Taxpayers will be supporting banks 'for years to come'

By politics.co.uk staff

The cost of government support to the financial sector has fallen, but the taxpayer is likely to endure paying out guarantees to the banks for 'years to come', a new report claims.

The National Audit Office's (NAO) study out today found that as of December 1st this year, total support (in guarantees, loans and investments) in the banking sector totalled £512 billion - down from £955 billion at the height of the crisis.

But government borrowing on its cash support has risen by £7 billion, to a sum of £124 billion, since this time last year.

Amyas Morse, the head of the NAO, said that the spectre of further taxpayer bailouts was relatively low, concluding that "the most likely scenario is that the taxpayer will not pay out on the guarantees".

But he added: "Optimism on this score should be tempered. with the realisation that the risk of further shocks to the financial markets and of significant loss to the taxpayer has not gone away.

"The Treasury is likely to be paying for the support it has provided to UK banks for years to come."

The news will be met with dismay from the government, which has insisted that support to the banking system is temporary, while investments in nationalised banks will be clawed back for the benefit of the taxpayer.

The report stated: "The eventual cost or return to the taxpayer as a result of the Treasury's support of the banks is dependent on the Treasury's successfully disposing of its shares in RBS and Lloyd's and recouping its loans to the banking sector."

It also carried a warning that the burden of interest paid by the Treasury on borrowing its purchase of shares in taxpayer-owned banks may be set to increase.

The NAO continued: "So far, this has been offset by the fees and interest received by the Treasury from the supported banks, but these are likely to fall in future."

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• banking crisis
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• economy
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• economy and finance