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Capital Markets

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Categorized | Banks

Taxpayers face losses of £27bn for bailing out banks

Posted on November 23, 2016

UK taxpayers face £27bn of losses from bailing out some of the largest high street banks during the financial crisis after their share prices dropped following the Brexit vote.

The Office for Budget Responsibility, the fiscal watchdog, has increased its estimates for potential taxpayer losses for propping up the banks eight years ago by more than £9bn.

It comes after the OBR said in March that it expected costs of £17.5bn, and marks the second time in 2016 that the watchdog has revised down the value of taxpayers’ stakes.

The UK government stumped up £137bn to save high street banks — including the Royal Bank of Scotland, Northern Rock and Lloyds Banking Group — that either failed or were on the brink of collapse during the financial crisis.

But shares in UK banks slipped after the Brexit vote amid concerns of exposure to a weakening economy, reducing the value of the government’s holding.

The OBR also warned that falling share prices and further delays to selling off RBS would increase the UK’s debt by £22bn. The value of the government’s stakes in RBS and Lloyds has dropped by £6bn in the past six months. Chancellor Philip Hammond’s announcement that now is not the right time to sell more RBS shares increases the debt forecast by a further £16bn.

Mr Hammond said at a conference last month in Washington that “it is clear that the disposal of the RBS shares at a price that recovers the taxpayers’ investment is not practical at the moment”.

He said that any sale would only come after the bank had resolved a number of its “problems”. These include a likely multibillion-dollar settlement of the US Department of Justice’s probe into mis-selling of mortgage securities and the disposal of Williams & Glyn, a retail bank, as a condition of European state aid rules.

RBS has had eight years of consecutive annual losses, amounting to a total deficit of more than £50bn, weighed down by restructuring charges, bad loans and litigation costs.

The government still owns a 72 per cent stake in RBS. The OBR expects it will not be selling down its holding for at least another five years. RBS shares are down more than 30 per cent year to date, languishing at 202p.

Earlier this week, the government announced it had reduced the taxpayers’ holding in Lloyds to less than 8 per cent.

Mr Hammond said the government aimed to return Lloyds to the private sector fully by April 2018.

• Separately on Wednesday, the government said it would “continue to consider the balance between revenue and competitiveness” with regard to bank taxation, “taking into account the implications of the UK leaving the EU”.