In past reports, we have certified the Treasury’s approach for calculating the overall direct net cost or benefit to the taxpayer of the interventions to stabilise the financial sector. This is highly uncertain and will depend in large part on the eventual sale price for the Government’s shareholdings in RBS and LBG, which it is not possible to predict with any confidence.
The Treasury’s approach therefore uses market prices to value these shares. On the basis of the latest volume weighted average market prices this implies a loss of £30.6 billion on these investments. With RBS shares falling by around 19p per share (45 per cent) since Budget and LBG shares also falling by around 31p per share (51 per cent), this is significantly larger than the implied £1.6 billion loss reported in the March EFO.
The Treasury then uses the Asset Protection Agency’s central projection of a net benefit to the taxpayer from the Asset Protection Scheme of £5 billion, including fee income. The aggregate costs of all other interventions are not expected to be material once fees, income and recoveries are taken into account. Overall, this implies an estimated eventual loss to the taxpayer of £25.6 billion, contrasting to the estimate at the time of the March EFO of a £3.4 billion gain.
This provides an estimate of the direct cost of interventions. In the past the Treasury has not provided an estimate of the additional costs of financing the funds raised to support the interventions. We have now asked the Treasury to produce this estimate, in line with the recommendation of the Public Accounts Committee. It is not possible to provide a precise estimate of these costs, as no gilt auction proceeds were directly hypothecated to cover these activities. However, by capturing all of the relevant flows and making a number of reasonable assumptions, the Treasury estimates that these have amounted to £12.8 billion to date, spanning a 39 month period.
These figures do not however represent the potential impact on our fiscal forecast. That is because some of the costs and benefits have already been recognised, including all of the financing costs and some offsetting income. We also include additional fees and interest income in our forecasts, where these are quantifiable with a reasonable degree of accuracy. Any sale of shares in RBS or Lloyds would have an impact on public sector net debt. In addition, we have recognised proceeds from the sale announced on 17 November of Northern Rock plc, although the total benefit or loss of that particular intervention will not be clear for a number of years, as the Government will retain and run down Northern Rock Asset Management.