The National Audit Office has today reported on progress in the Treasury’s interventions to maintain financial stability, its wider support for the economy, its capacity to respond to future financial crises, and new reporting developments.
Today’s report gives an update on the financial support provided by the Treasury to the UK banking sector since 2007: how much support has been provided, how much is still outstanding and how much it is costing the taxpayer.
To remove the support, the loans will need to be repaid, the guarantees withdrawn, and, eventually, the shares returned to private ownership. As at March 2013, the total outstanding support stood at £141 billion (down from the total a year before of £242 billion and a peak of £1.2 trillion). Of the £141 billion, £115 billion was provided as cash and £26 billion constitutes outstanding guarantee commitments.
In return for providing the support, the Treasury has charged fees for the financial guarantee schemes and received interest on the loans. Today’s report, which is published as part of HM Treasury’s departmental financial statements, notes that the income provided 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 of at least £5 billion from taxpayers to the financial sector since 2008. This can be regarded as part of the cost of preserving financial stability in the crisis and, as the NAO reported in 2009, had the support not been provided, the potential costs would have been difficult to envision.
The Treasury has invested £66 billion in shares in RBS and Lloyds to provide the banks with sufficient capital. The market value at 31 March 2013 of the shares was £28 billion below the original investment and more than £34 billion below the proceeds which would need to be realised to reflect the cost of financing the purchases of the shares in 2008 and 2009. The eventual returns for the taxpayer from the disposals of the government’s shareholdings in both banks will depend on how well their business plans are developed and delivered, as well as the performance of the UK economy, and these will not be known until the shareholdings are disposed of.