Osborne bets against RBS 'casino' bankers

The move appeared to signal the end of a dramatic period in RBS's history, in which it has grown to become an international behemoth and triggered the world's biggest bailout, all in the space of a decade.

Last night Mr Osborne's comments led to renewed fears that around 5000 jobs could be lost if RBS sells off much of its investment business.

Making the announcement, the Chancellor told MPs the Government's stake in RBS was now worth £27 billion less than when the stricken bank was rescued in 2008.

To prevent British taxpayers being responsible for another bailout, the bank had already scaled back its investment arm, Mr Osborne said. However, he added: "RBS needs to go further and the management agrees."

He told MPs he believed RBS's future was as a major UK bank with the majority of its business in the UK, servicing the personal and business sectors.

The change would make RBS "stronger and safer", he said, and could eventually lead to it being sold, although he did not say if taxpayers could expect to recoup all their money.

Critics warned the bank would be forced to sell its investment arm at a loss, cutting the chances of taxpayers recouping their losses.

Stewart Hosie, the SNP MP and member of the Treasury Select Committee, also called on Mr Osborne to be clear about what size of a reduction in the investment business he expected.

"This uncertainty is damaging for RBS and all of those who work for it," he said.

RBS said last night it was already pushing ahead with plans to sell off much of its investment banking side.

The bank also confirmed it did not expect it would have to sell off its US-based Citizens Financial.

However, sources at the bank conceded it was not the best time to be selling assets in the global marketplace.

The fall of RBS was one of the biggest corporate collapses in history. The British Government bailed the bank out to the tune of £45bn in 2008, following other cash injections from the Bank of England.

The UK taxpayer still owns more than 80% of the bank, but its stake is worth £27bn less than it was three years ago, the Chancellor said.

RBS has already significantly shrunk its investment interests.

In 2007 that arm of the business had assets of around £870bn, but these have now shrunk to £400bn.

Last night there were fears over the number of jobs that could be lost. Around 18,900 people are employed by RBS's investment business, and experts suggest about 5000 of these post could be axed.

Last night a spokesman for the bank said the majority of RBS's business was already within the UK.

He added: "RBS confirmed last month we would adjust the size of our investment bank in line with changing market conditions.

"We will give an update on final decisions in the new year following consultation with our major shareholders."

A long-awaited Financial Services Authority report published earlier this month said RBS was brought to its knees by "multiple poor decisions" and its "gamble" on buying Dutch bank ABN Amro.

It blamed deficiencies in the management and culture at RBS prior to its £45bn bailout and called for tougher rules to make bankers more accountable for their actions.

Last night, Liberal Democrat MP Stephen Williams said the Coalition had done the right thing and had acted swiftly, but he urged the Government to use its ownership of RBS to create a new bank to increase competition in the market.

Scottish Government Finance Secretary John Swinney said: "The UK Government must not create more uncertainty for the thousands of Scots who directly or indirectly rely on employment by RBS. The UK Government must provide clarity on its support for a substantial, standalone and international banking group properly headquartered in Scotland, with all the employment and wider economic benefits that entails. As RBS runs down elements of its London investment banking operation, we will of course support the movement of back and front-office jobs to Scotland."