Sir Peter Burt, HBOS's former deputy chairman, said the battle to stop the proposed takeover by Lloyds TSB was gaining widespread support among shareholders.

Jim Spowart, a former HBOS executive, and Alex Neil, an SNP MSP, said at the weekend that they had admitted defeat in the attempt to find an alternative bidder for the bank, and they accused the UK government of undermining their efforts.

But Sir Peter, who is campaigning to stop the Lloyds move alongside former Royal Bank of Scotland chief executive Sir George Mathewson, said analysis of figures in a circular put to HBOS shareholders last Friday had strengthened the case for its independence.

The circular from Lord Dennis Stevenson, the HBOS chairman, revealed that only an extra £500 million would be needed from the government to allow the bank to stand alone.

He said the £11.5 billion offered to HBOS as part of the newly merged bank would have to increase to £12 billion.

If this were to happen, the government would have a 59.9 per cent share in HBOS – marginally less than the 60 per cent of RBS it has taken.

In addition, Sir Peter said HBOS shareholders would get more than twice the 20 per cent stake they were being offered in the bank if it were to be taken over by Lloyds.

"Assuming these figures are correct, then it shows that the option of staying independent is still much better all round," he said.

He added that, in the long term, HBOS standing alone would be better for jobs, which would be put under threat by the £1.5 billion of savings proposed by Lloyds directors, and for customers, because of the undermining of competition created by the proposed superbank.

Sir Peter said it was "disgraceful" the HBOS board had not sought advice from the government on how much the £12 billion package would cost the bank. "If you had an estate agent who recommended that you accept a really poor deal for your house, and then said there was a second option but it was not worth asking what might be offered, then you would sack that estate agent pretty quickly," he said. "The same is true regarding this offer for HBOS."

He said he was still very optimistic of getting the 25 per cent of shareholders needed to block the Lloyds takeover at the bank's decision-making meeting on 12 December.

"In reality, only about 80 per cent of shareholders usually vote in these circumstances, so we need about 20 per cent," he said.

"We have been contacted by many shareholders who support our view, which is now being borne out by the facts."

HBOS itself reiterated that remaining independent was too risky, and it attacked Sir George's proposal to put himself on a new HBOS board, as he is still involved with RBS. He receives £75,000 a year as a consultant in an agreement dated 26 April, 2006, which runs until 31 July, 2009.

"You have to question whether somebody with such strong connections to a rival can take an important role in HBOS," a source within the bank said.

But the two banking knights have won tentative support from the UK Shareholders Association. Roger Lawson, a spokesman, said: "We need to see further details from Sir Peter and Sir George, but it does appear that it would be beneficial for many of the small shareholders that the deal does not go through."

He said that, as a Lloyds shareholder, he would be voting against the takeover because he was less than convinced by the board's recommendation that it was "the deal of the century".

Despite not finding an alternative bidder, Mr Neil said there were still many grounds for optimism. "Often last-minute deals come out of the woodwork, but I think many of our hopes must be in the efforts of the two banking knights. We should not pull up the white flag on this until HBOS shareholders have voted. You have to remember the board needs 75 per cent support for this deal for it to go through."

He and Mr Spowart were extremely bitter at what they saw as Treasury attempts to block their efforts.

"There is no doubt in my mind Gordon Brown was behind this," Mr Neil said. "He is so politically tied into this deal, and his credibility is so tied into it that he would not accept any alternative.

"There is no doubt in my mind that there has been a campaign of leaking from the Treasury. You only have to read Richard Branson's account of his attempts to buy Northern Rock.

"He says that before he had left the Treasury building, details of his discussions had already found their way to (the BBC journalist] Robert Peston."

Mr Neil added: "The other agenda here is to attack the SNP."

Mr Spowart insisted there had been an alternative to Lloyds, which had now, in effect, been scuppered by the Treasury.

"People are trying to brief that there was no alternative, but there was," he said.

He accused the UK government of briefing against him and questioned why Labour MPs and MSPs had stopped calling him last week. "The first question they always asked was who I had lined up," he said. "Clearly they wanted to find out."

Tavish Scott, the leader of the Scottish Liberal Democrats, said: "It's a disgrace what has been going on. This will be hugely damaging for Scotland and will cost thousands of people their jobs. I hope the redundancy notices have Mr Brown's name on them."

The UK government has refused to comment on the allegations it had scuppered the deal. But one Whitehall source said they were "outrageous and completely untrue".

The official line remains that the Lloyds offer is the only one on the table and offers the banking sector financial stability.

Q & A

Small shareholders have most to lose if takeover deal is given the go-ahead at twin meetings

What happens next?

Lloyds shareholders will meet to vote on the deal on Wednesday. More than 50 per cent of those present at the meeting need to agree to it for it to go ahead. On 12 December, HBOS shareholders meet; 75 per cent of them will need to support the takeover deal.

What about the extra general meeting to sack the HBOS board suggested by Sir George Mathewson and Sir Peter Burt?

This is unlikely to happen – it would require the support of 10 per cent of shareholders to call the meeting and the votes of 50.1 per cent of all shareholders, not just those present, to sack the board.

Is it impossible for another bid to come forward?

No, although it seems unlikely. Rival bids for companies and institutions have been known to come in at the last minute and if the HBOS takeover is really "the deal of the century", as Lloyds' board has claimed, then a rival bid cannot be completely ruled out.

What are the alternatives?

The main alternative is for HBOS to remain independent and to be nationalised, with the UK government holding a majority stake.

Wouldn't nationalisation be a disaster for HBOS shareholders and mean that they lose everything?

No. If the UK government has a stake of around 60 per cent that means shareholders would have 40 per cent in HBOS – double the 20 per cent in the new merged bank offered under the Lloyds deal. The value of their shares would improve as the banking sector picked up again.

So why are many institutional shareholders backing the Lloyds TSB deal?

Many of them have shares in both banks. In the short term they could gain more in their Lloyds shares than they would lose in their HBOS shares. It is small shareholders in HBOS, many of whom received shares when Halifax demutualised, who stand to lose the most.

Hotline offers help to those struggling as debts mount

A NATIONAL hotline is being promoted to help Scots facing debt problems in the economic downturn, it was announced yesterday.

ATMs will carry adverts for the campaign by the Money Advice Trust, which will also feature on TV and online.

Free advice will be given to those calling the phoneline in a bid to help people address financial problems before letting them spiral out of control.

The campaign has been backed with £382,000 of Scottish Government funding.

Deputy First Minister Nicola Sturgeon said it was important for people to be honest with themselves and seek help sooner rather than later.

Ms Sturgeon said:

"The main message we want to get across is for people to take control of their debt, before it controls them."

The National Debtline number is 0808-808 4000.

Government sources have strongly hinted that the Chancellor's Pre-Budget Report, to be delivered next Monday, will contain a fiscal stimulus package worth between £15 billion and £30 billion.

Low-income families have been touted as the biggest winners, probably through the tax credit and winter fuel payment systems.

Depending on how much was directed towards lowering taxes, the average family's bill could be cut by up to £1,000.

There is also expected to be a large increase in public spending, with Mr Darling having already gone on the record discussing help for the building industry in funding more public projects.

This would be funded through public borrowing, an approach that has been attacked by the Conservatives.

LUCY CHRISTIE

Chancellor set for early Christmas gift of tax cuts

A MULTI-BILLION-POUND package of tax breaks is expected to be Alistair Darling's pre-Christmas gift to taxpayers in an effort to stimulate the economy.

They have claimed Gordon Brown, the Prime Minister, and Mr Darling are trying to "max out the credit card" at the expense of future generations.

Shadow chancellor George Osborne, who has been under fire for claiming there could be a run on the pound, ruled out either proposing "unfunded" tax cuts, or supporting the government's package when it is unveiled next week.

Mr Osborne said: "We are warning the country that Gordon Brown is abandoning fiscal responsibility and when a government does that it stacks up debt for future generations and stacks up tax rises for future generations as well."

He added: "The choice in British politics is going to be funded tax cuts from the Conservative Party, and a tax con by the Labour Party that has abandoned 15 years of rhetoric on fiscal stability."

Mr Darling refused to be drawn on the contents of his Pre-Budget Report yesterday, but strongly hinted it would include tax breaks.

He said: "When you are in an economic situation like this it is right to do everything you can to help people get through a difficult period, but it is also right that you do things that will help the country as a whole get through it more quickly."

He went on: "If this (package] is going to work here or anywhere else you need to do something decisively and you need to do it quickly so that it has an effect as quickly as you possibly can.

"At a time when the economy slows down, your tax receipts start to fall. If you then were to start cutting spending or trying to get more tax out of people that would make a difficult situation worse.

"So what you do is you support the economy by helping businesses and by helping people. But at the same time it has got to be sustainable in the medium-term, which means you have got to live within your means."