The National Audit Office (NAO) says that the UK taxpayer could lose around £2 billion in total once the assets of bailed-out bank, Northern Rock are completely wound down.

The public spending watchdog said that taxpayers lost around £480 million when the Chancellor, George Osborne agreed to sell Northern Rock to Virgin Money last year.

However, the NAO did not criticise the sale, saying that it helped to minimise losses to the taxpayer. At the time commentators said the government should wait until market conditions improved to get a better deal and return for the taxpayer. However, a delay could also have potentially increased losses.

NAO's chief auditor, Amyas Morse, said: "A sale of Northern Rock PLC at the earliest opportunity was the best option to minimise losses on the £1.4bn of public money invested in the bank."

Northern Rock was nationalized in 2008 at the start of the financial crisis after a run on the bank, the first on a UK bank for 150 years, that at one point led to investors taking out five per cent of its assets in just one day.

The report criticises the role of the then Chancellor, Alistair Darling for failling to look at the consequences to the taxpayer.

Following the rescue, the bank was split into a retail arm that dealt with mortgages and savings and a so-called “bad bank” of sub-prime assets, titled Northern Rock Asset Management (NRAM).

In its report the NAO said that it may be years before all of the assets in NRAM are disposed of but that it believes the taxpayer is likely to emerge with a loss of around £2 billion.

The report goes on to say that it believes that loss is probably a price worth paying for preventing a banking collapse and shielding the taxpayer and wider public from even bigger losses.

The NAO report said: “It prevented a banking collapse that could have been contagious and could have led to the demise of other banks.

"This net present cost should, however, be seen as part of the overall cost of securing the benefits of financial stability during the financial crisis."

But the NAO did criticize the Treasury in its report saying that it took risks after the financial crisis over Northern Rock. The report said that the creation of Northern Rock PLC in 2009 carried risks that the Treasury did not properly assess.

Mr Morse said that the Treasury did not look at the possible consequences to the taxpayer before deciding to split up the bank. It was split on the basis of a business plan submitted by Northern Rock’s own management which was ”optimistic.”

Concluding the report, Mr Morse said Northern Rock’s “bad bank” assets will remain "in public ownership for many years to come and there could be a net cost for the taxpayer of some £2bn by the time these assets are finally wound down."

Margaret Hodge, chairwoman of the Committee of Public Accounts, said: "Given the scale of the crisis we are fortunate that the net present cost to the taxpayer is potentially not more than £2bn. But this is perhaps more by luck than good judgement."

Matthew Sinclair, director of the TaxPayers' Alliance pressure group, which campaigns for lower taxes, said: "Investors were hardly queuing up to put their own money into Northern Rock, but politicians kept telling us they knew better and we would make a profit bailing them out.

"Instead, taxpayers are left stumping up for huge losses while those responsible for ordering this bailout remain in denial."

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