Government's £850bn price banking tag

by Mario Christodoulou

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04 Dec 2009

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The stratospheric level of taxpayer support handed out during the credit crunch was laid bear by the National Audit Office report which found an unprecedented £850bn was earmarked to prop-up the ailing financial sector.

Part share purchases, part guarantees along with insurance and loans, the report details the list of government support handed out during the past two years.

According to the report, government support included:
- £37 billion of shares in RBS and Lloyds Banking Group;
- a further £39 billion of shares in both banks;
- Bank of England indemnity against losses incurred in providing over £200 billion of liquidity support;
- guarantees of up to £250 billion of wholesale borrowing by banks;
- approximately £40 billion of loans and other funding to Bradford & Bingley and the Financial Services Compensation Scheme; and
- insurance cover of more than £600 billion of bank assets, reduced to just over £280 billion in November 2009.

The report also included a pointed criticism of the government’s failure to consult with parliament before committing the funds.

Edward Leigh MP, Chairman of the Committee of Public Accounts, said the chancellor “transgressed” a long established principle.

"It has been an absolute constitutional principle for centuries that government does not spend money or issue indemnities without informing Parliament. That principle was transgressed when the Chancellor decided not use the established protocol of notifying the Chairman of the Public Accounts Committee and the Chairman of the departmental select committee,” he said.

“The plea that the information was sensitive is irrelevant since disclosure to us could easily have been made in confidence, in line with customary practice. Trust in the discretion of the chairmen has never been misplaced in the past.

“I am greatly disturbed over this decision to play fast and loose with Parliamentary rules - and with the feeble explanation for doing so proffered by the Treasury.”

Further reading: Maintaining financial stability across the United Kingdom's banking system

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