Chancellor pledges support for banks

Chancellor Alistair Darling has told MPs the government will do "whatever is necessary" to maintain financial stability.

This would include general support for the banking industry as well as intervention to help individual banks, he said, speaking on the first day of Parliament after the summer recess.

"All practical options must remain open", he went on to say, announcing that the government is to inject another £40bn into the financial system.

The chancellor was addressing the Commons amid fears that the government may be forced to guarantee savings in all UK bank accounts, in response to similar moves in Germany, Ireland and Greece.

Darling said the Financial Services Authority had announced an increase from tomorrow to the compensation limit for retail deposits to £50,000, covering 98 per cent of all accounts.

And he said the FSA was consulting on whether to increase the £50,000 compensation limit for bank deposits "to ensure that arrangements here continue to be comparable with international best practice".

Since the House last met Darling has had to part-nationalise the Bradford and Bingley mortgage lender and suspend the normal competition laws to allow the takeover of HBOS by Lloyds TSB.

He told MPs that Northern Rock, which was nationalised in February this year, had repaid more than half the taxpayers' money given to it and continued to repay ahead of schedule.

Darling is also set to speak to Labour MPs on the economy at their weekly meeting tonight, ahead of a keynote speech on the public finances on Wednesday in which he is set to pave the way for a relaxation of the government's borrowing rules to cope with falling tax revenues.

Meanwhile in a busy day for the Treasury team, MPs will also debate the Dormant Bank and Building Societies Bill, which allows for dormant assets to be given to good causes, and the Banking Reform Bill, which will increase savings protection from £35,000 to £50,000, will receive its first reading, ahead of being rushed into law with cross-party support.

The government's new National Economic Council of senior ministers and business advisers, chaired by the prime minister, met for the first time on Monday morning.