WATCHING Stephen Hester on Channel 4 News the other night, it was a struggle to coax a tear.

His testimonials might say he is that rarest of creatures, a banker with a streak of decency, but the man kept going on about having "spent five years in the trenches". You can correct me if I'm wrong, but I'm fairly sure this makes the departing chief executive of RBS the first man in history to have emerged from a slit trench with £5.6 million in his pocket.

No doubt Hester's time with the bank verged on rotten now and then, what with dog's abuse over bonuses, Libor crimes and computer systems prone to collapsing like a row of dominoes. But for £5.6m plus a salary that could feed a housing scheme – £1.1m, since you ask – I could probably grit my teeth.

Hester has done a bang-up job, they say, in defusing the RBS time bomb. The 40,000 bank staff he helped lay off, most of whom had never heard of a collateralised debt obligation, might also like a vote of thanks. The bank still has £40bn worth of "assets" so toxic they would melt a barge-pole. Yet let's be fair: RBS is still standing. That was no racing certainty in 2008 when the ground opened up beneath Fred Goodwin's castle and £45.6bn of public money disappeared into the hole.

What truly stopped me welling up over Hester, however, was when he was asked to agree that £1.6m in cash and £4m in share options is more than most people can expect when they become surplus to requirements. The nice chap agreed that to "society" it would seem a lot, but in "the industry" his compensation was no big deal.

Reality, Stephen; Stephen, reality. Have you met?

Still, Hester is on the moral high ground. For bankers, what with one thing and another, this is unfamiliar terrain. But if you have been elbowed from your job by George Osborne, the moral highlands are several miles above sea level. This chancellor couldn't win a popularity contest against bird flu, far less a banker.

There is not much doubt that Hester was prodded to the end of the plank at the end of a cheque. The only mystery lies in the time it will take the political world to work out that the Treasury is spinning a line over the need for consistency of leadership – you can add your own waffle – after RBS is auctioned. The stock market was quicker off the mark. Within hours of the announcement that Hester was off, the bank's shares had fallen by 7%.

So what has soured the relationship between Osborne and the chief executive? Ideology has not come between an otherwise perfect couple. For Hester, like the Chancellor, it is inconceivable that the public, 30 million customers, should have 81% ownership of their own banking service. Judging by his recent remarks, Hester was also keen to stay on for the privatisation party.

One school of thought holds that the chief executive, a career banker, was less keen than Osborne, the history graduate who once folded towels at Selfridges, to shrink RBS to the sort of retail operation that would find a ready buyer with few questions asked. If that's the case, the Chancellor is not necessarily wrong. Restoring the bank as a global player with aspirations to get back into the casino is an idea that's worth discouraging.

But why should Osborne be involved at all? When there is unpleasant publicity over bonuses and the like, the rest of us are told that politicians have no control over the bank we otherwise own. Everything is supposed to be done at arm's length through UK Financial Investments, our "state-owned limited company". Hester knows better now.

His only crime was to fail to share Osborne's sense of timing, not to mention the Chancellor's sense of urgency. Hester has failed to understand that flogging RBS at the right time and the right price in order to recover the public's £45.6bn is vastly less important than raising whatever can be raised before the next election. The chief executive, it would appear, was being a little too particular for the Government's taste.

RBS is only one piece in Osborne's jigsaw. Another piece involves Lloyds. A third is Royal Mail. Then there's the Student Loan Company, search and rescue services, and a thing called Urenco, a very profitable uranium processing operation – but don't worry about the ethics –that we part-own with the Dutch and a couple of German energy utilities. A fire sale has begun.

The whole purpose is to allow Osborne to campaign in 2015 with the boast that finally he has solved part of Britain's debt and deficit problem. To this end, an avowed capitalist is prepared to sell at a loss a bank that the state has taken on, nursed and repaired. He is prepared to dump Royal Mail now that it is making profits of more than £400m annually and do so just as online shopping is expanding by leaps and bounds.

In the case of the banks, there need be no doubt. If the Government elects to test the market with, say, a 30% sale of its holdings, £15bn could be raised, but the loss against the original investment would be significant. A sensible chancellor would therefore wait until RBS and Lloyds is back to full health, the challenge of capital adequacy requirements is met, and the threat of a eurozone collapse has receded.

But what sort of cunning plan is that? Osborne would take £15bn like a shot and blame the loss on Labour for paying too high a price for RBS in the first place. He would take the £15bn, moreover, and fail to notice that his friends in the City were picking up a bank at a nice discount. Any loss on the deal could be gouged, as before, from working people and the poor.

What's forgotten is how stupid all of this is in Tory terms, far less in rational terms. Simply because of dogma an essential social and economic utility on which 30 million people depend must be dumped, even – or especially – if it risks becoming a state bank liable to give the private sector a fright. Privatised railways used to blame the wrong kind of snow. Osborne is afraid of the wrong kind of profits.

Some readers will be too young to remember Sid. He had a brief existence in 1986. Sid was conjured into life to persuade us that the privatisation of British Gas was the best idea since the one with the loaves and fishes. So who loves the energy companies today, or the train companies, or (if English) the water monopolies who manage to make profits but escape corporation tax?

Privatisation is a fraud against the public purse, a transfer of wealth so blatant and extravagant it would test the limits of fiction. Last week, Osborne said the plan is to return RBS "to the private sector in a way that ensures value for the taxpayer". Note that he did not say "and get back our £45.6bn".