Don't be so quick to judge Hammond for selling off RBS shares at 'no profit' to the taxpayer – it's not that simple

Had the banks not been supported by the government the loss to the economy would have been far greater, but more importantly the taxpayer has in fact almost broken even if you consider all the factors involved in the bailout

RBS's share price went over 400p in 2014 – but right now things look glum. And it is small comfort to UK taxpayers to know that shareholders of RBS have done far, far worse (Reuters)

Another chunk of Royal Bank of Scotland shares is to be unloaded by the government, and like the first tranche to be sold, it will be at a loss. Good deal, bad deal, dreadful deal?

Well, it certainly isn’t going to a good one, at least for UK taxpayers, though then prime minister Gordon Brown and chancellor Alistair Darling would argue that it was an essential one to stop a collapse of the banking system and indeed the economy. (Gordon Brown declared in parliament that the government had saved the world, though if you listen to the clip it was clearly a slip of the tongue.) We’ll come back to that in a moment, but how do the numbers stack up?

The government bought the shares in 2008 at an average price of just over £5 a share – 503p – paying £46bn for 83 per cent of the bank – though fees and a dividend brought this down to £38bn. Shares are now 283p. We don’t yet know what the government will get or how many shares it will sell, but it is very hard to see it making anything other than a considerable loss. It lost an estimated billion on the sale of the first tranche, that brought its holding down to 70.5 per cent, and the fact that there is a known seller will continue to depress the price.

Maybe things will get better for the final bits of the sale – the share price went over 400p in 2014 – but right now things look glum. And it is small comfort to UK taxpayers to know that shareholders of RBS have done far, far worse. They probably have lost at least 90 per cent of the value of their holding if they bought between autumn 2000 and summer 2007.

But the more you look into the sums, the harder it is to pin down quite how much it has all really cost. The government received fees for giving guarantees to RBS (along with other banks) and since it was in effect guaranteeing a business it owned four-fifths of, it was in effect guaranteeing itself. You could knock that cost off the bill. But you should on the other hand look at the government’s cost of capital, for it had to borrow the money to fund the banks, and add that in. Say an average of 3 per cent?

The fairest set of calculations I have seen are those done by the Office for Budget Responsibility. There is a good analysis of this in a House of Commons briefing paper. Last November it reckoned that the loss on RBS was £26bn, noting that the actual final number would depend on the price at which the shares were sold. On the Lloyds’ stake, now all sold, the cost is zero. The government says it made a small surplus, but let’s call it square. And on the other interventions (Northern Rock, Bradford & Bingley, etc) the taxpayer had actually made a profit of a bit under £5bn. These numbers, crucially, do allow both for the cost of capital, and the present value of the RBS stake. Overall we taxpayers are down £22bn.

That leads to a conclusion that on purely financial considerations, the smaller interventions were a good deal for the taxpayer, the Lloyds rescue was an OK deal – and I am afraid the RBS one has been a quite dreadful deal.

If this is dispiriting, I offer two further twists to the tale. One is the obvious one that had the banks not been supported by the government the loss to the economy would have been far greater. Whatever you think about the mismanagement of the banks (and I still feel the grandees on their boards have got off far too lightly) Gordon Brown and Alistair Darling did the right, indeed the only possible, thing.

The other is less obvious, and in a way more comforting. It is that if we taxpayers are indeed £22bn down the slot for the bank interventions, the bank levy (the additional tax paid by the banks) has brought in £14.5bn between 2011/12 and 2016/17.

Add in the revenue in the financial year just past and the current year, and we will be up to £20bn of extra revenue paid by the banks. So you could argue that taxpayers will end up level after all.