Ministers have failed to impose proper controls on the government’s £222bn collection of financial-sector assets, which will add to public-sector debt, official auditors have found.
Despite £62.6bn worth of sell-offs, including shares in Lloyds Banking Group and Royal Bank of Scotland, the National Audit Office (NAO) has expressed concern over an expected shortfall of financial assets worth £200m.
Student loan debt is expected to hit £1tn by 2047, which has become a major factor in the government’s failure to control the sector’s finances, the report indicated.
It means that while the total received from selling assets plus loan repayments will be £94.6bn over the next five years, this will be exceeded by the £94.8bn cost of issuing new loans and other initiatives, leaving a shortfall of £200m.
The findings are contained in a report issued on Thursday by the NAO into 54 financial institutions controlled by the government. These include four large banks and the help-to-buy scheme designed to support mortgage lending, as well as the British Business Bank and Green Investment Bank.
Sir Amyas Morse, the head of the NAO, questioned the continued existence of some of these schemes. “Financial institutions are becoming significant elements in the government balance sheet, creating a range of opportunities and risks, but no one part of government is taking an overview,” he said.
“The government should adopt a portfolio management approach alongside the traditional departmental oversight model to provide heightened assurance over the portfolio. Some of these institutions appear to have survived the market conditions they were created to alleviate after the financial crisis, and the rationale for their existence in the public sector is questionable.”
The number of government-controlled financial institutions had doubled since 2007, when the financial crisis saw taxpayers step in to shore up parts of the economy, including banking and housing. Government intervention in the financial sector totalling £107.6bn includes bailing out RBS, Lloyds, Bradford & Bingley and Northern Rock.
The report referred to a government-commissioned study showing that a sale of state shares in banks at July 2015 values would produce a surplus of £14.9bn. But this does not take into account the cost of financing these investments – totalling about £10.9bn for RBS and Lloyds, the report added.
The government’s exposure to debt was more than £2tn between November 2009 and February 2014, the report found. “If the government decides to reduce its financial services portfolio, an orderly exit from the sector will take many years,” it said.
Meg Hillier MP, the chair of the Commons public accounts committee, said the government was failing to inspire confidence. “The government expects to make £63bn from selling its shares and loan books and £32bn from being repaid loans. Despite the unprecedented scale of these plans, they will not be enough to cover the funding needed for new interventions such as issuing student loans or funding schemes such as help to buy,” she said.
“The government’s poor track record in achieving value for money from selling shares and getting back the money will give the public little confidence that the debt increase will be limited to £200m.”
