PLANS to return Royal Bank of Scotland to the private sector will cost the taxpayer at least £13 billion and possibly double that, an independent economic think-tank has claimed.

 

With expectations that George Osborne will tonight announce his plan to begin the long process of selling off the Edinburgh-based financial institution, the New Economics Foundation (NEF) predicts that this will lead to a massive loss for the UK public.

Following the 2008 financial crash, the then Labour Government bailed out RBS to the tune of £46bn, retaining a 79 per cent public stake in it. Successive administrations have pledged to try to recoup the bail-out money in full.

But tonight in his annual Mansion House speech, the Chancellor is expected to signal the start of selling RBS back to the private sector. It is thought he could announce the appointment of external advisors to give an up-to-date value for money assessment of the public's stake in the bank.

The set-piece address in the City of London was used in 2011 to announce the sale of the bailed-out Northern Rock and in 2013 to announce the sale of the Government's stake in Lloyds Banking Group. A few days ago, Mr Osborne set out his plans to reduce further the Government's stake in Lloyds from 19 per cent - in 2008, it was 43 per cent - by releasing shares to the money markets.

NEF said its analysis had taken into account interest rates, repayments, fluctuating share prices and City sale fees and calculated a total cost to the public of at least £13bn and up to £26bn in a worst case scenario.

RBS shares closed yesterday at 351p, well below the 502p price at which the UK Government rescued the bank seven years ago after its ill-judged takeover of ABN Amro.

"George Osborne's claims that privatisation represents value for money are disingenuous at best," declared Tony Greenham, the think-tank's Head of Economy and Finance.

"After stepping in to bail out RBS at huge cost to the public purse, UK taxpayers are now being asked to pick up the tab for a reckless fire sale of a vital economic asset."

He added: "Instead of pushing for a return to business as usual, the Chancellor should be more ambitious in his thinking. Retaining and breaking up RBS into a network of local banks would boost the economy and improve funding for Small and Medium-Sized Enterprises. Privatisation is not the only option for the public's stake in RBS, nor is it the best."

NEF argued it would be "negligent" for the Chancellor to privatise RBS without a full examination of the alternatives.

Privatisation, it claimed, would "cement a return to business as usual in the City", noting: "Recent scandals - from forex rigging to mis-selling - show lessons have not been learned from the financial crisis."

The think-tank stressed research showed retaining public ownership of RBS and splitting it up to create a network of local banks could boost GDP by more than £30bn.

It has been suggested the Treasury could begin selling RBS shares in the fourth quarter of this year after the bank completes a settlement with US regulators for mis-selling subprime mortgage securities. The process could take several years to complete.

RBS has made seven consecutive years of losses. Despite its radical restructuring of its investment bank, it is not expected to return to a profit until next year at the earliest.