Q: Why has the Government bailed out the banks?

A: The Government is trying to limit the effects of the credit crisis on the UK economy. It hopes that by guaranteeing loans and securing the future of UK banks, through part-privatisation, it can stem the flow of cash out of the country to other countries, which have guaranteed the safety of deposits in their banks, such as Ireland. It also hopes that the banks will start lending to each other and, in turn, cut the cost of borrowing to Britons and UK businesses.

Q: Does this mean the credit crisis is over?

A: The short answer is no; we are far from out of the woods and many of the factors that have caused the current situation, such as a falling housing market, because the UK bailout and other factors, such as America's plan to buy its banks' toxic debt, will take some time to work through the stagnant financial system.

In the long term, the Government’s measures will lessen the effects of recession by ensuring that banks continue to lend to people who can afford to pay them back.

Q: How will this impact taxpayers?

A: The Government has said that it will use up to £50 billion of taxpayers’ money to inject cash into UK banks in return for a stake in the banks. The terms of each deal — how much capital individual high street lenders want, over how many years and the size of the stake the Government will take in return — will be decided on an individual basis. As many of the banks’ share prices are trading well below, this could mean that taxpayers make a profit in the long term if the Government’s stake is sold at a higher price once the banks have recovered.

Q: Where will the money come from?

A: The Government will have to borrow it but it is unclear yet whether it will have to raise taxes, or whether it will mean less money for schools and hospitals, for example.

Q: Why are we helping out the banks?

A: It may seem unfair to bail out the people who many blame for causing the current situation. However, if they were allowed to fail, the effects would trickle down to other people and lead to large-scale job losses and repossessions of houses. Although it now seems almost certain that the UK will enter recession — defined as two quarters of negative growth — soon, the measures should help to stabilise the economy and allow people to borrow money for mortgages and business again.

Q: Who wins from the bailout?

A: The banks have ensured their survival, which was in doubt a few days ago. However, they are bruised and many of their directors may lose their jobs as the crisis unfolds. Sir Fred Goodwin, chief executive of Royal Bank of Scotland, is rumoured to be on the verge of leaving.

The Government hopes that its actions will help all consumers in the long term by securing their savings and helping to preserve jobs.

Q: What are the differences between the UK bailout and the US plan?

Taxpayers pay less in the UK. All $700 billion (£380 billion) of the US bailout will be funded by the taxpayer, making the UK taxpayer’s £50 billion contribution seem relatively small. The other £200 billion will come from the Bank of England’s Special Liquidity Scheme.

The US buys debt, the UK buys part of the bank. The US will use its package to buy bad debt from struggling banks – investment banks as well as retail banks - to clear up their balance sheets. The UK’s Government will actually take a stake in high street banks, depending on how much it lends them.

There’s no doubt the UK plan will happen. The US plan was almost derailed several times as the House of Representatives voted against it, but the UK plan has the support of the opposition party and is guaranteed to go ahead.

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