Alistair Darling will today introduce emergency legislation to nationalise Northern Rock after abandoning a five-month search for a private buyer for the stricken bank.

Gordon Brown signed off the decision to mount the first national-isation in modern times of a major high-street bank yesterday afternoon, adding a £90 billion liability to the Government’s balance sheet.

The Chancellor, who will make a Commons statement today, insisted that the decision to reject bids from Virgin Money and a management buyout had been taken to protect taxpayers’ interests.

However, Mr Darling now faces the prospect of almost certain legal action from shareholders, who could have their investments rendered valueless.

Such a court case could lead to the emergence of embarrassing details, such as why the Chancellor decided not to allow an early rescue attempt for Northern Rock by its high-street rival Lloyds TSB.

Mr Darling sought to place the best gloss on the decision, insisting that it had been right to explore the option of a private sale and right to reject it once it became clear that taxpayers would bear most of the risk but see little of the profit.

The Chancellor, desperate to avoid another run on the bank, said that it was “business as usual” and added that government guarantees to protect depositors’ cash remained in place. The mortgage lender already owes taxpayers £25 billion, but its total liabilities have been assessed at £91 billion, for which the Government is responsible.

Mr Darling repeated his pledge that every penny of taxpayers’ cash would eventually be repaid. He refused, however, to say when he expected the bank to return to the private sector.

Ron Sandler will become executive chairman of the bank and be paid an initial £90,000 a month for his services. He will be assisted by Ann Godbehere, a Canadian accountant and insurance executive, who is to be paid £75,000 a month. Mr Sandler, the former chief executive at Lloyd’s of London, flies to Newcastle today to begin talks aimed at “contracting” the business before a sell-off. He refused yesterday to rule out job losses at the bank, which employs more than 6,000 people.

Privately, senior government advisers say that it is expected to be years before market conditions will allow a sale.

The political impact of a Labour nationalisation was immediate as George Osborne, the Shadow Chancellor, promised to oppose the emergency legislation in Parliament. “This is the day when Labour’s reputation for economic competence died,” he said. “Gordon Brown has dithered his way to the disaster of nationalisation. Now the taxpayer will bear the full risk of lending £100 billion of mortgages in an uncertain housing market. We will not back nationalisation. We will not help Gordon Brown take this country back to the 1970s.”

Vince Cable, the Liberal Democrat Treasury spokesman, who has long argued for nationalisation, said: “Belatedly the Government has made the right decision. This is the option the Liberal Democrats have argued for from the outset, unlike the Tories who have no alternative to offer.”

Sir Richard Branson said: “We have tried our best to save the Northern Rock and the jobs of the staff. We put all the resources of Virgin’s senior management team on this for five months and we believe had a very strong proposal, an experienced team and one of Britain’s best brands. We believe nationalisation is not the right answer and that a commercial solution would have been the best way forward.”

Well-placed sources have told The Times that senior government figures cooled on the bid by the Virgin Money consortium after it failed to improve its offer. Ministers feared that they would face accusations that they had sold the bank too cheaply if, in six months, the entrepreneur had turned its fortunes around. It also feared that the proposed sale would be blocked by shareholders.

Bankers said last night that nationalisation was likely to result in Northern Rock eventually being broken up and sold off in pieces, rather than as a going concern. To avoid giving it an unfair advantage over its high-street rivals, the nationalised bank will not be able to actively seek new customers, so will slowly decrease in size until the only bidders likely to be interested in it are private equity firms who buy individual books of mortgages but have little interest in running a viable regional bank.

Shareholders will find out today the identity of an independent assessor who will determine what compensation they will be paid for their investment.

Mr Darling brushed aside questions on the possibility of litigation yesterday but made clear that the valuation will be of the bank without government support.

Robin Ashby, founder of the Northern Rock Small Shareholders’ Group, was also critical. He said: “I am shocked and appalled that the Government has decided to do this. It’s terrible for Britain’s reputation as a financial centre and bad news for the shareholders having the bank stolen away from them.”

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