£66bn of taxpayer funds which was used to buy shares in Royal Bank of Scotland (RBS) and Lloyds Banking Group during the peak of financial crisis may never be recovered, a group of MPs, claim, adding that profit could not be made with the sale of these two banks any time soon. MPs also said that the Treasury made a series of blunders in the Northern Rock sale issue, which had to be nationalised in 2008.
Margaret Hodge, the MP who chairs the committee, said, “The lack of competition does not fill us with confidence that the taxpayer will make a profit on the sale of the two banks which remain in public ownership, RBS and Lloyds. There is a risk that the £66bn invested in RBS and Lloyds may never be recovered.”
The MPs group also called on the government to ensure that taxpayers get value for their money from the future sale of stakes in the bailed out banks. The stakes are handled by UK Financial Investments (UKFI). The Public Accounts Committee (PAC) report noted that with the Northern Rock sale, which happened in 2011, taxpayers were still set to lose £2bn on the bank’s bailout. The PAC requested the government to retain its role as shareholder.
With only two bidders for Northern Rock, among which only one was really keen to buy – Virgin Money, PAC said this was not a pleasant indication to sell off RBS, of which taxpayers own just over 80%, and Lloyds, in which taxpayers own just under 40%. Northern Rock was sold to Virgin Money in 2011, when the current government was under pressure as EU state aid rules required the Treasury to dispose of its holding by 2013. The Treasury had invested £1.4bn in Northern Rock shares.
The report criticised government for a lack of a proper plan by management for how to split the Rock up into a “good bank” that was sold to Virgin, and a “bad bank” with billions of pounds of problem mortgages that was retained in state ownership.