Alistair Darling is likely to resist pressure to guarantee all savings in British banks when he updates MPs and ministers on the financial crisis today.

The Chancellor will brief the first meeting of the National Economic Council (NEC) before addressing the House of Commons. His aides said last night that he would not be forced into making public contingency plans.

Last week the Financial Services Authority announced that it was extending the cover for savers at banks that fail from £35,000 to £50,000 from next Tuesday.

But Nick Clegg, the Liberal Democrat leader, insisted last night that Angela Merkel’s apparent U-turn had made a British blanket guarantee “completely unavoidable”. Speaking after the German Chancellor announced that all private savings were guaranteed, he said: “Germany is Europe’s economic superpower. Where it leads, others are bound to follow.”

Mr Darling said yesterday that the Government was prepared to take some “pretty big steps that we wouldn’t take in ordinary times” to restore financial stability.

One issue under discussion at today’s meeting of the NEC will be a taxpayer-funded recapitalisation of Britain’s banks, whereby financial institutions would be given billions of pounds in return for preferred shares or warrants.

The proposed scheme is based on one introduced in Sweden during a banking crisis in the 1990s. Taxpayers received generous dividends once banks recovered.

The bailout plan would enable banks to be provided with emergency funding with few stipulations on how the money was spent.

Vince Cable, the Liberal Democrat Treasury spokesman, also promoted a taxpayer-funded recapitalisation, saying that it gave shareholders the “upside when banks recover”.

The Treasury emphasised that no decisions had been taken.

Mr Cable also said that the Bank of England’s Monetary Policy Committee, which sets interest rates, should focus on supporting economic growth rather than curbing inflation, adding: “Short-term inflationary risks are massively outweighed by the risk of a once-in-a-lifetime financial collapse. In these circumstances, it’s necessary to put the rulebook to one side and adopt radical measures, including a big cut in interest rates.”

But Mr Darling rejected the call, telling the BBC’s Andrew Marr Show: “I want to make it clear that we will do whatever it takes not only to stabilise the system but to help going forward, and that means perhaps some pretty big steps that we wouldn’t take in ordinary times, but we are ready to take them because we need to get through this difficult time.

“I am not going to change that remit [of the MPC]. I think it is very important, if you establish an independent central bank, that it remains independent and free of influence from ministers.”

When the Chancellor and Gordon Brown return to Westminster today for the Emergency Economy Committee, it will be with a radically altered political team behind them. After the surprise installation of Mr Mandelson as Business Secretary on Friday, the Prime Minister completed his reshuffle yesterday with a shake-up of ministers outside the Cabinet.

Among the surprise winners was the Tory defector Quentin Davies, who becomes a junior minister at the Ministry of Defence.

It was confirmed that the job of immigration minister has gone to Phil Woolas, while Vernon Coaker gains promotion within the Home Office to become Police Minister. The champion of academy schools, Lord Adonis, makes a surprise move from education to the Department for Transport.

At the Treasury, Stephen Timms replaces Jane Kennedy as Financial Secretary. She moves to the Environment Department, where she will be Hilary Benn’s deputy. Britain’s first Muslim minister, Shahid Malik, is promoted to parliamentary undersecretary of state in the Ministry of Justice.

Chris Bryant, Sion Simon and Kevan Jones, who all signed the back-benchers’ letter that prompted Mr Blair to announce a timetable for his resignation in 2006, each gain ministerial office. Downing Street confirmed that Margaret Hodge, the culture minister, was temporarily leaving Government because of family illness.

Ministerial changes

In

John Spellar, Government Whip
Chris Bryant, Deputy Leader of the House
Sion Simon, Parliamentary Under Secretary of State at Department of Innovation, University and Skills
Jon Trickett, Parliamentary Private Secretary to Gordon Brown
Quentin Davies becomes Parliamentary Under Secretary of State at Ministry of Defence


Out

Kim Howells, Minister of State at Foreign Office
Malcolm Wicks, Minister of State for Energy at Department for Business Energy and Regulatory Reform
Tom Harris, Parliamentary Under Secretary of State for Rail at Department of Transport
Derek Twigg, Parliamentary Under Secretary of State and Minister for Veterans at Ministry of Defence


Moved

Lord Adonis, Lord Adonis, Minister of State at Department for Children, Schools and Families becomes Minister of State at Department of Transport
Stephen Timms, Minister of State for Employment and Welfare Reform at Department for Work and Pensions becomes Financial Secretary to the Treasury
Jane Kennedy, Financial Secretary to the Treasury becomes Minister of State at Department for Environment, Food and Rural Affairs
Shahid Malik, Parliamentary Under Secretary of State at the Department for International Development becomes Parliamentary Under Secretary of State at the Ministry of Justice
Phil Woolas, Minister of State at Department for Environment, Food and Rural Affairs becomes Minister of State at Home Office with responsibility for Immigration
Vernon Coaker, Parliamentary Under Secretary of State at the Home Office becomes a Minister of State at Home Office

Times Recommends

• Catalogue of failings ‘leaves others at risk’
• Tourists told to stay away amid Venice floods
• Google generation has no need for rote learning