The taxpayer will be asked to gamble hundreds of billions of pounds today in a second bank bailout.

The Government will offer a massive package to guarantee lending and insure banks' bad debts.

Barclays may have to accept government stakes to take part in the £200 billion scheme under which the taxpayer could foot a potentially unlimited bill for bad debts such as sub-prime lending in America.

High street lenders were locked in negotiations last night over the terms of the insurance plan, which will provide payouts from the public purse if the value of a bank's “toxic assets” falls below certain levels.

The Treasury hopes that billions of pounds will be freed up for home-owners and businesses because the banks will no longer need to hold back vast sums in case of a default.

However, even as the plans were being prepared, Tony McNulty, the Employment Minister, admitted that Britain had not yet seen the worst of the downturn.

The package of guarantees and additional loans will be announced before the stock market opens. Other elements include:

- The news that the Government has increased its stake in the Royal Bank of Scotland from 58 to 70 per cent;

- A new £100 billion mortgage guarantee scheme to underwrite lending between banks and financial institutions, first proposed by Sir James Crosby, the former HBOS chief executive;

- An extension to the £250 billion credit guarantee scheme announced in October until the end of the year;

- Provisions for Northern Rock to start lending to customers again, if approval is granted by the EU;

- A new Bank of England scheme to replace the Special Liquidity Scheme that allows banks to swap illiquid assets for gilts.

Lloyds TSB, which completes its merger with HBOS today, was also in talks with the Government over whether it would swap expensive “preference” shares for a larger number of ordinary shares. Lloyds was resisting attempts by the Treasury to increase the taxpayer stake from 43 per cent to over 50 per cent.

The Treasury had been looking at the proposals for some weeks after it became clear that the initial £37 billion bailout in October had failed to provide a sufficient platform for normal lending to resume.

However, the plans were given added urgency by Friday's sharp stock market falls amid fears that the banks were set to reveal further huge writedowns.

Gordon Brown will express his frustration today at the failure of banks to start lending again after it emerged that some had been providing foreign companies and individuals with vast sums. “What I want to see is people who are mortgage holders having access to mortgages at prices they can afford. That's what tomorrow's programme is all about,” he said.

More bad economic news is expected this week, with unemployment figures on Wednesday expected to show that two million people are now out of work.

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