Northern Rock could cost taxpayers £2bn, National Audit Office warns - Telegraph.co.uk

"Amidst the serious economic turmoil of 2009, it was a reasonable to create Northern Rock plc to support mortgage lending. No alternative was likely to have been significantly better.

"But the Treasury committed itself before looking in detail at the possible consequences for the taxpayer," Mr Morse said.

The report said that the alternative to the split of selling the deposits and closing down the business was unlikely to have been significantly better in financial terms for the taxpayer and would not have delivered mortgage lending. Lending by Northern Rock plc was more than 20pc of all mortgage lending during 2010 and 2011, it said.

The report concluded that the eventual sale process was handled well by UK Financial Investments, a Treasury body. At the time Labour had called for the sale to be delayed to allow further consideration.

A Treasury source said: "It was Ed Balls who called for this investigation yet it concludes that while Labour were over-optimistic in their assumptions and did not conduct proper due diligence when acquiring the Rock, the Coalition's decision to sell NR last year was taken at the right time and delivered the best value for taxpayers."

The NAO said participants described the sale process ran by UKFI as transparent and fair.

"Competitive tension was maintained and, in the final negotiations, UKFI improved the overall offer from Virgin Money," the report said.