The three bidders vying to take over Northern Rock are set to submit highly risk-averse business plans that could lead to job losses at the stricken Newcastle bank, which employs 6,500.

All three proposals will see Northern Rock initially shrink in size and write far less new mortgage lending, which is likely to be funded from new retail deposits.

The plans reflect the government’s need to comply with European Union rules on state aid, under which the new owner must not gain an unfair advantage. Rival UK banks are thought to be watching the situation carefully.

Proposals are expected from a consortium led by Virgin Group, from private equity group Olivant as well as a standalone restructuring plan from the company’s management led by Paul Thompson, former chief executive of Resolution Life.

All three proposals can use the government-sponsored financing package, under which the £28bn Bank of England loan that is keeping Northern Rock afloat is converted into bonds backed by a government guarantee.

A less aggressive business plan would require less fresh equity to be injected. It is now thought that between £500m and £750m could be needed, compared with the previous estimate of £1.3bn.

Northern Rock has had a hiring freeze but has not implemented a programme of redundancies since it sought emergency Bank of England loans in mid-September. It has expanded its workforce aggressively in the past few years in line with mortgage volumes. In 2002, for example, it employed 3,800 staff.

Treasury insiders concede any aggressive plan to snatch a large share of the mortgage market – underpinned by a £30bn government-backed bond issue – would bring howls of outrage from Northern Rock’s competitors.

Ministers also accept there are likely to be job losses under any scenario, because – as one government insider put it – Northern Rock’s previous business plan to capture a quarter of the new mortgage market was “about as aggressive as you can get”.

So far little has been said publicly about the scale of job losses by any of the three parties. The consortium led by Virgin has acknowledged there may be some, although it does not envisage “wholesale job losses”.

A full-blown takeover by any UK bank is now thought unlikely, although nationalisation remains an option. According to people close to the situation, the process has evolved from a typical takeover bid process to one concerned with how best to restructure the bank.

The restructuring proposal put forward by non-executive Mr Thompson is thought to have won some support from shareholders this week.

Alistair Darling, the chancellor, working with the Bank and the Financial Services Authority, is expected to make a decision on which group – if any – should take control of the lender by the end of February.

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