CHANCELLOR George Osbourne announced tonight that Northern Rock is up for sale.

Ending months of deliberation, he said the decision was a sign of confidence in the banking industry and could create much-needed competition.

Advisers from Deutsche Bank have said a straight sale is the most cost-effective way for the Government to deal with the Newcastle -based lender, rather than hand it back to taxpayers or float it on the stock market.

But Mr Osbourne, who had the final say, opted for a sell-off - three-and-a-half years after Northern Rock was nationalised in a bid to stop a repeat of its collapse.

In his annual Mansion House speech, he said. "Images of the queues outside Northern Rock branches were a symbol of all that went wrong, and its chaotic collapse did great damage to Britain's international reputation.

"Its return now to the private sector would help to rebuild that reputation.

"And it would be a very important first step in getting the British taxpayer out of the business of owning banks - and a sign of confidence in the industry."

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 Government split Northern Rock in two last year, forming a mortgage and savings bank called Northern Rock Plc and Northern Rock Asset Management to house the more toxic loans.

It is the former half - the so-called good bank - which is preparing to return to private ownership.

Northern Rock insisted it was on the road to recovery despite posting annual pre-tax losses of £232.4m in 2010.

The chancellor also backed plans to prevent a fresh financial crisis by forcing banks to erect protective ''firewalls'' around their retail arms.

He endorsed proposals for internal divisions at High Street banks so they cannot be crippled by failures in their ''casino'' investment operations.

* Read the full story in The Northern Echo tomorrow.