"We concluded in 2009 that the support provided to the
banks was justified but that the final cost to the taxpayer would
not be known for a number of years. A year on and we have more
information. The most likely scenario is that the taxpayer will not
pay out on the guarantees. Optimism on this score should be
tempered, however, with the realization that the risk of further
shocks to the financial markets and of significant loss to the
taxpayer has not gone away. The Treasury is likely to be paying for
the support it has provided to UK banks for years to
come"
Amyas Morse, head of the National Audit Office, 15
December 2010
The National Audit Office has today reported that the scale of
the support currently provided to the banks has fallen from its
peak of £955 billion to £512 billion as at 1 December 2010.
However, the amount of cash currently borrowed by the Government
to support UK banks has risen by £7 billion since December 2009 to
a total of £124 billion. The report also warns that the Treasury
will probably be paying for the support it has provided to UK banks
for years to come.
The most likely scenario is that there will be
no overall loss on the main guarantees, namely, the Asset
Protection, Special Liquidity or Credit Guarantee Schemes. The
Treasury had originally estimated on the information available in
2009 that the total cost of this support might be between £20
billion and £50 billion.
While the UK banks appear to have survived
further external shocks in 2010 (such as the Eurozone sovereign
debt crisis), investors’ perceptions of the risk of investing in UK
banks remain as high as the summer of 2008, when some banks around
the globe were reporting difficulties, but before the failure of
Lehmans. Further shocks to the banking system (such as the collapse
of a UK bank) could still lead to significant losses for the
taxpayer.
The Treasury aims for the support schemes to
be temporary. However, winding the support down quickly will be
challenging and it is likely that the Treasury will be committed to
at least some of its guarantees, loans and share investments for
years to come.
The eventual cost or return to the taxpayer as
a result of the Treasury’s support of the banks is dependent on the
Treasury’s successfully disposing of its shares in RBS and Lloyd’s
and recouping its loans to the banking sector. Meanwhile, the
Government is paying £5 billion a year (£10 billion so far) in
interest on the Government borrowing required to finance the
purchase of shares and loans to banks. So far, this has been offset
by the fees and interest received by the Treasury from the
supported banks, but these are likely to fall in future.
Publication details:
HC: 676, 2010-2011
ISBN: 9780102965612