Think tank brands £13bn+ hit on RBS privatisation ‘negligent’

A report published by an independent think tank has said it would be “negligent” for UK Chancellor George Osborne to carry out a “reckless fire sale” of 80 per cent state-owned Royal Bank of Scotland.

The New Economics Foundation (NEF) has predicted that such a move would lead to a massive loss for the UK taxpayer that could run up to at least £13 billion but possibly double that.

The report comes ahead of Mr Osborne’s annual Mansion House speech tonight when he is expected to announce his plan to begin the long process of selling off the Edinburgh-based lender, which the UK Government bailed out at a cost of £46bn at the height of the financial crisis in 2008.

It has also been reported that the Chancellor could use his address in the City of London this evening, at which in the past he has announced the sales of the bailed-out Northern Rock and Lloyds Banking Group, to announce the appointment of external advisers to give an up-to-date, value-for-money assessment of the public’s stake in RBS.

However, RBS shares closed yesterday at 351p, well below the 502p price at which the UK Government rescued the bank seven years ago after its ill-judged takeover of ABN Amro.

And the NEF said its own analysis had taken into account interest rates, repayments, fluctuating share prices and City sale fees and calculated a total cost to the public of at least £13bn and up to £26bn.

The think-tank’s head of economy and finance Tony Greenham said: “George Osborne’s claims that privatisation represents value for money are disingenuous at best.

“After stepping in to bail out RBS at huge cost to the public purse, UK taxpayers are now being asked to pick up the tab for a reckless fire sale of a vital economic asset.”

He added: “Instead of pushing for a return to business as usual, the Chancellor should be more ambitious in his thinking. Retaining and breaking up RBS into a network of local banks would boost the economy and improve funding for Small and Medium-Sized Enterprises. Privatisation is not the only option for the public’s stake in RBS.”

Some observers believe that Treasury could be in a position to begin selling RBS shares in the fourth quarter of this year following a settlement with US regulators over the mis-selling of subprime mortgage securities.

The NEF’s report describes the Chancellor’s desire to privatise RBS, a process could take several years to complete, without a full examination of the alternatives as “negligent”.

Privatisation, it claimed, would “cement a return to business as usual in the City”, noting: “Recent scandals – from forex rigging to mis-selling – show lessons have not been learned from the financial crisis.”

The think-tank stressed research showed retaining public ownership of RBS and splitting it up to create a network of local banks could boost GDP by more than £30bn.

The chancellor is also expected to use tonight’s speech to outline his plan to bind future governments to maintaining a budget surplus when the economy is growing.

The commitment, which Mr Osborne first proposed in January, will limit governments to a balanced budget in so-called “normal” times.

The announcement comes amid concerns over the national debt, which has doubled since the financial crisis.

The plan would legally prevent future governments from spending more than they receive in tax revenue when the economy is growing.