Leading Article: Crisis, what crisis? Brown finds the least bad solution

The speed at which things change on Northern Rock is revealing. A few days ago nationalisation, it seemed, was inevitable. Detailed contingency plans were being made, a City troubleshooter had been nominated as chairman and legislation was being prepared. Now, all that has changed. Today the Chancellor, Alistair Darling, is expected to tell the Commons that the Government intends to adopt a plan drawn up by Goldman Sachs to turn billions of pounds of state loans made to Northern Rock into bonds, which would be sold to private investors, in small parcels every few months, when conditions improve in the financial markets.

Nationalisation may well have made a lot of sense had Gordon Brown acted resolutely when Vincent Cable, the Liberal Democrat Treasury spokesman, first proposed it. But the Prime Minister let things slide with what many fear may be characteristic indecisiveness. As the scale of the crisis has unfolded – and costs on the public purse have inexorably risen – the downside of that grows. The business plan which is needed to save Northern Rock does not require the cautious approach characteristic of a nationalised industry; it requires a dynamic management regime prepared to consider a ruthless plan to shrink the business.

Such nationalisation would not go down well with Mr Brown. Not only would it involve reviving the N word – a totemic old Labour bogey he wants to keep buried as deeply as possible – it might involve downsizing in Labour's northern heartlands in a way that would be politically damaging. Headlines blaming the Prime Minister for house repossessions if the economy turns down would only make things worse for him.

Northern Rock's shareholders will not be happy whatever happens. If the bank is nationalised, they will receive next to nothing. If Sir Richard Branson buys the bank – and he is the front-runner although there are still two other contenders – his takeover proposal is fairly hostile to the interests of shareholders. However, regrettable though this is, it must be recognised that dealing in shares means shouldering a degree of risk.

Sadly, it now seems inescapable that the taxpayer is going to be involved for years, whatever happens. Nationalisation could bring a five- or ten-year entanglement. Under the latest loans-to-bonds scheme, taxpayers will have to guarantee the bonds even after they are sold, and that sell-off may take a deal longer than many suppose, given the current state of the markets.

Sir Richard, or whoever else ends up with Northern Rock, will be happy about that, since they stand to make sizeable profits while the taxpayer bears the brunt of the risk. But the harsh fact is that there is not much alternative to continued government backing. A genuinely private sector solution would only work if the insurance markets would guarantee the bonds. That is not going to happen, given the almost total breakdown of trust on the debt market.

The result means that Mr Brown will have to break his self-imposed sustainable investment rule which insists that public-sector debt must be no more than 40 per cent of British economic output or GDP. That is because the Office of National Statistics is bound to force the Treasury to include some, or all, of the Northern Rock debt on the public-sector balance sheet. He will just have to face up to that. But after the dithering and delay, and for all the justified concerns about taxpayers' continuing exposure, this is the least bad solution available to sort out the legacy of the first run on a British bank for 140 years.