Alistair Darling has promised more effective supervision of banks and criticised financial institutions that try to hide risky investments.

As the Chancellor opened the Labour Party conference in Bournemouth yesterday, he acknowledged that improvements were necessary after what had been “a difficult week” for savers. He also sought to shift the blame for the Northern Rock crisis, which resulted in thousands of customers withdrawing their savings, on the mortgage lender’s “bad decisions”.

Mr Darling confirmed that the Government would increase protection for savers by guaranteeing deposits of up to £100,000 under a new compensation scheme. “My job is to protect ordinary savers. So we need to strengthen protection for ordinary savers — to give them confidence, ensuring that their savings in a bank or building society are guaranteed,” he said.

He made clear that heads should roll at Northern Rock. “No government should ever be in the business of protecting executives who make the wrong calls or bad decisions,” he said.

In an uncompromising message to secretive private equity firms and hedge funds, Mr Darling restated his demand for international action to improve transparency. “We need effective regulation in international markets [and] far greater openness and to prevent risky investments being hidden off the balance sheet. We need effective supervision for banks, here and across the world.”

Mr Darling said that the “run on the Rock” had vividly demonstrated the consequences of globalisation. “Today when a Florida householder defaults on his mortgage, the effects are felt not just in America but across the world,” he said. But despite his criticisms, he praised the City’s performance, saying that the financial services industry was of “vital importance” to the national interest.

He also said that Britain was ready to meet the “massive challenge” of China and India’s economic rise by investing more in education and science.

After more than ten years in which a chancellor’s address to the Labour conference was scrutinised for signs of tension within the Government, it was perhaps inevitable that this year’s speech would lack drama. In a 16-minute address to a half-empty hall, Mr Darling sought to make a virtue of his reputation as one of Britain’s most cautious politicians, posing as the nation’s bank manager, as Gordon Brown did before him.

“Chancellors are not in politics to find a fan club. I am cautious and I will always be cautious with other people’s hard-earned savings and with our hard-won stable economy,” he said.By contrast, he said, the Conservatives were guilty of opportunism, inconsistency and incoherence. He mocked as “dangerous nonsense” a Tory proposal on the regulation of mortgage lenders. The Conservatives’ economic competitiveness group states: “There is no need to continue to regulate the provision of mortgage finances, as it is the lending institutions taking the risk.” Mr Darling said: “Does David Cameron, today, really think there is no need to regulate the mortgage market?”

Labour has been buoyed by recent opinion polls, which suggest that the party’s reputation for economic competence was largely undamaged by the Northern Rock crisis. Party stategists believe that the present financial instability may be working in Labour’s favour because of its dominance over the Tories on the economy.

Mr Darling said that a Conservative government would not be a “cost-free option” and that the poor would be “the first to pay the price”.

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