You are here:   Columns >  Marketplace > In Credit from the Crunch


Did the official Treasury document about the first Osborne Budget contain a misprint? On page 74, it carried the statement: "Using the latest market prices, the cost of the financial sector interventions, net of fees and other income, is estimated at £2 billion." In other words, the Treasury believed on Budget day — June 22 — that the cost to the taxpayer of the banking crisis was £2 billion. 

Only £2 billion? Surely the figure is £20 billion or £200 billion or even, given the supposedly galactic folly and iniquity of Britain's bankers, £2,000 billion. Isn't there a nought or three missing? 

The recent report from the Future of Banking Commission, masterminded (if that is the right word) by the MPs David Davis and John McFall, asserted: "The immediate and direct public costs of bailing out the UK's banks is estimated at £131 billion in cash injections, along with additional state guarantees amounting to £850 billion." Alternatively, recall John Kay's well-regarded column in the Financial Times on May 11: "The party ended with the bankers begging at the back door...We are likely to have borrowed at least £500 billion extra on their account."

So what is the right answer? Has the banking crisis lost the taxpayer £2 billion, £131 billion or £500 billion? 

All these numbers are wrong. The truth is that the taxpayer will make an immense profit from the state's financial sector interventions, not a loss. At the simplest level, banks fully or partly owned by the government have, since the Budget, announced profits and the share prices of the two publicly-quoted banks, RBS and Lloyds, have risen. If the government's stakes were sold now, a profit of more than £5 billion would have been earned. 

More fundamentally, the government has been engaged in large-scale racketeering that will result in a substantial wealth transfer from banks' shareholders to taxpayers in general. Its behaviour towards the financial sector in the two years to spring 2009 breached a long-standing implicit contract: a solvent UK bank that had complied with regulations should be able to borrow from the Bank of England if it had a cash problem. The breaching of this contract enabled the government to stigmatise and vilify the banks. 

View Full Article
August 30th, 2010
11:08 AM
The credit crisis' costs are not narrowly caught by the publicly listed bank share prices. Nor are we out of this mess, i.e. it's far too early to suggest the banks' share prices are reflective of their real worth. Where would/will they trade when they stop receiving free money from a central bank system. I would not be impressed at a players performance at the monopoly board who happened to also be the banker. The sooner we apply what we learnt about socialism and price fixing in other markets to money itself the better.

Post your comment

This question is for testing whether you are a human visitor and to prevent automated spam submissions.