NORTHERN Rock could end up owing the taxpayer £27bn which could take a decade to repay, it was revealed yesterday.

The revelation came as the nationalised Newcastle-based lender was given approval from the European Commission for it to split into two separate operations, a “good”

bank and a “bad” bank.

Chancellor Alistair Darling told The Northern Echo last week such a move was essential to ensure the future of the bank, which was nationalised in February last year.

But yesterday, it was revealed that to enable the split to take effect, subject to approval from the Financial Services Authority (FSA), the Treasury will inject £8bn to help with lending, as well as provision for up to another £3bn in capital support.

Gary Hoffman, Northern Rock’s chief executive, confirmed the bank may be liable for up to £27bn to the taxpayer, and said it would probably take about a decade to clear the debt.

Under terms laid out yesterday, Northern Rock plc, known as BankCo, will be the good bank, and will see the lender move back into the mortgage market. Speculation continues to mount that it may be sold.

The other division, Northern Rock (Asset Management) plc, also known as AssetCo, is referred to as the bad bank, and will bear the brunt of past debts and the remainder of the £15bn Government loan.

However, it was stressed that it is not laden with toxic assets, and that more than 90 per cent of mortgages held in AssetCo are performing and are not in arrears.

Mr Hoffman said European approval for its plans was an important milestone for the bank, and work to prepare for FSA approval is continuing and is expected to be completed by the end of the year.

Speaking yesterday, Mr Hoffman, who confirmed he would be chief executive of both BankCo and AssetCo, said: “We have a robust business plan in place which we believe will be capable, in due course, of returning the company to profit and ultimately to the private sector.”

However, despite mounting speculation of a sale of BankCo, Mr Hoffman would not comment on any potential approaches, adding: “There is no process or timetable for a sale of BankCo or AssetCo at this time.”

The European Commission approval was hailed yesterday by the Treasury, which said its intervention had helped to stabilise Northern Rock and protect the savings and deposits of hundreds of thousands of British families, and also by the North-East Chamber of Commerce which said the split would help ensure the bank has a strong, healthy future for centuries to come.

However, Vince Cable, Liberal Democrat Treasury spokeman, and leading spokesperson on the Northern Rock situation, remained more cautious. He said: “While the EU is right there should be greater competition in the financial sector, splitting Northern Rock into good and bad banks risks leaving taxpayers with scraps while the private sector gets prime cuts.

“The Government should resist the temptation to use Northern Rock for its own political ends by selling it off before the General Election. It should only be sold when market conditions are right and the taxpayer gets a good return."