TESCO may launch a bid for Northern Rock as the Government attempts to sell off the nationalised lender before the General Election, it was reported today.

The supermarket chain has shown "provisional" interest in buying the bank which was nationalised as the credit crisis brought the financial system within hours of collapse, according to the Times.

The paper reports Gordon Brown wants Northern Rock returned to the private sector at a substantial profit before an election.

Virgin, which tried to buy Northern Rock at the time, has expressed interest but it is understood that the Treasury is not in talks with any potential bidder.

A Tesco spokesman said the report was "pure speculation".

A Treasury spokesman: "Any decision will be taken in the best interests of financial stability and of the taxpayer.

"Our only focus is our discussions with the European Commission around the restructuring of Northern Rock and the implementation of Northern Rock's new mortgage lending."

The Government favours a sale rather than a flotation because it would be quicker, the paper reports.

Last week MPs said an under-prepared Treasury was "caught flat-footed" by the run on mortgage lender Northern Rock in September 2007.

The Public Accounts Committee (PAC) attacked the department's lack of readiness to deal with a failing bank despite warning signs emerging as early as 2004.

Northern Rock - the first UK bank victim of the credit crunch - was propped up by almost £27bn in emergency loans from the Bank of England and eventually nationalised in February 2008.

The MPs were responding to a damning report published by the National Audit Office (NAO) spending watchdog in March.

The NAO said the bank was offering its infamous Together mortgage - lending borrowers up to 125 per cent of the value of their homes - from the time of its emergency support until it was on the brink of public ownership.

Northern Rock still owed around £9.8bn to the taxpayer as of March, but has since slowed repayments of the debt to lend an extra £14bn over the next two years to help the housing market.