The stake represents 81 million of the 90 million shares held back to allow its financial advisers BZW to stabilise the price of British Energy shares in the first month after the sell-off.
Because of its failure to find buyers for the shares, the flotation has only raised pounds 1.24bn for the Government compared with an initial estimate of up to pounds 1.97bn. Together with debt injected into the company, the proceeds are less than pounds 2bn and some pounds 800m short of the best estimates given by BZW when it was preparing the flotation.
The Treasury has been forced to hold on to residual stakes in past privatisations but the size of the British Energy rump left in the hands of the taxpayer is unprecedented.
The Treasury will now have to retain the shareholding until market conditions improve or sentiment turns sharply in favour of British Energy, which owns and operates the country's eight most modern nuclear reactors. But this could take years.
In the case of the British Petroleum sell-off in 1987 which became a casualty of the world stock market crash, the Government was left with a holding of 100 million shares which was finally sold only this year, raising pounds 500m.
The Government has used over-allotment of shares - otherwise known as a "greenshoe" - to help its banking advisers stabilise the price in the aftermarket on five previous occasions. These were the second and third offerings of BT shares, the sale of its remaining stakes in the two electricity generators National Power and PowerGen, and Railtrack.
But in each case, it was left with only a very small rump of shares to be fed subsequently into the market.
The marketing of British Energy was dogged throughout, culminating in the closure of two of its eight reactors to check cracks in pipe welds just as subscriptions for the public offer closed.
Although private investors subscribed for three times the shares on offer, institutional investors went cold on the issue and the fully-paid shares were priced at 203p - towards the bottom end of the 180p-280p range indicated by the Government and its advisers. The partly paid shares were priced at 105p but plunged to a discount of more than 10 per cent on the first day of dealing last month.
The shares have staged a modest recovery since but they still closed 3.25p below their offer price last night at 101.75p. A spokesman for the Government said: "The fact that the greenshoe was never used has not come as a surprise to anyone because of the trading performance of the shares."
The one consolation for taxpayers is that they will be eligible for dividend payments on the unsold shares.
With two dividend payments due before the second instalment falls due, the yield on the partly paid shares is over 20 per cent.
The spokesman also maintained that it was quite usual on the Continent for a proportion of shares in newly privatised companies to be left in state hands as a result of stabilisation procedures. This happened with the flotation of Renault and Usinor-Sacilor in France and Spain's Telefonica.