The government sold its remaining shares in Lloyds today, with the bank declaring that the sale returned “more than £21.2 billion to the British taxpayer, repaying £894 million more than the original investment”.
You’d be forgiven for thinking that this means we’ve profited to the tune of nearly £900 million. A win for the UK taxpayer, surely? And at a time when any additional cash into the public coffers is extremely welcome.
But on closer inspection, things are not quite so simple.
The bank, which was bailed out eight years ago by Gordon Brown’s government, received £20.5bn of public money during the financial crisis in return for a 43.4% share in the group.
Today’s sale marks the end of a messy breakup.
Philip Hammond was forced to push back plans to sell the government’s stake in Lloyds last autumn, citing “ongoing market volatility” and the need to “secure value for money for the taxpayer” as reasons for the delay.
Back in 2013, George Osborne made the first sale of government shares in the bank, which he claimed yielded a “profit for taxpayers” in the region of £450 million.
FactCheck called him out on this at the time, noting that the headline “profit” figure didn’t take account of the cost to government of borrowing the money to bail out the banks in the first place. The National Audit Office backed us up, later concluding that “there was a shortfall for the taxpayer of at least £230m” after the 2013 sale.
So naturally, our ears pricked up this morning when Lloyds declared that today’s conscious uncoupling has recouped nearly £900 million of public money. Surely this time, they’ll have got it right, and their calculations will take full account of the costs to government?
Well, almost.
We contacted Lloyds to ask them to show their working. They said that the £900 million figure came from comparing the “absolute figure (£20.3bn) originally injected into the Group and (£21.2bn) that has been generated through the selldown and returned to the taxpayer, including dividends”. They pointed out that their press release does not talk about profit. And they’re right.
But we didn’t get any detail from them on whether the cost of government borrowing was part of their calculations. And the very fact that they avoided using the word “profit” suggests that it might not have been.
So in the absence of any further detail from them, we’ve done our best to fill in the blanks.
The government bought its stake in Lloyds in several transactions through 2009 at a gross cost of £20.3 billion.
But that wasn’t cash that the government just had sloshing around – they had to borrow £3.2 billion over four years and a half years to finance the purchase.
At the time, the government had to pay 3 per cent interest a year on its borrowing, which means it cost them £96 million for every year of the loan. By our estimates, that puts total interest repayments at over £400 million, and that’s not even adjusted for inflation. Add to that the £2.5 billion fee that Lloyds paid when it left the Treasury’s asset protection scheme, and today’s £900 million “return” looks rather less impressive.
So have Lloyds learned their lesson? Yes and no. They’ve not actually used the word “profit”, and they’re not making any explicit claims about the taxpayer benefiting from the bailout. But if someone issues a press release saying they’ve given you more money than you gave them, you’d be within your rights to think you were up on the deal. And as we’ve shown (twice) that’s not the case.
What does the Treasury say?
The Treasury have been quiet on this, in contrast to their triumphant tone back in 2013. They have issued a purely factual statement confirming the sale on their website.
We’d like to think it’s the threat of the FactCheck treatment keeping them honest, but so-called purdah rules prevent government departments from major policy or political announcements this close to an election.
Perhaps that strict requirement to stick only to the facts explains why the Treasury hasn’t – or can’t – use the word “profit”.
But before the purdah period began, Chancellor Philip Hammond gave a speech in the margins of the IMF conference last month, saying that the government had “recovered every penny of its investment in Lloyds” and it “marks a significant milestone” for the economy.
A milestone, certainly. A victory, not so much.