Budget documents show taxpayer losses from UK bank bail-outs could hit £50? billion.
The provisional estimate for the losses – published for the first time in the Budget – is equivalent to around 3.5 per cent of the UK’s entire economic output.
Since the crisis began, the Government has stepped in to prop up major banks Royal Bank of Scotland and Lloyds Banking Group with tens of billions of pounds, as well as nationalising Northern Rock and Bradford & Bingley.
The Treasury estimates that losses could fall between £20?billion and £50?billion, although it admits that the actual figure “could be either larger or smaller than this range”.
“The estimate is set out as a range because of the inherent uncertainty over potential outcomes from these interventions,” documents published with the Budget said.
But the Treasury added that the forecast took no account of possible income from the various schemes introduced to aid the beleaguered banking sector over the past year – such as the Special Liquidity Scheme, the Credit Guarantee Scheme, and the Asset Protection Scheme for insuring “toxic assets”.
Estimates of losses will develop over time as market conditions improve, and new and better information becomes available in subsequent Budgets.
According to the Office for National Statistics (ONS), the rash of bail-outs added a mammoth £134.5? billion to net debt in the last financial year.
The majority of this – £123 ?billion – was accounted for by the nationalisations of Northern Rock and Bradford & Bingley, with a further £9?billion from the rescue of Dunfermline building society in March.
This net debt figure does not represent the total taxpayer exposure, as it does not take account of the assets held by the building societies.
But the ONS announced in February that part-nationalised Lloyds Banking Group and Royal Bank of Scotland would be classed as public corporations for accounting purposes.
This would add between £1?trillion and £1.5 ?trillion to net debt, the ONS estimates – equivalent to between 70 per cent and 100 per cent of the UK’s entire economic output.
A Treasury paper will be published shortly containing Mr Darling’s “recommendations for wide-ranging reform” of the banking sector.
They would propose action to reform corporate governance and remuneration at banks to avoid undue risk taking; to improve regulation of capital and liquidity so banks did not over-extend themselves; and to increase transparency to achieve a single set of accounting rules.
They would also contain plans to regulate “all important institutions including hedge funds”.
And they would propose measures to improve efficiency and competition in financial markets, as well as strengthening regulators’ powers.
