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Govt bank bail-outs to cost £145bn

The Government’s intervention in the UK financial sector during the credit crunch is set to cost a significant £145bn, or 10 per cent of GDP, according to Fitch Ratings.

Only £80bn has already been incurred but Fitch projects the long-term fiscal cost, net of recoveries on the claims and assets acquired as a result of these interventions, to come in at around £40bn.

Head of sovereign ratings David Riley says: “Stabilising the banking system has been very expensive and contributed to the rapid deterioration in UK public finances.”

He expects the Treasury to recover most of the costs through imposing levies on the financial services sector and selling its shareholdings in Lloyds Bank Group and RBS.

Riley adds that this will be very gradual.

He says: “Although the net fiscal cost of support for the banking sector over the long run is likely to be moderate, the repayment of Government loans and sale of shareholdings in RBS and Lloyds will be spread over several years.

“It is therefore unlikely to make a meaningful contribution to the consolidation of public finances over the term of the current or next Government.”

The Treasury has funded compensation of £28bn to depositors of failed UK banks.

Fitch expects the Government to eventually recoup most of this outlay through recoveries on the assets on banks in administration, such as Bradford & Bingley, and in particular from fees on UK financial institutions levied by the Financial Services Compensation Scheme.

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