Hopes that HBOS might survive as an independent bank were dealt a double blow by the Treasury and the bank's own workforce yesterday.

Alistair Darling, the Chancellor, said that the government's terms for any future bank bail-out would be much tougher and expensive than previously offered. And Accord, the HBOS staff union, said it did not believe that HBOS could survive as an independent entity.

The statements, issued on the eve of the Lloyds TSB shareholders' vote on the takeover in Glasgow today, are a severe setback to the hopes of Sir Peter Burt and Sir George Mathewson, the former Scottish bank bosses campaigning to block the takeover.

Mr Darling said in a written statement that the terms did not apply only to any new applications for aid from the government's bank recapitalisation scheme but also to any bank already in the scheme that might seek to renegotiate the deal already struck.

The Treasury, he said, was still focused on maintaining financial stability, safeguarding the interests of taxpayers, and protecting depositors and consumers. But, he warned: “There is no automatic right of access to the recapitalisation scheme.”

He said that a number of “high-level conditions” would have to be met, including a plan for the right level of capitalisation as determined by the Financial Services Authority.

Lloyds TSB has said that it thinks HBOS will need £10 billion of capital if taken over, and £12 billion as a stand-alone bank.

Mr Darling also said that an applicant institution must have a sustainable business plan and a plan to fund its loan operation. In June HBOS had outstanding loans of £456 billion, of which £198 billion was not covered by deposits. This condition appears to be directly aimed at Sir Peter, a former chief executive of HBOS, and Sir George, a former chief executive and chairman of RBS, who have yet to produce a business or funding plan.

Mr Darling said that shares offered for sale in any new recapitalisation scheme would have to be at a discount on the market price of at least 8.5 per cent. His statement implied that the discount demanded could be larger, which would lead to a greater dilution of existing shareholdings, rendering an independent HBOS much less attractive to current shareholders.

He also said that the interest charged on any preference shares would be set according to “prevailing market conditions”, a sign that it may be the 14 per cent coupon accepted by Barclays Bank on the Middle East funds it recently acquired rather than the 12 per cent set by the Government in the initial rescue scheme.

In another development, Ged Nichols, general secretary of Accord, the staff union representing half of HBOS workers, said: “All the evidence suggests that, as things currently stand, the only way forward for HBOS is a takeover.

“Because of the bank's reliance on the wholesale market for funding and its exposure to the UK housing and commercial property sectors, we do not believe that HBOS could have a secure and sustainable future on its own.”

Mr Nichols said that the requirement further to increase capitalisation above the £11.5 billion limit set by the Government would mean that the Government would be a majority shareholder. He said: “This would mean HBOS would be subject to European Union competition rules - like Northern Rock and Bradford & Bingley - which would reduce its ability to compete for new business.”

A spokesman for Sir Peter and Sir George said last night that they were studying the statement.

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