Leading article: The bright side of the banks

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Alistair Darling is not used to receiving so much good news. Hot on the heels of Thursday's surprisingly resilient government borrowing figures arrives the unexpected revelation from Lloyds Banking Group, in which the taxpayer owns a 41 per cent stake, that it now hopes to turn a profit this year.

Both pieces of news will give the Chancellor cheer as he prepares next Wednesday's Budget. But while the borrowing data may enable Mr Darling to offer up some additional sweeteners for swing voters, it is the changing outlook for the banking sector that has the most significance for the long-term health of UK public finances.

In last year's Budget, the Treasury forecast that the total long-term cost to taxpayers of the state's support for the financial sector during the credit crunch would be up to £50bn, getting on for 4 per cent of total GDP. Last summer, the ratings agency Fitch was forecasting £40bn, and by the autumn, once Lloyds had managed to avoid asking the taxpayer to insure some £300bn of toxic assets, as it had once been expected to, those predictions were being halved.

Even so, even the most optimistic of banking analysts were sceptical about Gordon Brown's assertion in November that the taxpayer would, in the end, make a profit on its support for the banks. Lloyds' announcement yesterday, however, is another small step towards exactly that outcome.

The key is that the bill for bad debts at Lloyds – and Royal Bank of Scotland, where the taxpayer owns 84 per cent of the shares – is not now going to be quite so high. At RBS, which did insure its toxic assets with the state, the bill for taxpayers should now be lower. And at both banks, the day at which we can begin selling our stakes back into the private sector at a profit should now arrive a little more quickly.

The way Messrs Brown and Darling intervened to prevent the total collapse of British banks was widely copied internationally, but neither has reaped much in the way of a domestic dividend from their bold actions. This Chancellor and Prime Minister may not be in office to enjoy the moment, but the prospects for taxpayers are much better.

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