Fears that taxpayers will have to pay more for the Northern Rock bailout grew yesterday after critics attacked the government for taking on £3.4bn in extra risk because the troubled bank’s finances were far worse than previously thought.

The lender, which was nationalised in February after suffering Britain’s first bank run in more than a century, sparked anger from opposition parties after it said it was swapping £3bn of its Bank of England debt and £400m of preference shares for equity.

In effect the debt-for-equity swap means taxpayers will get the £3.4bn back if and when Northern Rock is sold into the private sector or if the bank repatriates excess capital.

Financial Times, Daily Telegraph, The Times