Northern Rock Rescue £57Bn or £1,800 each

The Northern Rock crisis is threatening to cost every taxpayer up to £1,800, as it emerged Gordon Brown was warned a year ago that "urgent action" was needed to prevent a banking meltdown.

Ministers yesterday announced that public guarantees to the beleaguered bank could rise to £57 billion - almost as much as the annual Whitehall education budget - with a full-scale nationalisation now thought to be imminent.

Mervyn King said that Ed Balls was told that ‘urgent action’ was needed to avoid the potential collapse of a bank

In a further development, the governor of the Bank of England, Mervyn King, revealed that the Prime Minister had been informed that Britain was uniquely vulnerable to a run on a bank.

Mr King told MPs that Ed Balls, one of Mr Brown's closest colleagues, was part of a top-level Whitehall group warned last year that "urgent action" was needed to deal with the potential future collapse of a retail bank.

Mr Brown, the then Chancellor, was copied in to minutes of the meeting in November 2006 but the Government failed to introduce new safeguards before the Northern Rock crisis erupted in the summer.

Gordon Brown insists that the economy remains fundamentally sound despite global financial turbulence.

The Prime Minister said he had earlier held talks on the state of the economy with Chancellor Alistair Darling, Bank of England Governor Mervyn King and the chairman of the Financial Services Authority, Sir Callum McCarthy.

Later he will be speaking to US President George Bush.

Addressing his last Downing Street press conference of 2007, Mr Brown said he wanted to hear, at first-hand, measures being taken to ensure stability.

"I heard from the Governor and the chairman of the Financial Services Authority that inflation has been brought down, and remains low, demonstrating that the fundamentals of the British economy are, and remain, sound," he told reporters.

Mr Brown insisted that inflation was lower in Britain than in the US or Europe, demonstrating that measures this year - including controlled increases in public sector pay - had been effective.

"We stand able to weather the global financial storms and to respond where necessary, as the Bank of England has already done, with a cut in interest rates," he said.

Standing alongside Mr Darling, the premier added: "This year has been about progressively addressing one by one the long-term challenges this country faces.".….

A wave of bad economic figures swamped the government on Thursday, the day after the prime minister and the chancellor insisted the UK economy was fundamentally strong and would “weather” global financial storms.

None of the economic data published contained Christmas cheer for the Treasury. The credit squeeze has contributed to the worst public finance deficit ever in the first eight months of the financial year; the first drop in new lending by banks and building societies for two years; almost no growth in money deposited in banks; a record current account deficit; and economic growth in the third quarter generated in the main by consumers spending borrowed money.

The most worrying figure for the government is the sudden and deep deterioration in the public finances, brought about in the main by a shortfall of tax revenues.

Between April and November this year, public sector net borrowing stood at £36.2bn, the worst figure on record. In nominal terms, it was even worse that the £33.9bn deficit recorded over the same period of 1993-94, when the then Conservative government ended up borrowing £51.1bn – nearly £1,000 for every person in the UK – and was forced to raise taxes sharply.

Most worrying for the Treasury is that the shortfall comes in the main from lower tax revenues rather than higher public spending, and so is harder to rectify over the rest of the financial year. To hit its pre-Budget report estimates for borrowing, Alistair Darling, the chancellor, now needs an unprecedented improvement in the public finances over the remaining four months of the financial year..….