Taxpayers to meet the profit of doom?

The government may be set to net £27bn from bailing out the banks during the financial crisis...

by MT Staff
Last Updated: 19 Aug 2013

That’s a pretty hefty windfall, given that everyone first thought that our beleaguered public coffers could wind up shedding £850bn as a result of the fiscal maelstrom. Now we’re being told profits could be enough to keep the country's primary schools going for a year. Confused?

Indeed, you’d be forgiven for wondering how the financial crisis could leave us with more plasticine to play with, rather than a lot less. The figure comes from an analysis by the Banker magazine, which reckons that if equity prices rise in line with predicted economic growth over the next five years, the government will score a profit of about £19bn in share price gains when its stakes in RBS and Lloyds are sold. Another £8bn would come from fees for loans, bond guarantees and the Treasury’s asset protection scheme (APS) introduced to save the beleaguered banks.

The Government has been canny in how it set up the assistance. Measures like the APS cost the Treasury £850bn but, while the vast majority of the money wasn’t needed, the government still stands to collect fees on it. Lloyds, for example, paid £2.5bn in fees for the APS but quickly left the scheme. RBS is still paying APS fees, even though it’s unlikely to need the fund's help.

Indeed, the banks aren’t looking so beleaguered any more – half-year profit at Lloyds, which is 41% owned by the state, shot up to £1.6bn from a £4bn loss the year before, while RBS, which is 80% government-owned, went from a loss of £3.4bn to a £1.4bn profit.

With this success reflected in the banks’ share prices, it seems the taxpayer could eventually join the ranks of pound shops and company liquidators as beneficiaries of the crisis. All very topsy-turvey. Having first suffered incredulity at having to pay for others’ financial brinkmanship, now they have to deal with the possibility of the government making money out of everyone’s misery?

But if it’s billed as a win for the taxpayer, it’s more a victory for the government, and both sides of the political spectrum will probably rush to claim it. Profiting from the holdings would be an obvious boon to the coalition, which needs every penny it can get its hands on right now. Meanwhile Labour are bound to say that it proves Gordon Brown and Alistair Darling right in the strategy they adopted. 


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