GEORGE Osborne has paved the way for returning the public's 39% stake in Lloyds Banking Group to the private sector before the next General Election.

But the Chancellor signalled that the taxpayer's 81% stake in the Royal Bank of Scotland could take much longer to offload.

He agreed to the request of Westminster's Banking Commission for the Treasury to launch a swift review into the feasibility of splitting Edinburgh-based RBS into a privatised good bank and a nationalised bad one.

A report is due in the autumn when a decision will be made.

In his annual Mansion House speech in the City of London last night, Mr Osborne also insisted the UK economy had "left intensive care" and was healing.

"Full recovery won't be easy but I won't let up in my determination to put right what went so badly wrong," he said.

Ahead of next week's spending review for 2015/16, when Mr Osborne has to find another £11.5 billion in savings, the Chancellor said his plans were almost complete and that his Commons statement would detail the third part of the Coalition's economic plan.

"We are going to prioritise spending on the economic infrastructure of tomorrow: in the roads and railways, the schooling and the science that will help Britain compete and succeed."

Yet much of his speech concentrated on banking during which he confirmed the UK Government was now "actively considering options" for share sales in Lloyds.

"Lloyds is in a good position," declared the Chancellor. "Investor interest is growing and shares are already trading at around the price where selling would reduce the national debt. That's something we all want to see."

However, he stressed: "Of course, we will only proceed if we get value for the taxpayer and we have no pre-fixed timescale or method of disposal."

Mr Osborne explained the sale of Lloyds will be in two stages. The first will be a partial sell-off to an institutional buyer. He described this as "likely to be the most effective way of managing risk and getting value".

The second will likely be a retail offering to the general public in what is thought could be a privatisation similar to the 1980s British Gas "tell Sid" sell-off with individuals getting shares.

It is thought the Treasury could be in a position to begin the sale ahead of May 2015.

Mr Osborne declared: "So five years on from the financial crisis, we can now take the first steps to returning Lloyds to the private sector where it belongs."

In 2008, the public ploughed £20bn into Lloyds to save it from collapse.

On RBS, which received a £45bn bailout, the Chancellor was much more cautious. "I don't want a quick sale of our RBS shares; I want the right sale, the right sale for the British people," he said.

"I will only sell our stake in RBS when we feel the bank is fully able to support our economy and when we get good value for you, the taxpayer. In our judgment, when it comes to RBS that moment is some way off."

Last week, it was announced that Stephen Hester, the bank's chief executive, would stand down by the end of the year. This raised speculation the Government was preparing for a pre-election firesale.

However, Mr Osborne last night explained that despite the progress made at RBS, it was still weighed down by too many poor assets.

Mr Osborne signalled that more branches could be offloaded from the larger banks to create more, smaller ones and boost competition on the high street.

He said he had asked the Office of Fair Trading to review the impact the new challenger banks created by Lloyds and RBS would have on strengthening competition in small business banking and for it "to identify what more can be done".

Meanwhile, Mervyn King said more money must be pumped into the economy to underpin the UK's "modest" recovery as he prepares to bow out as Governor of the Bank of England.

In his final Mansion House speech as Governor, Sir Mervyn said there is a powerful case for more money printing while the battered eurozone economy and Britain's hamstrung banks continue to hold back growth.