Member News
By Tony Grew - 20th April 2011
The Treasury has been told it must develop a strategy for the successful sale of its shares in RBS and Lloyds.
A report from the Commons public accounts committee on repaying taxpayer support said there must be an end to the dependence of the banks on the state.
Taxpayer support for UK banks remains "extensive", and there is considerable risk to the public finance from the banking sector.
The committee said:
"It is of course, encouraging that by December 2010, the level of explicit support had decreased from nearly £1 trillion to £512 billion.
"The Treasury must continue to work towards the orderly removal of this support which will depend in particular on the success of the sale of the shares in RBS and Lloyd's.
"The Treasury faces the challenge of balancing the taxpayers' interest on the public investment in the banks, with the wider imperative of maintaining financial stability.
"Those banks that have not received capital cash injections from the government still benefit substantially from an implicit expectation of taxpayer support.
"Currently, the arrangements available for winding-up failing banks would not be able to cope with the failure of a major bank. There is still no way to avoid the taxpayer having to bear the cost of any such failure.
"This committee feels that it is inappropriate for banks dependent on taxpayer support to be generating excessive incomes, unnecessary bonuses or dividends."
The MPs warned that the government must develop an effective strategy for selling off the shares in RBS and Lloyds.
"The value of the shares at the time we took evidence was still some £8.4 billion below the price paid by the taxpayer.
"The scale of the government shareholding is far greater than in previous share sales and will require extraordinarily careful handling to protect the taxpayers' interest.
"When developing its strategy for the sale, the Treasury will need to balance the legitimate desire to maximise proceeds against its other objectives of preserving financial stability and enhancing competition."
The committee also calls for an end to the subsidy to the banking sector, estimated to be as high as £100 billion in 2009.
"The Bank of England, Treasury, and RBS all agreed that the implicit subsidy as well as the explicit subsidies must be removed," the PAC reported.
"The explicit subsidy includes the fees paid by banks for their use of the Credit Guarantee Scheme which, to date, have been at least £1 billion less than the benefit received by the banks.
"These subsidies enable private gains to be made at the expense of public risk.
"Contracts entered into when state support was put in place have allowed some of these gains to be used to pay bonuses to certain bank staff, and dividends to shareholders, rather than enhancing the financial sustainability of the sector, and this causes us and the wider public much concern."
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