Chancellor Alistair Darling has outlined plans to increase protection for savers in the event of their bank or building society running into financial difficulties.

Under the suggested reforms, higher levels of savings in a single bank could be guaranteed if the bank fails.

Currently, the Financial Services Compensation Scheme (FSCS) secures savings up to £35,000 in each bank. However, the threshold for guaranteed deposits could rise to £50,000 if the proposals are implemented as planned.

The Government hopes the new measures will restore public confidence in the banking system following the Northern Rock debacle last year, when the FSCS regulations were called into question by savers and MPs.

Introducing the proposed amendments, Darling said: ‘No system of regulation can or should prevent the failure of each and every institution, but we must do everything possible to prevent problems which could pose a wider threat to stability.

‘The challenge is to ensure that the authorities can act quickly and decisively where necessary to support financial institutions. These proposals will give the authorities the full range of powers they need.’

The British Bankers’ Association (BBA) has opposed the move, arguing that savers should simply reduce the risk by investing in a range of accounts.

It is expected that the proposed changes, which are currently under consultation, will come into effect in the Autumn or the beginning of 2009.