The Government is working on plans to relieve pressure on building societies by making their funding rules more flexible.

Under new rules which will be introduced in a White Paper in a few weeks' time, the Government is planning to introduce a new instrument which would allow building societies to raise more capital from the private markets.

Officials may also change the rules on permanent interest bearing shares (pibs) to allow building socieities to expand the use of these debt schemes.

The mutual sector is in the spotlight after a series of building societies have crashed or been rescued. The most dramatic failure was Scotland's Dunfermline, which had to be bailed out by the Treasury in March after running up debts of more than £24 million.

The Government has made it clear that it wants to shore up the mutual sector as an alternative to banks. Senior officials are also keen to ensure mutuals survive because they are concerned that due to a series of mergers and bank failures, there is a high concentration of banking in a few hands. Lloyds, which now owns HBOS, has about 30 per cent of the retail banking market.

While the white paper will help mutuals as a sector, in the short term the Treasury is watching the situation at West Bromwich building society, which is due to report annual results on Monday. Bankers and Treasury officials are trying to put together a plan which would keep the society independent.

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive