Last updated 13:44, Wednesday, 08 October 2008

Taxpayers will fund a £50 billion part-nationalisation of the UK’s biggest banks to help halt the meltdown in the financial sector, the Government announced today.

The lenders that have confirmed they will take part in aspects of the scheme

• Video: Alistair Darling explains the 'nationalisation' move

The move comes as the Bank of England reduced interest rates by 0.5 per cent, from 5 per cent to 4.5 per cent. The step - which had not been expected until tomorrow - is aimed at steadying the faltering global economy and slumping stock markets.

Chancellor Alistair Darling today launched a range of extraordinary measures that will see public cash used to buy stakes in stricken banks.

Eight UK banks and building societies – including Royal Bank of Scotland, Barclays, HBOS, Lloyds TSB and Nationwide – have signed up to an initial £25 billion scheme.

And the Government said it stood ready to make at least another £25 billion available for other eligible institutions.

The Bank of England is also helping ensure that banks have enough cash to run their day-to-day activities.

It is pumping another £200 billion into money markets under its existing Special Liquidity Scheme that allows banks to swap risky assets for Treasury bonds.

The Government is also making a further £250 billion available for banks to guarantee debt.

It is hoped that the package will provide the capital boost needed and help restore confidence to get banks lending to each other again.

But the Government is demanding that in return for the public-backed cash injection, banks must cap executive pay and shareholder dividends and commit to supporting lending to homebuyers and small businesses.

Details of the stake-buying scheme reveal that taxpayers will buy preference shares in the banks, which means that they will be first in line for the pay-out of dividends.

A statement said: “If the Government is to provide the capital, the issue will carry terms and conditions that appropriately reflect the financial commitment being made by the taxpayer.

“In reaching agreement on capital investment, the Government will need to take into account dividend policies and executive compensation practices and will require a full commitment to support lending to small businesses and home buyers.”

The FTSE 100 Index was in fresh turmoil today as investors digested the Government’s £50 billion bank rescue package.

London’s leading share index opened two per cent lower, better than most analysts’ forecasts, but went on to fall nearly seven per cent after the first hour of business.

The banks that have confirmed they will take part in the scheme are: Abbey, Barclays, HBOS, HSBC Bank, Lloyds TSB, Nationwide Building Society, Royal Bank of Scotland, and Standard Chartered.

Later shares in most of the major UK banks rose sharply today on news of the Government bail-out.

HBOS – soon to be taken over by Lloyds TSB – was 28 per cent up in early trade, with RBS ahead by 13 per cent and Lloyds up 5 per cent.

The wider FTSE 100 Index sank 150 points into the red after heavy overnight falls in the US and Asia, but the decline was far less than the 270-point plunge feared in the market.

Chancellor Alistair Darling this morning announced a £50 billion emergency rescue plan for stricken UK banks.

The scheme will see taxpayers’ money used to buy stakes in major banks in an attempt to halt the meltdown in the financial sector.

Mr Darling said he still did not “rule anything out” but, of today’s package, he said: “I believe it will go a long way.”

He admitted he had been “irritated” by speculation about the package since Sunday because the Government was working on the package.

“I wanted to announce it when the time was right, when we had got everything sorted out, we had a scheme that worked and the big banks were signed up to it,” he said.

“And we actually finished these discussions only a few hours ago.”

Mr Darling said it was “absolutely not” true that the chairman and chief executive of Royal Bank of Scotland would lose their jobs as part of a deal with the Government.”

Reports also suggested that RBS had agreed a boardroom clear-out in return for the state-assisted boost.

Shadow chancellor George Osborne said the Tories would be “as constructive as possible”.