SCOTLAND faced a massive shock last week when the Government took big stakes in three of our major banks, leaving Chancellor Alistair Darling in control of nearly half the UK's mortgages.
But his hegemony doesn't stop there. Royal Bank of Scotland, Halifax Bank of Scotland and Lloyds TSB are diverse businesses serving millions of consumers. They have giant insurance businesses, which means Darling could in future rule over how much
you get when someone crashes into your car, or your house floods.
He could decide whether you get a credit card, how much your overdraft might cost or even influence the size of your private pension.
Never before have politicians been handed such a powerful and potentially intrusive role in our financial lives. Scotland on Sunday examines how this will impact on your savings, borrowings, insurance and other personal money matters, and the price you will have to pay.
Mortgages The good news is some commentators, such as Roger Bootle at Capital Economics, believe the situation is now so dire that interest rates may have to fall as low as 1% to reboot the economy. This would push borrowing costs to the lowest level for 300 years.
The bad news is that the bank base rate has become almost an irrelevance when it comes to pricing mortgages. The key rate is Libor, the rate banks charge each other to borrow money, and that remains high. Despite last week's 0.5% reduction in base rate to 4.5%, Libor only fell 0.1% last week from 6.2% to 6.1%. Lenders will want to charge as much as 2% more to cover their own costs.
Prime Minister Gordon Brown has urged the banks, as part of the rescue deal, to start lending to each other again and to increase lending to homebuyers and small businesses to the levels seen in 2007.
Angela Knight, chief executive of the British Bankers' Association, said she believed institutions had begun to advance money to each other and that this process would speed up next week when the Government's guarantee that it will stand behind interbank lending comes into force.
Against all that, however, the priority for many institutions, but particularly for those now finding themselves under partial Government control, will be to rebuild their balance sheets and recapitalise the business so that they can become independent again.
This means that almost irrespective of interest rate levels, mortgage rates will remain comparatively high as banks protect their profit margins.
Skipton chief executive John Goodfellow said: "We may see interest rates down at very low levels, but mortgage rates won't fall that far. The banks won't be able to afford that."
Lloyds TSB and Woolwich both increased the cost of their trackers last week, despite the base rate cut.
Unemployment Redundancies have already begun, but are likely to gain pace in the light of the pending recession and deepening financial crises. The bank bosses who left their organisations so ignominiously last week are just the beginning. Surveyors, estate agents and solicitors, who have seen a sharp drop in the number of properties being sold, are already shedding staff.
HBOS has announced more than 325 job losses in its mortgage and estate agency divisions, but thousands more jobs will be lost if the merger with Lloyds TSB goes ahead. A shakeout is also expected at Royal Bank of Scotland.
Small businesses of all kinds could also be badly hit, not just because credit to develop will continue to be tight and orders weak, but because they are owed money.
According to accountants, we are seeing the first signs of companies not being paid.
But as one market observer said: "Jobs were always going to be lost as a result of the recession. The question is will this be a recession or a depression. We must hope we escape relatively lightly with a recession."
Most commentators now believe unemployment will reach two million, possibly as soon as Christmas, with the more pessimistic predicting it will top three million next year.
Repossessions More people will lose their homes because of mortgage difficulties as unemployment rises, despite Government moves to speed up the state help available to those who lose their jobs. As many mortgages are held by joint buyers, state support will only kick in if both are made redundant.
But the Government's record on repossessions is not good. After it ushered Northern Rock into state ownership in February, it kicked 4,201 homeowners onto the streets in the nine months to the end of September.
In other words, nearly one in 100 NR borrowers has had a home repossessed, which is two and a half times the industry average of one in 250.
Labour MP John McDonnell, who heads the think tank Left Economics Advisory Panel, said: "We fully nationalised Northern Rock, yet the Government's bank is becoming the most ruthless and aggressive repossessor under the cosh of Government pressure to repay the loans. The Government is in danger of being seen as protecting banks while ignoring people."
Savings Predictions that interest rates will plunge as low as 1% will be greeted with horror by those who rely on their savings to live. For while some experts expect mortgage rates to remain relatively high compared with the base rate, banks are expected to slash their returns to savers as they rebuild their balance sheets.
As one source said: "They'll have to get the money from somewhere to rebuild their capital. I believe savers will bear the brunt."
Insurance The Government should not be directly involved in the insurance businesses in which it has acquired stakes, such as Direct Line, Churchill and Esure. However, MPs could come under pressure from constituents to introduce a more consumer-friendly approach. In the long run this could push up prices for drivers and households.
PensionsPrivate pensions have been badly hit by the gyrations in stock markets, where employees have seen more than £150bn wiped off their savings, but there could be much worse to come. Many employer pension funds hold big chunks of bank shares, which were accumulated for the dividend income.
These funds could face increasing difficulties if the Government presses ahead with its moratorium on dividends until taxpayers get their money back.
But private pensions will also be hit by the sharp downturn in the banking sector and the removal of dividends.
TaxThis historic bailout will have to be paid for, most likely through higher taxes. An outright increase is not on the cards any time soon, although some tweaking of VAT looks increasingly likely. Council tax payers will also have to foot the bill for the £1bn invested in Icelandic banks which may have been lost.
But over time, taxpayers should expect more pain, with increases in income tax far from off the cards.
