Brown ally: We’re looking like Iceland-on-Thames

GORDON BROWN lashed out at "irresponsible" British and foreign banks today as he gambled hundreds of billions of pounds on another bid to rescue the economy.

Less than three months after the Treasury bailed out the banks with £37 billion of taxpayers' cash, the Government unveiled a raft of measures to get credit flowing again.

More than £500 billion of taxpayers' cash is being used to underwrite possible losses by the banks, insure them against "toxic" loans and help them lend to businesses and individuals.

The Prime Minister denied he was writing a "blank cheque" and claimed that today's schemes were "temporary".

He said: "I came into politics because of the scourge of unemployment in my own home area and I will not sit idly by and let people go to the wall because of the irresponsible mistakes of a few bankers."

More than 45 per cent of Britain's mortgage market was funded by overseas wholesale funding, he pointed out.

But as he launched a fresh broadside against bankers for taking risky loans from America and elsewhere, the Tories pointed out that Mr Brown appeared to be blaming "everyone but himself" for Britain's dire economic state.

Shadow Chancellor George Osborne said: "When is Gordon Brown going to face up to his responsibilities and admit his shortcomings during the 10 years he was Chancellor? He failed to see the boom and failed to prepare for
the bust."

Yet the starkest warning to the Prime Minister came from one of his closest allies. Will Hutton, head of the Work Foundation think tank, warned that the scale of the liability for taxpayers,
as well as overall borrowing, was so enormous that the International Monetary Fund may have to be called in.

"With the amount of red ink in the UK budget deficit next year, together with the amount of new liabilities the taxpayer is having to underwrite, we look like Iceland-on-Thames.

"The open question is whether we can get through this without a loan from the IMF," he told BBC Radio 4's World At One programme.

The Conservatives and Liberal Democrats gave a broad welcome to most of the package, although both pointed out that it was clear that the original bank bailout last October had failed to release cash to ordinary firms.

Today's Treasury package included an insurance scheme to protect banks from "toxic" loans, with no limit on the amount available.

It also included a £50 billion "asset purchase scheme" to buy corporate debt and an extension of the £250 billion credit guarantee scheme that encourages banks to borrow cash. In another move, the Government increased its shareholding in the Royal Bank of Scotland to 70 per cent.

Nationalised bank Northern Rock will relax its tough rules to offer more home loans, in the process delaying its repayment of the £11.5 billion loan made by the Government last year.

In a statement to the Stock Exchange, the Treasury said that the package of measures had been prompted by the "global economic downturn intensifying in the past two months".

Speaking at a Downing Street press conference alongside Mr Darling, the Prime Minister said much of the credit squeeze was down to the withdrawal of lending facilities by foreign institutions.

Mr Brown said the main UK banks were maintaining lending, but he added: "I know from meetings up and down the country that many individual borrowers are facing difficulties.

"A principal reason for this is the reduced availability of credit across the economy because of the retrenchment of many overseas banks back to their home markets and the withdrawal of non-banking financial institutions from funding."

Both Mr Brown and Mr Darling repeatedly stressed that today's package was not a bank "bailout" but was help for business and individuals.

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What's in the rescue package?

* INSURANCE OF TOXIC ASSETS

In return for a fee, the Treasury will insure banks against any future losses from "toxic" loans.

Cost: Uncapped, but could top £200billion

* REPRICED BANK SHARES

Treasury converts £5billion of its preference shares in RBS into ordinary shares, effectively taking the taxpayers' stake from 58 per cent to 70 per cent. In return, RBS agrees to release £6billion more in loans to business and individuals. Onerous 12 per cent interest charged by Government will be relaxed

Cost: £5 billion.

* MORTGAGE-BACKED SECURITIES

A new government scheme to underwrite "mortgage-backed securities", as recommended by former HBOS chief Sir James Crosby.

Cost: £100 billion

* CREDIT GUARANTEE SCHEME

The current scheme, which guarantees new lending by banks, will be extended for the rest of the year. It had been due to end in April.

Cost: £250 billion

* ASSET PURCHASE SCHEME

A brand new project to get the Bank of England to buy up "high-quality" assets such as corporate bonds, commercial paper and syndicated loans.

Cost: £50 billion

* NORTHERN ROCK

The nationalised bank agrees to start lending to customers again. It had put squeeze on lending in order to repay £11.5billion in Treasury loans invested last year. But the Rock is ahead of schedule thanks in part to aggressive repossessions.

Cost: Unknown