George Osborne’s allies slam talk of plan to nationalise RBS as ‘nuts’

THE Treasury last night sought to pour cold water on claims it was preparing to nationalise the Royal Bank of Scotland as part of a bid to push lending into ­Britain’s flat-lining economy.

Sources close to Chancellor George Osborne were forced to dismiss the plans – believed to be backed by Liberal Democrat members of the coalition – for a £5 billion public takeover of the bank that was reportedly being considered and had been tabled at Cabinet.

Such a move would hand taxpayers full responsibility for RBS’s toxic debts, but Whitehall insiders were quoted as saying it would also give the Treasury more clout to force out loans to help stimulate growth.

It comes amid continuing “exasperation” among ministers that the UK recession is being exacerbated by the lack of affordable loans to businesses.

Bank insiders and analysts last night described such a plan as “nuts”, saying it would leave the UK taxpayer with yet more debt.

There were also warnings that any move to allow a state-owned bank to push lending would lead to the same credit boom and bust that triggered the ­financial crisis.

RBS’s second-quarter results, due this morning, were trailed to have suffered from the cost of the recent technical glitch, which also hit NatWest retail.

The Financial Times yesterday reported that Cabinet ministers were having “conversations” about a full nationalisation, now that all hopes of a speedy sell-off of the taxpayers’ shareholdings prior to the next general election have been dashed. One official said: “This is a conversation that takes place all the time”.

Banking figures suggested the move had come clearly from the Lib Dems, with Business Secretary Vince Cable having already suggested that RBS be broken up and turned into a national investment bank. However, with the claims in the public domain yesterday, the Treasury moved to dampen speculation.

“There is no discussion on the table, there is no proposal, it is just not an active thing we are discussing at the moment at all,” one Treasury source said.

The retreat came as analysts poured scorn on the idea. A paper by Oriel Securities labelled nationalisation as “nuts”. “Driving a bank by loan and earnings targets is arguably what sunk HBOS and RBS in the first place. So endless government and Bank of England sponsored lending programmes are simply not the answer,” it declared.

Chris Wheeler, analyst at Mediobanca, warned the UK’s credit-worthiness would be jeopardised by nationalisation, as the bank would move onto the Treasury balance sheet. He said: “In doing this, you could send the UK’s debt to GDP ratio to about 120 per cent and risk losing the triple-A rating.”

Bank figures said the move would expose the taxpayer to huge risks. “You are really saying is that the state wants to lend people money which RBS has judged it wouldn’t get back,” said one source.

Scottish finance secretary John Swinney said: “The UK government would need to present clear evidence that any further nationalising of RBS would improve access to finance and also ensure the future of the bank’s Scottish HQ functions and jobs.”