Britain will be advised to sell off the state's holdings in the Royal Bank of Scotland and Lloyds Bank by the International Monetary Fund (IMF) in a move that will embolden George Osborne as he attempts to justify his economic strategy.
According to reports, the IMF will make clear that public ownership of the two banks is not in the interests of the UK's economic recovery. The recommendations will be a boost to the Chancellor as he attempts to win public support in ditching the taxpayer's 81 per cent stake in RBS and 39 per cent stake in Lloyds. However, the conclusions of the IMF's annual "health check" on the economy is also expected to reiterate calls for Britain to slow down the pace of deficit reduction amid sluggish growth.
It is the latest in a fractious relationship between the Treasury and the IMF, which have been split over the future of Britain's economic strategy. Last month, the fund abandoned its support for the Chancellor's austerity measures.
Before they arrived in London a fortnight ago, IMF staff indicated that the only reasons why they might change their assessment that Britain "should consider" a more flexible deficit reduction strategy would be if the Government changed its policy, or if signs of much stronger private-sector spending materialised.
But one of the main strands of the report, scheduled for release this morning, is expected to nudge in the direction of selling RBS and Lloyds.
As The Independent reported in February, Mr Osborne is already plotting a government "giveaway" of RBS shares amid the belief that the continued taxpayer ownership of the bank is politically untenable amid rows over bankers' bonuses, interest-rate manipulation and the mis-selling of financial products. Advisers also believe that there is no realistic prospect of the Government recouping its full £45bn investment in the lender and are understood to be proposing a scheme to "hand it back to taxpayers" as early as 2015.
As part of its Article IV inspection, the IMF has interviewed leading figures at the Treasury and the Bank of England. It findings are due to be revealed this morning by the IMF's first deputy managing director, David Lipton, and its assistant director, Krishna Srinivasan.
In 2008 and 2009, the Government invested £45.5bn in RBS to prevent the bank from collapsing. Lloyds Banking Group was formed through the acquisition of HBOS by Lloyds TSB.