Chancellor George Osborne is this week expected to kick off the sale of nationalised bank Northern Rock, it was reported today.

The Chancellor will use his annual Mansion House speech on Wednesday to reveal his plans to return the taxpayer-owned bank to the private sector, sources in Whitehall told The Sunday Times.

Northern Rock was nationalised in February 2008 after it collapsed amid the credit crisis, sparking the first run on a UK bank for 150 years.

The bank was then split into two, forming a mortgage and savings bank called Northern Rock plc and Northern Rock Asset Management (NRAM) to house the more toxic loans.

The part set to be sold is the ''good'' arm consisting of its retail savings base and about 70 branches, while NRAM will still be owned by the Treasury.

The Treasury was advised last month it should sell the Newcastle-based bank, rather than hand it back to taxpayers or float it on the stock market.

Deutsche Bank carried out a review of options available for the nationalised bank and recommended that a straight sale was the most cost-effective way for the Government to relinquish control. The final decision now rests with Mr Osborne.

Plans to remutualise the bank, which had been supported by Business Secretary Vince Cable, were vetoed by UKFI, the UK Financial Investments Ltd. But the lender could still end up as a mutual, with building societies such as Coventry and Yorkshire among the potential bidders.

Sir Richard Branson's Virgin Money has also expressed an interest in buying parts of Northern Rock, along with 600 branches to be sold by Lloyds, to form a new high street bank.

Northern Rock recorded pre-tax losses of £232.4 million in 2010, but narrowed losses in the second half of the year to £92.4 million, compared to £140 million in the first six months.

Mr Osborne is also expected to reveal that ''value for money'' will be one of the key criteria underpinning the sale of the Government's stakes in Royal Bank of Scotland and the Lloyd's Banking group.

The Treasury declined to comment.