Alistair Darling and Gordon Brown made the decision to nationalise Northern Rock shortly after 2pm in the Cabinet room at No 10.

In front of them was the latest offer from the consortium fronted by Sir Richard Branson, the only real competitor in the race to buy the broken bank. Their advisers, Goldman Sachs, had pointed out the value that the Branson brand would have in reassuring nervous depositors when the bank was at last sold. Sir Richard and his backers had offered to inject £1.25 billion into the bank. The other alternative, a management-led solution that would keep Northern Rock as a standalone business, offered to inject just £700 million and would have seen it retain its name.

The Prime Minister and the Chancellor found Sir Richard anything but a reassuring figure, however, and his deal fell well short of one they felt able to present as a good deal for taxpayers, who would not have recovered any cash in return for propping up Northern Rock until it had been rebuilt to a value of £2.7 billion.

In addition there were fears that shareholders could block a sale. SRM Global and RAB Capital, the hedge funds that own almost 20 per cent of Northern Rock, had rejected Sir Richard’s offer as too low and had threatened to vote for nationalisation of the bank rather than accept the entrepreneur as the new owner. A well-placed observer told The Times yesterday that faith in the Branson bid had waned in recent weeks.

If the Rock recovered under Sir Richard, the Government would be faced with the charge of having panicked and sold it too cheaply, enriching an already very wealthy man. Mr Brown and Mr Darling feared that were it on the other hand to founder Sir Richard would demand that the Government bail him out. The current board’s offer was “never a runner” – not least because it would have required the government guarantees to extend far into the future.

Although Mr Darling had, in theory, more than a month before European rules required a decision, he felt that the time had come to abandon what had become, in effect, a fire sale.

Market rules require the decision to be made outside trading hours, and releasing the news on a Sunday afternoon at least enabled the Government to get out its “business as usual” message before branches opened today.

As soon as Mr Brown returned from Scotland at lunchtime yesterday, the Chancellor went to see him for one final review of the available options.

Having taken the decision to conduct Britain’s first nationalisation of a high-street bank, the Chancellor picked up the phone to Sir Richard, who last month had been at Mr Brown’s side on a business trip to China. “Naturally he was disappointed,” Mr Darling said later when asked to characterise Sir Richard’s reaction to being told of the rejection of his bid.

The Chancellor’s next two calls went no better. He could raise neither George Osborne, the Shadow Chancellor, nor Vince Cable, the Liberal Democrat spokesman - who had urged the Government to temporarily nationalise the bank. Mr Cable was driving and so had no opportunity to gloat.

In truth, say insiders, nationalisation for some time looked the most likely option. There had been dismay in No 11 at the reaction to its plans to allow the sale of government-guaran-teed bonds to pay off the lender’s £25 billion debts.

The Commons statement on January 21 seemed to many to make a private sale almost inevitable. Olivant, a private equity consortium, pulled out last month because it said that the Government’s demands for payment for its bank loan were too onerous. As a result Sir Richard looked, to outsiders, to be a shoo-in.

In fact Goldman Sachs, the Treasury and even No 10 had become convinced that the nationalisation was the best option.

Moments before the Chancellor began his planned press conference at 4pm, Mr Osborne returned his call. He told his opposite number that his party would formally vote against the proposals but would not erect any serious parliamentary obstacles.

When, at last, Mr Darling emerged he did his best to project an air of calm authority. “Under the current market conditions,” he said, neither of the private proposals had delivered sufficient value for money to the taxpayer, confirming that a Labour Government was again taking over a major institution. The assurance slipped as it became clear he was unable to say how long the bank would remain in the public sector, what compensation shareholders would receive, whether there would be job losses or even how the EU would allow the bank to operate with its vast subsidies.

The Chancellor emphasised that it would be “business as usual” when the bank opened today and that the Government guarantees remained in place. “Savers’ and depositors’ money remains safe and secure,” he said.

The reaction to those words will be visible outside the bank’s branches even as the Prime Minister gives a press conference at noon.

Times Recommends

• Lloyds TSB wins vote for HBOS merger
• Bank of England discussed 2% rate cut
• Woolworths dives as it confirms takeover talks