Northern Rock was officially reclassified as a public enterprise yesterday in a move that means one of the Treasury's cherished rules for the public finances has been breached.

The Office for National Statistics said it had taken the decision to designate it a state entity because the size of the government's support for the stricken bank meant it had effective control. The move has the effect of bringing up to £100bn of Northern Rock's liabilities onto the national debt.

Although the Treasury said the move was only temporary, it means that one of Gordon Brown's two fiscal rules - that public debt should not exceed 40% of gross domestic product - will be broken. The national debt stands at £537bn, equivalent to 37.7% of GDP. The ONS said the reclassification would add 6.7 percentage points to that figure, taking it to 44.4%.

This is more bad news for Chancellor Alistair Darling, who is struggling to keep public finances under control and is due to present his first budget on March 12.

Shadow chancellor George Osbourne said: "This means that a lot more debt is going onto the public balance sheet, and we as taxpayers are all more exposed to the problems of Northern Rock."

Northern Rock turned to the Bank of England last September after the credit crunch left it unable to borrow through money markets. In an attempt to calm panicking savers, the government guaranteed all deposits in the event of a collapse.

The Treasury is trying to find a buyer for the lender, prompting critics to claim it is under public ownership and should be nationalised. The ONS said its decision did not mean that the bank had been nationalised and government guarantees to the Rock would not be included in the public accounts.

"The financial liabilities of Northern Rock are substantial," the ONS said, but the exact impact of the move on the public finances was not yet clear and would not take effect until March at the earliest.

Vince Cable, the Liberal Democrats' Treasury spokesman, said it underlined the importance of ensuring that the loans made to Northern Rock are repaid. The Treasury said the reclassification would have only a temporary impact on the public finances and the government's fiscal rules were flexible enough to deal with such cases.

The ONS said the Bank of England would also be included in the public finances at the same time so that transfers between it and the Rock could be "netted out" as they are taking place between one public corporation and another.

It said government guarantees in relation to Northern Rock's borrowings and depositors were classified as contingent liabilities for national accounts purposes and therefore, in line with international standards, they would impact on the public books only if they were called upon.

Analysts said that though the breaching of the fiscal rules was awkward for the Treasury, it was likely to be temporary. But they urged it to publish figures with and without the Northern Rock exposure.


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