Though the Office for National Statistics has said the stricken bank will be on the books, he said including the liabilities in his debt calculations would be ‘bonkers.’

‘It would be absolutely bonkers to take account of Northern Rock in relation to the sustainable investment rule because, frankly, it would mean you would slash large amounts of public expenditure to accommodate what is a temporary measure,’ the chancellor said at a hearing last week.

The sustainable investment rule limits government borrowing to 40% of GDP.

Northern Rock was nationalised in February after bids for the business from Virgin and the Rock’s management team were rejected.

The Office for National Statistics, which is still calculating the precise extent of the liabilities, has said that it will include the liabilities on balance sheet from October 2007.

Watch the hearing at parliamentlive.tv/Main