• The £50bn bail-out is equivalent to £2,000 for every taxpayer in the UK • Shares in most banks fell again today with the FTSE 100 down 7.5%

The government has confirmed that it will spend £50bn to part-nationalise Britain's biggest banks, in a dramatic attempt to stop the country's financial system melting down.

Today's momentous decision to pump £50bn of taxpayers' money into the troubled banking sector came after government ministers and bank officials thrashed out the details of the plan into the early hours of the morning.

The £50bn bail-out is equivalent to £2,000 for every taxpayer in the UK, and analysts warned today that the public will "foot the bill" for the plan. The government is also now offering to lend £200bn to the sector - much bigger than previously thought - as short-term loans in an attempt to thaw the frozen interbank lending markets, plus a further £250bn to guarantee bank debts.

Eight banks and building societies will take part in the scheme - Abbey, Barclays, HBOS, HSBC, Lloyds TSB, Nationwide Building Society, Royal Bank of Scotland and Standard Chartered.

Shares in most banks fell again today, with only HBOS rising, as the FTSE 100 plunged by almost 350 points, or 7.5%, to 4259. Asian markets have already toppled overnight, with Japan's Nikkei dropping by 9%.

Alistair Darling, who held emergency talks with Bank of England governor Mervyn King at Downing Street yesterday, hinted that interest rates may be cut on Thursday.

While insisting that the Bank was indepedent of government, Darling said: "The Bank's remit, set up by parliament, is to target inflation but also to support the government's wider objectives of economic stability. They have an adequate remit, wider than many people think."

Gordon Brown told a press conference at 9am today that injecting £50bn to recapitalise the banking sector is a "bold and far-reaching solution" to the crisis.

"This is not a time for conventional thinking or outdated dogma but for fresh and innovative intervention that gets to the heart of the problem.

"These decisions on stability and restructuring are the necessary building blocks to allow banks to return to their basic function of providing cash and investment for families and businesses," Brown said.

Jeremy Batstone-Carr, analyst at Charles Stanley, said that "ultimately government borrowing will increase and ultimately we the taxpayer will foot the bill," said

Batstone-Carr also suggested that £50bn may not be enough to rescue the banking system.

Shares in HBOS rose 23% this morning, but Barclays fell 18% and RBS - which is rumoured to be changing its chief executive and chairman - fell by 10%.

An end to fat-cat pay?

The complex scheme announced this morning suggests that the government has insisted on a crackdown on the pay packages of top banking executives in return for rescuing them.

"In reaching agreement on capital investment the Government will need to take into account dividend policies and executive compensation practices and will require a full commitment to support lending to small businesses and home buyers," said the Treasury.

Darling said today that the plan will "unbung" the banking sector.

"It is a process that inevitably will take time. It is not an instant change but it is a restructuring, it is stabilising the system, and that is very important," the chancellor said.

Asked why the government had not come up with the package earlier, he said that the discussion had been going on for several weeks and had been very complex.

He said he was "rather irritated by the speculation started on Sunday," adding: "I wanted to announce it when the time was right, when we had got everything sorted out, we had a scheme that worked and the big banks were signed up to it."

"And we actually finished these discussions only a few hours ago."

Liquidity injection

The government will use £50bn to buy preference shares in the banks, which take precedence over ordinary shares during a liquidation, but do not give the holders any voting rights.

The £200bn of lending announced today comes through the Special Liquidity Scheme, which allows banks to get short-term funding from the Bank of England by swapping long-term bonds for short-term UK Treasury Bills.

Seperately, the government will provide guarantees to the banking system of up to £250bn to encourage banks to lend to each other and end the paralysis in the interbank lending markets. The Treasury stressed though that it will charge normal commercial fees for these guarantees.

The plan comes after a succession of tumultuous days on the stockmarket. Yesterday Royal Bank of Scotland shares slumped by 39% and HBOS lost 40%. It was reported this morning that RBS's chief executive Sir Fred Goodwin and chairman Sir Tom McKillop are stepping down.

Darling said it was "absolutely not" true that Goodwin and McKillop were losing their jobs as part of a deal with the government.

RBS and Barclays are thought to need £15bn each in fresh capital, with Lloyds TSB requiring £12bn - assuming its takeover of HBOS goes through.