The increase, which applies from today, will mean consumers’ deposits will be covered for up to 100 per cent of the first £35,000 per institution. Darling also announced plans for a review of compensation arrangements. Speaking today at a conference on financial stability, the Chancellor said the Government needed to maintain confidence in the UK financial system by creating ‘a new orderly process with a better protection scheme as its foundation’.

The new compensation limits will be a first step towards more fundamental reform that will be presented to Parliament and consulted on with the Financial Services Authority (FSA), according to Darling.

Clive Briault, managing director of retail markets at the FSA, said, ‘At a time of market uncertainty it is important for consumers to know their deposits are properly protected. The action we have taken is designed to help reassure depositors with accounts up to £35,000 that they are 100 per cent covered. The Government has indicated that it will propose further changes relating to financial services compensation arrangements in the UK designed to give consumers confidence that their savings and deposits are safe and secure.’

Previously, the Financial Services Compensation Scheme (FSCS) covered a maximum of £31,700, comprising 100 per cent of the first £2,000 held by a depositor at a particular institution and 90 per cent of the next £33,000.