Blackfriar: It seems taxpayer is the victim in midst of banking crisis

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WHEN the taxpayers stepped in to stop the banks from imploding, it was an act driven by necessity rather than principle.

None of the major political parties wanted the state to control key pillars of our financial services. It was a desperate measure for desperate times.

The intervention may have saved the banks, but it didn’t spare the economy from years of pain.

At the very least, taxpayers shouldn’t expect to lose out because they were forced to save the bankers from their own folly.

The outcome, alas, seems to be a little more complex, and less satisfactory.

A comprehensive, independent analysis has found that UK taxpayers faced a loss of at least £230m on the sale of Lloyds shares to institutional investors in September.

The report, issued by the National Audit Office, is a rebuff for Chancellor George Osborne, who claimed that the public had made a profit from the partial return of the bank to the private sector.

That claim had been made by simply comparing the cost of sale, at 75p, to the cost of purchase.

The NAO identified the differences after netting that against the cost of government borrowing.

“A simple comparison of the price at which the shares were bought with the sale price produces a gain for the taxpayer of just under £120m. However, taking account of the cost of borrowing the money to buy the shares produces a shortfall of £230m.”

Despite this, the NAO found that the sale had been well conducted, “managed effectively and provided value for money”.

“This shortfall should be seen as part of the cost of securing the benefits of financial stability during the financial crisis, rather than any reflection on the sale process,’ it added.

So in short, it’s defensible because the outcome for the taxpayer would have been much worse if the banks had gone to the wall.

It’s a valid point. If the banks had folded, civilised society could have collapsed. But the taxpayer is still entitled to feel short-changed.

Why not hang on to the shares for a bit longer?

Taxpayers might have got a much better deal if they’d been sold a few years down the line.

A cynic might suggest that the coalition Government wants to start selling these shares now as part of a housekeeping policy before the next election.

What better way of putting the painful events of 2008 behind us?

Return the bailed out banks to the private sector and motor on with economic recovery!

But what about those who lost out because of this colossal shambles? Take for instance, the case of the one million small shareholders who were wiped out in the nationalisation of Bradford & Bingley. If the holding company returns to the private sector, it seems perfectly reasonable that these shareholders should be given free shares.

This case has been made stridently by Shipley MP Philip Davies, who has been pressing for a public inquiry into the circumstances surrounding the collapse of Bradford & Bingley.

UK Asset Resolution was set up in 2010 to wind down the closed mortgage books of failed lenders Bradford & Bingley and Northern Rock. The Bingley-based company has since repaid £8.3bn of Government funding.

In a recent interview with the Yorkshire Post, Erica Swales, operations director, said that the end game for UKAR is “ultimately… to pay back the money we borrowed”.

She added: “The end game could be a number of things. There is an aspiration that potentially it could be sold back into the private sector.”

Mr Davies believes a modern-day bank could be born from UKAR, arguing that it would bring much-needed competition to the banking sector and protect 1,200 jobs in his constituency. Bradford & Bingley’s small shareholders lost out when the lender spectacularly imploded.

Many are honest, hard-working Yorkshire people who had supported Bradford & Bingley when it was a mutual, and described in TV adverts “as a secure home for your money”. All of them should be given shares if a new challenger bank rises from the ashes.

We should cast a sceptical eye over politicians who claim that they’re getting the best possible deal for us all. Share sales shouldn’t be rushed because there happens to be an election looming.

The rights of taxpayers to expect a return on their investment in the bailed out banks should be defended at all cost.