There was no £850bn bailout.
The original NAO report shows that the total amount provided by the UK Treasury to bailout the British banking system was £753 billion. Of this, SPICe estimated that £470 billion relates to RBS and HBOS – but it is only an educated guess because the Treasury has provided no detailed breakdown. However, this does not - repeat, not - mean that the Treasury actually spent £470 billion in cash, paid for by the taxpayer.
First, the Labour Government took an 83 per cent stake in RBS, paying £45.5 billion in cash, and agreed to insure its riskiest assets for an annual fee. But it charged the bank for the insurance, making a profit on the deal. Again, Brown and Darling injected £20 billion into Lloyds Banking Group, which had acquired HBOS at their urging, in exchange for a 41 per cent stake. The Treasury also provided additional guarantees to insure Lloyd’s liquidity. And again, it charged for the priviledge.
So that makes an upfront payment of only £65.5 billion in cash and the rest in “guarantees” which the banks pay for. But where did the £65.5 billion in cash come from? The taxpayer? No – it was borrowed especially to fund the deal. However, as this borrowing was set against the bank shares acquired, it does not count as part of the Treasury’s net debt. In other words, it is merely a book-keeping transaction (though interest is paid). Any country of any size could do it. According to JPMorgan Chase, the annual cost of servicing that loan is around £3.2 billion. So the actual cost of rescuing RBS and Loyds was…er, £3.2 billion per year minus the charge to the banks for insuring them.