This article is more than 2 years old

This article is more than 2 years old

A claim by Philip Hammond that the government profited by selling off Lloyds Banking Group shares has been questioned by Whitehall’s spending watchdog, which has calculated a loss to taxpayers of nearly £6bn.



During last year’s general election, the chancellor claimed the government had recovered its losses and received £900m more than it had spent on bailing out the bank.

But the National Audit Office has examined the sale of the bank’s shares and believes that the government lost up to £5.9bn, according to a report quietly released last Friday.



The revelation has prompted John McDonnell, the shadow chancellor, to demand that Hammond explains why the true costs were hidden and why the government appears to have sold off the shares “on the cheap”.

In the report, auditors said: “In May 2017, the government reported that the total proceeds from share sales and dividends received was approximately £900m more than it paid for the shares.



“This gain included the dividends from owning the shares but did not include an estimate of its financing costs. We estimate that the government received between £3.2bn and £5.9bn less than it paid for the shares if the cost of finance is included in the calculation.”

Gordon Brown’s government took a 43.4% stake in Lloyds in October 2008, spending £20.3bn of public money during the banking crisis.

Whitehall slowly sold its stake in Lloyds over five years until May last year when, during the general election campaign, it was announced that the final shares had been sold off by the government.

At the time, Hammond said the government was “not in the business of owning banks” and on the brink of selling off the last of its stake.

“Recovering all of the money taxpayers injected into Lloyds marks a significant milestone in our plan to build an economy that works for everyone,” he said in an echo of one of Theresa May’s doomed election slogans.

At the time, economists and auditors questioned the government’s figures, saying the chancellor had failed to take account of the £3.6bn cost incurred to bail out out the bank.

According to the NAO report, the lower loss figure of £3.2bn is based on the cost of financing government debt issued at the time government purchased the shares. It also assumes that a proportion of the debt is repaid when any shares are sold.

The upper end of the range, £5.9bn, is based on figures set out in The Green Book – the government’s guidance on how to appraise and evaluate policies, projects and programmes.

Responding to the report McDonnell said: “Philip Hammond needs to urgently explain to parliament what has taken place. He needs to set out the reasons for why he chose to announce via press release this sale and if he was aware of the full loss to taxpayers including the large costs of selling them when he did.”

He also questioned why Hammond disclosed the sale of shares during an election campaign when purdah rules meant that the figures could not be thoroughly examined.

“It worryingly looks like the Tories may have used purdah rules last summer to hide [the figures] from voters and parliamentary scrutiny,” he said.

Meg Hillier, the chair of the public accounts committee, which scrutinises government spending for parliament, said the government should have been completely transparent.

Hillier said: “No one necessarily expected the government to make a profit selling off these shares. But the government should be upfront about the costs and use the accounting methods suggested by the NAO.

“It fuels mistrust in politics if the government issues specially selected statistics.”

A Treasury spokesperson said: “The government received more than was originally paid for the shares in Lloyds Banking Group. As is standard across government, and in industry, we focus on the direct costs – the cash spent and the cash received – and do not separate out the indirect costs, such as borrowing, for each intervention.”