The likelihood of the UK taxpayer receiving back the money they put in to bail-out the Royal Bank of Scotland (RBS) and Lloyds by 2015 is extremely unlikely

The likelihood of the UK taxpayer receiving back the money they put in to bail-out the Royal Bank of Scotland (RBS) and Lloyds by 2015 is extremely unlikely, according to senior bankers closely involved.

The Chancellor, George Osborne, had hoped to begin the sale next year, but the share price for both banks is so low compared to the value of the government stake, that it is very unlikely to increase to the levels required by the end of this parliament in 2015.

=On Friday, RBS shares closed at 25p, compared with the average price of a government stake which was 50p. Similarly, Lloyds share price is at 36p, compared to the government’s average “in-price” of 74p.

The news is a concern to Mr Osborne as well as taxpayers’ in the UK. Many economists and political commentators expected Mr Osborne to try and use some of the funds raised via a sell-off before the next election to fund election sweeteners such as tax cuts or spending increases.

However, the euro-debt crisis, poor economic performance of the UK economy and concerns over the global economy has led to a big fall in the value of UK bank shares, meaning that the government needs to see a doubling in the share price of both banks before it can recover the £66 billion it used to bail-out the two banks.

Most bankers believe that there is little chance of a rebound in value before the next election, scheduled for 2015. The outcome of the Independent Commission on Banking (ICB), which publishes its full report on September 12th and is expected to propose the separation of retail and investment arms of UK banking operations, could further complicate matters.

Any proposals, if implemented, are likely to be delayed until 2015, though legislation could be passed during this parliament, implementation will be during the next parliament, possibly not until 2019.

It is expected that when the sale of the RBS and Lloyds shares finally occurs, it will be treated as a financial transaction and the revenue will be used to reduce to reduce government borrowing.