Northern Rock looked certain last night to stay in public ownership until beyond the next election, after its new boss acknowledged that it would be years before the £55 billion of government loans or guarantees could be repaid or wiped out.

Amid growing expectations that Ron Sandler’s business plan for the bank would involve significant shrinkage, including big job losses and branch closures, Gordon Brown and Alistair Darling prepared to push through legislation by the end of the week for the first nationalisation in modern times of a high street bank.

The Prime Minister, at a Downing Street press conference, and the Chancellor, in the Commons, fiercely defended a move that they said was in the best interests of the taxpayer. Mr Brown said that the “soft option” would have been putting the bank into the hands of private sector bidder. He also accepted that the bank might not return to the private sector until after the next election.

But the Opposition unleashed a ferocious attack, with David Cameron calling on Mr Brown to dismiss Mr Darling. George Osborne, the Shadow Chancellor, claimed that the taxpayer was exposed to a risk of £110 billion — £3,500 for every family in Britain, he said.

Absolutely, incredibly, utterly wrong!

The Northern Rock fiasco has just started, with the Government now officially in charge

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• Sandler's plan for Northern Rock

Mr Brown insisted that Mr Sandler would have a free hand to restructure the bank, and Mr Darling made plain that Northern Rock would not be discouraged from repossessing the homes of people who fell behind with their mortgages. “They will be treated no differently from people with mortgages with other banks,” Mr Darling said.

The prospect of job losses, closures and a bank owned by the Government repossessing homes was an obvious worry to Labour MPs, particularly those in the North East, as ministers accepted that they would have to fight the election with the bank still in the public sector.

“Whether it will be our albatross no one can tell,” one said.

Mr Sandler, on a visit to the bank’s headquarters in Newcastle upon Tyne, said it would take years for the bank to pay back loans from the taxpayer. He said: “It is clearly unrealistic to talk about months. We are clearly talking about a period of some years.”

The Banking (Special Provisions) Bill, which will have its second reading in the Commons today before going to the Lords tomorrow, gives the Government general powers theoretically to take over a range of financial institutions and, for the first time, to offer help to building societies.

But Mr Darling insisted that it was intended to apply only to Northern Rock. The Bill’s powers will expire after a year, by which time the Government’s long-expected proposals for preventing a repeat of Northern Rock and a new deposit-protection scheme will have come in.

Officials said that if the Government had named Northern Rock in the Bill, rather than taken general powers, the nationalisation under parliamentary drafting rules would have had to have been be done by a private Bill, which would have taken months if not years.

The Tory leader said that the Black Wednesday crisis of 1992 — when he had been a Treasury adviser — had taught him that it was vital for the Chancellor to leave office after an “economic calamity”. “I don’t think this Chancellor has any credibility left, that’s not good for the country it’s not good for the economy,” he said.

Although the Tories will formally oppose the emergency legislation to nationalise the Rock they will not seek to delay its progress through Parliament, he said. Philip Hammond, the Shadow Chief Secretary, was briefed by Treasury officials before the publication of the Bill yesterday morning.

Mr Cameron said that the best way to protect taxpayers’ money was a Bank of England-led reconstruction. He denied that such a course would precipitate a “fire-sale” of the Rock’s assets and said that a reconstruction “can take a very long time”.

The Tory leader dismissed suggestions that his plan was nationalisation by another name. He said that there were “fundamental differences” in that the taxpayers’ exposure would be half that of state ownership and there would be no “prentence” that it was being run as a going concern.

The Conservatives have submitted a freedom of information request for Goldman Sachs advice to ministers on Northern Rock.

Mr Darling told MPs: “We could have let the bank go under. But the risks to the wider financial system, for savers and the general public were not acceptable.”

Main players in the battle over the bank

Ron Sandler: Gordon Brown’s white knight?
Sandler, 55, the new executive chairman of Northern Rock, travelled to Newcastle yesterday to begin assessing what can be salvaged from the bank. His reputation for turning around failing institutions came when he was chief executive of Lloyd’s of London when it came close to collapse in the 1990s. He told staff that his aim is to “return the bank to a more sustainable size”

Jon Wood: City obstacle to nationalisation
The founder of the hedge fund manager, SRM Global, he will be one of the biggest headaches for the Government’s plans. Sensing opportunity, his company bought into Northern Rock last autumn and is now likely to try to block nationalisation: its shares could be next to worthless. He suggested yesterday that the Government’s seizure of Northern Rock undermines the reputation of the City of London as a financial centre and is considering a legal challenge

Charles Randell: holding off the Government’s opponents
The Treasury has engaged Mr Randell, the urbane, bespectacled City corporate finance lawyer from Slaughter and May, to ensure nationalisation does not get stuck in the courts. The Government will be hoping Mr Randell, known in the City for stitching together complex financial rescues, can ensure the bank ends up in private hands. He will also be mustering Slaughter and May's large litigation department to fight off any shareholder claims

Tom Scholar: the Prime Minister’s inside man
Alistair Darling has insisted repeatedly that Northern Rock will be run at arm’s length from government. But yesterday it emerged that Mr Scholar will be on the board, only weeks after he moved from running Gordon Brown’s private office to a high-profile job in the Treasury

Richard Gnodde: the most powerful banker in Europe
The South-African born co-chief executive of Goldman Sachs International was the first person Alistair Darling and Gordon Brown turned to in the private sector when they wanted advice about Northern Rock. Having provided confidential guidance on the bid, Mr Gnoddie will have been preparing yesterday to invoice the Government — a bill that is likely to run into millions

John Kingham: the man who tried to find a private buyer
Aged 38, he already effectively holds the No 2 job at the Treasury and is tipped for a powerful future role in Whitehall. But his failure to negotiate a private buyer for the Rock may be seen as a setback after he spent weeks negotiating with potential bidders

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