Between 2007 and 2010, the Treasury made a series of large financial interventions to support the financial stability of UK banking. These interventions supported four broad aims:
- to protect depositors;
- maintain liquidity for UK banks;
- maintain capital for UK banks; and
- to encourage banks to lend to creditworthy borrowers.
In line with international good practice, the Treasury and the National Audit Office have worked to ensure that the scale and costs of the various government interventions are transparent. This page sets out the work the National Audit Office has done on the banking interventions and answers some frequently asked questions.
All figures are based on the most recently published HMT Annual Report and Accounts (currently for the year ended 31 March 2016) and will be updated annually.
Frequently Asked Questions (FAQs)
Q: Why did the Government provide support to UK banks?
In 2007, financial markets entered a sustained period of instability, causing difficulties for banks across the world, precipitating a global credit crisis, a widespread economic downturn and, by 2010, concern over certain Eurozone governments’ ability to service their debt obligations. The Treasury, like many other finance ministries around the world, took actions to:
- protect depositors in banks suffering insolvency or a severe decline in market confidence;
- maintain liquidity to allow banks, whose failure would threaten the overall financial system, to pay claims and outstanding borrowings as they fell due;
- ensure that banks whose failure would threaten the overall financial system would have sufficient capital to cushion them from losses caused by further deterioration in the financial markets; and
- encourage banks to lend to creditworthy borrowers.
Q: What support did the Government provide?
The Treasury’s support to the banks included:
- Recapitalisation of Lloyds Banking Group (Lloyds) and Royal Bank of Scotland (RBS) through a series of transactions eventually acquiring 83 per cent of RBS (but 68 per cent of the voting rights) and 41 per cent of Lloyds (of both ordinary shares and voting rights).
- Lending money to the Financial Services Compensation Scheme so it could guarantee customer deposits of up to £50,000.
- Lending directly to insolvent banks so they could repay customer deposits of over £50,000, including to London Scottish Bank, Dunfermline Building Society and the Icelandic Banks – Heritable, Kaupthing Singer and Friedlander, and Landsbanki.
- Nationalising Northern Rock and Bradford & Bingley to protect their depositors and facilitate the orderly unwinding of their obligations and the Treasury’s guarantees.
- The Special Liquidity Scheme, introduced in April 2008 and lasting until January 2012, to increase the liquidity of UK banks. It was a Bank of England scheme, supported by a Treasury guarantee, under which banks to swapped assets for more liquid Treasury Bills in return for a fee.
- The Credit Guarantee Scheme, introduced in October 2008, to help restore investor confidence in bank wholesale funding by guaranteeing certain unsecured debts in return for a fee. The scheme closed in 2012.
- The Asset Protection Scheme, announced in January 2009, to protect assets on banks’ balance sheets. RBS and Lloyds initially agreed in principle to join, but in the end only RBS joined. The scheme closed in 2012.
This list excludes loans and commitments to other countries and wider interventions to support the economy, such as the Bank of England’s Quantitative Easing.
Following the end of the immediate financial crises, the Treasury has focused on schemes to support the wider economy.
Q: How much support did the Government provide to UK banks?
There were two types of support provided:
- Provision of guarantees and other non-cash support. The main items under this heading are the Credit Guarantee Scheme, Special Liquidity Scheme and Asset Protection Scheme, as well as various other guarantees and indemnities provided to UK banks.
- Provision of cash in the form of loans to the Financial Services Compensation Scheme and insolvent banks to support deposits, and the purchase of share capital in Royal Bank of Scotland and Lloyds Banking Group.
|Peak support (£bn)|
|Total peak support||1,162|
These figures set out our calculation of the total peak support provided to banks, including support that was made available but not used by a specific institution. They are calculated by adding all the support schemes together and removing overlaps.
The peak values have been taken from HM Treasury Annual Report and Accounts, Parliamentary supply estimates and NAO reports to Parliament. As each scheme and support facility was available at different times, the total peak support was not all available at a single point in time.
Q: Which banks received support from the UK government?
|Peak support (£bn)||Outstanding
31 March 2016
|Sector wide support schemes|
|Credit Guarantee Scheme||250||–|
|Special Liquidity Scheme||200||–|
|Asset Backed Securities Scheme||50||–|
|Unused recapitalisation fund||13||–|
|Other direct support to specific institutions|
|Royal Bank of Scotland|
|Asset Protection Scheme||202||–|
|Royal Bank of Scotland Ordinary and B shares||46||44|
|Lloyds Banking Group|
|Asset Protection Scheme||255||–|
|Lloyds Banking Group shares||21||4|
|Northern Rock and Northern Rock (Asset Management)||60||12|
|Bradford & Bingley||46||25|
Further information and notes to these figures are set out in the C&AG’s Report on HM Treasury’s 2011-12 & 2015-16 Annual Report and Accounts.
Q: What is the current level of support provided?
The total current level of support provided to banks has fallen significantly from its peak level. This is because the sector wide support schemes have been withdrawn; some of the guaranteed debts and assets in the schemes have matured and been repaid; some guarantees to bank depositors and wholesale funders have been removed, some of the shareholdings have been sold; and banks have started to repay some of the Treasury loans.
|Total outstanding support as at 31 March 2016 (£bn)|
Furthermore, the Treasury retains the unquantifiable ultimate risk of supporting banks should they threaten the stability of the overall financial system again.
Q: Are banks reducing their use of the support?
The total current level of support provided to banks has fallen significantly from its peak level.
The £133 billion cash provided has been reduced to £76 billion because:
- recoveries from the administrators of financial institutions and repayments by the Financial Services Compensation Scheme levy payers;
- Northern Rock plc was sold to Virgin Money at the end of 2011;
- some of the shareholding in Lloyds Banking Group was sold in September 2013, March 2014 and between January and March 2016, as part of a trading plan;
- some of the shareholding in RBS was sold in August 2015;
- repayments of government loans by UKAR from repayments and redemptions of mortgages and other loans including the sale of a significant element of the NRAM mortgage book in November 2015.
The total £1,029 billion guarantees and non-cash support has fallen significantly and stood at £9 billion as at 31 March 2016. All of the sector wide support schemes have now closed and the figure now solely relates to Northern Rock and Bradford & Bingley.
Q: Will we get all the money back?
It is likely that a substantial proportion of these schemes and investments will be with us for some time and the eventual profit or loss to the taxpayer will not be known until all the support is removed, the loans repaid and the shares sold. How much the taxpayer will receive will depend on a number of different factors:
- The eventual proceeds from the disposal of the shareholdings in Royal Bank of Scotland (RBS). The shares in RBS were purchased for £46 billion. The shareholding comprised ordinary shares, B shares and a single Dividend Access Share. In August 2015 some of the ordinary shares in RBS were sold for around £2.1bn reducing the holding to 72% from 79%. In March 2016, the final Dividend Access Share dividend payment of £1.2 billion was received, bringing the total receipts to £1.5 billion and retiring the Dividend Access Share. All B shares were converted to ordinary share for market value during the 15-16 financial year. As at 31 March 2016 the remaining ordinary shares had a market value of £18.8 billion. If the remaining shares were sold at market price on that date the government would make a cash loss of around £23.6bn from its shareholding in RBS.
- The eventual proceeds from the disposal of the shareholdings in Lloyds Banking Group (Lloyds). The shares in Lloyds were purchased for £20.5 billion. The shareholding comprised solely ordinary shares. The shareholding in Lloyds has been reduced through sales, the first being September 2013. The sales raised a total of £16.6 billion and reduced the taxpayers’ shareholding from 39 per cent to 9 per cent. HM Treasury received dividends for the first time during the 15-16 financial year, the total dividend receipts were around £0.2 billion. The remaining shares had a market value of £4.4 billion as at 31 March 2016. If the remaining shares were sold at market price on that date the government would make a cash gain of around £0.5 billion, excluding dividends, from its shareholding in Lloyds. However, the cash gain does not take account of the cost of funding the purchases of the shares. The money needed to buy the shares was provided by longer-term funding in the form of Gilts, government bonds on which interest is payable.
- The final return from Northern Rock and Bradford & Bingley. The Treasury expects to recover the cash lent to Northern Rock and Bradford & Bingley from the cash flows generated during their wind-down. These cash flows will principally comprise interest, repayments and redemptions arising from the mortgages and other loans to customers together with the proceeds from asset sales such as the sale of a £13 billion portfolio of NRAM loans in November 2015. As at 31st March 2016, the loan balance outstanding was £28.4bn.
- Any unrecovered loans. The Treasury has impaired various loans made to support depositors in failed banks on the basis that the administrators for the failed institutions are uncertain that there will be available monies to pay the creditors in full. The Treasury has stated its intention to continue to pursue these loans in full. Treasury made loans of £2.2 billion and is currently forecasting to recover £2.1 billion.
- Costs arising from the additional government borrowing raised to finance the purchase of the shares and loans.. The money needed to make the interventions was provided by longer-term funding in the form of Gilts (interest-bearing government bonds purchased by investors for periods of up to 50 years), at a cost of just under 3% a year.
- The fees and income received. As at 31 March 2016, the Treasury had received a total of around £19 billion in fees and interest for providing the support and assuming the risks covered by the guarantees since 2008.
Q: Has the taxpayer been sufficiently paid for providing the support?
The income generated by fees and interest is less than would be expected from a normal market investment and has not compensated the taxpayer for the degree of risk accepted by taxpayers in providing the support. Once the opportunity cost and risks are factored in, the schemes have represented a transfer from taxpayers to the financial sector.
The fees and interest were generally set with a view of what the recipient banks could afford at the time, in keeping with the schemes’ aims for financial stability. Any transfer from taxpayers to the financial sector can be regarded as part of the cost of preserving financial stability in the crisis, and as reported in 2009, had the support not been provided, the potential costs would have been difficult to envision.
Q: Did the support achieve value for money for the taxpayer?
We reported in 2009 that “if the support measures had not been put in place, the scale of the economic and social costs if one or more major UK banks had collapsed is difficult to envision. The support provided to the banks was therefore justified, but the final cost to the taxpayer of the support will not be known for a number of years.”
We have also produced a series of more focused evaluative reports on the value for money achieved by individual parts of the support schemes. Whilst we believe that the overall support package was justified, these reports attempt to look at whether each part was put together in the optimum way. They include:
- The £13 billion sale of former Northern Rock assets (July 2016)
- HM Treasury: The nationalisation of Northern Rock (March 2009)
- HM Treasury: The Asset Protection Scheme (December 2010)
- Stewardship of the wholly-owned banks: buy-back of subordinated debt (March 2011) ·
- The creation and sale of Northern Rock plc (May 2012)
- The first sale of shares in Lloyds banking group (December 2013)
We expect we will continue to update Parliament on the status of the support schemes so long as they remain material to the public finances.
Other related NAO reports
Reports on the support as a whole
- Evaluating the government balance sheet: financial assets and investments (June 2016)
- The C&AG’s Report on HM Treasury’s 2014-15 Annual Report and Accounts
- The C&AG’s Report on HM Treasury’s 2013-14 Annual Report and Accounts
- The C&AG’s Report on HM Treasury’s 2012-13 Resource Accounts
- The C&AG’s Report on HM Treasury’s 2011-12 Resource Accounts
- The C&AG’s Report on HM Treasury’s 2010-11 Resource Accounts
- Maintaining financial stability across the United Kingdom’s banking system (December 2009)
- Maintaining the financial stability of UK banks: Update on the support schemes (December 2010)
Last updated: July 2016