HozNews

LONDON, (AFP) - - Prime Minister Gordon Brown will unveil a new package of measures on Monday to boost lending by Britain’s banks, as he seeks to get credit flowing through the economy.

“We have recapitalised the banks, we have injected money into the economy. At the same time we know that the essential problem that has been holding back banks internationally is the resumption of lending,” Brown said Sunday.

“My first priority is hardworking families worried about whether they can get a mortgage, businesses who work hard every day. They need the banks to do the job they say they’re there for,” he said from a summit in Egypt.

One of the measures expected to be included in the banking package, to be announced before markets open at 0800 GMT on Monday, was a taxpayer-backed insurance scheme, a Treasury source said.

Banks would pay a fee — in cash or shares — to have their bad loans underwritten by the government, leaving them with more freedom to increase lending to cash-starved businesses and individuals.

It is thought that banks will have to agree to lend if they take up the scheme. Finance minister Alistair Darling told Sky News on Sunday they would be held to “binding agreements” to ensure the money gets to who it needs to.

Officials were also thought to be considering guarantees for inter-bank loans, and Northern Rock bank, which was nationalised last year, will stop trying to shrink its mortgage book.

The measure follows October’s 37-billion-pound (55-billion-dollar, 40-billion-euro) recapitalisation scheme, which largely failed to increase lending by banks crippled by the global credit crunch.

“What we want to do now is to get the resumption of lending, and you will see tomorrow there are measures taken that will ensure that banks and non-bank institutions are able to resume lending,” Brown told journalists in the Egyptian resort of Sharm el-Sheikh on Sunday.

“What we want to do is see businesses get the money that they need to be able to create jobs and secure investment for the future.”

Sky News and the BBC also reported that the government would convert its preference shares in Royal Bank of Scotland (RBS) obtained during October’s bailout into normal shares.

This would mean the bank would no longer have to pay a fixed dividend to the government, thus freeing up cash to lend. In return, the taxpayer’s stake in the bank would increase, the BBC said.

Shares in Royal Bank of Scotland and Barclays plunged on Friday after US giant Citigroup announced an 8.29-billion-dollar fourth quarter loss and Bank of America got a 20 billion dollar state bailout.

Recession is likely to become official in Britain this week when data is expected to show that the economy contracted for a second straight quarter in the final three months of 2008.

Experts at the Ernst & Young ITEM Club, an independent forecasting group, on Monday predicted that unemployment would soar to 3.25 million by 2010 and 3.4 million the following year, as the financial crisis takes its toll.

Official figures are due later this week, but the last total showed unemployment reached a 10-year high of 1.86 million last October.