Taxpayers facing £1 trillion bill as Darling bails out the banks...again

ALISTAIR Darling unveiled another massive banking bail-out today, insisting it was “essential” to prop up the struggling economy.

Chancellor Alistair Darling has written the banks a blank cheque with your money Chancellor Alistair Darling has written the banks a blank cheque with your money

The Chancellor and Prime Minister Gordon Brown staked hundreds of billions more of pounds of taxpayers’ money on a second bank bail-out in a bid to free up “blocked” credit markets and head off a worsening recession.

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.

It is the second bail-out for the banks in the space of just three months and could take the amount of taxpayers cash spent - or promised - to financial institutions to nearly £1trillion, or £1,000 billion.

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Gordon Brown is desperate for the banks to start lending Gordon Brown is desperate for the banks to start lending

That will almost certainly lead to every household in the country paying thousands in extra tax in the coming years.

The Treasury had been looking at the proposals for some weeks after it became clear that the initial £37 billion bail-out in October had failed to provide a sufficient platform for normal lending to resume.

It will almost certainly lead to every household in the country paying thousands of pounds in extra tax

However they were given added urgency by Friday’s dramatic stock market falls amid fears that the banks were set to reveal further massive write-downs.

Mr Darling 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.

Speaking on BBC Breakfast as Royal Bank of Scotland announced record losses of up to £8 billion for 2008, Mr Darling admitted that “in an ideal world you would not want to be in this position”.

But he added: “If the banking system collapses, every single one of us would see the obvious problems. The economy would come down with it.”

Mr Darling said: “In an ideal world you would not want to be in this position.

“Banks all over the world have got themselves in huge difficulties and, frankly, governments all over the world are having to sort the problem out.”

The Chancellor said the first bail-out last year had been necessary to prevent the immediate collapse of the banking system.

“The problem we have got now is that lending, for a number of reasons, is not taking place to businesses, people needing mortgages, at anything like the level we need to support the economy.”

Mr Darling said part of the reason for lower lending was foreign banks reducing their activity in the UK.

“In the face of that there is less money available to be lent in this country, and on top of that all the uncertainty in the economy means that banks are sitting on money that could otherwise be lent.”

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Mr Darling said the Government was ensuring the money it was committing would make it through to businesses and other borrowers.

“If we put money in and it is simply held (by the banks). that doesn’t do us any good,” he added.

He said the current crisis showed that banks’ regulation had to be looked at in future.

Mr Darling tried to reassure people that the economy would recover, repeatedly insisting that although the situation “looked grim”, “we will get through this”.

It was crucial that action was taken to guarantee that a similar crisis did not happen again, he said. “It has been so costly to every one of us.”

He also stressed that the Government would not hold on to its stakes in banks in the long term - despite upping its stake in RBS today to around 70 per cent.

“I don’t want to be in the business of owning banks,” he said. “When we get through this recovery we can look at getting banks away from government again.”

Mr Darling admitted that economic figures due imminently would show that the UK had officially entered recession, but said other countries such as the US, Germany and Japan were in the same position.

He said the Government was offering “backstop insurance” and not a “blank cheque”.

The banks would take the “first hit”, with the taxpayer helping out in the case of “extraordinary losses”, he insisted.

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