We have certified the Treasury’s approach for calculating the net cost or benefit to the taxpayer of the interventions to stabilise the financial sector. In particular, these are:
- equity injections into RBS, Lloyds (LBG) and Northern Rock plc;
- the Asset Protection Scheme (APS);
- bank financing support through the Special Liquidity Scheme (SLS) and Credit Guarantee Scheme (CGS);
- holdings in Bradford & Bingley (B&B) and Northern Rock (Asset Management) (NRAM); and
- other loans through the Financial Services Compensation Scheme (FSCS) and various wholesale and depositor guarantees.
The APS, SLS and CGS have all now closed, with net gains to the Exchequer of £5 billion, £2.3 billion and £4.3 billion respectively. These figures have already been captured in public sector net borrowing.
Changes in the market prices of the Government’s shareholdings in RBS and LBG are not reflected in PSNB and PSND. There will be impacts on PSND (and possibly PSNB) when the shares are sold, but the eventual cost or benefit is highly uncertain. The Treasury uses market prices to value these shares. On the basis of the latest volume weighted average market prices this implies a loss of £19.8 billion on these investments, relative to an implied loss of £28.1 billion reported in the December EFO. As the shares were overall bought at above market prices, public sector net debt is already £12.4 billion higher as a result of these transactions.
The Treasury continue to assume that the other interventions, including holdings in B&B and NRAM will not materially affect the aggregate cost or benefit. Although the Exchequer is expected to recover its support for B&B and NRAM in cash terms, there may be a net present value cost once risk and the delay in proceeds are considered.
Overall, their approach implies an estimated direct loss to the taxpayer on the financial interventions of £8.2 billion. This is smaller than the December estimate of a loss of £16.5 billion, as RBS’ and Lloyds’ equity values have since risen.
If all interventions were financed through debt, the Treasury estimate that additional debt interest costs would have totalled £14.7 billion over the 55 months to date.