The UK Treasury has guaranteed the savings of all of the existing customers of embattled mortgage lender Northern Rock, offering depositors the same explicit promise of repayment the government affords to institutional investors holding its public debt - and at a higher rate.

The move, announced late last night by UK Chancellor Alistair Darling, short-changes institutional investors in gilts because the yields on some of the securities are substantially below savings rates being offered to depositors at Northern Rock, the UK's fifth largest mortgage bank.