Chancellor Unveils Plan For State-Owned Banks

George Osborne has unveiled Government plans for the future of state-owned banks during his annual speech on the state of the UK economy.

During his the speech at Mansion House in London, the Chancellor said the Treasury was considering steps to return Lloyds bank to the private sector and that it could offer shares to the public.

But he added that the sale of the Government's stake in the Royal Bank of Scotland (RBS) remained "some way off".

Mr Osborne said he has ordered an urgent review into the possibility of breaking up RBS into a "good bank" and a "bad bank" to separate out toxic assets and risky loans from parts of the business which support the economy.

The review will particularly focus on assets in Ulster Bank and UK commercial real estate, and will not involve any further injection of taxpayer money into RBS.

The first sale of Lloyds shares is likely to go to institutional investors, but Mr Osborne said a retail offering to the general public is being considered for later - raising the possibility of a "Tell Sid" style privatisation of the kind seen in the 1980s.

In upbeat comments about the state of the UK economy, he said Britain had "left intensive care" and was now moving "from rescue to recovery".

He added: "Nothing better signals Britain's move from rescue to recovery than the fact that we can start to plan for our exit from Government share ownership to private ownership."

RBS could be broken up to separate toxic assets

The Government bought 39% of Lloyds shares and 81% of RBS in a multi-million pound bailout at the height of the financial crisis in 2008 and speculation has been mounting that the Treasury wants to begin the process of selling its stake before the 2015 general election.

Prime Minister David Cameron recently raised the prospect of selling RBS shares at a loss.

Mr Osborne today said that Lloyds was now in a "good position" with growing investor interest and shares trading at "around the price where selling would reduce the national debt".

The Government believes a sale price of 61.2p would allow it to recoup the £20bn it ploughed into the bank. Shares today closed down 0.42p at 61.76p.

Mr Osborne said: "I can announce that we are actively considering options for share sales in Lloyds.

"Of course, we will only proceed if we get value for the taxpayer. And we have no pre-fixed timescale or method of disposal.

"For the first block of Government shares, an institutional placement is likely to be the most effective way of managing risk and getting value.

There was some good news for Bank of England governor Sir Mervyn King

"So five years on from the financial crisis, we can now take the first steps to returning Lloyds to the private sector where it belongs.

"And for later sales of shares, we will consider a retail offering to the general public."

But he said RBS remained "weighed down by too many poor assets" and insisted there would be no sell-off at a loss.

Responding to the speech, shadow chancellor Ed Balls said: "We have always argued that the future of RBS and Lloyds should be driven by the best interests of the British taxpayer and the wider economy, not a political timetable.

"George Osborne has now been forced to back down from the foolhardy idea of a pre-election firesale of RBS.

"The Government's review of the future shape of RBS is welcome but it must look at all the options, including the case for splitting retail and investment banking at RBS, so that there is no return to business as usual."

Mr Osborne's speech came as Downing Street confirmed Sir Mervyn King will be made a peer upon his retirement as Governor of the Bank of England.

Prime Minister David Cameron nominated him for a life peerage for his significant contribution to public service.

In his final Mansion House speech Sir Mervyn said more money must be pumped into the economy to underpin the UK's "modest" recovery.

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