2077: payback year for toxic asset scheme?

The budget is less than 48 hours away, yet there may be as much left out of this document as put in.

Certainly the single biggest budget decision made since November’s mini-budget may or may not score in the number crunching: a likely loss of tens of billions from the government insurance scheme for the toxic assets of RBS and Lloyds – the Asset Protection Scheme.

At the Treasury, ministers privately describe that move as the largest contract signed by the UK government since the lend-lease arrangements with the US government in the Second World War. The IMF has estimated the likely cost at 8 per cent of GDP or £130bn. Last month we attempted some estimates, which ranged from £100bn to £250bn.

The Treasury is floating the idea that it will cost £60bn. This is hugely significant: the first official confirmation that we are likely to see a massive loss worth around double the defence budget.

Still, it seems apparent to me that the Treasury views the IMF figure as feasible, though perhaps a tad high.

Of course theoretically, the government could make a profit from the insurance premiums they have been paid (mainly in the form of bank shares). But it’s worth noting that the lend-lease debt to the US was only repaid in full in December 2006.

So will the grandchildren of the credit boom generation still be repaying the great 2009 bank bailout in 2077? Hopefully not.

– UPDATE: IMF has upgraded its estimate to £200bn.

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