New bail-out to boost lending

Among a series of measures, Mr Darling set out plans for a new insurance scheme to protect banks from so-called toxic assets, a move it is hoped will encourage institutions to restart lending to businesses and households.

Prime Minister Gordon Brown later hailed the package on a visit to a small business in east London.

He said: "We have got to be ahead of the global curve, never behind it What we want to do is show the expansion of lending that we are making possible for small, medium and large businesses across the country.

"Recapitalising the banks now is necessary to help small businesses, families and people worried about their savings, to help them with lending and help them with funding. That is why we put in the measures that will help the banks."

But shadow chancellor George Osborne said the cost of the fresh initiative was unknown and the details remained a "mystery".

"The Prime Minister has finally been forced to confront the truth. He hasn't saved the world," he told the Commons. "He certainly hasn't saved this economy and he hasn't even saved the British banks yet."

Mr Darling defended the second massive banks bail-out in three months, insisting it was "essential" to prop up the struggling economy.

The Chancellor said the "wider public interest" demanded that hundreds of billions of pounds more of taxpayers' money should be staked in a bid to fee up credit flows.

He said previous measures announced by the Government had been designed to stabilise the banks and stimulate demand, whereas now ministers were looking at the expansion of lending.