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Government Sells RBS Shares and Loses £2 Billion in Taxpayer Money

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Despite extensive warnings, the government still sold RBS shares, managing to lose £2 billion.

Labour cautioned Treasury that there was “no economic justification” for selling their stake.

Losing £2 Billion in Taxpayer Money

Labour has greatly criticised the government’s choice to continue selling its Royal Bank of Scotland shares. It had already dumped a 7.7 percent stake in the bank, losing £2 billion in taxpayer money in doing so. Analysts now forecast that the continued sale of the shares could put taxpayers out of a total of £3.4 billion.

The Treasury initially announced its intention to sell a portion of its RBS holding last week on Monday. It had owned a portion of the lender since the bailout during the financial crisis. By Tuesday, the government announced the successful completion of the sale of the shares it intended to dump. It sold the RBS shares to institutional investors, bringing in £2.5 billion from the sale.

Up £2.5 Billion at a Huge Loss

Despite that impressive-sounding sale price, that represents a £2.1 billion loss. Back when the shares were purchased, they were bought at slightly more than 500p apiece. That said, the sale last week was for 271 apiece.

According to the Hargreaves Lansdown investment group, should all the RBS take purchase costs from the government be taken into account – including interest rates, among others – the loss is considerably greater. Once those additional costs are factored in, the group calculates the total loss to the taxpayer to be much closer to £3.4 billion.

“No Economic Justification”

According to shadow chancellor John McDonnell, “There is no economic justification for this sell-off of RBS shares. There should be no sales of RBS shares, full stop. But because of this government’s obsession with privatisation, the taxpayers who bailed out the bank will now incur an enormous loss.”

McDonnell also went on to add that “Taxpayers are paying the price for the Tories’ mismanagement of RBS over the past eight years.”

That said, City Index senior market analyst, Fiona Cincotta, cautioned that it would be hard for the Treasury to ever make a positive return on its RBS investment.

“Even with carefully timed sales the government may not be able to regain the full sum it put into keeping the bank afloat,” explained Cincotta.

Note: The opinions expressed in this article are the author's own and do not necessarily reflect the view of Alvexo on the matter.