These are uncharted waters for the public finances. Few of those trying to steer a way through the wreckage wreaked by financial meltdown have a map, let alone a moral compass, to guide them on their way.
After the banks went belly up, ministers and officials were literally making up the rescue package as they went along. The colossal bank bail-out might have stopped the ATMs from shutting down. But nobody, then or now, had much of a clue about what should happen next.
This week we found out. It’s another bail-out. Just 13 months after the Treasury stumped up £35bn to save Lloyds and the Royal Bank of Scotland, the chancellor has thrown these part-nationalised banks a life jacket, in the form of a £39.2bn subsidy.
The Conservatives claim this represents an indictment of the government – and an annual bill of £2,000 for every family.
Alistair Darling and City minister Lord Myners insist it’s a ‘good deal’ for the taxpayer, enabling Lloyds to speedily exit the government’s Asset Protection Scheme – and transferring more risk to the private sector.
The package, which includes casting off bits of state-run banks and some mild restrictions on bonuses, will result in a profitable exit strategy, say ministers, who are also eager to dispose of Northern Rock. The long-term cost of bailing out Britain’s banks is expected to be revised downwards in the Pre-Budget Report (see our 'Banking on change' feature).
Much of this is smoke and mirrors. The catalyst for breaking up the banks came from the European Union’s competition commissioner; the motive from the government’s desire to prove that Gordon Brown has saved UK banks, if not the world.
The PM claims ‘the banks will be paying money to the British public and not the other way round’. But the risks to the public purse remain high (see our news story, 'Bail-out risks public funds, experts fear').
As the Commons Treasury select committee heard this week, RBS’s future is far from secure. And if Lloyds were to face another devastating downturn, taxpayers would still have to bail it out.
So why the hurry to dispose of these assets? With a general election approaching – and the government increasingly resembling a beached whale – bail-out Mark 2 smacks suspiciously of low politics.
And of a rescue package that is too big to be seen to fail.
