Leading article: This debt is still outstanding

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The Independent Online

It is payback time for Britain's banking industry. Gordon Brown has long insisted that the banks would, in the end, repay every penny of taxpayer support that he extended to them during the credit crisis. The announcement by Lloyds Banking Group yesterday that it is now making a profit for the first time in two years makes it a little more likely that the Prime Minister will be proved right.

The investment made by taxpayers in Royal Bank of Scotland, where we collectively now hold an 84 per cent stake, is already showing a clear profit. There is an argument in the City about how exactly the taxpayers' 41 per cent holding in Lloyds should be valued, but even on the most conservative measure, we are almost in the black. On some bases, it too is now profitable.

Not that we should make the mistake of thinking these investments are the only exposure the taxpayer has to the banking crisis. The Government has also underwritten some £125bn of bank debt through its Credit Guarantee Scheme, while the Bank of England's £185bn Special Liquidity Scheme is not due to be withdrawn until the end of 2011.

Then there is the Asset Protection Scheme, where the taxpayer has promised to cover 90 per cent of the losses Royal Bank of Scotland incurs on around £280bn worth of toxic assets. And do not forget the £4bn or so that the Government is still trying to reclaim from Iceland, having stepped in to compensate British savers who lost money when the island's financial institutions collapsed.

Nevertheless, the taxpayer does stand a decent chance of earning a return on its investment. Neither the Credit Guarantee Scheme nor the Special Liquidity Scheme are expected to produce losses. The Asset Protection Scheme is more problematic, though RBS is required to cover the first £60bn of losses itself and the fact that Lloyds noted yesterday that its bad debts are falling suggests its rival's toxic assets may not be quite so explosive after all.

Mr Brown will feel vindicated. Not only did his bail-out of Britain's banks become a model that governments around the world copied as they coped with the crisis, but British taxpayers look set to make a profit.

If only it were that simple. The bill for the financial crisis may be settled, but what about the cost of the recession – the longest and deepest since records began – it prompted? That is a debt the banks will take much longer to repay.

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