Taxpayers have forked out £850 billion to bail out the UK’s beleaguered financial system so far, according to a review from the National Audit Office.
This figure includes the government’s purchase of shares, together with offers of guarantees, insurance and loans made to banks.
However, the auditor says the Treasury had made the right decision to nationalise Northern Rock and take huge stakes in Lloyds Banking Group and Royal Bank of Scotland (RBS).
"It is difficult to imagine the scale of the consequences for the economy and society if major banks had been allowed to collapse. The Treasury was justified in using taxpayers' money to safeguard savings and stabilise and restore confidence in the financial system," says Amyas Morse, head of the National Audit Office.
The review does, however, conclude that the total cost of the bail-out will not be clear for a number of years to come.
“What we do know is that how the eventual sale of RBS and Lloyds is managed will be crucial to protecting the public interest," Morse adds. “The structure of the UK banking system has changed beyond recognition. When it comes to selling its stakes in the banks, the government has to be mindful of the proceeds for the taxpayer but also of the implications for competition in the UK market, so that customers get a fair deal."
The government has said that taxpayers are sitting on potential losses of up to £50 billion – depending on future losses from the £282 billion of toxic assets that RBS is planning to insure and the amount it can get for selling its stake in Lloyds.
In addition, adviser fees do not come cheaply; Credit Suisse and Deutsche bank are both on retainers of £200,000 a month for a year. By April 2010, the Treasury will have spent £107 million on crisis advisers.
The review also adds that while both Lloyds and RBS are on track to meet their retail mortgage lending commitments, lending to businesses is likely to fall short of the targets. RBS said it would lend an additional £25 billion in 2009-2010 with Lloyds stumping up an extra £14 billion.
Liberal Democrat shadow chancellor Vince Cable says: "This report shows the sheer scale of the debt that banks owe, both directly and indirectly, to the taxpayer.
"Given this, it is astonishing that banks such as RBS are still failing to meet their lending agreements.These banks should understand that with the level of state support they have received, they must be run in the public interest."