The prime minister Gordon Brown has called on other governments to follow Britain’s lead by supporting their struggling banks.

The Labour leader wrote in the Times that the crisis needed a “global solution” and that he believes world leaders need to meet together to plan a restructuring of financial markets.

It comes as the chancellor, Alistair Darling, is in Washington meeting finance ministers from the G7 group of richest nations.

The FTSE 100 share index closed last night lower than any time since August 2004. The drop comes despite Wednesday’s historic rescue package for struggling banks, totally £500bn.

Mr Brown said that our banking system is fundamental to “everything we do”.

He said: “Because this is a global problem, it requires a global solution.

“Indeed this now moves to a global stage with a range of international meetings starting this week with the G7 and the International Monetary Fund and, we propose, culminating in a leaders meeting in which we must lay down the principles and the new policies for restructuring our banking and financial system all around the globe.”

Mr Brown added that it is “only through the boldest of co-ordinated actions across the globe” that families and businesses could be “adequately supported”.

Mr Darlings meeting in Washington comes after the Dow Jones in New York fell to its lowest level in five years, closing below the 9000 points barrier.

According to information from Economics and Business Research, the value of city bonuses in the UK is expected to fall this year by 58 percent, but it still forecasts bonuses of around £3.5bn will be paid out.

An urgent meeting with chancellor Alistair Darling has been called for by local authority leaders after it emerged that at least twenty councils have cash in troubled Icelandic banks.

The investments run into hundreds of millions of pounds and they are asking the UK government for the protection it has promised to personal savers. The Conservatives have warned that up to £1bn in council funding could potentially be in danger, however the Local Government Association (LGA) said services were not at risk.

The Treasury said it was looking into the issue of protection for councils but has given no guarantees over the money.

The LGA represents councils in England and Wales. It says that 20 councils have been identified that are believed to have deposits in the collapsed Icelandic bank Landbanksi or its UK arm Heritable.

They include Kent County Council, which has £50m invested with Icelandic-based banks. The LGA is still trying to work out the total amount involved, but believes that, aside from Kent, many of the councils had investments that number in “single figure millions of pounds” but others had deposits “running in the low tens of millions”.

John Ramsford chief executive of the LGA dismissed the Conservative claims of the amount of money at risk. However, he said that the amount of public money at stake was “significant” and must be protected.

“This is public money and we need to treat this in exactly the same way as individual investments in these banks,” he said.

The amount of money varies by County, but some figures have been confirmed;

Westminster City Council: £17m
Sutton Council: £5.5m
Havering Council: £12.5m
North Lincolnshire Council: £5.5m
North East Lincolnshire Council: £2.5m
Hertfordshire County Council: £17m
Buckinghamshire: £5m
Cornwall County Council: £5m

Boris Johnson, the Mayor of London, revealed that Transport for London had £40m deposited in one of the affected banks.

“We are looking to see what redress we can find,” he said.

The Conservatives have warned that town halls could face “massive financial shock” and are likely to enforce council tax hikes or cuts in local services.

Eric Pickles, the party’s shadow secretary, said it will be tough times for councils: “They are not going to find it easy in the short term”.

He added: “We need to look at the number of authorities that will be facing a cash-flow problem - some have their payroll on this, for others it’s in terms of long-term investment.”

The LGA insisted that councils involved had enough money to ensure that frontline services are unlikely to be affected, but it would be happier if councils had the same level of protection as personal customers of Icesave and other failed Icelandic banks.

The prime minister has said that legal action will be taken over Iceland’s failure to guarantee compensation for UK customers in its banks.

Iceland’s prime minister Geir Haarde said his government was working to repair relations with Britain amid the crisis.

This morning the UK government announced details of a £50bn rescue plan for the British banking system. The extra capital will be made available to eight of the UK’s largest banks and building societies in return for preference shares in them.

Gordon Brown said that the rescue plan is “designed to put the British banking system on a sounder footing.” However the FTSE 100 in London fell 5 percent. HBOS shares rose 26percent but Barclays fell 11 percent and Standard Chartered dropped 13 percent.

The key points of the rescue plan are:

• Banks must increase their capital by at least £25bn and can borrow from the government to do so.
• An additional £25bn in extra capital will be available in exchange for preference shares.
• Short term loans from the Bank of England have increased from £100bn to £200bn.
• Up to £250bn in loan guarantees will be available at commercial rates to encourage banks to lend each other.
• To be involved in the scheme banks will have to sign an FSA agreement on executive pay and dividends.

Banks have been taking criticism for being unwilling to lend to each other, so the government hopes that if those loans can be guaranteed then lending will resume.

“This is beginning a process of un-bunging a big problem where banks won’t lend to each other for long periods,” Mr Darling said.

Barclays, HBOS, HSBC, Lloyds TSB, Abbey, RBS, Nationwide Building Society and Standard Chartered have all agreed to take part in all aspects of the scheme. The Treasury said that any other banks can apply to be included in the plan.

Preference shares pay a fixed rate of interest instead of a dividend, which has to be paid before other shareholders receive anything, but they do not carry voting rights.

Although taxpayers may end up making a profit from the shares, this is not guaranteed.

There is hope the deal will get the money markets moving again and assure the future of the banking system.

“They’ve got additional capital now if they want it, they’ve got an unlimited source of liquidity,” said Terry Smith, chief executive of the money brokers, Tullett Prebon.

“That certainly should stop the panic in terms of people wondering whether or not the banks are safe.”

The deal has also been welcomed by banks who have been feeling the pressure of late.

“The government’s announcement represents a very real and serious intention on the part of the authorities, following consultation with the banking industry, to bring stability and certainty to the UK banking system,” HBOS said in a statement.

Barclays, Lloyds TSB and RBS also issued statement welcoming it.

The British Chambers of Commerce (BCC) has warned that Britain is already in a recession, which is worsening and could see unemployment rise by 350,000 by next year.

A quarterly survey of 5,000 businesses says confidence is at an all time low in both manufacturing and service sectors. The companies call for urgent action from the government and the Bank of England.

Technically, the UK is not in a recession – defined as two quarters of negative economic growth. However, the BCC said that the survey results were “exceptionally bad” and said the economy was under “immense pressure” for the second quarter in a row.

The BCC believes the number of people out of work will rise by between 300,000 and 350,000 over the next year or two, which would take the unemployment total to more than two million.

The BCC represents small to medium sized companies, and argues that a recession has already begun. It wants the Bank of England to do what it can to stimulate the economy, by cutting interest rates on Thursday.

“We are clearly in a very difficult economic period but it is important that we retain a sense of proportion,” said BCC Director-General David Frost.

“Many parts of the business community continue to perform well. The government needs to say that business taxes will be cut.

“The Bank of England needs to cut interest rates immediately and politicians need to get behind our businesses in these challenging times.”

The BBC’s business correspondent Nils Blythe says the idea of a rate cut is now supported by the majority of city economists, in spite of rising inflation.

The results of the survey come a day after the FTSE 100 fell 391.1 points, or 7.85 percent, to close at 4,589.2.

This meant that the UK’s top share index saw its biggest ever one-day points fall, wiping £93.4bn off the value of the index’s shares.

Energy regulator Ofgem believes that over six million people who use pre-payment meters are being overcharged by an average of £320 a year. They also say that around 4.3 million customers not connected to gas supplies are forced into paying a £55 premium for their electricity.

The watchdog’s findings come after an eight-month investigation in to the energy market. Ofgem said that companies must address the problem as soon as possible.

A study last month by the National Housing Federation found that British Gas charges pre-payment customers as much as £567 more than its online direct debit customers.

Ofgem’s chief executive, Alistair Buchanan, said the findings were “not acceptable” and assured homeowners that they were “demanding change”.

“Initial findings from our energy market probe give us grounds to demand that companies end practices that hinder customers, especially the vulnerable, from getting the best deal,” he said.

Mr Buchanan promised that the watchdog was “putting on the regulatory hobnails” and warned that “if the companies don’t sort it out, we will”.

“If they fail to satisfy our requirements voluntarily then we can move to a Competition Commission reference,” he said.

The National Housing Federation study estimated that the “pre-payment penalty” adds up to more than £1.35 billion each year for the power companies.

Despite promises to take action, made by Gordon Brown and Alistair Darling, energy companies are still over-charging a penalty of £113 million every month, claims David Orr, the Federation’s chief executive, who described the practice as “outrageous”.

Mr Orr said, “The fact that prepayment meter customers are facing yet another winter of having to pay through the nose for their energy is unacceptable and ministers must now show some backbone and stand up to the energy fat cats,” Mr Orr demanded that the companies equalise the charges immediately.

The watchdog was particularly concerned about the companies’ failure to offer competition to the 4.3 million customers with no access to the gas mains, as many of them live in rural areas. Ofgem said that these customers were disadvantaged as they have very few options, which forces them to stick with more expensive electricity deals.

The watchdog said that “electricity only” customers “are far more likely than others to be fuel poor”, meaning 10 percent of their income goes on fuel bills. Under half of these customers (44 percent) have ever switched power suppliers, compared to 57 percent of consumers who have access to both fuels, it found.

Ofgem found no evidence that energy firms had been working together as a cartel to set prices. Its inquiry was launched in February after all the leading suppliers raised their prices at roughly the same time.

Mr Buchanan believes competition is healthy, and said the energy companies need to show customers the benefits of competition.

“We have to make sure the companies don’t get sloppy,” he said. “At times we have to give competition a nudge along the way, and that’s what we’re doing.”

The regulator also made a promise to be tougher on firms who exploit consumers through doorstep selling. It will now consult with the industry on its initial findings until December.

UK house prices dropped for the 11th month in a row, dropping by 1.7 percent in September, according to Nationwide. The cost of the average home now sits at £161,797, more than £20,000 less than a year ago.

Nationwide said the pace of house price falls had slowed, but warned that the next one or two would be “difficult”. House prices are down year-on-year across the UK, with southern England seeing the worst drop. However, the rate of fall has remained relatively unchanged in the past three months.

Fionnuala Earley, Nationwide’s chief economist said that, “Casting back one year, there have been some astonishing and unpredictable developments in the housing and financial markets”.

But she added hat house prices would not continue to grow in real terms, in the long-term, even though there was a “sharp correction” now.

Exactly how long the correction goes on for and how deep the fall in prices is depends largely on sentiment, as well as an end to the turmoil in the financial markets, she says.

Ms Earley’s analysis comes a short time after the Council of Mortgage Lenders suggested that predicting the short term course of house prices was “futile”.

Nationwide has also released figures showing prices during the third quarter of the year in different areas of the UK.

She said that a distinctive feature of the July to September period was the accelerating fall in house prices in the south of England compared with the north.

Four of the six regions that have double-digit price declines were in the South with East Anglia and the South West showing the biggest annual drops – both 11.4 percent. Northern Ireland has suffered the most dramatic decline across the UK, with house prices there 29.8 percent lower than a year ago, but the price rises had been so fat in recent years, that prices are now back to the same level as the third quarter of 2006.

In Scotland, house prices dropped by 5 percent – bigger than the UK average of 4.6 percent. Wales recorded the smallest fall in prices with a three month fall of 1.9 percent in July to September.

Gordon Brown is confident that the proposed takeover of HBOS by Lloyds TSB will go ahead amid concerns that Lloyds could renegotiate the deal after HBOS’s shares plummeted by almost 14 percent on Tuesday.

Robert Peston, the BBC’s business editor, said that people close to the deal had told him there was no way that Lloyds would change the terms of the deal.

At present, HBOS investors are to get 0.83 Lloyds shares for every HBOS share they own. But HBOS shares have been up and down over the past fortnight during which time they have lost over half their value.

At one point on Tuesday, HBOS shares fell by 26 percent, closing at 122.4p on Tuesday.

The prime minister spoke to Sky News, and said he was confident that the Lloyds-HBOS deal would go ahead. He was keen to stress that this was not a government matter but one “for shareholders”.

Mr Brown said, in response to whether the government would bail out HBOS were the deal to collapse, that the government had already “dealt” with this by helping the merger take place.

“We changed the competition law to make it possible,” he added.

When the deal was fleshed out it was worth £12bn. However, analysts are cautious about the deal actually taking place.

“The market is implying that [the deal] does not happen,” said Alex Potter of Collins Stewart.

But an HBOS spokesperson claimed it was “full steam ahead” and that it was “the right deal for HBOS shareholders”.

Lloyds said the deal was still on track for completion by the end of 2008.

“This is a fantastic opportunity to create one of the UK’s leading financial services groups,” a spokesman said. Lloyd’s shares closed 4.3% up on Tuesday.

HBOS entered into the agreement with Lloyds when its share price fell sharply, following the collapse of US investment bank Lehman Brothers. A deal between HBOS and Lloyds would create a business with almost a third f the UK’s mortgage market with some 3,000 branches.

The main UK and other European share indexes have dropped dramatically in early trading after a $700bn (£380bn) US financial rescue plan put forward by the Bush administration failed to gain Congressional backing.

Wall Streets Dow Jones index saw its biggest one-day point’s fall in history yesterday after the deal was surprisingly rejected.

The UK’s FTSE 100 index was down 0.9%, or 43 points, at 4,775, while France’s Cac 40 had fallen 52 points, or 1.3%, to 3,902. Germany’s Dax was down 1.7% or 100 points at 5,707, while Asian stocks have already seen big declines in Tuesday trading.

Baking shares were the biggest fallers in London, as concerns grow about how the delay in securing a rescue deal in the US will hit the financial system.

Newly rescued HBOS was down 12 percent, while its new owners Lloyds TSB dropped by 9 percent. Royal Bank of Scotland was 11 percent lower.

The shockwave has been felt across the world.

Japan’s Nikkei index ended Tuesday down 4.1 percent, and Hong Kong’s Hang Seng had lost 2.4 percent in late trading. In Russia, all trading has been suspended on the country’s two main stock markets.

The Republic of Ireland’s government announced that all bank deposits would be guaranteed for the next two years, and Franco-Belgian bank Dexia has received a state bailout, with the Belgian, French and Luxembourg governments pumping in a combined 6.4bn euros (£5bn).

The architect of the US rescue plan, Treasury Secretary Henry Paulson, said that it was vital to get a new deal agreed, adding: “This is much too important to simply let fail”.

US president George W Bush is due to make a statement on the deadlock over the bail-out plan later today, however critics say that the president has been ineffectual in the crisis so far so its difficult to see how that might change anything. Congress will not meet again until Thursday, with another vote unlikely before the weekend.

The House’s rejection of the bail-out plan came after a day of turmoil in the US and Europe, with Wachovia, the fourth-largest US bank, being bought by larger rival Citigroup.

The US rescue plan, a result of tense talks over several days between the government and lawmakers, was rejected by 228 to 205 votes in the House of Representatives.

About two-thirds of Republican lawmakers refused to back the rescue package, as well as 95 Democrats.

Mr Paulson said, after a discussion with the president, that the government’s plan to address the crisis facing the US financial sector was much too important to be allowed to fail.

He said that US regulators would use “all the tools available” to help the US economy, but warned that their powers were “insufficient”, he warned.  He believes something needs to be done “as quickly as possible”.

Analysts say that without a bail-out plan, the banks will be left to handle all their own bad mortgage debt as best the can and more of them will be in danger of going bust.

The government has announced the nationalisation of the UK’s largest buy-to-let mortgage lender, Bradford & Bingley, with Spanish Bank Santander buying its branches.

Chancellor Alistair Darling said: “The Government, on the advice of the Financial Services Authority and the Bank of England, acted immediately to maintain financial stability and protect depositors, while minimising the exposure to taxpayers.”

Customers need not worry, as the Treasury says that customers money is safe, however, people owning shares in the bank will lose out.

Santander currently owns Abbey National and Alliance & Leicester, and the Spanish banking giant will take over B&B’s UK branch network and £21bn deposit book for £612m.

Santander, only recently bought over A&L, and will now acquire B&B’s depositor base of 2.7m customers and it 197 branches across the nation.

B&B’s customers can continue to use their existing methods of banking – in branch, phone and internet – for transactions, as usual. The mortgage lenders branding will also remain in place.

As part of the sale, recently appointed chief executive Richard Pym and finance director Chris Willford are expected to remain to transfer B&B’s deteriorating mortgage portfolio into taxpayer hands.

Lloyds, with new partner HBOS, is believed to have put forward a bid for B&B’s assets, viewing the deposit book as a means to bolster its deposit base and reduce its reliance on expensive wholesale funding. Both Santander and Lloyds bids were understood to have been low, in part because it believes that more B&B depositors are likely to withdraw their funds as the bank is carved up. Since June this year customers have already withdrawn about £1bn from B&B, when the bank held about £22bn.

Even though the performance of B&B this year has been poor; the collapse in its share price and the botched rights issue that needed to be overhauled twice, departing board members will be entitled to a pay off equivalent to their annual salary. The banks chairman Rod Kent was paid £265,000 last year, with other non-executive directors collectively earning almost £320,000.

Northern Rock’s chief executive, Adam Applegarth, left with more than £1.1m made up a pay-off of £765,000 and a £346,000 pension top-up.

HSBC is set to axe over a thousand jobs worldwide. The banking giant blames the current financial turmoil for its decision, which will affect 1,100 out of its 335,000 staff members across the world.

Half of the job cuts will take place in the UK, and will mostly affect back room jobs at its global banking and markets operation.

Last month, the bank reported a 28 percent fall in half year profits to $10.2bn (£5.2bn), as it was forced to write-off $14bn from bad debts in the US and asset write-downs. Pre-tax profits also fell 35 percent to $2.1bn during the same period.

A spokesman for HSBC said the firm had been forced to reduce its workforce due to “market conditions and the economic environment.” The spokesman also said the banks “cautious outlook for 2009” has influenced its decision.

The majority of the job-losses will be at the London headquarters of HSBC’s investment banking division.

The credit crisis has put pressure on banks around the world, forcing governments to step in and boost money markets as well as bail out a number of companies.

Earlier in the year, the UK government has to buy mortgage lender Northern Rock, and recently struggling HBOS was taken over by Lloyds TSB. The situation in the UK is echoed across the Atlantic where in the US, lenders Fannie Mae and Freddie Mac have had government rescues, and Lehman Brothers recently filed for bankruptcy.