RBS bailout faces legal attack thanks to bank's lending record

Environmental and human rights campaigners have launched a fresh legal attack on the Government's multibillion-pound bailout of Royal Bank of Scotland.

The World Development Movement (WDM), together with PLATFORM and People and Planet, yesterday served the Treasury with an application to the High Court, challenging last November's decision to provide a further £25bn of public money to the company.

The campaigners have based their legal attack on Treasury guidance that says an assessment of the likely impact that proposed spending will have on human rights and the environment has to be performed before committing funds. This, they say, was not done in the case of RBS, which they have sharply criticised for its record in providing money for "harmful projects" conducted by players in the natural resources sector.

The WDM is particularly critical of Royal Bank's role in lending to Tullow Oil. While Tullow has long argued that its contracts provide a good deal for developing nations, the WDM said: "A review of Uganda's contracts commissioned by the Norwegian Agency for International Co-operation in 2008 concluded that the profit-share model adopted 'cannot be regarded as being in accordance with the interests of the host country'."

The campaigners have already launched one legal salvo at the High Court over RBS last year when the Government argued that it could not interfere in RBS's lending for fear of risking its financial stability.

However, while that is still currently working through appeals, the WDM believes it can point to a stronger case this time because of direct government intervention in Royal Bank's business connected to last year's second bail-out, including a ban on cash bonuses to anyone earning over £39,000 and a demand that RBS increase lending to small businesses.

Deborah Doane, director of the World Development Movement, said: "It is difficult to understand why the Treasury can order RBS to increase its lending to small businesses and home owners or curb bonuses but believe it would be unlawful for it to tell RBS to phase out its lending in hugely controversial tar sands, and investing in low carbon projects instead.

"This is hypocrisy on a grand scale. The Treasury has shown that it has the power, if not the will, to intervene in RBS's lending for the public good."

A spokesman for Royal Bank of Scotland said: "RBS takes climate change seriously and are one of the leading arrangers of finance to the renewable energy sector. We are determined to play our part in the global effort to create a sustainable low carbon future."

The Treasury said it could not comment on ongoing legal cases, but has previously argued that the action it has taken on pay and lending at RBS was linked to the commercial viability of the bank and therefore to the protection of the taxpayer's interest, which now stands at 84 per cent.