Darling To Use GBP50bn Worth Of Taxpayers' Money To Bail Out Banks

by Robert Lee, Tax-News.com, London

08 October 2008

In a drastic attempt to protect ordinary savers, depositors, businesses and borrowers, Alistair Darling, the UK's Chancellor of the Exchequer, announced on Wednesday that he is set to use up to GBP50bn worth of taxpayers money to ease the country's banking crisis.

According to Mr Darling's proposals, eight major banks and one building society - Abbey, Barclays, HBOS, HSBC Bank plc, Lloyds TSB, Nationwide Building Society, Royal Bank of Scotland and Standard Chartered - will be able to draw on GBP25bn in public money under a banking recapitalistion scheme. A further 'spare' GBP25bn will held back for other appropriate financial institutions to draw from if necessary.

However, the total tally of the bailout programme could reach as much as GBP500bn after the Bank of England agreed to extend its existing GBP50bn Special Liquidity Scheme to GBP200bn and make an additional GBP250bn available as part of its debt guarantee scheme.

The government end of the bailout package will derive primarily from tax revenues - which, it is estimated, will cost the average taxpayer around GBP2,000 each - and will part nationalise the banks in an attempt to free up cash to kick-start the lending process again. By pumping money into the banking sector, the government is hoping that bank-to-bank lending - which has almost come to a standstill - will resume.

Mr Darling has also made it clear that banks must now use this cash wisely, putting the needs of homebuyers and small businesses before the salary demands of executive employees, and also pointing out that, because the scheme will make the public priority shareholders, they will be the first to benefit from the dividends that will, hopefully, be made as a long-term result of the bail out.

Recommended