Mr Speaker, the causes of instability are global, so the Government’s response must mean working closely with other countries.

Earlier this month, the Prime Minister and I attended the G20 summit in Washington.

A comprehensive range of measures was agreed to increase transparency of financial activities, ensure better international supervision and prevent excessive risk taking.

It is crucial this plan is implemented. So with the UK holding the presidency of the G20 next year, we will take the lead in doing all we can to prevent a reoccurrence of these problems.

Building on the work of the Financial Stability Forum, which for some time, has been looking at international agreement on capital requirements that reflect the economic cycle and risk.

Domestically, too, we need to make supervision and regulation more effective.

The Financial Services Authority is now considering changes across the regulatory system – including banks’ capital requirements, liquidity conditions, accounting rules and pay structures.

The new chairman of the FSA will also examine whether the right processes are in place to ensure the FSA can supervise the system.

Mr Speaker, the current financial crisis has also illustrated two further issues.

First, the recent financial turbulence has highlighted potential problems with overseas territories and crown dependencies, such as the Isle of Man and Channel Islands.

They attract banking customers with lower taxes – without contributing to the UK Exchequer.

But at times of stress, depositors need to know who will compensate them.

The British taxpayer, cannot be expected to be the guarantor of last resort.

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So I have asked for a review of these regulatory arrangements, which will report to me in the spring.

Second, we must resolve the situation highlighted by the Icelandic bank – Landsbanki – where billions of pounds of British savers’ money can be deposited in a foreign bank with branches in the UK – with insufficient safeguards for these depositors.

They were not adequately covered by the compensation scheme of the Icelandic authorities, so we had to step in to guarantee UK savers' money.

So we are taking the lead, at the European Union, to tackle these shortcomings in international compensation arrangements.

We can’t allow this to continue and we have asked the European Commission to come back with recommendations by the spring.

Mr Speaker, a strong banking system is vital to the health of our economy.

It needs to be fair and open, offering the range of services and lending demanded by consumers.

Because of the Government’s action over the past year, no retail depositors in British banks have lost out.

Last month, we took action to improve confidence in the banking system and recapitalise the banks.

By next month, banks will have accessed some £100 billion of funding under the Credit Guarantee Scheme.

Now the scheme is up and running, and other countries are beginning to implement their own schemes, it is time to explore how it can further support lending to families and business.

We should continue to monitor the working of the scheme and improve it if necessary. I shall announce any changes shortly.

But we also know that the process to allow UK banks to raise money in the markets – through rights issues – is too slow and complex.

Today, the Rights Issues Review Group, which I set up, has reported.

I will pursue their recommendations in full – which will make the process for raising equity capital faster and simpler.

All these steps are aimed at combating instability, restoring confidence in the system, and improving protection for depositors; while defending the taxpayers’ interests.

Mr Speaker, our economy cannot insulate itself from this global financial turmoil.

But the UK economy faces these challenges from a position of relative strength compared to the past.

Even today, employment remains near record highs. The claimant count, while rising, is two million below the level of the early 1990s.

There are still today over half a million unfilled vacancies in the economy.

Government debt last year was among the lowest in the major advanced economies.

At the same time we have been able to triple public investment – in key services, transport and infrastructure.

Mr Speaker, we did fix the many roofs that needed fixing – the roofs of schools, hospitals and homes throughout the United Kingdom.

While all other major economies suffered recessions, we saw the longest period of continuous growth in the history of this country.

This has brought immense benefits – and tens of thousands of jobs across England, Scotland, Wales and Northern Ireland.

The UK is the world’s leading financial centre, but because of the size of our financial sector we are likely to be affected more directly by a global financial recession.

New lending has shrunk, in the UK by over a third since March.

With mortgages harder to get and more expensive, this has hit the property markets with prices falling by 11 per cent over the same period.

Mirroring big falls in world stock markets, UK share prices are down by almost a third.

These falls came as businesses and families were already having to meet rising energy and food bills, which squeezed incomes, and led to lower spending on other goods and services.

This combination of higher prices and tighter credit has inevitably put downward pressure on growth here in the UK and across the world.

The volatility in prices was underlined last month, when inflation fell from 5.2 to 4.5 per cent, the biggest monthly drop in 12 years.

But, while volatile, inflation is expected to continue falling.

And this has already made room for the Bank of England to cut interest rates by 2 percentage points since October, to a 50-year low of 3 per cent.

For the millions of people on tracker mortgages, this cut in interest rates will be worth on average around £100 a month off their mortgage repayments.

But monetary policy – interest rates – on their own are not enough to stimulate the economy, as most people recognise.

So we need action now – to boost economic activity – together with the real help I will announce today, to help us emerge quicker.

And emerge stronger – from these difficult times, and face the future with confidence.