantees so far provided by the government.

On that basis, Northern Rock would in effect be in administration, implying that shareholders would receive nothing or next to nothing for their shares.

The move will be seen as an attempt by Darling to force shareholders led by hedge funds SRM Global and RAB Capital, to back any deal that the Treasury can seal with Olivant or the Virgin-led group.

For much of the past week, nationalisation looked increasingly likely. However, the government is keen to avoid this if at all possible.

Branson said this weekend that he believed Virgin had a winning bid even though it had so far failed to gain the support of SRM and RAB.

Cable, who has consistently called for nationalisation, suggested the guarantees would give a private buyer the chance to make huge profits.

“As a final slap in the face for taxpayers who are on the hook for £6 0 billion, the private bidder will grab any future gains,” he said. “If Gordon Brown’s mate Richard Branson is going to become the private buyer, he will be laughing all the way to the Bank of England.”

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