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Chancellor of the Exchequer Alistair Darling vowed to respond to the financial crisis by tightening regulation and cracking down on bonuses, as the U.K. government tries to improve its standing with voters.

The Treasury will introduce a bill in Parliament within two weeks to redraw U.K. banking rules, and regulators will probe a bonus culture that spurred excessive risk-taking, Darling told the ruling Labour Party's annual conference in Manchester.

“We are putting in place both here in the U.K. and internationally the tougher financial regulation no one can doubt we need,'' he said. “I will continue to do whatever it takes to maintain financial stability and I remain confident we will do so.''

Darling and Prime Minister Gordon Brown are counting on their handling of the financial turmoil to turn around Labour's political fortunes as polls point to a landslide victory for the opposition Conservative Party at the next general election.

Darling said a “culture of huge bonuses'' had distorted financial decisions, although he dismissed calls from unions and some Labour lawmakers for legislation to limit the payouts to bankers. He defended the decision to limit the influence of speculators by banning short selling of financial shares for the rest of the year.

Banking Bill

The government will introduce the banking reform bill when Parliament returns from its summer break early next month, he said.

The legislation, promised by Brown in May, was prompted by the collapse of Northern Rock Plc a year ago. Depositors besieged Northern Rock branches for days after the credit crunch cut off the mortgage lender's main source of funds.

The bill aims to make it easier for U.K. authorities to intervene when a bank gets into difficulties and increase the safety of customer deposits by expanding compensation arrangements.

Brown is staking his own survival on convincing voters that his command of the crisis — he last week helped to secure the takeover of HBOS Plc after shares in the mortgage lender collapsed — proves he is the best person for the job.

A revolt against Brown's leadership erupted this month as about a dozen Labour lawmakers called for a contest to replace him, although no one has joined in recent days after Cabinet ministers rallied behind him and demanded an end to the squabbling.

Endorsement

Darling began his speech with an explicit endorsement of Brown.

“These are very uncertain times. But one thing I am certain about is that we have the right prime minister,'' he said faxless payday advances. “A prime minister with experience and judgment who has helped deliver a decade of rising living standards.''

Brown began to lose support in October, three months after he took over from Tony Blair, after he allowed speculation about an early election to build, only to back away when a Conservative tax-cutting pledge proved popular with voters.

His woes deepened as the housing slump worsened and soaring food and fuel prices ate into household incomes. With Britain on the brink of a recession, popular support for the Conservatives is at its highest since Margaret Thatcher was prime minister 20 years ago, an Ipsos-Mori Ltd. poll published last week showed.

The slump has damaged Brown's reputation, built during a decade as finance minister, as a competent manager of the economy who presided over the longest expansion in 200 years.

`Times are Hard'

Darling today repeated that Britain is a victim of global events, and that the economy is well placed to deal with the fallout. He acknowledged that that “times are hard,'' saying unemployment had risen and that inflation is higher than he would like.

Critics meanwhile say Brown stood by while households amassed record debts, much of it tied to a housing boom that burst, and bankers earned billions for bets that led to the credit crunch. In the U.K. alone, bonuses totaled 7 billion pounds ($13 billion) last year.

Darling “must curb boardroom pay,'' said David Prentis, general secretary of the Unison union, which represents 1.34 million government workers. “That is causing huge resentment among ordinary, hard-working families.''

Brown has also left little room to offer a U.S.-style fiscal stimulus after he borrowed heavily to pay for investment in schools and hospitals, the Conservatives say. Debt has climbed to 38.3 percent of gross domestic product, from 30 percent six years ago, putting Brown at risk of breaking the 40 percent ceiling he imposed in 1997.

Darling ruled out immediate tax rises to curb the budget deficit, saying now is not the time to take money out of the economy, but left the door open to increases in future.

Governments had to live within their means in the medium- term, and the annual pre-budget report later this year will set a course of “sound'' pubic finances, Darling said.

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