Lord Harris of Peckham's long-running plan to take his Carpetright empire private lay in tatters last night after the retail veteran scrapped his £850million buyout and blamed the credit crunch.

The Carpetright founder and chief executive said he had been left with no choice but to abandon the deal after months of negotiations given the “accelerated deterioration” in the credit market.

He said that despite the buyout team's best efforts it had been impossible to secure funding on “satisfactory terms”. Carpetright shares tumbled 18 per cent, or 188p, to 880p.

The move comes less than a fortnight after Lord Harris told The Times that he was confident the acquisition would go through by the end of January.

At the time, the 65-year-old dismissed fears of the effects of a slump in consumer spending, stating: “This is a market we like to be in.”

Lord Harris has been in formal talks with the Carpetright board about a buyout priced at £12.50 a share for the past two months. He first admitted that he was considering a move in June.

In a short statement yesterday Lord Harris said: “The senior management team of Carpetright has devoted a significant amount of effort in recent months towards formulating its proposal and I am disappointed that, due to external market conditions, we are unable to proceed. I now look forward to focusing on the continued growth of the business in the UK and Europe in the new year.”

Lord Harris had been working with both Royal Bank of Scotland and HBOS on the deal. An HBOS spokesman refused to comment.

The fallout from the credit crunch has already caused New Look to cancel a planned auction this year.

Last month Peacocks, the fashion retailer, said that it may be forced to postpone plans for a refinancing until next year.

While the market for debt-financing has essentially closed, the high street has also suffered from a marked slump in consumer spending in the run-up to Christmas. Two weeks ago Carpetright reported lower than expected half-year results and said like-for-like sales in the UK and Ireland were down 3.4 per cent.

Industry experts believe that it could take until well into the second quarter of next year for any deals to be done despite constant speculation surrounding Woolworths and Debenhams.

Lord Harris was adamant that a move into private ownership would help Carpetright to expand far more quickly than on the stock market, given the added burden of quarterly reporting and operating in the public eye.

“Every six weeks I have to think about what I'll be saying to the City in six weeks' time,” he said, adding that he said he envisaged returning to the stock market in three to five years' time.

Lord Kirkham took the DFS sofa chain he floated back into private ownership three years ago.

Lord Harris began his retail career 50 years ago when he inherited a market stall and two shops in South London at the age of 15.

He floated Carpetright in 1996 and the business now comprises 600 stores with a presence in European countries including Belgium, the Netherlands and Poland. His personal fortune is estimated to be at least £300million.

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