THE sale of the first taxpayer-owned shares in Royal Bank of Scotland has been handled “disastrously”, Labour has insisted, resulting in a £1 billion loss to the public purse.

But George Osborne robustly defended the sale of 600 million shares, bringing in £2.1bn to help cut the budget deficit, saying: "This is an important first step in returning the bank to private ownership, which is the right thing to do for the taxpayer and for British businesses; it will promote financial stability, lead to a more competitive banking sector, and support the interests of the wider economy.”

The Chancellor argued that the easiest thing would have been to duck the difficult decisions and leave RBS in state hands but the right thing for the economy and for taxpayers was to start selling off the public stake.

He added in a tweet: "RBS bailed out by last gov. This gov is selling it back. Bank of England Governor says selling now is in 'interests of the wider economy’."

Investment banks Citigroup, Goldman Sachs, Morgan Stanley and UBS led the share sale to institutional investors.

In the financial crash of 2008, Gordon Brown’s Government decided to save the Edinburgh-based bank in the world’s biggest bail-out: £45.8bn.

The move to begin the sell-off, which could take several years to complete, has reduced the UK Government's stake in RBS from 78.3 per cent to around 72.9 per cent.

UK Financial Investments, the body that holds the public’s share-holding, said it had offloaded 5.4 per cent of RBS at 330p a share; far short of the average 502p price paid at the time of the bailout seven years ago. In February, the share price was 400p.

This led to claims Mr Osborne had rushed the sale.

Yvette Cooper, the Shadow Home Secretary, who is seeking to become Labour’s new leader, said: "The sell-off of RBS shares has been handled disastrously by the Government and it is British taxpayers...who are losing out."

Her colleague Chris Leslie, the Shadow Chancellor, said: "Taxpayers who bailed out RBS and who have now lost out will want to know why the Government has sold these shares at a discount and while the bank is still awaiting a US settlement for the mis-selling of subprime mortgages.”

Meantime, Stewart Hosie for the SNP said RBS’s return to the private sector was welcome but the process should not be done on the cheap.

“George Osborne needs to be open and honest about his plans for the rest of the stock in RBS as we look forward. We need to see the small print of the Government’s plans to ensure a fair deal; right now there is some very real concern that the Chancellor is trying to cut and run.”

The Nationalists’ deputy leader added: “Once the full sale of the stock is complete, the taxpayer must receive the full £45.8bn paid by the previous Government in 2008. The public must get every single penny back.”

After a choppy day on the markets, RBS shares ended up slightly up; 1.4p higher at 339p.