Darling announces changes to help savers

A recent new ruling announced by Alistair Darling, the Chancellor of the Exchequer, means savers with money in banks and building societies will have the first £35,000 of their deposits guaranteed, it has been revealed.

Previously, savers would have had the first £2,000 of their deposits absolutely protected, but only 90 per cent of the next £33,000. The move can be seen as an attempt by Mr Darling, who announced the change alongside Alan Greenspan, former chairman of the US Federal Reserve, to avoid another Northern Rock-type crisis.

He had hinted at the move just last week when he admitted he was considering adopting a US-style system which would move deposits held in a collapsed bank into a specially designed holding body before being paid back to savers.

However, this most recent development will not do away with the need to carry out a radical overhaul of the compensation system, which is expected to take place in the next parliamentary session. According to Mr Darling, the changes are in recognition of the fact that freedom from risk cannot be guaranteed - and so consumers with investments in bank savings accounts need to be protected as far as possible.

"If a problem does happen, we need to be able to deal with it quickly to maintain stability and confidence," he said in his speech, delivered at the Reuters building in Canary Wharf.

"Savers need to be sure that they can get their money out if they need to.

"That is why in the current market circumstances we are providing a guarantee for Northern Rock's depositors. But for the future, we now need to put in place a better regime."

However, George Osborne, the shadow chancellor, has criticised Mr Darling for supposedly promising one thing and delivering another.

"Alistair Darling has piled confusion upon confusion," he commented.

"Why did he tell one newspaper that savings would be guaranteed up to £100,000, only to change his mind ten days later and offer protection at a much lower level? What people want in a period of financial instability is certainty, not fiddling."

Michael Fallon, a fellow Conservative who serves on the Treasury Committee, echoed this view.

"Northern Rock has been given preferential treatment throughout," he told the Times.

"The compensation scheme is chaotic. They are making it up on the hoof. The amount keeps changing. Is it going to go down to £10,000 in a week. I thought it was going to be £100,000 a week ago."

An aide to Mr Darling has responded to these accusations by saying that the announcement is the first of many and that further developments will be forthcoming - including a consultation on the compensation system - in the near future.

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