Rock nationalised after peers back down

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The Independent Online

Northern Rock is set to be nationalised today after peers abandoned their last-minute opposition to the controversial move.

The emergency Bill bringing the ailing bank under state control ran into trouble last night after the Government was defeated three times in the House of Lords. Peers demanded a series of changes to the legislation, setting the scene for hours of wrangling at Westminster.

But the Lords finally backed off, clearing the way for the Banking (Special Provisions) Bill to get Royal Assent today.

Alistair Darling, the Chancellor, announced five days ago that the Government had given up its search for a private buyer for Northern Rock and had opted for temporary nationalisation. The Bill had been rushed through the Commons in just a few hours on Tuesday but came under concerted fire in the Lords.

Peers demanded that the Bank of England audit Northern Rock regularly and that the bank was brought within the scope of the Freedom of Information Act.

They also backed a call for the Office of Fair Trading to report annually on the impact of the nationalisation upon the banking market. The Government offered a compromise on the OFT demand, promising an annual report by the office on the implications of nationalisation, but otherwise stood firm.

Peers gave way after MPs overturned the three Lords defeats by large majorities.

Controversy over the status of Granite, the offshore trust to which Northern Rock sold off its most profitable mortgages, has intensified. George Osborne, the shadow Chancellor, said claims that Granite was an independent legal entity were contradicted by the bank's annual report which said the Granite group of companies were "regarded as legal subsidiaries under UK companies legislation".

But the Government replied that Granite was a "special purpose vehicle, a trust" with no claim on Northern Rock's assets.