The government is pushing Virgin Group to pay it as much as £200m if the bidder succeeded in turning round Northern Rock within three years. Financial Times

It is negotiating with Virgin to try to extract a better deal for the taxpayer after Northern Rock’s management team was told its offer for the bank did not come up to scratch. Nationalisation is the only other option.

A key element in the talks is the fee the government is demanding for use of its guarantee, which is needed to turn the Bank of England’s £25bn loan into bonds that can be sold to investors.

The government is also demanding warrants over some of the upside in Northern Rock. It is thought that it could be pushing for the taxpayer to receive between £100m to £200m if Northern Rock was revived within three years.

The Virgin proposal is in pole position but it is being bitterly opposed by shareholders who fear it will dilute their holdings.