A £37 billion rescue package for British banking was unveiled today, sparking an early rally on London’s leading share exchange.

The dramatic bailout for three of the UK’s biggest banks – branded “unprecedented but essential” by Prime Minister Gordon Brown – helped lift the FTSE 100 Index by more than five per cent to 4174 points.

The Government announced it will buy £15 billion worth of shares in Royal Bank of Scotland as well as pumping in an extra £5 billion of emergency aid.

Lloyds TSB will receive £5 billion of taxpayers’ cash in aid. HBOS will also receive aid worth £11.5 billion and the Government will buy a further £3 billion of shares in the stricken bank prior to a planned takeover by Lloyds TSB. 

Barclays said it is not turning to the Government for emergency funding, unveiling instead plans to raise more than £6.5 billion from investors to help its balance sheet. The high street bank also said it will not pay a final dividend for 2008, saving the group £2 billion.  As part of the unprecedented deal, RBS’s under-fire boss Sir Fred Goodwin, who earned £4 million last year and asked investors for £12 billion to help shore up the group, is also to step down. 

The Government revealed the bailout plan just hours after EU leaders signed up to Mr Brown’s blueprint for recovery. 

The announcement, after an emergency summit of eurozone countries in Paris yesterday, was seen as a significant personal victory for the Prime Minister.